Cost accounting question:

QUESTIONS:

1. Why might Merino Designs choose to operate across all main components of the industry value-chain (highly vertically integrated)?
2. Differentiate between structural cost management (drivers) and executional cost management (drivers)

New Zealand produces fine quality merino wool garments that are highly sought after by the fashion industry. Merino Designs is a fully integrated company that operates in this industry. It has one particularly popular product in its range, the Merino Jacket. Merino Design management would like to understand the performance of this jacket across the varying value chain activities. With reference to the following table, provide an overview the financial performance of the different value chain activities of Merino Designs. Merino Designs-The Merino Jacket Sheep farming Revenue (wool kg) Costs: Operating costs $ 25.98 $ 19.59 $ 6.39 $175.97 24.6% $0.15 3.6% Sales/Assets ROA +$0.32 handling cost Knitting mills $ 152 $ 26.30 $ 22.50 $ 36.80 $ 8.60 $ 45.31 $ 12.49 $489.97 8.2% $0.31 2.596 Costs: Wool Sales/Assets- ROA Colour dying +$4.25 freight + $2.96 tax Accessories (buttons etc.) SG&A 11.3% $3.87 43.7% Costs: Knitted garments $159.21 $ 35.98 $ 24.81 $ 56.86 Sales/Assets- ROA Operating cost 6.7% $4.56 30.7% $220.00 $199.65 $ 30.35 98.68 Costs: Knitted garments Sales/Assets - ROA Operating costs The overall value chain $847.98 $ 74.04 $821.48 8.7% $1.32 9.0% Profit Sales/Assets - ROA