Possible cause for the discrepancy
As the notes states, the average gross profit does not consider expiration and spoilage, theft, unrecorded sales and incidental suppliers. Therefore, this creates differences in the value with contribution margin since these factors are considered when the average contribution margin is computed. In order to improve on the contribution, the shop will need to lower the variable costs. In this case, the variable costs are costs of goods sold. As such, this means that the firm will need to seek suppliers that are offering discounts and utilise inventory technique methods in order to eliminate the inventory shrinking instances since they cause the cost of good to go high while they do not contribute to the sales. The computed value gives the more accurate value since it factors in the costs that are not factored in table 1.
The main underlying logic is that there will be 33 Foodfund transactions. The value is obtained by the argument that since the transaction are expected to rise from 17 to 50 per day; since the current 17 do not have a Foodfund element then the 33 can only be assumed to be based on the use of food fund.
The other fixed costs remain the same. However, an additional fixed costs relating to the lease charge is added. The lease is computed by considering that each semester has three months and in every semester, the lease amount for the immediate period that school will not be in session will need to be paid before school breaks. One will note that the computations omit the costs of the register. The action is taken since this is a one off cost thus it is not included in breakeven analysis.
The sales value can be attained by meeting the projections that is made when the Foodfund is adopted. BSC expects to triple its sales by integrating Foodfund program into their business process. As such, the firm will need to work on its advertisements in order to attain this gaol. Currently, BSC has a brand within the school. Therefore, the only touch that is required is to popularise their decision to accept Foodfund mode of payment and assure their customers of high quality products. This means that the firm will need to make the business premises to be appealing and attractive through fixing the current mess as detailed in the facilities section.
As stated, the average gross profit does not consider expiration and spoilage, theft, unrecorded sales and incidental suppliers. Also, the use of average is disadvantageous since the contribution by each variable is not the same. As such, the one with the higher contribution will need to be aggregated with the one that has contributed less. As a result, this causes deviation
Observing the contribution margin, it is not necessary to drop any of the products since the margins are relatively high. As such, it ensures that the firm has a wide variety of commodities to sell.
A change in Coffee Vendor comes with an additional cost of $200.00. As such, this means that there will be changes in relation to variable costs thus a change in the profitability. In this case, it is highly likely that there will be an increase in the operational expenses. However, the additional costs can be cancelled out by the benefits of seeking suppliers that are willing to supply the coffee and the suppliers offering terms better than the current ones. As such, it gives the shop the flexibility to select a supplier that will offer the best deal in the two inputs. One should weight the possibility of the two before deciding.
Automation of inventory management is the most effective way to address inventory shrinking challenges and unrecorded sales. First, in relation to sales, the payment station should be separated with the service point. As such, one will only be served when they hand in the receipt that they received at the cash point. Once the sale is made, the system will deduct the amount of inventory relating to that sale from the available inventory. As such, it is easy to notice missing inventory. Also, this will enable effective application of inventory management techniques such as Monte Carlo simulation and economic batch order quantity. The technique assists in maintaining optimal stocks thus eliminating spoilage.
The snack shop has for a long time failed to use one of the most powerful tool that it can easily reach. The tool is developing a brand that identifies with the customer. The shop has been in existence for a long time. As such, it truly understands the nature and preferences of the university fraternity. However, the shop has not made initiatives to identify itself with the students. One notable incidence that shows how the shop has distanced itself with the primary customer is the shop reluctance in adopting Food fund as a method of payment. As such, it has lost clients to other retailers that have been matching the development in campus with their business operations. It is recommend that the firm matches the student and staff preference and creates a brand that identifies with its primary customers. As such, this would improve on sale thus profitability.
The high rate of turnover among the student volunteer is disadvantageous to the shop. As such, there need to be an individual whom the shop has employed that will be in charge of facilitating smooth transition from one volunteer team to another. Second, the shop lacks an individual with the mandate to scrutinise professionally the performance and suitability of the volunteers. As such, having an external individual that has the ability to scrutinise the volunteers, except the senior volunteers that should be scrutinised by the faculty, will be ensuring each volunteer is posted in the position where there strengths are. Finally, the shop has not developed a strategic plan that will be used to monitor the progress of the shop. As such, there need to be a plan that envisions the future of the shop not just mere profitable operations. Also, this will lead to the shop developing performance measures for every intern and the entire intern team that was in charge in a given semester. Moreover, this will make available practical situation in which consequent interns can study and improve on the shortcoming of predecessor intern especially in the area of management.
Importance of Running the Snack Shop
Running the snack shop is an important learning aid to volunteers. The shop is not large so it does not have complicated and sophisticated corporate cultures, regulations and internal control as a corporate would have. However, the shop exposes the intern to the practical element of running a business. As such, it assists in nurturing talent both at the management and operational levels. A student will manage to identify the areas that they are talented and knowledgeable thus further understanding their career paths. More importantly, the shop assists in developing wok ethics. Through the little exposure to the work environment, a student will learn work ethics. Therefore, the exposure positively grooms the volunteer for the demands of the corporate world or business.
Judging by the facts that there are presented in the case and the pro-forma contribution margin, it is in the best interest of the shop to accept the food-fund payment method. The acceptance raises the sales. Although the contribution declines, it is still highly profitable. Also, the growth in sales means that the shop is growing its market share. As such, with a large influence in market, it would move towards enjoying economies of scale. Also, a large control of the market enables the shop to improve on its pricing regime due to its economies of scale thus managing the level of competition.
The case does not cite an instance in which the current coffee machine has failed to serve the shop as expected. As such, assuming that the existing coffee vendor has the ability to meet the coffee that will be demanded after the acceptance of Food-fund payment method and it is in good working condition, it follows that there is no need to have a new coffee vendor.