FIT FOOD, INC.

Case Study: Fit Food, Inc.

Brittney Hugunin

Ottawa University

Planning & Budgeting – Jimmie Flores

January 31, 2019

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 FIT FOOD, INC. 2

Sean Wright founded Fit Foods, Inc. (FFI) in 1972. Wright envisioned a healthier

alternative to snacking. He spent his spare time developing his product “Smart Cookies.” By

2000, his brand became a success as it was placed in major supermarkets and distributed

nationally. Wright realized that the stock market was good in 2000, so he began to develop more

products and placed the company’s stock on NASDAQ.

By the year 2009, FFI grew into a medium-sized food company that targeted “tasty-but-

healthier” market segments. There were three divisions for each product line: Cookies &

Crackers, Savory Snacks, and Sports & Energy Drinks. Each division was relatively autonomous

as they had their own sales and marketing, production, research and developments, and a

controller. Altogether, the annual revenues were approaching $500 million. FFI was portrayed as

a profitable company. However, it was highly leveraged, as the company’s debt load increased

significantly. In the following case study, I will be analyzing the relationship between division

and corporate managers, the sports and energy drink division, and providing advice for the

company’s CFO.

Division and Corporate Managers

Division and corporate managers were required to communicate Annual Operating Plans

amongst each other. They often butted heads because corporate managers had high expectations

to maintain sales targets that reflected steady growth for investors. Division managers wanted to

increase their expense budgets to be able to achieve their sales goals, while corporate wanted to

squeeze expenses to generate increased profits (Merchant & Van der Stede, 2017, p. 207).

Division and corporate managers shared common intentions, but they failed to create

compromises. Corporate managers were solely focused on maintaining a growth rate of 7%,

ignoring other factors that may follow. This caused tension with division managers as they were

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 FIT FOOD, INC. 3

pressured to create solutions to reach their sales goals. However, their hard work would be

reflected with bonuses based on the achievement of Annual Operating Plans profit targets.

Sports & Energy Drink Division

The Sports & Energy Drink Division was acquired from Jack Masters, who remained the

president of the division. Masters did a great job at running the company for the first few years.

There was minimal corporate interference since they reached their profit target targets easily,

their drink categories continued to grow, two brand extensions were successfully launched, and

sales nearly doubled between 2003-2006 (Merchant & Van der Stede, 2017, p. 207). Masters was

confident in his division’s growth.

Then, the division started to face their downfall during the recession. On top of that, there

were more market players in the industry by 2007. Masters worried about meeting profit targets

and resulted to a messy solution by offering an “early order program” (Merchant & Van der

Stede, 2017, p. 208). They ended up losing $1.7 million of reserves in 2008 due to their low

profit margins. Luckily, reserves were replenished at a total of $2 million by 2009. Auditors

questioned these actions, but they were justified by the uncertainty in the economy. This division

was off to a good start, but it turned out to become the weakest link due to uncertainty and

pressure to meet goals.

Advice for Joe Jellison

A junior accountant who felt that her accounting entries were not good practice

approached Joe Jellison, CFO of FFI. This junior accountant noticed that the billings lacked

adequate support of documentation. She felt that she could not approach her managers because

their justifications seemed “to be capricious rather than facts-based” (Merchant & Van der Stede,

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 FIT FOOD, INC. 4

2017, p. 210). Joe had his accounting specialists analyze the material and found various

problems.

Ultimately, I think Joe should do what his gut instinct tells him. The junior accountant did

what was right by contacting Joe. I think Joe should treat the junior accountant fairly and choose

a solution that benefits them. I think the best solution would be conducting an internal audit

because it involves members of the same organization. In a traditional audit, auditors will be able

to review procedures and processes with senior management and key administrative staff and

determine if they are in compliance. The organization will have an opportunity to contribute this

way. Then auditors will conclude with a response of agreement or disagreement with the

problems in the report, and management will create an action plan to fix these issues (Penn,

2018). I think this is the best solution because it will require management to reevaluate their

decisions. Involving external auditors may be detrimental to the organization. Conducting an

internal audit will act as a warning for FFI to change their practices before it is too late.

Conclusion

FFI has good intentions to create a healthy snacking solution to consumers. Their growth

over the years has been substantial. However, I do not think a company is successful if it is based

solely on numbers. After analyzing the relationship between division and corporate managers,

the sports and energy drink division, and providing advice for the company’s CFO, I do not

believe that FFI is as successful as they claim to be. Their practices are so focused on growth that

they are not realizing the bigger picture. They are creating more problems within their

organization because they do not want to face failure. Every business faces failure. FFI must

learn to overcome the obstacle of defeat and run their organization a proper way if they want to

stay in business.

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 FIT FOOD, INC. 5

References

Merchant, K. A., & Van der Stede, W. (2017). Management control systems: performance

measurement, evaluation, and incentives (4th ed.). Philadelphia, PA: Trans-Atlantic

Publications.

Penn, S. (2018, June 29). Six-Step Audit Process. Retrieved from

https://smallbusiness.chron.com/sixstep-audit-process-17816.html

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