COST ACCOUNTING HOMEWORK ASSIGNMENT

| November 28, 2016

Question
47. Auto engines have become more complex over the past twenty years, partly as a result of environmental concerns about exhaust contaminants. Engineers have developed two basic approaches to solving the contaminant problem. The first emphasized the catalytic converter, a modification of the auto exhaust system designed to break down pollutants. The second emphasized redesign of the auto engine’s combustion process, which adds more than twice the cost of the catalytic converter alone. However, redesigning the combustion process usually results in improved full efficiency.

Required: A. Comment on the strategic advantage of redesigning the combustion process versus simply adding a catalytic converter.

B. What are the ethical questions, if any, that should be addressed in the above decision?

48. Studebaker Corporation, one of the earliest auto manufacturers, prospered in the late 1940’s and into the 1950’s. Its advertising after World War II emphasized quality of design and production. The corporation also used the stability of its work force in its advertisements, often featuring pictures of father and son working side by side in its factories.

Required: A. From just this brief description of Studebaker Corporation, which type of competitive strategy–cost leadership ordifferentiation–would you guess Studebaker was using? Explain your choice.

B. Given your answer in Part (A), speculate on what market factors might have caused the corporation to go into bankruptcy and cease production in the mid-1960s.

49. Many products in the marketplace today are built from components designed and manufactured by sub-contractors. While the extent of this practice is not well known to consumers, manufacture and sale of multi-component units that use parts from many different companies continues to grow.

Required: If the assembling company is using value-chain analysis in its strategic planning, comment on the following:

A. The cost justification for subcontracting.

B. The willingness of consumers to buy products they know contain subcontracted parts.

C. The problems of quality control facing the assembling company.

50. Exeter Industries produces and markets several lines of food and beverage products. The company plans to expand its market to cover a new geographical area, and the first products to be introduced into this new market are three of Exeter’s coffees. A meeting of the marketing committee has been called to determine the pricing and promotional strategy for the introduction of these coffees.

Mark Williams, vice president of marketing, has suggested that Exeter continue its policy of premium pricing for Rich Roast Coffee in the new market. “Rich Roast is a superior blend of Brazilian coffees and should have little difficulty gaining customer acceptance. The use of other promotional strategies doesn’t appear necessary at this time.”

Carol Randolph, general sales manager, agreed with this strategy for Rich Roast but recommended a different approach for Vitality Coffee, Exeter’s brand of decaffeinated coffee. “Vitality is an unknown name in this region and will require a determined promotional effort to gain market share from other very competitive products. We could try penetration pricing or packaging options combined with either manufacturer’s coupons or rebates. Whatever strategy we select, we should hit the market hard if we want to be successful.” Dan Felton has been appointed regional sales manager for the new geographical area and is concerned about the acceptance of Mellow

Roast Coffee, a blend of regular and decaffeinated coffees. “This is a brand new type of coffee in this region and may just sit on the shelf unless we develop an effective advertising campaign. Pricing or packaging options will be worthless unless the product gains some visibility and the targeted customer base is made aware of the benefits of Mellow Roast. We need a good slogan like “A gentle wakeup without caffeine stress!”

Required: Mark Williams has suggested the continuance of premium pricing for Rich Roast Coffee. Explain the strategic role ofpremium pricing, and describe the economic circumstances in the marketplace that would encourage the use of this pricing strategy. (CMA adapted)

51. One of the large auto manufacturers in the 1970s developed a sport version of its family sedan. The new version was equipped with a small V8 engine and other performance improvements. The car was called the Pirouette, because of its graceful appearance and performance. Unfortunately, there was a difficulty in servicing the vehicle. The engine was too large for the space available, and it had to be moved slightly on the engine mounts in order for one of the spark plugs to be changed.

Required: Comment on the strategic competitive advantage of the Pirouette. What type of management technique was likely used in itsdesign? What type of design approach should have been used?

52. Williams Instruments manufactures specialized surgical equipment for hospitals and clinics throughout the world. One of Williams’ most popular products, comprising 40% of its revenues and 35% of its profits, is a blood pressure measuring device. Average production and sales are 400 units per month. Williams has achieved its success in the market through excellent customer service and product reliability. The manufacturing process consists primarily of assembly of components purchased from various electronic firms, plus a small amount of metalworking and finishing. The manufacturing operations cost $600 per unit. The purchased parts cost Williams $800, of which $300 is for parts which Williams could manufacture in its existing facility for $100 in materials for each unit, plus an investment in labor and equipment which would cost $175,000 per month.

Also, Williams is considering outsourcing to another firm, Matrix Concepts, Inc, the marketing, distribution, and servicing for its units. This would save Williams $75,000 in monthly materials and labor costs. The cost of the contract would be $125 per product.

Required:

1. Prepare a value chain analysis for Williams to assist in the decision whether to manufacture or buy the parts, and whether to contract out the marketing, distribution, and servicing of the units.

2. Should Williams continue to:

(A). purchase the parts or manufacture them?

(B). provide the marketing, distribution and service, or outsource this activity to Matrix? Explain your answers.

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