Case Study 1:
Zhivago Brands Ltd makes a special-purpose horse and dog rugsewing machine, Multiweaver (MW), used in the textile industry. Inearly 2015, Zhivago Brands Ltd designed the MW machine with thestrategic purpose of being distinct from its competitors. From thefeedback received at trade shows, the MW machine has been generallyregarded as a superior machine to others in the market. ZhivagoBrands Ltd presents the following performance for its accountingyears 1 January 2016 to 30 December 2016 as well as 1 January 2017to 30 December 2017.
Table 1 â Performance Details For 2-YearPeriod
2016
2017
Units of MW produced and sold
300
315
Selling price
$60,000
$63,000
Direct materials (kilograms)
450,000
465,000
Direct materials cost per kilogram
$13.20
$14.03
Manufacturing capacity in units of
375
375
Total conversion costs
$3,000,000
$3,037,500
Conversion cost per unit of capacity
$12,000
$12,150
Customer number capacity for selling and customer-service
150
143
Total selling and customer-service costs
$1,500,000
$1,410,750
Selling and customer-service capacity cost per customer
$15,000
$14,850
Details of activity levels and costs included inabove figures
2016
2017
Production staff training costs
$16,500
$20,500
Order and checking costs for returning materials tosuppliers
$1,350
$340
Late delivered penalty of MW delays caused by suppliers
$1,600
$410
table 2- Measures of activitylevels
2016
2017
Turnover of staff numbers
3
5
Number of staff training hours
125
135
Number of late delivered of MW
6
2
Number of times faulty materials returned to suppliers
9
2
Number of new customers
56
21
Number of repeat order purchases by existing customers
3
4
Number of suggestions from employees
12
26
Zhivago Brands Ltd produces no defective machines but it didexperience some material quality issues from its suppliers. Itwants to reduce direct materials usage per MW machine in2017. Conversion Costs in each year depending on productioncapacity defined in terms of MW units that can be produced, not theactual units produced. Selling and customer-service costs depend onthe number of customers that Zhivago Brands can support, not theactual number of customers it serves. Zhivago Brandshas75customers in 2016 and 80 customers in 2017.
Required
1. Identify the business strategy adopted by ZhivagoBrands and explain briefly how you reached your decision on thetype of business strategy adopted. 2. Calculate the GrowthComponent analysis of strategic profitabilityanalysis.
(Include whether Favourable or Unfavourable for Qs 2 to5).
3. Calculate the Price-Recovery component of strategicprofitability analysis.
4. Calculate the productivity component of strategicprofitability analysis.
5. Calculate the variance in operating profit forZhivago Brands Ltd for the 2016-2017 accounting years.
6. Provide one measure from any of the above tables foreach of the four Balanced Scorecard perspectives. Relate yourmeasure to its perspective.
Case Study 1:
Zhivago Brands Ltd makes a special-purpose horse and dog rugsewing machine, Multiweaver (MW), used in the textile industry. Inearly 2015, Zhivago Brands Ltd designed the MW machine with thestrategic purpose of being distinct from its competitors. From thefeedback received at trade shows, the MW machine has been generallyregarded as a superior machine to others in the market. ZhivagoBrands Ltd presents the following performance for its accountingyears 1 January 2016 to 30 December 2016 as well as 1 January 2017to 30 December 2017.
Table 1 â Performance Details For 2-YearPeriod | 2016 | 2017 |
Units of MW produced and sold | 300 | 315 |
Selling price | $60,000 | $63,000 |
Direct materials (kilograms) | 450,000 | 465,000 |
Direct materials cost per kilogram | $13.20 | $14.03 |
Manufacturing capacity in units of | 375 | 375 |
Total conversion costs | $3,000,000 | $3,037,500 |
Conversion cost per unit of capacity | $12,000 | $12,150 |
Customer number capacity for selling and customer-service | 150 | 143 |
Total selling and customer-service costs | $1,500,000 | $1,410,750 |
Selling and customer-service capacity cost per customer | $15,000 | $14,850 |
Details of activity levels and costs included inabove figures | 2016 | 2017 |
Production staff training costs | $16,500 | $20,500 |
Order and checking costs for returning materials tosuppliers | $1,350 | $340 |
Late delivered penalty of MW delays caused by suppliers | $1,600 | $410 |
table 2- Measures of activitylevels | 2016 | 2017 |
Turnover of staff numbers | 3 | 5 |
Number of staff training hours | 125 | 135 |
Number of late delivered of MW | 6 | 2 |
Number of times faulty materials returned to suppliers | 9 | 2 |
Number of new customers | 56 | 21 |
Number of repeat order purchases by existing customers | 3 | 4 |
Number of suggestions from employees | 12 | 26 |
Zhivago Brands Ltd produces no defective machines but it didexperience some material quality issues from its suppliers. Itwants to reduce direct materials usage per MW machine in2017. Conversion Costs in each year depending on productioncapacity defined in terms of MW units that can be produced, not theactual units produced. Selling and customer-service costs depend onthe number of customers that Zhivago Brands can support, not theactual number of customers it serves. Zhivago Brandshas75customers in 2016 and 80 customers in 2017.
Required
1. Identify the business strategy adopted by ZhivagoBrands and explain briefly how you reached your decision on thetype of business strategy adopted. 2. Calculate the GrowthComponent analysis of strategic profitabilityanalysis.
(Include whether Favourable or Unfavourable for Qs 2 to5).
3. Calculate the Price-Recovery component of strategicprofitability analysis.
4. Calculate the productivity component of strategicprofitability analysis.
5. Calculate the variance in operating profit forZhivago Brands Ltd for the 2016-2017 accounting years.
6. Provide one measure from any of the above tables foreach of the four Balanced Scorecard perspectives. Relate yourmeasure to its perspective.
