MATH 223 Lecture Notes - Lecture 1: Income Statement, Cost Leadership, Opportunity Cost
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October 19, 2014
Bayjo Ltd. begun primarily as a skateboard manufacturer, founded by an ex-professional
skateboarder. The company provides quality sports equipment and has recently expanded to
producing scooters and bicycles. The main issues rotate primarily around poor communication
and lack of focus.
The following are three key recommendations for Bayjo Ltd. to consider in order to maximize
efficiency and become more profitable:
1. The first recommendation is to apply separate strategies for each department.
Conforming to the original strategy of “building quality products to be sold in the
Canadian market at a reasonable price” is no longer feasible with the introduction of the
scooter and bicycle line. Through Porter’s Generic Strategies, I advise the following
method of organization:
a. Skateboards: Differentiation Focus
b. Scooters: Cost Leadership
c. Bicycles: Differentiation Focus
Doing so allows each marketing employee to specialize on advertising each distinct
product individually. Specialization increases efficiency and enables the departments to
target their respective demographics directly. This is of great import for the skateboard
department who is seeing a decline in sales in recent years.
2. My second recommendation is to restructure human resources. The scooter manager
possesses ulterior motives, from speculation of hiring an additional marketer to
disrupting the operations of other departments. Her actions are reducing the productivity
and corporate culture of Bayjo Ltd. and her work is not reflective of her salary. It is
recommended to replace the scooter manager and remove the commission associated
with the position. The savings would then go towards financing an external accountant.
It is crucial to be aware of the financial situation of the company and understand the
breakdown of what is most profitable. It is highly advisable to hire an external managerial
accountant to create accurate financial reports for Blakay and the management team.
These reports will assist with goal-setting and locating points of improvement
3. My third recommendation is to reject the deal with both Giantco and Merida Ltd. and
seek contracts for the skateboard department.
The Giantco deal produces minimal profit. Its selling price is reduced to 23% of the
average Bayjo price while its costs are only reduced by 50%, when it should be reduced
by 77%. They also demanded an inventory of 800 units, which is an inefficient use of
factory space. Eliminating inspection results in inferior quality and will consequently
shine poorly on the Bayjo brand.
Although the deal with Merida Ltd. will generate significant revenue, the costs of
expanding the machinery to increase production for only half the rental term reduces the
profit. The additional machine, which will not be in use for 6 months, minimizes efficiency
and is a misuse of factory space. This deal will also create competition in the scooter
market, despite the location of Merida, due to globalization.
Bayjo Ltd. should instead focus on acquiring contracts towards the skateboard
department due to its rapid decline and $0 profit in 2012.