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Tammy’s Sandwiches (30 points) Tammy’s Sandwiches operates a fast-casual sandwich chain in the Seattle area. The company’s first location, Greenwood, was opened in 2018. The Ballard and Bellevue...

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Tammy’s Sandwiches (30 points)
Tammy’s Sandwiches operates a fast-casual sandwich chain in the Seattle area. The company’s first location, Greenwood, was opened in 2018. The Ballard and Bellevue locations followed suit in 2019. Operations are heavily decentralized and store managers are evaluated on their return on investment (ROI) with corporate expecting them to achieve at least a 20% ROI. (As explained below, Tammy's calculates ROI as the controllable margin of the store in a period divided by the total assets at the end of the period.) The company is considering changing their performance evaluation system to an EVA approach. Data for 2021 is provided below:
    Variable Food Costs
    Gross Profit
    Variable Labor Costs
    Variable Advertising (5% of Revenues)
    Manager Salary
    Controllable Expenses
    Controllable Margin
    General Admin
    Corporate Overhead
    Total Non-Controllable Expenses
    Operating Profit
    Net income
    Net book value at 2021 year-end:
ent assets
    Long-term assets
    Total assets
ent liabilities (non-interest bearing)
    Long-term debt
    Stockholders' equity
    Total liabilities and equity
    Weighted average cost of capital (WACC)
The company cu
ently bo
ows at 6% per year on its long-term debt and pays a 20% tax rate on income.
1.) For each of the stores, calculate 2021 ROI using controllable margin as the numerator measure of income and total assets at year-end as the denominator measure of investment. (3 points)
2.) During a metro-wide managers meeting, Michael Scott, the company’s financial controller suggests using “cu
ent cost” accounting to calculate the ROI saying “Inflation is here, lease costs in the Seattle Metro have gone up almost 15% from last year. We should revalue the long-term assets on the balance sheet, which mainly consists of the capitalized lease assets, to reflect what it would take in investment to operate this business if we started today”. Suppose Tammy’s Sandwiches adjusts the long-term assets (assumed to be all capitalized leases) on the balance sheet upwards by 15% as he suggests:

a) What is the new ROI for all three locations and what effect would this accounting change have on the 2021 ROI for the three stores? (3 points)
) If store manager bonuses are conditional on achieving the 20% ROI earmarked by corporate, which manager would be most strongly opposed to this change? Briefly explain. (2 points)
3.) a) Assume that Tammy’s did not go along with the change suggested in Question 2.
Tammy’s believes advertising provides benefits over 4 years and therefore for EVA purposes should be amortized on a straight-line basis over a 4-year useful life (beginning with the year of the expenditure). Similarly, the organization prioritizes training and expects the benefits to persist over a 3-year useful life. Advertising and training expenses incu
ed in the years 2018 through 2021 are as shown below:
    GAAP Advertising Expense
    $ 220,100
    $ 392,500
    $ 455,105
    Training Costs
Calculate 2021 EVA for Tammy’s Sandwiches. Calculate the 2021 Income statement and Balance Sheet adjustments related to advertising and training expenses. Clearly show and label the income effect (i.e., the net adjustment to NOPAT) and the balance sheet effect (i.e., the adjustment to invested capital) in your calculations (12 points)
4.) Tammy’s is considering a capital investment to upgrade the kitchen layout and install cold rooms in all three locations. The upgrades are expected to cost $840,000. The resulting annual cost savings is expected to increase operating profit by $120,000. Should Tammy’s go ahead with the investment if performance evaluation is based on EVA? Show your analysis (6 points)
5.) a) The board of directors is struggling to decide how to set the parameters of a performance evaluation system based on EVA for all locations. In the interest of fairness, they are considering setting the target EVA for all three locations at the same level, $30,000. Write a
ief paragraph (no more than 2 or 3 sentences) to advise the board on the proposed target EVA. (2 points)

) Would you recommend that Tammy’s Sandwiches change their performance evaluation system to focus on EVA or continue to focus on ROI for evaluating the performance of the three stores? Explain. (2 points)
Tammy’s Sandwiches II (20 points)
Tammy Rogers believes that the key to financial success in the healthy fast-casual segment is to offer the best quality products at the lowest costs. At the beginning of 2021, Tammy’s Sandwiches introduced a new and unique strategy called “Deliciously Quick”.
This strategy was targeted at the young, u
an working professional in the Seattle area. As she put it, “I believe this strategy will play well with the u
an young adult market. This demographic has high standards, needs more healthy eating options and at the same time they are so productivity-focused that we need to get them in and out quickly”.
Tammy’s Sandwiches planned to increase quality, as well as yield and lower costs by reducing defects in the food preparation process, reducing waste, and training workers regularly - encouraging them to seek real-time feedback and document improvements to their processes.
Despite previous work in standardizing the kitchen operations, a significant amount of Tammy’s high material costs comes from e
ors in the preparation process that result in products that cannot be sold or perishable inventory overstocks.
Tammy’s expects that higher yields and reduced inventory held will lower some costs. The higher yields will also allow Tammy’s to reduce the inventory waste associated with e
ors and stale inventory e.g., by implementing Just-In-Time (JIT) delivery with a key vendor. This could lead to problems with stockouts down the road. Alternatively, Tammy’s could maintain its cu
ent inventory process but produce and sell more quickly.
Tammy’s Sandwiches’ balanced scorecard for the just-completed fiscal year 2021 is as follows:
    Target Performance
    Actual Performance
    Financial Perspective
    Increase shareholder value
    Increase in operating income due to reduced defects and higher yields
    $ 1,000,000
    $ 800,000
    Increase in operating income due to increased sales volume
    $ 750,000
    $ 525,000
Customer Perspective
    Increase market share
    Share of Seattle healthy fast-casual restaurant market
Internal-Business-Process Perspective
    Improve food preparation process
    Reduce food preparation time to customers
    Order wait time
    6 minutes
    9 minutes
Learning-and-Growth Perspective
    Develop process skills
    Percentage of employees trained in process and quality management
    Enhance information system capabilities
    Percentage of organizational and food preparation processes with real-time feedback
1.) Based on results in the balanced scorecard above, do you think Tammy’s was successful in implementing its strategy in 2021? Explain. (6 points)
2.) Is Tammy’s balanced scorecard useful in helping the company understand why it did not reach its target market share in 2021? If it is, explain why. If not, explain what other measures you might want to add under the customer perspective and why. (4 points)
3.) Should Tammy’s have included some measure of employee satisfaction in the learning-and-growth perspective and/or a measure of employee efficiency in the internal-business-process perspective? That is, do you think employee satisfaction and efficiency are critical for Tammy’s to implement its strategy? (4 points)
4.) What issues do you see in Tammy’s strategy to improve quality and reduce costs? (2 points)
5.) How can Tammy’s tell from their results the difference between a bad strategy or a bad implementation or a good strategy? (4 points)
Tammy’s Sandwiches III (32 points)
Greg Forman, general manager of the Ballard location, knew that morning when he got the call from Tammy Rogers (the founder of Tammy’s) that his day was going to be a busy one. Tammy was asking for explanations for some of the production variances she observed in last year’s performance report. She expected Greg to explain his variances and suggest ways of improving performance and was hoping to receive his report in a few hours.
According to Thrillist, Tammy’s is the go-to sandwich store in the Seattle area. Since its founding in 2018, the fast-casual restaurant only serves two types of sandwiches: the “Surf-n-Turf” which sells for $8.95 and the “Fish-n-Fowl” which sells for $7.50. Cu
ently, it takes 0.15 direct labor hours (9 minutes) to make any of the sandwiches. Ingredient lists from the recipes for the two sandwiches are:
The Fish-n-Fowl:
· 0.25 lbs. of tuna fish salad
· 0.50 lbs. of sliced turkey
· 2 slices of pumpernickel
The Surf-n-Turf:
· 0.40 lbs. of sliced roast beef
· 0.35 lbs. of tuna fish salad
· 2 slices of pumpernickel
Tammy’s gets all its meats and
eads from Luciano’s Wholesale Restaurant Supply. The high quality of Luciano’s ingredients as well as the unique sandwich recipes are part of what makes Tammy’s
Answered 2 days After Mar 12, 2022


Nitish Lath answered on Mar 15 2022
78 Votes
Solution 2
1) Based on the balance scorecard it seems that Tammy’s was not successful in the implementation of the strategy in the year 2021. The target performance for the increase in the shareholder value was not met as the actual performance was below the targeted level. Both the measures of financial perspective such as increase in the shareholder value due to decrease in the defects and increase in the sales volume remain underperformed. In addition to this, the targeted performance of the increase in the market share was not achieved by the entity as the actual performance was below the standard set by the entity. Similarly, the standard set for improvement in the food preparation process and reduction in the order wait time was also not met by the entity. However, the actual performance was better in respect with the learning and growth perspective.
2) The balance scorecard was not sufficient to help the...

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