[Type text] 22421: Management Decisions and Control - Student guide [Type text]

Topic: Information for decision making

Key concepts - What is decision-making?

- Rational decision making process
- Using relevant information to make tactical decisions
- Using accounting for decision-making

Weekly For students to:

tutorial 1. Identify and construct relevant information for decision making.
objectives: 2. Use relevant information to evaluate alternatives in a tactical decision
scenario.

Homework instructions to students

Readings
 Textbook: Chapter 21
 Article: Courtney, H, Lovallo, D, & Clarke, C 2013, 'Deciding How to Decide', Harvard Business
Review, vol. 91, no. 11, pp. 62-70.

Revision questions
1. What are the assumptions of a rational decision model?
2. When do you follow a rational decision process?
3. When do you not follow a rational decision process? Why?
4. What are opportunity costs? Why are they relevant to decision-making?
5. What are sunk costs and why are they irrelevant to a decision?
6. How can business intelligence systems be used to facilitate rational decision making in
organisations?

Homework Task 1: Café Monte Bianco decision making

Return to case Cafes Montes Bianco.
1. Cafes Montes Bianco is faced with a difficult decision about its future product mix. Giacomo Salvetti
must choose between switching to a private-brand only strategy, or continuing to produce a mixture
of private-brand and premium brand coffees.
a) Use the following template to produce an operational budget for 2001 based on adopting a
private-label only strategy.
b) Use the following template to produce an operational budget for 2001 based on adopting a
mixed-brand strategy (assuming Cafes Monte Bianco sells Grade “A” coffee with an advertising
level of 7%, and the rest of production is dedicated to private brand coffee).

For each operational budget, show how you calculated each number, and where you got the information
from in the case. Assume:
 Production is at full capacity all year
 Contracts to supermarkets (private label) are in multiples of 500,000 units.
 Advertising is not required for private brands (supermarkets). See Exhibit 2.
 Use thousands of Lira, so for 8,800 lira use 8.8 in your profit plan, otherwise the numbers will be too
large.
 A template is available on UTSOnline if you prefer to complete the following in excel

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[Type text] 22421: Management Decisions and Control - Student guide [Type text]

a) Operational Budget: Private Label Only Strategy

Show calculation: $
Revenues
Cost of Goods Sold:
Variable Costs
Fixed Costs
Gross Margin

Marketing Expenses
R&D Expenses
Selling Expenses
Administrative Expenses
Interest Expense

Profits before tax

Taxes (40%)
Net Profit After Tax

b) Operational Budget: Mixed Strategy

Show calculation: $
Revenues
Cost of Goods Sold:
Variable Costs
Fixed Costs
Gross Margin
Marketing Expenses
R&D Expenses
Selling Expenses
Administrative Expenses
Interest Expense
Profits before tax
Taxes (40%)
Net Profit After Tax

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[Type text] 22421: Management Decisions and Control - Student guide [Type text]

c) Using your profit plans, produce a comparative analysis of the expected revenues and costs of
the two strategies. Hint: only include the revenues or costs that are different between the two
strategies!

c) Comparative Analysis
Private Label Mixed Strategy Variance
Revenues
Cost of Goods Sold
Variable Costs
Fixed Costs
Gross Margin

Marketing Expenses
R&D Expenses
Selling Expenses
Administrative Expenses
Interest Expense

Profits before tax

Taxes (40%)
Net Profit After Tax

d) Based on your financial analysis, which strategy would you recommend to Giacomo?

e) Identify at least three additional criteria that Giacomo Salvetti should consider when making this
decision. Explain why consideration of these criteria will help Giacomo make the best possible
decision. Additional criteria may be qualitative or quantitative.

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