Question
Perfect Brands Ltd makes a special-purpose machine, Multiweaver (MW), used in the textile industry. In early 2015, Perfect Brands Ltd designed the MW machine with
Perfect Brands Ltd makes a special-purpose machine, Multiweaver (MW), used in the textile industry. In early 2015, Perfect 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. Perfect Brands Ltd presents the following performance for its accounting years 1 July 2015 to 30 June 2016 as well as 1 July 2016 to 30 June 2017.
Table 1 performance details for 2-year period | 2016 | 2017 |
Units of MW produced and sold | 200 | 210 |
Selling price | $40,000 | $42,000 |
Direct materials (kilograms) | $300,000 | $310,000 |
Direct materials cost per kilogram | $8.80 | $9.35 |
Manufacturing capacity in units of | 250 | 250 |
Total conversion costs | $2,000,000 | $2,025,000 |
Conversion cost per unit of capacity | $8,000 | $8,100 |
Customer number capacity for selling and customer-service | 100 | 95 |
Total selling and customer-service costs | $1,000,000 | $940,500 |
Selling and customer-service capacity cost per customer | $10,000 | $9,900 |
Details of activity levels and costs included in above figures | 2016 | 2017 |
Production staff training costs | $12,500 | $13,500 |
Order and checking costs for returning materials to suppliers | $1,250 | $230 |
Late delivered penalty of MW delays caused by suppliers | $1,250 | $250 |
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 | 5 | 1 |
Number of times faulty materials returned to suppliers | 7 | 2 |
Number of new customers | 56 | 5 |
Number of repeat order purchases by existing customers | 3 | 2 |
Number of suggestions from employees | 16 | 25 |
Perfect 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 depend 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 Perfect Brands can support, not the actual number of customers it serves. Perfect Brands has 75 customers in 2016 and 80 customers in 2017
Analysis reveals the following information
Table 2 - Change in operating profit 2016 to 2017
Components of change | Effects | Dollar effect | Totals | ||||
The growth | Revenue effect on growth | A$400,000F | |||||
Direct cost effect on growth | A$132,000U | ||||||
Admin (fixed) cost on growth | A$ | 0 | |||||
Selling and customer services | A$ | 0 | |||||
A$268,000F | |||||||
The Price-Recovery | Revenue effect on Price-Recovery | A$420,000F | |||||
Direct cost effect on growth | $173,250U | ||||||
Manufacturing conversion costs | A$25,000U | ||||||
Selling and customer services | A$105,000F | ||||||
A$231,750F | |||||||
The productivity | Direct cost effect on growth | A$46,750F | |||||
Admin (fixed) cost on growth | A$ | 0 | |||||
Selling and customer services | A$49,500F | ||||||
A$96,250F | |||||||
Change in operating profit | A$596,000F |
Required:
1- Identify the business strategy adopted by Perfect Brands and explain briefly how you reached your decision on the type of business strategy adopted.
2- Calculate the operating profit for Perfect Brands Ltd for the 2015-2016 and 2016-2017 accounting years.
3- Comparing the information in Table 1 above. Prepare a comparative analysis for each of Perfect Brands' four balanced scorecard perspectives using the Information in Table 1 and Table 2.
a- Provide two actual financial or non-financial measures from these two tables for each of the four perspective, and
b- Preform a 2-year trend analysis using the actual financial or non-financial measures you have provided in requirement 3a and discuss the actual performance under each perspective between the 2 years.
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