Kaplan University ACC 519-Cost-accounting CHAPTER 2 QUES 47 TO 59 Auto engines have become more complex …..

| November 29, 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.

53. Motorcycle 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 motorcycle 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?

54. Many desktop and laptop computers 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 computers that use parts from many different technology 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 technology company.

55. Levis Strauss and Co., maker of Levi’s familiar 501 and 505 brands of jeans, also make a “Signature” brand that was introduced several years ago for discount retailers such as Wal-Mart. Levi’s strategy with the new jeans was to sell a competitively priced pair. The jeans were to be about one-half the price of the familiar 501 and 505 jeans. To get costs down Levi’s would:

• Use cheaper fabrics and materials.

• Shun costly mass-market advertising.

• Strictly limit the number of fits, styles, and colors.

The Signature brand had a good first year of sales; assume that results for the second year and later are not yet in.

Required:

1. Assess the new strategy at Levi. What do you think are the potential benefits and risks?

2. How will the firm’s value chain and balanced scorecard change as a result of the new strategy?

2. The firm’s value chain will likely change little, as the manufacture of the jeans will continue to be produced in low-cost facilities world wide. The largest difference in the jeans will be in the fabrics used, the design, and the variety of jeans offered. The balanced scorecard for Levi’s is not likely to change much either, as noted above for the value chain. Levi Straus uses the BSC in its shared services center in Eugene Oregon.

56. Gordon Manufacturing produces high-end furniture products for the luxury hotel industry. Gordon has succeeded through excellence in design, careful attention to detail in manufacturing and in customer service, and through continuous product innovation. The manufacturing process at Gordon begins with a close consultation with each customer so that the finished product exactly meets the customer’s specifications. This commonly means unique designs, special fabrics, and high levels of manufacturing quality. In addition, Gordon believes that a key competitive edge it has over other competitors is that it has an outstanding design staff that is able to work with customers to come up with product designs that go beyond the customer’s expectations.

Required: What is the competitive strategy for Gordon Manufacturing? Explain your answer in two or three sentences.

57. Gordon Manufacturing produces high-end furniture products for the luxury hotel industry. Gordon has succeeded through excellence in design, careful attention to quality in manufacturing and in customer service, and through continuous product innovation. The manufacturing process at Gordon begins with a close consultation with each customer so that the finished product exactly meets the customer’s specifications. This commonly means unique designs, special fabrics, and high levels of manufacturing quality. In addition, Gordon believes that a key competitive edge it has over other competitors is that it has an outstanding design staff that is able to work with customers to come up with product designs that go beyond the customer’s expectations.

Anticipating a growth in the demand for luxury hotel rooms, Gordon has expanded its operations to include one new manufacturing plant, and by refitting some of the older plants with newer, more efficient equipment. The installation of the new equipment has caused some delays in filling some customer orders, and Gordon has shifted production from those plants with the delays to other manufacturing plants. The result has been an increase in some processing costs, transportation costs, and delays in meeting customer order deadlines. Also, the introduction of the new equipment has created some tensions with employees who see the new, more efficient equipment as a potential threat to their job security. There is also some disagreement among managers as to whether the new equipment will improve or reduce quality.

Required: Develop a SWOT analysis for Gordon Manufacturing. List one or more items in each category:

58. Gordon Manufacturing produces high-end furniture products for the luxury hotel industry. Gordon has succeeded through excellence in design, careful attention to quality in manufacturing and in customer service, and through continuous product innovation. The manufacturing process at Gordon begins with a close consultation with each customer so that the finished product exactly meets the customer’s specifications. This commonly means unique designs, special fabrics, and high levels of manufacturing quality. In addition, Gordon believes that a key competitive edge it has over other competitors is that it has an outstanding design staff that is able to work with customers to come up with product designs that go beyond the customer’s expectations.

Required: Present a value chain for Gordon Manufacturing with 5-6 activities and explain the role of each activity in the value chain.

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59. Gordon Manufacturing produces high-end furniture products for the luxury hotel industry. Gordon has succeeded through excellence in design, careful attention to quality in manufacturing and in customer service, and through continuous product innovation. The manufacturing process at Gordon begins with a close consultation with each customer so that the finished product exactly meets the customer’s specifications. This commonly means unique designs, special fabrics, and high levels of manufacturing quality. In addition, Gordon believes that a key competitive edge it has over other competitors is that it has an outstanding design staff that is able to work with customers to come up with product designs that go beyond the customer’s expectations.

Required: Present a balanced scorecard for Gordon Manufacturing with 3-4 perspectives and 3-4 quantitative critical success factors ineach perspective.

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