Question

You are the Cookie division controller for Auntie M's Baked Goods Company. Auntie M recently introduced a new chocolate chip cookie brand called Full of Chips, which has more than twice as many chips as any other brand on the market. The brand has quickly become a huge market success, largely because of the number of chips in each cookie. As a result of the brand's success, the product manager who launched the Full of Chips brand has been promoted to division vice president. A new product manager, Brandon, was brought in to replace the promoted manager.

At Auntie M's, product managers are evaluated on both the sales and profit margin of the products they manage. During the first week on the job, Brandon notices that the Full of Chips cookie uses a lot of chips, which increases the cost of the cookie. To improve the product's profitability, Brandon plans to reduce the amount of chips per cookie by 10%. He believes that a 10% reduction in chips will not adversely affect sales, but will reduce cost and help him improve the profit margin. Brandon is focused on profit margins because he knows that if he is able to increase the profitability of the Full of Chips brand, he will be in line for a big promotion.

To confirm this plan, Brandon has enlisted you to help evaluate it. After reviewing the cost of production reports segmented by cookie brand, you notice that there has been a continual drop in the materials cost for the Full of Chips brand since its launch. On further investigation, you discover that chip costs have declined because the previous product manager continually reduced the number of chips in each cookie. Both you and Brandon report to the division vice president, who was the original product manager for the Full of Chips brand and was responsible for reducing the chip count in prior periods.

A. Is this an ethical strategy for Brandon to pursue? What are the potential implications of this strategy?

B. What options might you, as the controller, consider taking in response to Brandon's plan?

Answer 1

A. It is not an ethical strategy for Brandon to pursue. The potential implications of this strategy might be that the sales might drastically drop as customers begin to notice the deteriorating quality of the cookies. Also, it might make customers lose faith in the company as a whole.

B. As a controller, I would tell Brandon not to think about going ahead with his plan as the chip quantity has already declined drastically in the past. It would not be a wise move to reduce it further and lose customers.