Strategie e sistemi di controllo gestionale (lavoro di gruppo numero 1)

In the early 1986, Paul Bremser was reviewing the disappointing 1985 results of operations for his company (see
Exhibit 1). The business had been founded in 1938 by Pauls grandfather as a modernisation of an older iron company
which Pauls great-grandfather had built up over the years since 1902. The company entered the cast iron wood stove
business when that market boomed in the early 1970s. By 1977 wood-heating stoves was its only product line. The
business operated out of leased factory and office space in Turnkey, Vermont which was owned by a family trust.
Business had been very good through 1980, with a strong market for environmentally sensitive heat sources in the
New England region which the Company served. Stove sales in 1983 were $9 million for 30.000 units. By 1985,
however, the wood stove was a declining product with more than thirty competitors, a well-known manufacturing
technology, a shrinking market, heavy price pressure, and intense rivalry. By the mid-1980s, there was a growing sense
that wood stoves were an environmental problem (air pollution), more than an environmental solution. Possible EPA
legislation was a concern for the industry.
Faced with declining profitability, declining unit sales and substantial excess manufacturing capacity, Turnkey had
introduced a new product line in 1984 - a combination wood stove and baking oven. This product requires a minor
modification of a wood stove, adding a brick-lined baking compartment with a hinged door and a heat gauge. It was
targeted at person who might consider brick oven baking with wood to be an attractive extension of heating with wood.
The idea was not original with Turnkey, but there were no major competitors at the time. The oven added only $10 per
unit to material and labour costs and Bremser priced the wood oven at $50 more than the heating stove alone ($350
vs. $300). The product thus generated a $40 higher contribution margin per unit which encouraged Bremser to try to
develop a market for it.
Turnkey distributed its heating stoves through a network of appliance and furnace dealers in the Northeast who knew
the product well and respected its quality and dependability. For wood stoves, the company did some dealer and
customer advertising and sales promotion (6% of sales), but its major marketing effort was the dealer sales force 12
field sales representatives divided into two regions. They all travelled extensively, working to maintain dealer
relationships and to build end-user awareness and goodwill, as well as writing sales orders.
When wood ovens were added, Bremser did not expect heavy dealer penetration immediately so he expanded the sales
area substantially. Whereas stoves were sold, essentially, only in Northern New York, and the six New England states,
he negotiated sales outlets for ovens over the entire Northeast Quadrant, from Maine to Chicago, St. Louis, and
Richmond, Virginia. By 1985, he has added six oven field sales reps, an oven sales manager, and also established
relationships with a great many independent sales agent across the Eastern U.S. Establishing the wood oven market also
turned out to require much heavier investments in advertising, dealer promotion, dealer discounts, and sales incentives.
But with steady hard work the business was being established. Turnkey sold 10.000 ovens in 1984 and 20.000 in 1985
of which 5.000 were sold in the core area. The 1985 figure was fully 80% the number of wood stoves sold. Competition
was still minimal, which Bremser attributed to the uniqueness of the concept and the strong early lead Turnkey had
established with dealers by its concerted marketing program.
Turnkey was selling only a few stoves through the expanded sales network and marketing program, because Bremser
was reluctant to push the lower margin product through the higher cost marketing network. Freight cost was also a
problem when the shipping distance expanded. Both stoves and ovens were bulky and weighed well over 300 pounds
each. Thus, they were very expensive to ship. Turnkey owned a fleet of trucks which had been expanded from 5 to 10
since the addition of wood ovens to the business. Even though the fleet represented about a $2 million investment,
shipping full-load orders in company owned trucks was not uneconomic. But more than half of all shipments went out
in partial loads using common carriers and contract hauler. Considering traffic management, dispatching, fleet costs,
freight bills, packing cost, and rental charges for public warehouse space, total shipping costs were running about 17%
of sales in 1985.
When Paul Bremser saw the operating results for 1985 he walked into the office of his chief accountant, Caroline
Cooper, and asked her how confidence he should place in the split of operations between stoves and ovens. The loss on
stoves was not really surprising to him, given the tough market for that product, but he wasnt sure how Cooper has
assigned costs and revenues.
Cooper said she was pretty comfortable with the breakdowns. This really isnt a complex manufacturing operation for
either product, as you well know. The sales breakdown is based on actual sales invoices. Its solid! Manufacturing cost
is pretty clean also, since direct product costs are over 54% of the total. Material and labour costs come from our
average cost records which are fairly accurate, since we keep track of those costs on each batch that runs though the
shop. General factory overhead, which we consider fixed, was $2.520.000 last year. Of that, $800.000 was depreciation.
Rent is $550.000. Factory support costs are $1.1.70.000. I consider these three costs pretty much common to all
production, so I assign them on the basis of units produced. Variable manufacturing overhead is another $1.1 million
which I also assign based on units. You might argue about the overhead allocations a little, she continued, but not
very much. When we made only stoves, there was no product line allocation to worry about. I suppose now you could
go to an allocation based on labour, but the difference would not be large. The ovens each take a little more time to
manufacture, but we make fewer total ovens. She gave him a summary of manufacturing cots for the year (Exhibit 2)
to look at.
1

Cooper continued explaining, Allocating non-manufacturing costs is always a lot more subjective, but the way I split
them seems very reasonable to me. Stoves generated more total volume in units and dollars, but ovens have been harder
to sell and distribute. Stoves really constitute the base business, with ovens as the incremental, new business. After
thinking about it for a while, I decided to charge selling and shipping on the basis of percent of sales dollars across the
two products. Then I just split the half million of general expenses equally between the two lines since the sales are
about equal. General expenses have not changed much for several years. Since we seem to be in both product lines now
for the foreseeable future, and both seem to be generating positive profit contribution, I dont suppose the allocation of
SG&A matters much anyway. Bremser thanked her for the up-date and walked slowly back to his office.
As he studied the results, Bremser thought to himself:
The numbers really do confirm my intuition. The market for stoves is getting so competitive that we just cant seem to
make a profit there in spite of our best efforts. We have tried everything I know and we just keep sliding down further
and further. But the crazy wood oven is a real comer. Weve turned the corner there and things should get better and
better.
I dont like to admit defeat, but I really think we should start phasing out of stoves altogether. If we couldnt even
break-even in 1985, after all our hard work, we arent ever going to do it. I always remember the article by Peter
Drucker in which he said, if you cant make good profit in a product, get out. Focusing on contribution margin is just a
trap that will drag you down. You are in business for the long run, and in the long run all costs are relevant. If you cant
cover them, dont kid yourself. The secret for getting us back in the black is to capitalize on our great start in wood
ovens and throw all our efforts there, just like we did with stoves ten years ago.
Bremser called his Sales Vice president, George Murphy, to tell him that he was just about ready to pull the plug on
stoves. Murphy was aware of the 1985 financial results and was not in love with the stove business. I wouldnt object
to that, Paul, even though it would mean a lot of grief in scaling back operations in the shop and in selling and
distribution. Without wood stoves, a lot of people would have to go. But I suppose its better to save the fast growing
half of the business rather than let stoves drag us all down, slowly but surely. Since the selling and shipping budgets are
each just about two and a half times what they were when we introduced oven, there are a lot of fairly new people there.
So its not like we would be laying off twenty-year veterans. We still have a long way to go on ovens, but the trends are
all good. I think we could probably sell 30.000 ovens this year if we concentrated on just that one product and held our
prices. One hang up I still struggle with is that stoves orders average ten units while oven orders are only two units on
average. We both know that getting orders is what the sales game is all about, but small orders make it harder to
amortize the effort. We work a lot harder to sell and distribute an oven outside New England than we do for a stove in
New England, but I know we price ovens a lot higher, too. And were still learning that business. Murphy paused for a
moment and then concluded, Im with you Paul, whatever you decide. Weve both got a lot of years invested in this
place and Id hate to see it slip away from us.
Domande
1.
a. Attraverso una stima sui dati disponibili e le opportune ipotesi (motivate) definire il conto economico e le risorse
di attivo (in macro-aggregati) del 1983. Si assuma come aliquota fiscale il 40%.
b. Stimate il ROA del 1983 e commentate landamento della Turnkey nel 1983 (per semplicit, ipotizzate che il
prezzo e il costo unitario dei componenti non sia cambiato tra il 1983 e il 1985).
2. Guardando nel dettaglio il sistema di allocazione dei costi (manifatturieri, di vendita e trasporto), qual la vostra
stima del profitto di stufe e forni per il 1985?
3. Stimate il conto economico del 1986 nellipotesi in cui vengano venduti solo forni (30,000 unit).
4. A vostro avviso la Turnkey dovrebbe eliminare la linea di prodotto stufe?
5. Quanto costa, in media, trasportare una stufa nella core are? Quanto costa, in media, trasportare una stufa fuori
dalla core area?
6. Quanto costa, in media, la generazione di un ordine di vendita nella core area (order getting costs)? Quanto costa,
in media, fuori dalla core area? Quindi?
7. Effettuare una sintesi delle considerazioni fatte e formulare delle ipotesi di azione nel breve e nel lungo
periodo, motivandole (ove possibile) numericamente sulla base dei dati ottenuti e/o utilizzando dati ricavati
da altre fonti (ad esempio internet).

EXHIBIT 1
Results of operations 1985

Sales
Cost of Good Sold (Exhibit 2)
Gross margin
Selling Cost
Shipping Cost
Sales Commission (5%)
General Expenses
Profit Before Taxes

Ovens
7.000.000
3.600.000
3.400.000
1.500.000
1.200.000
350.000
245.000
$105.000

Stoves
7.500.000
4.250.000
3.250.000
1.625.000
1.300.000
375.000
245.000
$(295.000)

Total
14.500.000
7.850.000
6.650.000
3.125.000
2.500.000
725.0001
490.000
$(190.000)

Note: cost of Goods Sold equals Manufacturing Cost since there was no change in inventory levels for the year

EXHIBIT 2
Manufacturing Costs 1985

Ovens
Per Unit
Materials
Labour and benefits ($10/hr.)
Variable Overhead
Fixed Overhead
Total
() Fixed Factory Overhead:
Depreciation (15 year lives)
Rent (110.000 square feet)
Factory support2

$45,00
55,00
24,00
56,00
$180,00

Stoves
$
900.000
1.100.000
480.000
1.120.000
$3.600.000

Per unit
$40,00
50,00
24,00
56,00
170,00

Total
$

1.000.000
1.250.000
600.000
1.400.000
4.250.000

1.900.000
2.350.000
1.080.000
2.520.000()
7.850.000

$800.000
550.000
1.170.000

For the 5% Sales Commission: 2% to a Customer Allowances Fund, 3% to Employees (2% to the sales Rep, to the
sales manager, % to the sales VP)
2
The factory manager estimated that 60 percent of factory support cost is due to ovens, because of the special problems
relates to the large number of small batch factory orders. Oven cause special problems in scheduling, set-up, rework,
and heat gauge calibration.
3