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Management Accounting and Business (ACCT1060) Group Activity Task - Practice Week 1

Domino's began in 1986 with a $400,000 investment in 4 pizza stores and has grown to a $1.4 billion enterprise with over 500 stores globally. Last year, Domino's revenue increased 30% and profit was $43.3 million. This year, management forecasts a 35% increase in earnings. Reasons for success include innovative technology, online ordering capabilities, and continual new product development. Domino's strategy is cost leadership through producing high quality products efficiently. Management accounting tools like budgets, product mix analysis, and performance monitoring are used to support this strategy and operating plans.

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83 views3 pages

Management Accounting and Business (ACCT1060) Group Activity Task - Practice Week 1

Domino's began in 1986 with a $400,000 investment in 4 pizza stores and has grown to a $1.4 billion enterprise with over 500 stores globally. Last year, Domino's revenue increased 30% and profit was $43.3 million. This year, management forecasts a 35% increase in earnings. Reasons for success include innovative technology, online ordering capabilities, and continual new product development. Domino's strategy is cost leadership through producing high quality products efficiently. Management accounting tools like budgets, product mix analysis, and performance monitoring are used to support this strategy and operating plans.

Uploaded by

Tran Nguyen
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Management Accounting and Business (ACCT1060)

Group Activity Task -Practice Week 1

Domino’s making a Mozza(rella)


Businessday News Feature
The Age, Saturday February 20 2016
(annotated article)
A $400,000 investment in 4 pizza stores in 1986, has now become a $1.4 billion enterprise,
know as Domino’s. Last year Domino’s revenue was 30% higher with half-year profit of $43.3
million. It has doubled its value and the share price is now over $60. This year, management
has forecast 35% increase in Earnings Before Interest and Tax (EBIT).

Reasons:
 “They just happen to have this fantastic management team that comes up with new
ideas every year” said, Daniel Mueller (equity analyst).
 They have leading online and digital capabilities with their GPS tracker system (Uber
system).
 Innovation in SMS ordering to attract customers
Did you know?
 They are classified as a tech company as well as a pizza company
 They are trialing a 10-minute delivery plan in Brisbane
 They are going to expand food options to other snacks
 Launched DLAB - start-up hub designed to connect staff with entrepreneurs from
outside the business to seed new concepts
 Acquired Pizza Sprint in France and have a joint venture operation in Germany with
Joey’s.
 Plan to open 500 new stores by 2025 in Europe, Japan as well as Australia and New
Zealand

Required:

1. What do you think Domino’s mission is?

Vision: No. 1 in people; No. 1 in pizza

Mission: Sell more pizza; have more fun

Values: Treat people as you’d like to be treated


Produce the best for less
Measure, manage and share what’s important
Think big and grow
Incentivize what you want to change
Set the bar high, train, never stop learning
Promote from within
We are not ordinary, we are excellent

2. What are Domino’s core competencies (relative to competitors)?

The case highlights technology - able to be quick and easy for home delivery
Students might come up with other ideas
3. What type of strategy does Domino’s take? Why?

Cost leadership
Note on their website one of their ‘values’ states - produce the best for less

4. In the table below, describe how the following management accounting tools would
be used at Domino’s. Link responses to the case details.

Support organisational strategies Evidence of use


1. Capital budgets Investment in new businesses and new
technologies. Even the $400,000 initial
investment was part of capital budgeting
exercise

2. Product development Focus on both new food offerings as well as


technology

3. Analysis of potential acquisitions As with capital budgets - they plan to open


500 new stores by 2025
Support operating plans
1. Operating budgets Need these to ensure they can produce the
best for less - need to plan

2. Analysis of product mix They have a range of products and would be


analsying how each performs (sales volumes;
contribution to profits).

3. Cash flow plan To have inventory (pizzas) available they


would need cash to buy raw materials from
suppliers and have stock on the shelves
before they receive payments from
customers. They might require short-term
borrowings to maintain cash flows.
Monitor and motivate
1. Actual vs planned performance They state that they ‘measure and manage’;
they would be investigating whether they
have achieved revenues as planned or 3%
EBIT as told the market

2. Bonus computations They state that they ‘incentivise what you


want to change’ - therefore this would be an
important part of the management
accounting role

3. Supplier quality Because they want the ‘best’ food for less,
they would need to work very closely with
suppliers to meet their goals.

5. Domino’s senior accountant, Chief Financial Officer (CFO) has to provide ‘goal
kicking’ as well as a ‘goal keeping’ role. In this way, accounting is partly a technical
practice (i.e. calculations and providing information for managers to make decisions)
but also a social practice. Explain what accounting as a social practice might look like
at Domino’s.
This is a tough question - Domino’s is reliant on ‘fantastic management’ - how would they
keep good people? They must provide a good environment; well paid and reward people
for good performance (bonuses and other non-financial rewards, so people feel part of a
team); accounting systems can help recognize where areas are performing well or not
performing so well - which then help senior managers make decisions about further
actions for improved performance in the future.

Sometimes they might need to spend more money for greater rewards in the long run.
Sometimes they might need to sack people (or make them redundant) if they are not
helping Domino’s achieve the desired targets (profit; EBIT share price).

If they want to design and use leading edge technology, they will need to let people
innovate. They might need to take some risks to do this - management accounting
information can help with setting some boundaries. Management cannot control too
tightly, if they want people to innovate.

The following discussion point is also applicable to Domino’s

How may key performance indicators (KPIs) affect worker performance?


 Some people may work harder for the same payment
 Others will receive greater rewards in exchange for proportionately greater effort
 replace labour with less costly machinery
 some workers may resign when KPIs are unachievable

If you have time: these other discussion topics are useful to explain accounting as a
social practice:

Discuss the impact on employees when a factory is relocated to offshore location with
an abundant supply low cost labour.
 profit can be increased by managing or reducing, labour costs.
 The worker dismissed or displaced because of a plant closing is recast as a production
input, evaluated in terms of an economic efficiency ratio, and classified as excess
capacity (i.e. dehumanised)
 Making workers redundant, has financial implications for worker and family , also has
psychological implications for self-worth and stress on family and relationships.
 Benefits to workers for jobs created overseas

What are the implications on health-care when hospital patients are treated as cost
centres?
Relationships with patients change, towards an orientation to control costs, or "stay within
budget''. For example:
 Patient treatment is measured in terms of cost rather than need
 The performance of health workers are assessed in terms of time and volume rather
than care
 Fewer nurses (and staff generally) employed

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