Question

What managerial accounting tools could be used by Giant Eagle to evaluate whether it should put refrigerator doors in its dairy section?

Giant Eagle is a grocery store chain with stores located in Indiana, Maryland, Ohio, Pennsylvania, and West Virginia.  The company installed refrigerator doors on the dairy section in many of its stores. Previously, the dairy section was refrigerated but had no doors.

The refrigerator doors will reportedly use 78% less energy than the amount of energy used when there are no doors on the dairy section.

Questions:

1. What factors could be relevant in Giant Eagle’s decision about whether to install the dairy doors or not? List as many factors as you can think of; use your imagination.
2. Of the factors you listed in Question 1, which are qualitative in nature? Which are quantitative considerations?
3. What managerial accounting tools might be used by Giant Eagle in evaluating whether to purchase and install the dairy doors? List as many tools as might be useful and discuss how each could be used in this setting.  What tool would you consider most useful? Why?
4. What other initiatives a grocery store could take to promote “green” choices?  Provide a few examples.  
5. Given the examples you provided in Question 4, discuss what criteria managers should use to determine whether they could pursue these “green” initiatives.  

Answer 1

1. What factors could be relevant in Giant Eagle’s decision about whether to install the dairy doors or not? List as many factors as you can think of; use your imagination.

Answer: Following factors may be relevant in the decision about whether to install the dairy doors :

• Cost of the doors
• Potential benefit from installation of doors
• Payback period of the investment (i.e. time period in which the investment getting recovered)
• Operational constraints that may arise due to installation of doors

2. Of the factors you listed in Question 1, which are qualitative in nature? Which are quantitative considerations?

Answer:

• Cost of the doors : Quantitative
• Potential benefit from installation of doors : Quantitative
• Payback period of the investment (i.e. time period in which the investment getting recovered) : Quantitative
• Operational constraints that may arise due to installation of doors : Qualitative

3. What managerial accounting tools might be used by Giant Eagle in evaluating whether to purchase and install the dairy doors? List as many tools as might be useful and discuss how each could be used in this setting.  What tool would you consider most useful? Why?

Answer:

• Payback Period Analysis : To give the recovery period of cash outflow
• Net Present Value Analysis : To calculate whether the investment is leading to positive returns

Both the above methods are useful and a mix of both should be used to evaluate the decision.

4. What other initiatives a grocery store could take to promote “green” choices?  Provide a few examples.  

Answer:

• Use of solar energy (installation of solar plates on the roof)
• Use Liquefied Petroleum Gas instead of petrol for energy requirements
• Use compact fluorescent lamp (CFL) to save electricity

5. Given the examples you provided in Question 4, discuss what criteria managers should use to determine whether they could pursue these “green” initiatives.  

Answer: Cost benefit analysis; Net Present Value analysis and Payback period analysis