Fit Food Case
1. What went wrong?
Tensions between division and corporate management increased due to the goal
of the growth rate.
As the economy slowed down, consumers became more frugal. The once-
exploding energy drink category began to stagnate; competition for market
share grew fierce; and margins declined. In addition, there were rumblings of an
impending soft drink “obesity” tax that could put even more pressure on profits.
The biggest problem for the Cookie Division, however, was a shift in consumer
mindset. In recent years, “healthy” was less likely to be associated with low fat,
and more likely to be associated with healthful ingredients such as whole grains,
nuts, and natural antioxidants, a trend that the Cookie Division management had
largely missed.
2. Think about the actions: some of these actions are quite common.
a. Do managers judge the benefits of these actions
greater than the costs? Or are these actions just
unavoidable control system side-effects？
Shipping moratorium: Benefits judged greater than costs
Overstatement of sale volume: Benefits judged greater than costs
Build up accounting reserves against accounts receivable and inventory
balances & Prepay some expenses, on the contrary, seem to be just unavoidable
control system side effects as it impacts the metrics used by the persons in
charge of control.
b. If everyone is doing something, does that mean it is ethical?
Definitely not as Ethics is not something influenced by the mass.
c. Consider the following for each action: Is this action in the best interest
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of the division? (2) Is it in the best interest of the corporation? (3) Is it an
acceptable business practice? Unethical? Fraudulent?
shipping Build up Prepay expenses False order
moratorium accounting
reserves
Best interest of Best interest of N/A short term interest
the division division of the division
Not at all with Best interest of Yes in the long short term yes but
other divisions the corporation run side effects
not happy with (reputation/risks
such a measure of best practice)
(production/sales/
…)
Unethical Acceptable Acceptable Fraudulent
business practice business practice
3. What should Joe Jellison, Fit Food’s CFO, do now that he knows of the
problems?
He should inform the external auditors to help fix the problems.
4. Should the problems have surfaced earlier? If so, who should have done
what? When?
It should be surfaced earlier.
Since the “mistake” was made by three managers: Scott, Catherine, and Mitch.
Then their superior should be responsible to supervise their operations and track
the process of their project. In this context, the CEO of the company, Sean
Wright should be the person to shoulder this responsibility.
As for the timing, I think there could be two time slots to supervise that. The
first one is the CEO initiate a regular check of the operation and investigate if
any irregularity happens. The second time slot is the one when the performance
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of the company drastically increases, the CEO should try to find the exact
reason for such increases, and if he does so, he would be able to stop this
misbehavior continuing.
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