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CASE 13.1 FABRIZIA PASTA COMPANY: THE VALUE OF FINANCIAL REPORTS The Fabrizia Pasta Company was started in 1999 by Anthony (Little Tony) Columbo in...
CASE 13.1
FABRIZIA PASTA COMPANY: THE VALUE OF FINANCIAL
REPORTS
The Fabrizia Pasta Company was started in 1999 by Anthony (Little Tony) Columbo in Hackensack, New Jersey. Little Tony had worked for Mama Corlinis restaurant for six years as an assistant to the chef and was promoted to head chef after three years. As head chef for Mama, Little Tony received many awards for his pasta and sauces and had several newspaper articles written about him. In fact, he became a local celebrity in the restaurant business in the Hackensack area, and many of his friends and family members believed he should start a business to market his pasta and sauces. After considering it for a couple of years, Little Tony quit his job and put all his savings into the Fabrizia Pasta Company.
At first, Little Tony concentrated his efforts on establishing his business on a regional basis. He made all the pasta and sauces himself, while his brothers Vinnie and Franco called on grocery stores and supermarkets in the New Jersey and surrounding East Coast area. Sales of Little Tonys pasta and sauces were better than anyone expected. Many of the grocery store managers who purchased the pasta were quite taken by his products and suggested that Little Tony sell them to national supermarket chains. Within two years after Little Tony started the company, his pasta and sauces were being sold in all of the forty-eight contiguous states.
Over the years, Little Tony added several new sauces and related product lines to his menu of products. A line of pizzas, olive oil, spumoni, and spices soon carried the Little Tonys trade name. By 2007, Little Tony had sixty-two employees, including twenty-eight salespeople and three regional sales managers. Gino Biagio has been one of the three regional sales managers for the past five years, and when Little Tony decided he needed a national sales manager, he picked Gino. The first month on the new job went smoothly as Gino traveled through the other two regions to introduce himself. But after returning to the home office, Gino began to realize the job of national sales manager involved a lot of paperwork and required him to spend much more time in the office, as well as in scheduled and unscheduled meetings. He did not like the paperwork or the time in the office, but he knew being national sales manager required him to grasp the big picture and to prepare and understand numerous reports.
At the end of the first three months, Gino received several reports from Fabrizias financial department summarizing quarterly sales and profits (see Table 1). In reviewing these reports, Gino saw that two of the companys regions have earned healthy net profits for the quarter, but the Midwestern region has a net loss of $40,269. Sales in the Midwestern region were $2.1 million less than those in the Eastern region and nearly $2.7 million less than those in the Western region. Yet selling expenses clearly were too high in the Midwestern region. Ninety percent of sales force compensation was straight salary, and Gino remembered that the Midwestern region had a lot of senior salespeople who were highly paid. Unless the compensation system changed, there wasnt much Gino could do about selling expenses in the region. One way to solve the problem might be simply to close the Midwestern sales region. It certainly did not make sense to keep losing money there. Gino wondered what the impact on the company would be if the Midwestern region were shut down.
Another financial report dealt with sales and profits by product in each region (see Table 2). The
company grouped its products into two basic categories: pasta and other products. This report showed
that the only unprofitable product was pasta sold in the Midwestern region. Again, Gino wondered what
would happen to overall company profits if pasta were dropped in the Midwestern region.
While looking at several other reports provided by Fabrizias financial department, Gino was drawn to one that showed each regions investment in inventory and accounts receivable (see Table 3). He was not sure what to do with this report, but he was extremely surprised to see how high accounts receivable and inventory were. Overall, Gino recognized there were problems, but being new in this job, he was not sure how to analyze the data or what to do.
Questions
1.What else besides high selling expenses might be contributing to the Midwestern region’s problems?
2.What corrective action might Gino take, given the information provided in the reports?
3.Should Gino drop the Midwestern region? Or stop selling pasta in this region? Justify your recommendation.
4.What other financial reports should Gino request from the financial department to better understand the situation? Explain.please help[ to answered this case study for the school purposes only.
