Question

Can you assist with below and show all work?

question 1)

Grey Corp makes a special-purpose D4H machine used in the textile industry. Grey has designed the D4H machine in 2018 to be distinct from its competitors. It has been generally regarded as a superior machine. Grey presents the following data or the years 2018 and 2019.

2018 2019

1. Units of D4H produced and sold 200   210
2. Selling Price $40,000 $42,000
3. Direct Materials(Kilograms) 300,000 310,000
4. DM cost per Kilogram $8.00 $8.50
5. Manufacturing Capacity(untis of D4H) 250 250
6. Total Conversion Cost $2,000,000 $2,025,000
7. Conversion cost per unit of capacity $8,000 $8,100
8. Selling and Customer service Capacity 100 customers 95 customers
9. Total Selling and Customer service costs $1,000,000 $940,500
10. Selling and Customer Service cost per customer $10,000 $9,900
11. Design Staff 12 12
12. Total Design Cost $1,200,000 $1,212,000
13. Design Cost Per Employee $100,000 $101,000

Grey Produces no defective machines, but it wants to reduce direct materials usage per D4H machine in 2019. Manufacturing conversion cost each year depend on production capacity defined in terms of D4H units that can be produced, not the actual units of D4H produced. Selling and Customer service costs depend on the number of customers that Grey can support, not that actual number of customers Grey serves. grey has 75 customers in 2018 and 80 customers in 2018. At the start of each year, management uses its discretion to determine the number of design staff for the year. The design staff and costs have no direct relationship with the quantity of D4H produced or the number of customers to whom D4H is sold.

Required.

A) is Grey's strategy one of product differentiation or cost leadership? Explain briefly?

B) Describe briefly key elements that you would include in Greys BSC(balance scorecard) and the reasons for doing so?  

Hello, i have seen your comment and reviewed the question and there is no other information provided.

Thanks,

Hi, the text book is "Cost Accounting Managerial Emphasis 8th Edition" Problem 13-18.

Hi there,

what else would you need? i have included everything from the question.

Answer 1

Answer A)

The strategy adopted by Grey corp is clearly a product differentiation strategy rather than cost leadership strategy.

Under cost leadership strategy, companies offer "standard" products with relatively little differentiation that are readily acceptable to the majority of customers. Occasionally, a low-cost leader will also discount its product to maximise sales, particularly if it has a significant cost advantage over the competition and, in doing so, it can further increase its market share.

However under product differentiation strategy, companies aim to achieve competitive advantage through product differentiation across the whole of an industry. This is done usually thru superior product quality (features, benefits, durability, reliability).

In the given case, Grey corp's D4H machine is distinct from the machines offered by its competitors and is of superior quality. Therefore it is able to sell the machine at premium price. In 2019, selling price is increased from $40,000 to $42,000. Despite that, Grey corp was able to sell 10 more machines in 2019 (210) compared to 2018 (200). This clearly indicates the product differentiation of D4H machine in the market.

Answer B)

Following can be included in balance scorecard of Grey corp:

Perspective of Balance scorecard	Content for Grey corp’s case
Financial perspective	The company strategy of product differentiation along with focus on cost reduction has resulted in following gains: Increase in selling price of product by 5% from $40,000 to $42,000 Despite the increase in selling price, sales volume has increased by 5%. The company sold 210 machines in 2019 compared to 200 machines in 2018. The company has been able to reduce actual material usage per machine by 2% in 2019 compared to 2018. (refer workings below for details) The company has been able to reduce actual conversion cost per machine by 4% in 2019 compared to 2018. (refer workings below for details)
Customer Perspective	The company has relentless focus on customer service. As a result, the company has added 5 customers in 2019. The company now has 80 customers in 2019 compared to 75 in 2018. The company has produced no defect machines. However, looking at growth in business, the company must increase the customer service capacity.
Internal business perspective	The company has identified reduction in direct material usage as an objective to grow the net earnings.

Workings:

	2018	2019	% change
Units produced and sold   (A)	200	210
Material (kg)   (B)	300,000.00	310,000.00
Usage per machine   (B/A)	1,500.00	1,476.19	-2%

	2018	2019	% change
Units produced and sold   (A)	200	210
Total conversion cost (B)	2,000,000.00	2,025,000.00
conversion cost per unit (B/A)	10,000.00	9,642.86	-4%