Spinning Wheels Pty Ltd (SW) manufactures car and truck wheels. The company produces four basic, highvolume wheels used by manufacturers of large cars and trucks. SW also has two speciality wheellines, which are designed for use on expensive sports cars. SW costs all its products using a conventional volume-based costing system.

Lately, SW's profits have been declining. Foreign competitors have been underculting SW's prices in three of its four major product lines, and its sales and market share have fallen significantly. In contrast, SW's speciality wheels have been selling steadily, although in relatively sma ll numbers, in spite of three recent price Increases.

At a recent staff meeting, SW's managing director spoke about the issues faced by the company:

Our profits ore going down the tube. It costs us $30 to monufocture our X25 wheel. Thot's our best seller, with 0 volume lost yeor of 20000 units. But our chief competito bosed overseos, is se/ling essentiolly the some wheel for $28. They con 't be moking 0 profit. This is just onother exomple of 0 foreign compony dumping product on our shores. It's outrageous 'm going to write to my locol MP. The government needs to do something obout this!

On 0 bright note, thonk goodness for our speciolity whee/s. Our solespeople hove to push these whee/s more ond more. Toke the Z50 model, for exomple. It's a complicated thing to moke and we don't sell mny; but look ot the profit morgin. Those wheels cost us $50 to make and we're selling them for $110 eoch!

Q:

1. Do you think the managing director's remarks are valid? What do you think is contributing to the problems faced by SW?

2. Do you think the managing director's suggestion to push the sale of speciality wheels is a good one? Justify your response.

3. What would you recommend that SW do to help address its situation? Justify your recommendations.