Tenalpina Tools: Product Line Profitbaility - HBR Case

Please provide product costs for hammers, pistons and rock nuts using activity based costing method to combine data on overhead.

Is the data Jeremy and Tenalpina using good? Why are they struggling for answers based on the exhibits and data presented?

Please provide recommendations for the management team at Tenalpina.

The Problem Bolton into the office. Granby was the production supervisor. "I feel like I must be missing something, Granby, or else something's wrong with our product margins," Giulia began. "I want you and Jeremy to help me talk through some conflicting data to see ifwe can unravel its source "Aren't we making money?" Granby responded. thought we were doing pretty well. Overall, certainly, we are doing well," said Giulia. "ButIwant us to be doing well on purpose not by mistake! Iinitially targeted about a 34% gross margin, and we are close. Now I see demand for the wall hammer is quite strong, and I believe we could sell even more if we were to line up more distributors. However, demand has been disappointing for the rock nuts right from the start. I was expecting to sell about 3,000 sets per month when they were set at a price to hit our target margin, but demand has becn closcr to 2,300 per month, and that's after lowering the price to $24.50 per set. Even with the price drop, I'm still getting pushback from our distributors. They say they just can't justify the price we charge when they can get equivalent ones from other manufacturers for less Jeremy asked whether competitors could be starting a price war on rock nuts, but Giulia countered that it wouldn't make much sense. "There isn't a fortune to be made on that product, so I doubt anyone would want to price low intentionally unless they had a lot of unused capacity," she said. "If they do have unused capacity, they may be pricing to cover variable costs. However, I'm more worried about competitors simply being able to make them for less and still maintaining a good gross margin. Maybe they are more efficient than we are If so, that could signal trouble for us in the future because rock nuts represent about 45% of our revenues. Granby pointed out that he belicved that the operation was pretty efficient at the current production levels. "And that efficiency argument doesn't hold up for the hammers. You aren't getting any complaints about price on them. In fact, you just said you think there is significant unmet demand." He paused for a moment and went on. "Of course, if all we made was rock nuts, we could be getting by with less equipment and fewer people, but who is going to dedicate a whole factory to just rock nuts? All kidding aside, just how is each product doing