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Dupuis

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Submitted By yisl80
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User and user’s strategic objective-President of Sprocket Inc. =Maximizing cash flows and profitability.
Strengths
* Strong management decisions regarding capacity (a lot of experience farming) * Confident Sales Division manager with regards to selling the unprocessed chickens at the desired price.
Weaknesses:
* Capacity issues – they could not meet sales demands on May. * Lack of forecasting production for sales (e.g. shortage in May). * George (Farm Operations) - Income statements don’t follow reporting policies.
Opportunity:
* Entering the chicken-parts market. * Raising transfer prices to the sales division or finding external buyers willing to pay a higher price. * Selling packaged whole chickens if farm and plant can supply the chicken, and the farm’s capacity be expanded by building a new farm.
Threats:
* Daily demands fluctuate
Answers to Questions: 1. Farm’ Actual Divisional Profit: Using Direct Variable Costing; spoilage to be part of COGS and abnormal spoilage as a separate expense: see excel Exhibit 2 2. Management Control System (Managerial Compensation, Transfer Pricing, and Organization Structure): a. Managerial Compensation: Farm operations should not be a profit centre; it should be a cost centre because it will provide an incentive for George to keep costs low rather than trying to sell to another party for a higher profit margin; thus, preventing the plant operations manager from purchasing its chickens at a higher price. This will inevitably measure performance for each centre more appropriately. Plant centre should be a cost centre as well vs. the sales centre, which should be considered the only profit centre for measuring performance. By having this in place, relevant managerial bonus compensations can now be determined. b. Transfer Pricing – As mentioned, because it is advised to

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