Discussion- Domino's Pizza - Managerial Accounting
In Chapter 8, on page 327: Standard Costs and Variance Analysis; C2 a situation is discussed. Please read the activity and discuss in this forum.
Specify what standard costing for a Domino's pizza shop would entail (you are welcome to use your favorite pizza emporium for this exercise). Where would you obtain the information for determining the cost standards? In what ways would the standards help in managing a pizza shop?
Reference:
In the first quarter of this year, demand for the new product rose well beyond the expectations of management. During those three months, the peak season for colds, the company produced and sold over 500,000 packages of Cold-Gone. During the first week in April, it produced 50,000 packages but used materials for 50,200 packages cost- ing $60,240. It also used 305,000 ounces of chemical ingredients costing $292,800. The total cost of direct labor for the week was $579,600; direct labor hours totaled 40,250. Total variable overhead was $161,100, and total fixed overhead was $242,000. Budgeted fixed overhead for the week was $240,000.
Requieed
1. Compute for the first week of April (a) all direct materials price variances, (b) all direct materials quantity variances, (c) the direct labor rate variance, (d) the direct labor efficiency variance, (e) the variable overhead spending variance, (f) the variable overhead efficiency variance, (g) the fixed overhead budget variance, and (h) the fixed overhead volume variance.
2. Business appliCation: Prepare a performance report based on your variance analysis, and suggest possible causes for each significant variance.
Cases
Ethical Dilemma: An ethical Question Involving Standard Costs
C1. Lopez Industries, Inc., develops standard costs for all its direct materials, direct labor, and overhead costs. It uses these costs to price products, cost inventories, and evaluate the performance of purchasing and production managers. It updates the standard costs whenever costs, prices, or rates change by 3 percent or more. It also reviews and updates all standard costs each December; this practice provides current standards that are appropriate for use in valuing year-end inventories on the company's financial statements.
Jaye Elgar is in charge of standard costing at Lopez. On November 30, she received a memo from the chief financial officer informing her that Lopez was considering purchasing another company and that she and her staff were to postpone adjusting standard costs until late February; they were instead to concentrate on analyzing the proposed purchase.
In the third week of November, prices on more than 20 of Lopez's direct materials had been reduced by 10 percent or more, and a new labor union contract had reduced several categories of labor rates. A revision of standard costs in December would have resulted in lower valuations of inventories, higher cost of goods sold because of inven tory write-downs, and lower net income for the year. Elgar believed that the company was facing an operating loss and that the assignment to evaluate the proposed purchase was designed primarily to keep her staff from revising and lowering standard costs. She questioned the chief financial officer about the assignment and reiterated the need for updating the standard costs, but she was again told to ignore the update and concentrate on the proposed purchase. Elgar and her staff were relieved of the evaluation assignment in early February. The purchase never materialized.
Assess Elgar's actions in this situation. Did she follow all ethical paths to solving the problem? What are the consequences of failing to adjust the standard costs?
Group Activity: Standard Costs and Variance Analysis
C2. Domino's pizza is a major purveyor of home-delivered pizzas. Although custom-ers can pick up their orders at the shops where Domino's makes its pizzas, employees deliver most orders to customers' homes, and they use their own cars to do it.
Specify what standard costing for a Domino's pizza shop would entail. Where would you obtain the information for determining the cost standards? In what ways would the standards help in managing a pizza shop? If necessary to gain a better understanding of the operation, visit a pizzeria (it does not have to be a Domino's).
(Crosson 327)
Crosson, Susan V. Managerial Accounting, 10th Edition. Cengage Learning, 20130205. VitalBook file.
Discussion - International Expansion - Strategic Management
The CEO of your firm has approached you with the new strategic plan. One key strategic thrust is to take your product (tangible specialty product/mid tech) and introduce it into an emerging market (India). One KSF is to maintain current margins while not compromising quality. A U.S. "process" (not product) patent exists on the entire product line. The primary competitor is located in Asia.
In today's complex global business environment, what will be required to make this transition successful? Which strategy would you pursue? What are the risks? Use the readings to solidify your position!
Reference:
Chapters 7 and 8 - Thompson, Peteraf, Gamable, and Strickland, (2017) Crafting and Executing Strategy Case and Concepts, New York, NY, McGraw Hill 21st Edition.