Question 1:

Black Falcon Pty Ltd makes premium range dog biscuits used to provide high level nutrition for dogs, which it introduced to the market in 2016 in the highly competitive premium dog food market. Black Falcon realises that it would be competing against well-known brands that have held market share based on their reputation for many years. From the feedback received at trade fairs during 2017, Black Falcon has been generally regarded as an equal standard of quality as the other premium providers. However, the product was initially provided at a low introductory price to encourage customers and retailers to purchase Black Falcons dog food. Black Falcon is now seeking to increase the price each year as the firms reputation grows.

Black Falcon produces very few defective products and insists upon the highest quality materials from its suppliers. Conversion Costs in each year depend on production capacity defined in terms of units that can be produced, not the actual units produced. Selling and customer-service costs depend on the number of customers that Black Falcon can support, not the actual number of customers it serves. See Table 1 below for information.

Table 1 - Performance and cost details for 2-year period	2018	2019
Number of bags produced and sold	13500	15000
Selling price	$125	$135
Direct materials (20 kilograms per bag)	540,000	630,000
Direct materials cost per kilogram	$2.00	$2.10
Units of Manufacturing practical capacity	15,000	15,000
Total conversion costs	$129,000	$132,000
Conversion indirect overhead cost per unit of capacity (Standard fixed capacity cost per unit)	$8.60	$8.80
Customer number capacity for selling and customer-service	4,300	4,200
Total selling and customer-service costs	$8,200	$7,600
Selling and customer-service capacity cost per customer (Standard fixed capacity cost per unit)	$1.91	$1.81

REQUIRED:

1. Identify the business strategy adopted by Black Falcon PtyLtdand explain briefly how you reached your decision on the type of business strategy adopted.
2. Calculate the operating profit for the two accounting years.
3. Prepare the variances for the change in profit between the two years due to the growth strategy.
4. Prepare the variances to reconcile the change in profit between for the two accounting years due to the productivity strategy.
5. Discuss the change in Black Falcons operating profitfor the two accounting years.