Required:

1. What is the generic strategy of Family Smallgoods Pty Ltd? Based on the generic strategy, is their approach to deal with a new competitor appropriate? Why or why not?

2. What should the target cost be if the management wishes to match the competitors price and maintain its existing markup?

Case Study 1A: New competitor on the market Family Smallgoods Pty Ltd, is a successful family-owned manufacturer of meat products located in Melbourne West. Recently, the management of Family Smallgoods noticed a rapidly downward trend in the sales of one of the company's unique and high-volume product, Gourmet Sausages. Gourmet Sausages sells for $14.00 per 750-pack based on a cost-plus pricing system. Prices are based on cost plus a 40 percent markup. The management employed a consultant to investigate as to why the sales of Gourmet Sausages are falling. The consultant informed the management that a new competitor entered the market recently. The competitor offers a similar product for $12.50 per 750- gram pack. The consultant advised the management to reduce the price to match the price of the competitor or offer a more superior product to the competitor's one. The management decided to reduce the price. However, in order to reduce the price, the cost of making the Gourmet Sausages also needed to be reduced. Over a number of weeks, the management were collecting the data in order to understand the processes and whether any cost reduction can be achieved. The following table contains the information for Gourmet Sausages: Table 1: The bill of activities for Gourmet Sausages Monthly Volume: 5,000 packs Quantity of Activity Cost per unit of Activities Driver Used Activity Driver Inspect meat 20 inspections $60/inspection Dispose of substandard meat 500 kilograms $2/kilogram Move to mincing room 60 barrow-loads $16/ barrow Load mincer* 40 loads $54/load Operate mincer 3,000 kilograms $1/kilogram Unload mincer* 40 loads $42/load Move to mixing room 40 barrow-loads $18/barrow Load mixer* 60 loads $40/load Operate mixer 60 loads $80/load Unload mixer* 60 loads $32/load Move to packing room 60 barrow-loads $10/barrow Pack meat into skins 5,000 skins $1/skin Move to smokehouse 100 trolley-loads $8/trolley Move to truck 100 trolley-loads $20/trolley Direct material cost per unit 4.352