Deck 13: Strategy, Balanced Scorecard, and Strategic Profitability Analysis

Question 1

Dubai Kitchens Company makes a household appliance with model number X500. The goal for 2015 is to reduce direct materials usage per unit. No defective units are currently produced. Manufacturing conversion costs depend on production capacity defined in terms of X500 units that can be produced. The industry market size for appliances increased 10% from 2014 to 2015. The following additional data are available for 2014 and 2015:
Which strategy is Dubai Kitchen's Corporation pursuing?

A) Product differentiation, because total conversion costs decreased.
B) Cost leadership, because the selling price decreased.
C) Cost leadership, because direct material costs per square foot increased.
D) Product differentiation, because the units produced and sold increased.

Answer 1

Cost leadership, because the selling price decreased.

Question 2

An operating income analysis of Mubin Incorporated revealed the following:

Reynolds' operating income gain is consistent with the:

A) cost leadership strategy
B) product differentiation strategy
C) reengineering strategy
D) downsizing strategy

Answer 2

cost leadership strategy

Question 3

An operating income analysis of Moroccan Holidays Company revealed the following:

Moroccan Holidays' operating income gain is consistent with the:

A) reengineering strategy
B) product differentiation strategy
C) downsizing strategy
D) cost leadership strategy

Answer 3

product differentiation strategy

Question 4

Answer the following questions using the information below:
Dubai Kitchens Company makes a household appliance with model number X500. The goal for 2015 is to reduce direct materials usage per unit. No defective units are currently produced. Manufacturing conversion costs depend on production capacity defined in terms of X500 units that can be produced. The industry market size for appliances increased 10% from 2014 to 2015. The following additional data are available for 2014 and 2015:


-What is operating income for 2014?

A) $750,000
B) $1,000,000
C) $700,000
D) $450,000

Question 5

Answer the following questions using the information below:
Dubai Kitchens Company makes a household appliance with model number X500. The goal for 2015 is to reduce direct materials usage per unit. No defective units are currently produced. Manufacturing conversion costs depend on production capacity defined in terms of X500 units that can be produced. The industry market size for appliances increased 10% from 2014 to 2015. The following additional data are available for 2014 and 2015:


-What is operating income for 2015?

A) $486,000
B) $476,000
C) $726,000
D) $1,045,000

Question 6

Answer the following questions using the information below:
Dubai Kitchens Company makes a household appliance with model number X500. The goal for 2015 is to reduce direct materials usage per unit. No defective units are currently produced. Manufacturing conversion costs depend on production capacity defined in terms of X500 units that can be produced. The industry market size for appliances increased 10% from 2014 to 2015. The following additional data are available for 2014 and 2015:


-Overall, was Dubai Kitchens' strategy successful in 2015?

A) Yes, because operating income increased.
B) No, because more units were produced and sold.
C) No, because the selling price per unit decreased.
D) Yes, because less direct materials were used.

Question 7

Answer the following questions using the information below:
Sharjah Kitchens Company makes a household appliance with model number X200. The goal for 2015 is to reduce direct materials usage per unit. No defective units are currently produced. Manufacturing conversion costs depend on production capacity defined in terms of X200 units that can be produced. The industry market size for appliances increased 10% from 2014 to 2015. The following additional data are available for 2014 and 2015:


-What is the cost effect of the price-recovery component?

A) $2,500 F
B) $30,500 F
C) $31,500 U
D) $33,000 U

Question 8

Answer the following questions using the information below:
Following a strategy of product differentiation, Loftus Company makes a high-end Appliance, AP15. Loftus Company presents the following data for the years 2014 and 2015:
Loftus Company produces no defective units but it wants to reduce direct materials usage per unit of AP15 in 2015. Manufacturing conversion costs in each year depend on production capacity defined in terms of AP15 units that can be produced. Selling and customer-service costs depend on the number of customers that the customer and service functions are designed to support. Loftus Company has 46 customers in 2014 and 50 customers in 2015. The industry market size for high-end appliances increased 5% from 2014 to 2015.

-What is operating income for 2014?

A) $364,500
B) $1,440,000
C) $200,000
D) $1,804,500

Question 9

Answer the following questions using the information below:
Following a strategy of product differentiation, Loftus Company makes a high-end Appliance, AP15. Loftus Company presents the following data for the years 2014 and 2015:
Loftus Company produces no defective units but it wants to reduce direct materials usage per unit of AP15 in 2015. Manufacturing conversion costs in each year depend on production capacity defined in terms of AP15 units that can be produced. Selling and customer-service costs depend on the number of customers that the customer and service functions are designed to support. Loftus Company has 46 customers in 2014 and 50 customers in 2015. The industry market size for high-end appliances increased 5% from 2014 to 2015.

-What is operating income in 2015?

A) $200,000
B) $1,804,500
C) $364,500
D) $1,440,000

Question 10

An analysis of Red Sea Corporation's operating income changes between 2014 and 2015 show the following:

Required:
Is Red Sea's operating income gain consistent with the product differentiation or cost leadership strategy? Explain briefly.

Question 11

An analysis of Captain Ayman Corporation's operating income changes between 2014 and 2015 show the following:

Required:
Is Captain Ayman's operating income gain consistent with the product differentiation or cost leadership strategy? Explain briefly.

Question 12

Following a strategy of product differentiation, Sting Corporation makes a high-end computer monitor, CM7. Sting Corporation presents the following data for the years 2012 and 2013:
Sting Corporation produces no defective units but it wants to reduce direct materials usage per unit of CM7 in 2013. Manufacturing conversion costs in each year depend on production capacity defined in terms of CM7 units that can be produced. Selling and customer-service costs depend on the number of customers that the customer and service functions are designed to support. Sting Corporation has 100 customers in 2012 and 115 customers in 2013. The industry market size for high-end computer monitors increased 5% from 2012 to 2013.
Required:
a. What is operating income for 2012?
b. What is operating income in 2013?
c. What is the change in operating income from 2012 to 2013?

Question 13

Following a strategy of product differentiation, Sting Corporation makes a high-end computer monitor, CM7. Sting Corporation presents the following data for the years 2012 and 2013:
Sting Corporation produces no defective units but it wants to reduce direct materials usage per unit of CM7 in 2013. Manufacturing conversion costs in each year depend on production capacity defined in terms of CM7 units that can be produced. Selling and customer-service costs depend on the number of customers that the customer and service functions are designed to support. Ernsting Corporation has 100 customers in 2012 and 115 customers in 2013. The industry market size for high-end computer monitors increased 5% from 2012 to 2013.
Required:
a. What is the revenue effect of the growth component?
b. What is the cost effect of the growth component?
c. What is the net effect on operating income as a result of the growth component?

Question 14

Following a strategy of product differentiation, Sting Corporation makes a high-end computer monitor, CM7. Sting Corporation presents the following data for the years 2012 and 2013:
Sting Corporation produces no defective units but it wants to reduce direct materials usage per unit of CM7 in 2012. Manufacturing conversion costs in each year depend on production capacity defined in terms of CM7 units that can be produced. Selling and customer-service costs depend on the number of customers that the customer and service functions are designed to support. Ernsting Corporation has 100 customers in 2012 and 115 customers in 2013. The industry market size for high-end computer monitors increased 5% from 2012 to 2013.
Required:
a. What is the revenue effect of the price-recovery component?
b. What is the cost effect of the price-recovery component?
c. What is the net effect on operating income as a result of the price-recovery component?
d. What is the net effect on operating income as a result of the productivity component?

Question 15

Ali Company provided the following information:

What is the partial productivity ratio?

A) 0.97 units per gallon
B) 1.06 units per gallon
C) 1.12 units per gallon
D) 1.02 units per gallon