(continuation of Exercise 13-31). Suppose that during 2016, the market for ZP98 grew 8%. All increases in market share (that is, sales increases greater than 8%) are the result of Dransfield’s strategic actions.
Calculate how much of the change in operating income from 2015 to 2016 is due to the industry market-size factor, product differentiation, and cost leadership. How does this relate to Dransfield’s strategy and its success in implementation? Explain.
(continuation of Exercise 13-30). Refer to Exercise 13-30. Assume that in 2016, Dransfield has changed its processes and trained workers to recognize quality problems and fix them before products are finished and shipped to customers. Quality is now at an acceptable level. Cost per kilogram of materials is about the same as before, but conversion costs are higher, and Dransfield has raised its selling price in line with the market. Sales have increased and returns have decreased. Dransfield’s managers attribute this to higher quality and a price that is still less than Yorunt’s. Information about the current period (2016) and last period (2015) follows.
Conversion costs in each year depend on production capacity defined in terms of ZP98 units that can be produced, not the actual units produced. Selling and customer-service costs depend on the number of customers that Dransfield can support, not the actual number of customers it serves. Dransfield has 50 customers in 2015 and 60 customers in 2016. At the start of each year, management uses its discretion to determine the number of advertising staff for the year. Advertising staff and its costs have no direct relationship with the quantity of ZP98 units produced and sold or the number of customers who buy ZP98.
1. Calculate the change in operating income of Dransfield Company for 2015 and 2016.
2. Calculate the growth, price-recovery, and productivity components that explain the change in operating income from 2015 to 2016.
3. Comment on your answer in requirement 2. What do these components indicate?
Dransfield Company manufactures an electronic component, ZP98. This component is significantly less expensive than similar products sold by Dransfield’s competitors. Order-processing time is very short; however, approximately 10% of products are defective and returned by the customer. Returns and refunds are handled promptly. Yorunt Manufacturing, Dransfield’s main competitor, has a higher priced product with almost no defects, but a longer order-processing time.
1. Draw a simple customer preference map for Dransfield and Yorunt using the attributes of price, quality, and delivery time. Use the format of Exhibit 13-2 .
2. Is Dransfield’s current strategy that of product differentiation or cost leadership?
3. Dransfield would like to improve quality without significantly increasing costs or order-processing time. Dransfield’s managers believe the increased quality will increase sales. What elements should Dransfield include in its balanced scorecard?
4. Draw a strategy map like the one in Exhibit 13-3 to explain cause-and-effect relationships in Dransfield’s balanced scorecard.
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