Compaignie Du Froid Case Questions

Compagnie du Froid, S.A.

1. How would you explain the difference between the Italian region’s expected and actual profit?

a. What was the impact of the change in sales volume?

The change in sales volume increased profit by €54. This makes sense because given the same budgeted sales mix, price, and costs, the volume increased in the actual budget. Since the contribution margin is positive, we would expect to see an increase in profits.

b. What was the impact of the change in the prices charged for ice-cream and specialties?

The change in prices impacted ice cream and specialties differently. The price of ice cream was slightly higher in the actual results than the budgeted price (€4.48 vs €4.47). Therefore, ice cream sales increased. On the other hand, the actual price of specialties decreased from the budgeted price (€8.16 vs €8.21). This resulted in lower specialties sales. In aggregate, the difference in prices for the two products resulted in an increase of profits by €6. This makes sense because although the price increase for ice cream was smaller than the decrease for specialties, the volume of ice cream sold was much higher.

c. What was the impact of the changes in the cost of raw materials, labor, and fixed costs?

The change in the cost of raw materials was favorable. Although the cost of other ingredients increased, the cost of dairy ingredients decreased resulting in an aggregate decrease in costs for raw materials. However, labor costs were slightly higher than budgeted and resulted in an unfavorable impact. Fixed costs were varied: some items were favorable and some were unfavorable. However, overall, fixed costs were higher than budgeted and resulted in an unfavorable amount of €20.

d. How much of the changes in the cost of raw material and labor are due to changes in the prices of the raw materials and wages of labor, and how much are due to manufacturing inefficiencies?

As seen from the...