A Tesco case study Introduction Tesco is a customer-orientated business. It aims to offer products that provide value for money for its customers and to deliver high-quality service. Tesco wants to attract new customers, but it also wants to keep its existing customers happy. Building customer loyalty is a cost-effective strategy to grow the business. This is because satisfied customers are a good advert for the business. Tesco has more than a 30% market share of the UK grocery market, nearly double that of its nearest rival. In its 2009/2010 financial year, Tesco earned revenues of £38.6 billion in the UK and employed more than 280,000 people. To keep at the top of its game and to maintain its number one spot in the market, the company needs skilled staff at all levels and in all roles. Roles in Tesco Roles in Tesco range from business development, supply chain management and marketing to finance, store operations and personnel management. Each area of expertise requires leadership and management skills. Tesco aims to develop the leadership qualities of its people throughout the organisation, from administrators and customer assistants to the board of directors. It adopts a similar approach to leadership development for staff at all levels. This is in line with Tesco’s employment philosophy: ‘We believe in treating each other with respect, with everyone having an equal opportunity to get on, ensuring Tesco is a great place to work.’ Berian is a bakery manager Berian manages a team of 17 in a Tesco in-store bakery. One of the key challenges of Berian’s job is to ensure his team produces the right products to meet demand at key times. His usual management approach is to allow the team to take responsibility for achieving the desired result. In this way, the team not only buys into the activity, but also develops new skills. For example, when the bakery expanded its product range and Berian needed to ensure that all the products would be on the shelves by 8.00 am, rather than enforce a solution, he turned to the team for ideas. The team solved the problem by agreeing to split break times so that productivity could be maintained. Berian’s approach produced a positive outcome and increased team motivation. Tesco’s leadership framework sets out not just the skills and competencies but also the personal characteristics and behaviours it expects of its leaders. Tesco looks for managers who are positive, confident and genuine, with the capacity to inspire and encourage their teams. A key part of Tesco’s programme for building leaders is encouraging self review and reflection. This allows staff to assess their strengths and find ways of demonstrating the characteristics that are vital to the long-term development of the business. Stephen is a Tesco store manager Stephen is the manager of a medium-sized Tesco store. He has been with the company for over 10 years and his first job was filling shelves in the dairy section. He is currently working towards the Tesco foundation degree. Stephen directly manages a team of around 20 departmental managers, who between them are responsible for almost 300 people. Stephen’s leadership style is usually to allow his managers to make most operational decisions. However, if, for example, an accident occurs in the store, Stephen may take control to ensure a prompt and co-ordinated response. The best managers adopt leadership styles appropriate to the situation. Stephen’s preferred leadership style is to take a democratic approach. He consults widely as he feels that staff respond better to this approach. For example, when planning a major stock reduction programme, he encourages his managers to put forward ideas and develop plans. This increases team motivation and encourages creativity. Some mistakes may be made, but they are used as a learning experience. However, as a store manager, Stephen deals with many different situations. Some may be business critical and it is important that he responds to these in the most appropriate way. In such situations, Stephen may need to adapt his leadership approach and exert more authority. Martin is Tesco's Programme Manager for Education and Skills Martin is Tesco’s Programme Manager for Education and Skills in the UK. He has a range of responsibilities associated with people, processes and standards. Martin may use a democratic approach when setting training budgets. Managers can suggest ideas to make cost savings and they can jointly discuss their proposals with Martin. By empowering his managers, he gets them to take ownership of the final agreed budget. Laissez-faire is at the other end of the spectrum from autocratic. A laissez-faire manager takes a ‘hands-off’ approach and trusts teams to take appropriate decisions or actions with broad agreed boundaries. For example, Martin might leave an experienced departmental manager to develop a budget. This could be because he trusts that the manager has a good knowledge of the needs of the department and of the business. Factors influencing leadership style People at each level of responsibility in Tesco, from administrators and customer assistants to directors, face different types of decisions. Each comes with its own responsibilities and timescales. These will influence the most appropriate leadership style for a particular piece of work or for a given project or audience. Tesco managers have responsibilities for ‘front of house’ (customer-facing) staff as well as ‘behind the scenes’ employees, such as office staff. Before making a decision, the manager will consider the task in hand, the people involved and those who will be affected (such as customers). Various internal and external factors may also affect the choice of leadership style used. Internal factors include the levels of skill that employees have. Large teams may have members with varying levels of skill. This may require the manager to adopt a more directive style, providing clear communication so that everyone knows what to do to achieve goals and tasks. On the other hand, team leaders may take a more consultative approach with other managers of equal standing in order to get their co-operation for a project. External factors may arise when dealing with customers. For example, Berian may need to use a persuasive style to convince a customer to accept a replacement product for an item that is temporarily out of stock. Critical success factors (CSFs) In order to build a sustainable and robust business, Tesco has set out critical success factors (CSFs). These are linked at all levels to its business goals. Some CSFs apply to all employees. These are: • customer focus – to ensure delivery of ‘every little helps’ • personal integrity – to build trust and respect • drive –to achieve results, even when the going gets tough • team working – to ensure positive relationships in and across teams • developing self/others – to motivate and inspire others. Others are specific to the level of responsibility the person or role has and covers: • analysing and decision making • managing performance • managing change • gaining commitment. • By meeting the requirements of these CSFs, Tesco managers can build their leadership skills & contribute to the growth of the business. • Tesco leaders need to be inspirational, creative and innovative, ready to embrace change and with a long-term vision for achievement. Effective leaders manage by example and in doing so, develop their teams. Tesco encourages all its managers to lead by example. It requires leaders who can motivate, problem solve and build great teams. • Tesco employs people in a wide range of roles and provides a career structure which allows employees to progress through the organisation. Tesco’s process of 360-degree feedback allows its employees to reflect on their own progress and improve. Even if someone starts as working in store filling shelves – as did Stephen – they can progress through the organisation into positions of authority and responsibility. Answer all the below questions:

1-Given the nature of tasks, roles and responsibilities in Tesco for each individual, what are the leadership and managerial skills that should be exhibited by the concerned managers given the Internal and External environment changes.

Logan B. Taylor is a widower whose wife, Sara, died on June 6, 2014. He lives at 4680 Dogwood Lane, Springfield, MO 65801. He is employed as a paralegal by a local law firm. During 2016, he had the following receipts:

Logan inherited securities worth $60,000 from his uncle, Daniel, who died in 2016. Logan also was the designated beneficiary of an insurance policy on Daniel's life with a maturity value of $200,000. The lot in St. Louis was purchased on May 2, 2011, for $85,000 and held as an investment. As the neighborhood has deteriorated, Logan decided to cut his losses and sold the lot on January 5, 2016, for $80,000. The estate sale consisted largely of items belonging to Sara and Daniel (e.g., camper, boat, furniture, and fishing and hunting equipment). Logan estimates that the property sold originally cost at least twice the $9,000 he received and has declined or stayed the same in value since Sara and Daniel died.

Logan's expenditures for 2016 include the following:

Logan and his dependents are covered by his employer's health insurance policy for all of 2016. However, he is subject to a deductible, and dental care is not included. The $10,500 dental charge was for Helen's implants. Helen is Logan's widowed mother, who lives with him (see below). Logan normally pledges $2,400 ($200 per month) each year to his church. On December 5, 2016, upon the advice of his pastor, he prepaid his pledge for 2017.

Logan's household, all of whom he supports, includes the following:

Helen receives a modest Social Security benefit. Asher, a son, is a full-time student in dental school and earns $4,500 as a part-time dental assistant. Mia, a daughter, does not work and is engaged to be married.

Required:

Using the Form 1040, Form 8949 and Schedule A and Schedule D, compute Logan's income tax for 2016. Federal income tax of $5,500 was withheld from his wages. If Logan has any overpayment on his income tax, he wants the refund sent to him. Assume that the proper amounts of Social Security and Medicare taxes were withheld. Logan does not want to contribute to the Presidential Election Campaign Fund.

Make realistic assumptions about any missing data.

Enter all amounts as positive numbers except any losses. Use the minus sign to indicate a loss.

If an amount box does not require an entry or the answer is zero, enter "0".

It may be necessary to complete the other tax schedules before completing Form 1040.

When computing the tax liability, do not round your immediate calculations. If required round your final answers to the nearest dollar.

Follow-up Advice Letter

In early 2017, the following take place:

Helen decides that she wants to live with one of her daughters and moves to Arizona.

Asher graduates from dental school and joins an existing practice in St. Louis.

Mia marries, and she and her husband move in with his parents.

Using the insurance proceeds he received on Daniel’s death, Logan pays off the mortgage on his personal residence.

Logan believes that these events may have an effect on his tax position for 2017. Therefore, he requests your advice. Complete the letter to Logan explaining in general terms the changes that will occur for tax purposes. Assume that Logan’s salary and other factors not mentioned (e.g., property and state income taxes) will remain the same. The personal exemption for 2017 is $4,050. Use the 2017 tax rate schedules (click here) in projecting Logan’s tax for 2017.

Milea Inc. experienced the following events in 2018, its first year of operations:

1. Received $14,500 cash from the issue of common stock.
2. Performed services on account for $45,000.
3. Paid the utility expense of $1,200.
4. Collected $30,150 of the accounts receivable.
5. Recorded $7,100 of accrued salaries at the end of the year.
6. Paid a $1,100 cash dividend to the stockholders.

2. Prepare the income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for the 2018 accounting period.

• Req B1
• Req B2
• Req B3
• Req B4

Prepare the income statement.

• Req B2
• Req B3
• Req B4

Prepare the statement of changes in stockholders’ equity.

Prepare the balance sheet.

Prepare the statement of cash flows for the 2018 accounting period. (Amounts to be deducted should be indicated with a minus sign.)

FCA Company“ produces and sells three products (A), (B) and (C).The following data and information are now accessible for the last year ended December 31, 2015:

To plan for the next year, some alternative views are expressed as under:

The first view : Although product ( C ) showed last year   a net loss, it is recommended not to delete product ( C ) but to continue producing and selling the same three products without any changes from last year ended.

The Second View : Continue product ( C ) because studies indicated that deleting this product in the next year will decrease the sales quantities of each of the other products by 10% without any changes in selling prices , contribution margin ratio , special and common committed fixed costs of the last year and no alternative use of the vacated facilities of product ( C ) .

The Third View: Deleting products ( C ) and ( A ) and use the vacated facilities of these products to increase the sales quantities of product ( B ) to the maximum units of the local market demand of 50,000 units , without any changes in selling prices , contribution margin ratio , special and common committed fixed costs of the last year .

Required: Prepare the detailed income statement which is expected under each alternative view, then comment briefly on the decision rules involved therein. (Show the necessary supporting computations)

Please use the following information to answer the next question:

For BB Incorporated:

Cash Flows from Assets -------------------------------------------------------------------- 100 dollars
EBIT (from 1999 INCOME STATEMENT) -------------------------------------------0 dollars
Depreciation Expense (from 1999 INCOME STATEMENT) ---------------------- 0 dollars
Taxes (from 1999 INCOME STATEMENT) ------------------------------------------ 0
Net Fixed Assets from BALANCE SHEET dated December 31, 1998-------------1400 dollars
Net Fixed Assets from BALANCE SHEET dated December 31, 1999------------ 1300 dollars
Additions to (Changes in) NWC for 1999 ---------------------------------------------- 0 dollars

For KK Incorporated:

Cash Flows from Assets ---------------------------------------------------------------------0 dollars
EBIT (from 1999 INCOME STATEMENT) -------------------------------------------500 dollars
Depreciation Expense (from 1999 INCOME STATEMENT) ----------------------100 dollars
Taxes (from 1999 INCOME STATEMENT) ------------------------------------------100
Net Fixed Assets from BALANCE SHEET dated December 31, 1998------------1400 dollars
Net Fixed Assets from BALANCE SHEET dated December 31, 1999------------1800 dollars
Additions to (Changes in) NWC for 1999 ----------------------------------------------0 dollars

For LL Incorporated:

Cash Flows from Assets --------------------------------------------------------------------100 dollars
EBIT (from 1999 INCOME STATEMENT) -------------------------------------------0 dollars
Depreciation Expense (from 1999 INCOME STATEMENT) ----------------------100 dollars
Taxes (from 1999 INCOME STATEMENT) -------------------------------------------0
Net Fixed Assets from BALANCE SHEET dated December 31, 1998-------------1400 dollars
Net Fixed Assets from BALANCE SHEET dated December 31, 1999-------------1300 dollars
Additions to (Changes in) NWC for 1999 -----------------------------------------------0 dollars

*Based only on the numbers provided, which Company is doing the BEST?
*In other words, if you were an individual investor, in which Company would you invest?

Santana Rey expects second-quarter 2020 sales of Business Solutions’s line of computer furniture to be the same as the first quarter’s sales (reported below) without any changes in strategy. Monthly sales averaged 42 desk units (sales price of $1,270) and 22 chairs (sales price of $520).

* Reflects revenue and expense activity only related to the computer furniture segment.
† Revenue: (126 desks × $1,270) + (66 chairs × $520) = $160,020 + $34,320 = $194,340
‡ Cost of goods sold: (126 desks × $770) + (66 chairs × $270) + $30,600 = $145,440

Santana Rey believes that sales will increase each month for the next three months (April, 50 desks, 34 chairs; May, 54 desks, 37 chairs; June, 58 desks, 40 chairs) if selling prices are reduced to $1,170 for desks and $470 for chairs and advertising expenses are increased by 10% and remain at that level for all three months. The products’ variable cost will remain at $770 for desks and $270 for chairs. The sales staff will continue to earn a 10% commission, the fixed manufacturing costs per month will remain at $10,200 and other fixed expenses will remain at $6,200 per month.
Required:
1. Prepare budgeted income statements for the computer furniture segment for each of the months of April, May, and June that show the expected results from implementing the proposed changes. Use a three-column format, with one column for each month.
2. Recommend whether Santana Rey should implement the proposed changes.

1. An increase in wages of oil rig workers has increased the cost of producing oil. How is the supply curve affected by this newly incurred cost? Represent graphically plot against the demand curve, label all points, and explain.

2. How does a $20 dollar subsidy effect the supply curve of Oil per barrel? Represent graphically, plot against the demand curve and explain.

3. Identify the type of good. Explain how the changes will affect demand. Pepsi price declines what happens to the demand for Coca Cola?

4. Illustrate and explain how changes in price effects substitute goods. The price of margarine declines what happens to the demand for butter?

5. A free market has a demand curve where the demand curve Qd= 600-30p and the supply curve Qs= - 360 +60p

A. Calculate PD, QD, PE, QE, PS

B. Graph against Q, P axis. (Label all points)

C. Calculate CS, PS, TS

D. Illustrate and explain what occurs to this market when the number of sellers is increased.

E. Explain what happens to PE, QE and demand.

6. Illustrate and explain how changes in price effects substitute goods. The price of margarine declines what happens to the demand for butter?   
7. A. List the determinants of Demand. B. List the determinants of Supply.

8. A free market has a demand curve where the demand curve Qd= 984-3p and the supply curve Qs= - 798 +14p

A. Calculate PD, QD, PE, QE, PS

B. Graph against Q, P axis. (Label all points)

C. Calculate CS, PS, TS

D. Illustrate and explain what occurs to this market when technology is upgraded.

E. Explain what happens to PE, QE and demand.

9. I would like to know the answer number 5,6,7,8

Part 6 – Activity Based Cost

A company reports the following information about its indirect costs:

1.   Total indirect costs of $3,000,000 for the next year.
2.   There two products: Product A and Product B.
3.   Direct labour hours for Product A is 40,000 and Product B is 60,000
4.   The company’s accountant has suggested an alternative to the traditional allocation of indirect overhead based on direct labour hours. The accountant suggested the following:
a.   Indirect costs can be broken down into supervisory wages $500,000, machine set up $250,000, machinery operating costs including depreciation $1,250,000, engineering changes $500,000, quality inspection costs $250,000, shipping costs $250,0000.
b.   Activity drivers are supervisory wages (direct labour hours), machine set up (2,500 set up hours), machinery operating (12,500 machine hours), engineering changes (2,500 engineering hours), inspection (2,500 inspection hours), shipping (5,000 shipments)

Driver   Product A   Product B
DLH   40,000   60,000
Machine set up   750   1,750
Machine operating   3,500   9.000
Engineering changes   1,000   1,500
Inspections   500   2,000
Shipping Units   1,500   3,500

  
Questions:

A.   Under the traditional allocation method, what is the amount of indirect cost allocated to Product A and Product B?
____________________________________________________________
B.   Under the Activity Based Accounting (ACB) method, what is the amount of indirect cost allocated to Product A and Product B?
____________________________________________________________
C.   Would the ABC method add value to the company, Yes or No and Why or Why Not?
____________________________________________________________
D.   The accountant alternatively suggested a “standard costing system” for indirect costs. This would be a set / fixed amount for the year for each unit of Product A or Product B shipped. What is the standard cost per unit for Product A and Product B assuming a traditional cost allocation approach?
____________________________________________________________

Santana Rey expects second-quarter 2020 sales of Business Solutions’s line of computer furniture to be the same as the first quarter’s sales (reported below) without any changes in strategy. Monthly sales averaged 41 desk units (sales price of $1,260) and 21 chairs (sales price of $510).

* Reflects revenue and expense activity only related to the computer furniture segment.
† Revenue: (123 desks × $1,260) + (63 chairs × $510) = $154,980 + $32,130 = $187,110
‡ Cost of goods sold: (123 desks × $760) + (63 chairs × $260) + $30,300 = $140,160

Santana Rey believes that sales will increase each month for the next three months (April, 49 desks, 33 chairs; May, 53 desks, 36 chairs; June, 57 desks, 39 chairs) if selling prices are reduced to $1,160 for desks and $460 for chairs and advertising expenses are increased by 10% and remain at that level for all three months. The products’ variable cost will remain at $760 for desks and $260 for chairs. The sales staff will continue to earn a 10% commission, the fixed manufacturing costs per month will remain at $10,100 and other fixed expenses will remain at $6,100 per month.

Required:
1. Prepare budgeted income statements for the computer furniture segment for each of the months of April, May, and June that show the expected results from implementing the proposed changes. Use a three-column format, with one column for each month.
2. Recommend whether Santana Rey should implement the proposed changes.

Katharine Rally is the vice president of operations for the XYZ Company. She oversees operations at a plant that manufactures components for hydraulic systems. Katharine is concerned about the plant’s present production capability. She has reduced the decision situation to three alternatives. The first alternative, which is fully automation, would result in significant changes in present operations. The second alternative, which is semi-automation, involves fewer changes in present operations. The third alternative is to make no changes (do nothing).

As a manager of the plant management team, you have been assigned the task of analyzing the alternatives and recommending a course of action. Based on the past data, Katharine is further convinced that the capital investment, annual revenue, useful lives, and salvage values can be considered random variables with the following specified probability distributions. She also asks you to develop a simulation of 50 sample points of AW values at a MARR 0f 20%/year. Interpret your results and indicate which alternative should be selected.

Use the Random Number Generation (RNG) Data Analysis Tool package of Microsoft Excel. The online help function explains how to initiate and use the RNG to generate random numbers from a variety of probability distributions: normal, uniform (continuous variable), binomial, Poisson, and discrete.

Statically show that one of the alternatives is more appropriate than the other one using hypothesis testing?

Alternative

--------------------------------------------------------------------------------------------

Parameter                  A                                                         B                    

--------------------------------------------------------------------------------------------

Capital                         Normal                                    Normal

Investment                  Mean: $300,000                      Mean: $85,000           

                                    Std. dev.: $50,000                   Std. dev.: $500

Annual                         Normal                                    Normal                       

Revenue                      Mean: $150,000                      Mean: $85,000           

                                                Std. dev.: $10,000                   Std. dev.: $500

Useful live                   Discrete uniform                     Discrete uniform        

3 to 8 years with                     3 to 7 years with

equal probability                     equal probability        

Salvage Value             Uniform                                  Uniform         

                                                30,000 to $60,000                   $10,000 to $20000