Three years ago, Thomas Wilkins completed his degree in accounting. The economy was in a depressed state at the time, and Thomas managed to get an offer of only $20,000 per year as a bookkeeper. In addition to its relatively low pay, this job had limited advancement potential.
Since Thomas was an enterprising and ambitious young man, he declined this offer and started a business of his own. He was convinced that because of changing lifestyles, a drive-through coffee establishment would be profitable. He was able to obtain backing from his parents to open such an establishment close to the industrial park area in town. Thomas named his business Cafe Express and decided to sell only two type types of coffee: cappuccino and decaffeinated.
As Thomas had expected, Cafe Express was very well received. Within three years, Thomas had added another outlet north of town. He left the day-to-day management of each site to a manager and focused his own attention on overseeing the entire enterprise. He also hired an assistant to do the record keeping and to perform selected other shores.
1. What factors are critical to the success of Cafe Express? Which of these are controllable by Thomas? Does it matter?
2. What major tasks does Thomas have to undertake in managing Cafe Express? Explain which ones lead to an ability to control his business operations versus which ones are aimed to help in making decisions.
3. What are the costs of operating Cafe Express? Consider whether each of these costs as direct or indirect, fixed or variable, controllable or uncontrollable, product cost or period cost, or opportunity cost and what role that plays in decisions Thomas must make.
4. Thomas would like to monitor the performance of each site manager. What measure, or measures, should he use? If you suggest more than one measure, which of these should Thomas select if he could use only one? In other words, which would be the single best measure if he had to narrow it down, or can he narrow it down without some trade-off to his intended purpose?