Dolci Inc.
Background and History
On two different voyages during 1921 and 1922, Salvatore (Sal) Leone and Anna Ragusa left
their native Sicily and set sail for a new life in the United States of America. Upon their a
ival
and processing through immigration at Ellis Island New York, they departed via train to Chicago.
They did not know each other as they were from different villages; Sal from Ventimiglia and
Anna from Ragusa. Upon a
ival via train in Chicago, both Sal and Anna, like thousands of
immigrants during that period, prayed that the family that sponsored their immigration would
e there to greet them.
Immigrants during that time settled in neighborhoods defined by ethnic backgrounds and Sal
and Anna were no different. Their daily lives were defined by the work they could get,
preservation of their ethnic customs and rituals and religious observations. Sal and Anna
settled with their sponsor families in the heart of what is now known as “Little Italy” in Chicago,
the area bounded by Ashland Avenue on the west and Interstate 90/94 on the east, the
Eisenhower Expressway on the north and Roosevelt to the south. At the August cele
ation of
Festa Italiana, Sal and Anna were introduced and as they say, the rest was history.
Like the immigrants during that period, Anna and Sal were not strangers to hard work and long
hours. While Sal worked in various construction jobs as a cement mason, Anna was home with
the growing family. Anna began selling her specialty baked goods to help make ends meet.
Before long, Anna’s reputation for delicious baked goods spread far and wide, so much so, that
Sal no longer worked as a cement mason, but began delivering her baked delicacies using an old
truck.
Italian cookery became one of the most popular ethnic cuisines in America, spawning many
successful bakeries and restaurants—some of which prospered for generations and continue to
influence the Chicago dining scene today.1 By 1927, Italians owned 500 grocery stores,
257 restaurants, 240 pastry shops, and numerous other food related businesses that were
concentrated in the Italian neighborhoods.[1]
Growth: 1940-Present
What began in Anna and Sal’s kitchen, soon developed into a full-scale enterprise. The
company is now a Chicago-metro favorite, creating four distinct product lines: over-the counter
cakes and pastries, custom cakes, restaurant sales and frozen food for grocery store
distribution.
https:
en.wikipedia.org/wiki/Little_Italy,_Chicago#cite_note-EOCFW-5
https:
en.wikipedia.org/wiki/Little_Italy,_Chicago#cite_note-EOCFW-5
Over the Counter Cakes and Pastries These baked goods are ready to eat and are sold
from a storefront near the corner of Taylor and Racine. Items sold from this location are
delivered from the production facility. Some of the items sold are cannoli, sfingi, zeppole,
made-to-order cakes, amaretti, and pizzelles. On the Feast of St. Joseph, customers wait in
long lines for sfingi and zeppole and the Chicago Police Department is on hand to direct
traffic and maintain order.
Custom Cakes Inspired by the TLC show “Cake Boss” and fueled by the hospitality industry
in and around the city of Chicago, the custom cakes segment of Dolci provides elaborate
made-to-order, large-scale custom cakes. Some of the more notable cakes created by the
cake artists have been a full-sized Fe
ari for the opening of the Chicago Auto Show and an
outdoor vignette for the Chicago Boat, RV and Sail Show. These custom creations are
delivered by Dolci’s cake artists and assembled on site.
Restaurant Sales The restaurant sales division provides ready-to-eat cakes, pies and
cookies to various upscale restaurants in the Chicago metro area. These desserts are
distributed via a fleet of temperature-controlled vehicles from the motor pool.
Frozen Food The Frozen Food division creates various pies, cakes, pie and cookie doughs to
national chains that have a local presence, such as Jewel, as well as independent grocers
such as Caputo’s. These products are delivered via a fleet of temperature-controlled
vehicles from the central motor pool.
Operations
Dolci, Inc. is a privately held corporation. Ownership of the shares was initially held by Sal and
Anna. Upon their death, ownership of the shares passed to their only son, Tony. Tony’s
advancing age and the corporate transition plan indicates that each of the company’s divisions
are managed by the four children:
Sophia: Over the Counter
John-Anthony: Custom Cakes
Adriana: Restaurant Sales
Lucian: Frozen Food
Previously, the financial results for the company were aggregated, since all residual profits were
allocated to the sole shareholder, Tony. As ownership of the shares transitions to the four
children and the compensation plans change, a different measurement of profit-center
profitability is needed.
At the board meeting, discussion ensued regarding measuring profit-center profitability. The
controller, Nick Thomas, a recent graduate of the University of St. Francis’ MBA program,
suggested there are at least two ways of measuring profit-center profitability.
1) Indirect common costs can be allocated to the divisions based upon direct labor hours
or
2) Indirect common costs can be measured based upon multiple cost drivers using activity-
ased costing.
The four division heads were confused and suspicious regarding these “allocation” methods but
agreed to review the results of Thomas’ work.
The manufacture of all Dolci products are housed in a single location, a 30,000 square foot
facility which has easy access to all major highways. The various product lines require distinctly
different processes and equipment, so they occupy specific areas of the facility. The
production of the over-the-counter product lines, restaurant sales and frozen food is staffed by
individuals having skill levels ranging from laborer to culinary arts graduates. The custom cakes
division is staffed by individuals ranging from culinary arts trained individuals to art majors
specializing in sculpture.
The salaries for the profit center managers are $1 million to each of the four children.
Tasked with the job of preparing two analyses of financial information based upon product
lines, Nick Thomas quickly went to work. The initial Income Statement was used as a baseline
for purposes of comparing the two methods. The initial information is shown in Exhibit 1.
Additional data regarding the cost pools and cost drivers are provided in the following exhibits:
Exhibit 2: PRODUCTION STAFF (Hours)
Exhibit 3: GENERAL OVERHEAD RESOURCE COST POOL
Exhibit 4: GENERAL OVERHEAD COST DRIVER
Exhibit 5: PRODUCTION STAFF
Exhibit 6: DELIVERY (Mileage)
1Tracy N., "Foodways", The Encyclopedia of Chicago, p. 308-9, Eds. Grossman, James R., Keating, Ann
Durkin, and Reiff, Janice L., 2004, The University of Chicago Press, ISBN XXXXXXXXXX
https:
en.wikipedia.org/wiki/International_Standard_Book_Numbe
https:
en.wikipedia.org/wiki/Special:BookSources/ XXXXXXXXXX
REQUIRED
1) Prepare the revised set of cost estimates and profit-center Income Statements using the Direct-
Labor Hour approach, Method 1 allocation.
2) Prepare the revised set of cost estimates and profit-center Income Statements using the
Multiple Cost Driver / Activity-Based Costing approach, Method 2 allocation.
3) Analyze the newly produced information and assess its implications for the managers.
a. What decisions might managers make with this new information?
. What management action, if any, would you suggest?
Prepare your case response using the five steps of strategic decision making. Only steps one through
four are relevant since time-series data is not available.
DOLCI
Page 1 of 3
Exhibit 1
DOLCI INCOME STATEMENT ( IN MILLIONS) TOTAL
COUNTER
SALES
CUSTOM
CAKES
RESTAURANT
SALES
FROZEN
Revenues
Total revenue $119,000 $32,000 $15,000 $42,000 $30,000
Direct costs
Materials
35,300
12,800
4,500
10,500
7,500
Marketing and sales 2,610
10
100
1,500
1,000
Total Direct Costs 37,910 12,810 4,600 12,000 8,500
Revenue Less Direct Costs 81,090
Indirect operating expenses
General overhead (occupancy, administration) 35,600
Production staff 35,700
Delivery XXXXXXXXXX,520
Total indirect operating expenses 80,820
Income before Profit Center Salaries 270
Profit Center Salaries 4
Net Income to Shareholder(s) $266