Professional Documents
Culture Documents
DOI 10.1108/TCJ-05-2014-0036 VOL. 11 NO. 1 2015, pp. 95-112, C Emerald Group Publishing Limited, ISSN 1544-9106 j THE CASE JOURNAL j PAGE 95
Each semester, the interns and BSC officers would recruit shift workers and Club members at
Student Activities night, held in the second week of classes. Therefore, in the fall semester, the
Snack Shop did not open for business until the third full week of classes, after Student Activities
Night. Prior to opening for business, the five interns had to work to set up the store, set hours
and shift policies, purchase and stock inventory, and advertise the upcoming opening. Volunteer
shift workers had to be trained, albeit briefly (and sometimes not at all) in customer service, sales
reporting, coffee making, restocking, and other relevant tasks. The Shop operated Monday
through Friday 7:45 a.m. to 6:30 p.m. when classes were in session.
In spring 2011, Snack Shop sales were cash only, with the option for customers to set up a
prepaid account by paying cash or tendering a personal check in advance. This option often
caused problems for clerks who were not trained properly on how to account for the initial
setup and sales from prepaid accounts. The option of accepting FoodFunds was investigated in
previous years, but students were unsure of the procedures for meeting the requirements
necessary for setup: setting up a centralized bank account with the Student Association office
that could receive FoodFunds, leasing a specialized card reader, monitoring activity in the new
bank account, securing timely purchase orders and requisitioning funds from the account to
purchase inventory and supplies, collecting and remitting sales tax on taxable items, training
staff, and upgrading the accounting and reporting systems. However, the Shop interns felt that
accepting FoodFunds was necessary to be able to remain competitive, so they investigated
the process (Figure 1).
BSC
President
Faculty Advisors
Accounting/ Human
Finance Resources
Intern Intern
Inventory/ Marketing
Facilities Intern
Intern
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Products
The Snack Shop offered a limited range of snacks, beverages and convenience items for its
customers. Table I shows the major product categories, average selling prices, percent of sales,
and the gross profit percentages for each product category. The four major categories consisted
of coffee and tea (cost analysis in Table II), bottled and canned beverages (water, soda, energy
and sports drinks, etc.), snacks and candy (chips, cookies, granola bars, chocolate bars, gum,
etc.), and other (donuts, bagels, yogurt, fruit, ramen, macaroni and cheese, etc.).
Most inventory items were purchased at local grocery or bulk food stores (using a sales tax-
exempt certificate) and then resold, collecting sales tax on taxable items. Due to health code
regulations, the Shop could not cook or prepare food on the premises, nor could they sell items
that had to be maintained at a certain temperature. Refrigerated and frozen items were allowed.
School supplies could not be sold due to an exclusive contract granted to the College bookstore
and its affiliates.
Since coffee and tea sales were the only combined cost products sold, an analysis of their costs
is included.
Competitors
While several College-run competitors on campus offered convenience food and beverages, the
most direct competitor was the international chain located in the same building as the Snack
Note: The gross profit percentages do not factor in product expiration or spoilage, incidental supplies,
unrecorded sales, or theft
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Shop. The coffee and fresh baked goods of the chains enjoyed brand recognition and marketing
investment. The College-run competitors all accepted cash, FoodFunds, and credit cards. Even
though the competitors’ prices were higher than the Snack Shop’s, the convenience of being
able to use cards (in most cases funded by parents) rather than cash could be seen as a
competitive advantage.
Off-campus competitors included local grocery stores and a family owned full service
convenience store within walking distance of the College. These competitors were licensed to
sell alcoholic beverages in addition to food and convenience items. The Snack Shop Marketing
interns were responsible for monitoring the competition and adjusting selling prices and product
offerings at the Shop. The interns were also charged with designing advertising and promotional
materials and developing sales promotions such as combination deals, punch cards, and other
strategies to increase sales. Market research conducted by these interns revealed that
FoodFunds was a major reason that students did not frequent the Shop, even though they
would have liked to support a student-run business rather than a College-run store. Surveys also
indicated a demand for catering for group meetings, and the Shop responded accordingly.
Facilities
The Snack Shop was located in a 150 by 200 interior room. The room’s only window was in the
door, and large black board covered most of one of the walls. A working sink was installed by the
College so that coffee could be made and pots could be cleaned. The Shop had an older
desktop PC with internet access and an outdated, nonworking electronic cash register. Sales
were recorded on spreadsheets and the cash register was used as a cash box only. A locking
safe was tucked under one of the tables in the back corner of the room. The Finance intern held
the key to the safe. A professional grade coffee maker and serving carafes were provided by the
coffee vendor, a local alumni-run company that formerly held the coffee vending contracts on
campus. If the Shop ever decided to use a different coffee vendor or purchase coffee and
supplies independently, coffee makers and carafes would have to be purchased at an
approximate cost of $200.00. A small glass-front beverage refrigerator, snack shelves, a closed
storage cabinet and utility tables also filled the space. One table with four chairs was provided for
customers. A large flat screen television with cable access hung above the coffee area. When
closed, the door to the Snack Shop was locked, with keys held by the interns, and one kept in
the Business Department office for emergency purposes.
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with a professional grade coffee maker, serving carafes, counter racks and organizers, and
a sign advertising the coffee brand name.
Inventory costs were maintained at current cost – with costs being updated each time a new
purchase was made. A periodic inventory method was followed. Cost of sales were not
calculated and recorded until the end of each semester when physical inventory on hand was
counted and costs were assigned. Costs of incidental supplies (such as napkins, plastic ware),
spoilage, expiration, unrecorded sales and theft were charged to cost of goods sold at semester
end. The Finance intern prepared end-of-semester financial statements (see Table III).
Strategic challenge
The BSC was at an important juncture of its history. Due to the opening of the well-known
international coffee chain in its building, the Snack Shop must compete in order to survive. This
new competitor had a negative impact on the Snack Shop’s spring 2011 sales and profits, and
would continue to do so unless the Shop rose to this strategic challenge.
One strategic move considered by the Shop was accepting FoodFunds. Based on market
research conducted by students in the Department, FoodFunds would significantly impact a
student’s choice to shop at the Snack Shop and support a student organization rather than the
College-run store. With the acceptance of FoodFunds, the Shop hoped to triple customer traffic.
The number of daily transactions was estimated to increase from 17 to 50. The estimated dollar
value of each transaction would remain at $2.00. The average number of full business days per
semester was estimated to be 60 for analysis purposes. The cost of accepting FoodFunds was
a combination of fixed and variable costs. The card scanner/reader cost $30.00 per month to
lease. Each transaction using FoodFunds would cost $0.10. In addition, there was an 8 percent
fee for each sale on FoodFunds (8% sales price). The $30.00 per month charge on the reader
would have to be paid even when the store was closed for winter and summer breaks in order to
keep the account active.
The introduction of FoodFunds into the Snack Shop would require the students to purchase an
electronic cash register with barcode scanning capability. The cost of a suitable register with a
service contract was $650. Every product would be entered into the register’s software,
capturing the beginning inventory quantity, the selling price per unit, whether it was subject to
Liabilities (sales tax) $0.00 $54.69 $39.50 $114.20 $249.51 $57.48 $164.02
Net assets
Beginning net assets $1,473.52 $1,735.71 $2,226.25 $2,813.58 $2,139.78 $1,882.26 $1,691.61
Income 262.19 490.54 587.33 (673.80) (257.52) (190.65) (751.73)
Ending net assets $1,735.71 $2,226.25 $2,813.58 $2,139.78 $1,882.26 $1,691.61 $939.88
Total liabilities and net assets $1,735.71 $2,280.94 $2,853.08 $2,253.98 $2,131.77 $1,749.09 $1,103.90
Notes: aOther expenses: flat screen television and store improvements (Fall 2011); installation of television and improvements (Fall 2012).
Improvements include painting, signage, and furnishings
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sales tax or not, and the bar code of the product would be scanned in to link it together.
Thereafter, when sales were made, products would be scanned, the order would be totaled, and
either cash or FoodFunds would be accepted. If the order was paid with FoodFunds, the
customer would swipe his or her card and the cashier would type in the order total on the card
reader. The amount would be deposited into a separate bank account electronically. The
charges for 8 percent of sales and $0.10 per transaction would be assessed at the end of each
month at the bank account level.
The student interns were ready to move ahead with their strategic plan. However, their advisors
suggested they analyze the cost and non-cost factors involved in their decision. The following
questions were posed to the interns in an effort to prepare them for their competitive challenge.
After completing these analyses, recommendations could be made and strategic decisions
would follow.
Required
1. Use the information in Tables III and IV to prepare a contribution margin or cost-volume-profit
income statement. Compute the contribution margin ratios for each semester. Then
compute an overall simple average of the semesters. What observations can you make
about the contribution margin over time?
2. Using average data computed in 1, compute the breakeven point in sales dollars for the
Snack Shop before accepting FoodFunds.
3. Compare the contribution margin ratios computed in 1 and 2 above to the gross profit
percentages by product group in Table I. What factors could contribute to differences
between these measures? Which give the most accurate measure of breakeven? What
actions can the Snack Shop take to increase overall contribution margin ratio?
4. Assuming that the Shop accepts FoodFunds in the spring 2013 semester, prepare
a pro-forma contribution margin income statement. Use the average sales and cost data
presented for previous semesters and the new costs of FoodFunds to complete this
exercise. Show computations for each line.
5. Using the contribution margin from 4, compute the breakeven point in sales dollars for the
snack Shop after accepting FoodFunds. How many more sales dollars must be generated
to break even after accepting FoodFunds? Is this volume attainable by the Shop? What
must the Shop do to achieve and then accommodate the increase in sales?
6. A more precise breakeven point can be calculated if the sales mix is factored in rather than
the average contribution margin. Using the sales mix data shown in Table I, compute the
breakeven point in sales dollars for the Snack Shop before and after accepting FoodFunds.
7. Why are breakeven sales dollars different when considering the weighted average
contribution margin for the sales mix than when the average contribution margin (without
considering the sales mix) is used? What costs are not captured in the calculation? Hint: see
Table I and Operations and Internal Controls above.
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8. Should the Shop consider dropping any of its product lines? How can a change in coffee
vendor impact future sales mix and profits?
9. How can the Shop reduce spoilage, waste, theft, and other shrinkage of inventory? How
can they control for unrecorded sales?
Writing assignment
What has the Snack Shop done to try to contend with its new competitor? What else can they
do? Should they make the decision to accept FoodFunds? Should they try to compete some
other way? Should they consider a new coffee vendor? What recommendations would you
make to maintain/improve profitability and strategically compete against the new rival (and
existing competitors)? What recommendations would you make to improve operations in the
areas of staffing, marketing, inventory management, facilities management, internal controls,
and accounting? In the broadest sense, is running the Snack Shop a worthwhile endeavor for
the BSC? What other information/data might be helpful from the Snack Shop in order to facilitate
your recommendations?
Write a set of recommendations for the Shop based on your analysis.
Be sure to use proper grammar, punctuation, full sentences, and show any calculations
supporting your answers. Provide citations for any reference materials consulted. You may
consider utilizing a writing rubric as a guide for your response.
Corresponding author
Dr Linda A. Hall can be contacted at: linda.hall@fredonia.edu
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