6-34Responsibility in a restaurant. Paula Beane owns a restaurant franchise that

Question

6-34Responsibility in a restaurant. Paula Beane owns a restaurant franchise that is part of a chain of “southern homestyle” restaurants. One of the chain’s popular breakfast items is biscuits and gravy. Central Warehouse makes and freezes the biscuit dough, which it then sells to the franchise stores where it is thawed and baked in the individual stores by the cook. Each franchise also has a purchasing agent who orders the biscuits (and other items) based on expected demand. In March 2015, one of the freezers in Central Warehouse breaks down and biscuit production is reduced by 25% for 3 days. During those 3 days, Paula’s franchise runs out of biscuits but demand does not slow down. Paula’s franchise cook, Betty Baker, sends one of the kitchen helpers to the local grocery store to buy refrigerated ready-to-bake biscuits. Although the customers are kept happy, the refrigerated biscuits cost Paula’s franchise three times the cost of the Central Warehouse frozen biscuits, and the franchise loses money on this item for those 3 days. Paula is angry with the purchasing agent for not ordering enough biscuits to avoid running out of stock and with Betty for spending too much money on the replacement biscuits.

Who is responsible for the cost of the biscuits? At what level is the cost controllable? Do you agree that Paula should be angry with the purchasing agent? With Betty? Why or why not?

Explanation / Answer

In the instant case, it is not clear that whether there was system to maintain stock on Maxima Level& Minima level.

Maxima Level ;Inventory means means the level of inventory , upon reaching at that lelvel no procurement of stoch shall be made. This level is fixed as per following formula

Maximaum stock level = Re-order level+re-ordering quantity - (Minimum consumption multiplied by Minimum re-order period)

Minima Level of inventory means a level of stock, upon reaching the stock at that level, procurement process should be started. Minimum level formula is as below:

Minimum level = Re-order level - (Normal consumption multiplied by Normal re-order period)

Paula Beane should also have to be maintained buffer stock to avoid or to delay stock running out status. If this was there, the cost of exces payment on account of local purchase as a emergency measure, cost of excess payment on local purchase might have been reduced by one day or more than that, depends of perishability of biscuit dough.

Further Betty Baker had clear instructions to purchase from 'the' local store, but rate was not mentioned. hence Betty Becker bought the stock at higher cost.

Considering the above, there is a mistake is seen on account of purchasing agent, but Paula Beane won't have any positoin to saving the entire cost of the said 3 days break down.

Considering this, Paula Beane (PB) agree with purchasing agent is justified, PB should have shown displeasure for the mistake as good ethics of bisiness.

Becker was not in any fault at all.

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