Question

In: Accounting

Case Study 1: Zhivago Brands Ltd makes a special-purpose horse and dog rug sewing machine, Multiweaver...

Case Study 1:

Zhivago Brands Ltd makes a special-purpose horse and dog rug sewing machine, Multiweaver (MW), used in the textile industry. In early 2015, Zhivago Brands Ltd designed the MW machine with the strategic purpose of being distinct from its competitors. From the feedback received at trade shows, the MW machine has been generally regarded as a superior machine to others in the market. Zhivago Brands Ltd presents the following performance for its accounting years 1 January 2016 to 30 December 2016 as well as 1 January 2017 to 30 December 2017.

Table 1 — Performance Details For 2-Year Period

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 in above figures

2016

2017

Production staff training costs

$16,500

$20,500

Order and checking costs for returning materials to suppliers

$1,350

$340

Late delivered penalty of MW delays caused by suppliers

$1,600

$410

table 2- Measures of activity levels

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 did experience some material quality issues from its suppliers. It wants to reduce direct materials usage per MW machine in 2017. Conversion Costs in each year depending on production capacity defined in terms of MW units that can be produced, not the actual units produced. Selling and customer-service costs depend on the number of customers that Zhivago Brands can support, not the actual number of customers it serves. Zhivago Brands has75customers in 2016 and 80 customers in 2017.

Required

1. Identify the business strategy adopted by Zhivago Brands and explain briefly how you reached your decision on the type of business strategy adopted. 2. Calculate the Growth Component analysis of strategic profitability analysis.

(Include whether Favourable or Unfavourable for Qs 2 to 5).

3. Calculate the Price-Recovery component of strategic profitability analysis.     

4. Calculate the productivity component of strategic profitability analysis.   

5. Calculate the variance in operating profit for Zhivago Brands Ltd for the 2016-2017 accounting years.

6. Provide one measure from any of the above tables for each of the four Balanced Scorecard perspectives. Relate your measure to its perspective.

Solutions

Expert Solution

1. Zhivago Brand had used the cost effective Strategy for the business, as it coud be seen from the data given that by increase in the staff training cost, the brand had reduced the number of ate deivery of materia, number of fauty materia returned was reduced. Thus by doing the cost effective that increasing the training cost which in turns increase the quaity of service of brand the other cost were reduced and the erformance is increased that coud be seen from the above data that number of order from same customer is increased.

2. Growth com : (Units of 2017 - Units of 2016 ) * Rate of 2016

(315-300) * $ 60000 = $9,00,000 ( F)

3. Rate Recovery Com : ( Rate of 2017 - Rate of 2016 ) * Actua Units of 2017

( $ 63000- $ 60000) *315 = $ 9,45,000, ( F)

4. Units increased from 300 to 315, It means there is 5% increase in units. Materia Used is 4,50,000 Kg. for 300 Units. So now for 315 Units materia required is ( 4,50,000 *1.15) = 4,72,500

Actua Materia used is 4,65,000 Kg Hence The Com : ( 4,65,000 Kg - 4,72,500 Kg ) * 14.03 = $ 1,05,225 ( F)


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