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Posted: June 8th, 2022
Read the case Western Cabinets – Building a Cabinet or Building a Transformation? Complete the following requirements.
Required:
a)Reformat the value chain for Western Cabinets into Porter’s value chain format described in Lesson 3 Note 1. Under each primary and secondary activity list the activities as Western Cabinets and identify value creating processes. (15 marks)
b)Identify the key cost drivers and suggestions for competitive advantage for Western Cabinets. This will include areas of advantage they currently hold and areas where they could create competitive advantage. (15 marks)
Note: When answering this question, you can refer to parts 1 and 3 of the StrongBrit case in Lesson 3 to see how they formatted both the value chain and the key cost drivers/suggestions for competitive advantage.
Assume that in 2016, Dubbledore Industries changed its processes and trained workers to recognize quality problems and fix them before products are finished and shipped to customers. Quality is now at an acceptable level. The selling price for its key product, RBK10, was increased in 2016 to reflect an increased price for direct materials and additional conversion costs needed to deliver a higher quality product. Sales have increased, even with the increase in price, and returns have decreased. Dubbledores’ managers attribute this to higher quality and a price that is still less than their main competitor, Ginko Corporation. Information related to the RBK10 product for the current period and prior period follows:
| 2015 | 2016 | |
| Units of RBK10 produced and sold | 19,000 | 21,500 |
| Units returned | 1,150 | 550 |
| Net sales in units | 17,850 | 20,950 |
| Selling price | $23 | $26 |
| Direct materials (kilograms) used | 47,500 | 51,600 |
| Direct material cost per kilogram | $1.25 | $1.35 |
| Manufacturing capacity in units | 23,000 | 23,000 |
| Total conversion costs | $115,000 | $149,500 |
| Conversion cost per unit of capacity | $5 | $6.5 |
| Selling and customer-service capacity | 100 customers | 120 customers |
| Total selling and customer-service costs | $11,000 | $12,600 |
| Total selling and customer-service capacity cost per customer | $110 | $105 |
| Advertising staff | 4 | 4 |
| Total advertising costs | $24,000 | $28,000 |
| Advertising cost per employee | $6,000 | $7,000 |
Conversion costs in each year depend on production capacity defined in terms of RBK10 units that can be produced, not the actual units produced. Selling and customer-service costs depend on the number of customers that Dubbledore can support, not the actual number of customers it serves. Dubbledore has 95 customers in 2015 and 115 customers in 2016. At the start of each year, management uses its discretion to determine the number of advertising staff for the year. Advertising staff and its costs have no direct relationship with the quantity of RBK10 units produced and sold or the number of customers who buy RBK10.
Required:
a)Calculate the operating income of Dubbledore for 2015 and 2016. (4 marks)
b)Calculate the growth (both revenue and cost effect), price-recovery (both revenue and cost effect), and productivity components that explain the change in operating income from 2015 to 2016. (10 marks)
c)What type of strategy is Dubbledore pursuing: cost leadership or value leadership? Support your answer using the variances calculated in question 2 (i.e., explain how the variances may demonstrate the company is pursuing a particular strategy). (6 marks) Accounting homework help
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