Reference no: EM13487105

Pumice Food Group was started in 2006 by two couples Ryan &Jody Ladbrook and David & Lisa Kerr.  Both men are qualified chefs and Pumice is now one of the largest restaurant and café businesses in the Waikato.  Despite the economic downturn in 2008, Pumice has expanded rapidly and now employs 50 staff and has an annual turnover of $6 million.  Pumice owns and operates The Woodbox, The Ferrybank Function Centre, and Coopers Function Centre at Mystery Creek Wines, Hamilton Gardens café in addition to their original business, and highly successful, Pumice café and restaurant in Te Rapa.  Pumice has secured the contract for the catering at the forthcoming Avanti Velodrome near Cambridge.

The economic downturn from the global financial crisis caused them to curtail their big expansion plans, and, to get through the tough times, they closed their office in the Hamilton CBD and both men went back to work in the kitchens full-time.  Now, business is picking up and they have reduced their kitchen work to half-time.

The article describes the essential elements of managing the business and identifies purchasing, costing, staff and waste control as being particularly important.  They are vigilant aboutfood purchasing which has increased in cost by 10% in past two years, and they use their size to gain advantages from their buying power.  Input costs are carefully monitored to ensure they are not out of line with the menu price charged to the customer.  A few years ago much of the trimmings off meat in the restaurant were discarded, nowadays they use this in other dishes in the café such as Thai beef salad or pork belly noodle salads.  In the hospitality business service is critical and staff training is vital to ensure high quality of service.

(ii) Role of management accounting

There are references to management accounting tools and techniques in the article itself, such as costing, pricing and budgeting and there will be many other uses of management accounting by the business that are not specifically mentioned, such as cash management and financial control.  Owner David Kerr is zealous about monitoring the quantities and costs of expensive ingredients such as lamb, fish and beef to ensure they are not out of line with the menu price, because margins in the business are tight.  With 50 staff to pay each week, and many suppliers each month, cash flow will be particularly criticalto ensure funds are always available to meet these obligations.  Although the article mentions that they abandoned their big bold business plan due to the recession it is inevitable that there has been considerable planning and budgeting particularly with the recent acquisition of Coopers and the Velodrome contract. Overall, it is clear that management accounting tools and techniques are essential elements in the management and success of the Pumice Group.

Part Two:

A New Zealand based Real World Example

The figures above were extracted from the latest published accounts of Air NZ and The Warehouse and they illustrate the difference in operating gearing between the two organisations.  For any airline most of the costs are fixed costs which will not vary with activity in the short term, such as depreciation on aircraft, leasing and staff costs.  Fuel costs vary directly with activity and were 32% of operating costs in 2012.

As a trading company, the cost of inventory is the main operating cost for The Warehouse.  In 2012 cost of sales amounted to 68% of total operating expenses. 

As expected, this shows that operating gearing is much higher in Air NZ than The Warehouse.  Note also that the turnover of Air NZ is almost three times that of The Warehouse.