Strategy (cost leader or value leader) and profitability analysis

R and R Industries (RR) manufactures the 'KinuRest' mattress from a special covering called Kinutex-infused fabric. The fabric is proven to promote a restful night's sleep and increased comfort. Additionally, the Kinutex-infused fabric generates kinetic infrared heat to provide a warm sleep.

R and R patented this process with the 'Baby Boomer' generation in mind. This is the demographic of the population between the ages of 57 and 75. They are the market that is most likely to place an emphasis on purchasing a mattress with comfort plus warmth. They are also the market that is most willing to pay the high sales price of this product. As a result, RR's sales have been increasing at a steady rate.

The mattresses are sold in retail outlets across the country that specialize in mattress and bedding products. While loyal, long-time customers can get a special price discount, the KinuRest mattress never goes on sale.

In the past year, RR's research and development team has been partnering with ABC Textiles (ABC), its supplier of Kinutex-infused fabric. ABC changed its manufacturing process to improve the rate that kinetic energy transfers to infrared heat. RR and ABC shared in the additional cost per metre of fabric resulting from the upgrade. This also resulted in the need to use more packing material per mattress.

During the year, RR was able to streamline its operations. As such, it was able to remove a strapping machine from its manufacturing process which reduced overhead costs.

Required

a.State R and R Industries' strategy. Identify three points from the case that give evidence that supports your choice and explain why they support your choice.

b.Return on investment is a financial measure that can be used to assess the financial success of an investment centre. Explain 1 advantage and 1 disadvantage of using return on investment when assessing the success of R and R Industries' operations. Your answer should be specific to R and R's situation.

c.Two of the Balanced Scorecard perspectives are listed in the first column of the table below. For each perspective, fill in the following:

A measure that is specific to the R and R's strategy identified in part (a) (1 mark)

Why is this measure important to R and R? Your explanation must relate specifically to R and R.

Perspective Identify a measure specific to R and R Industries Why is this measure important to R and R industries?

Customer ? ?

Learning and Growth ? ?

d. The following strategic analysis of operating income was taken from R and R's last two years of operations. | Price Product- Growth Recovery ivity 2019 2020 Revenue $1.520,000 |$570,000 | F $330,000 | F 0 $2 420.000 Costs Direct materials 840.000 240,000| U 220.000 | U 68,000|U 1.158,000 Conversion costs 560,000 0 0 40,000 F 520,000 Selling/cust senjon capacity costs 27.000 0 0 27,000 Total costs $1.227.000 |$240,000 |U $220.000|U $18,000|U $1.705,000 Operating income $ 203.000 $330,000 |F | $110.000 |F $18,000 | U $ 715,000 Using information from the case and data from the strategic analysis, answer the following Growth Price Recovery Productivity Based on the case, explain what likely caused the (Not applicable as productivity only focuses change in on costs) total revenue. Based on the case, explain what likely caused the change in total direct materials cost Based on the case, explain what likely caused the (No change in costs (No change in costs change in here) here) conversion cost