Posted in Following a strategy of product differentiation, Westwood Corporation makes a high-end kitchen range hood, KE8. Westwood’s data for 2010 and 2011 follow:
|
2010 |
2011 |
|
|
Units of KE8 produced and sold |
40,000 |
42,000 |
|
Selling price |
$100 |
$110 |
|
Direct materials (square feet) |
120,000 |
123,000 |
|
Direct material cost per square foot |
$10 |
$11 |
|
Manufacturing capacity for KE8 |
50,000 units |
50,000 units |
|
Conversion costs |
$1,000,000 |
$1,100,000 |
|
Conversion cost per unit of capacity (row 6 ÷ row 5) |
$20 |
$22 |
|
Selling and customer-service capacity |
30 customers |
29 customers |
|
Selling and customer-service costs |
$720,000 |
$725,000 |
|
Cost per customer of selling and customer-service capacity(row 9 ÷ row 8) |
$24,000 |
$25,000 |
In 2011, Westwood produced no defective units and reduced direct material usage per unit of KE8. Conversion costs in each year are tied to manufacturing capacity. Selling and customer service costs are related to the number of customers that the selling and service functions are designed to support. Westwood has 23 customers (wholesalers) in 2010 and 25 customers in 2011.
1. Describe briefly the elements you would include in Westwood’s balanced scorecard.
2. Calculate the growth, price-recovery, and productivity components that explain the change in operating income from 2010 to 2011.
3. Suppose during 2011, the market size for high-end kitchen range hoods grew 3% in terms of number of units and all increases in market share (that is, increases in the number of units sold greater than 3%) are due to Westwood’s product-differentiation strategy. Calculate how much of the change in operating income from 2010 to 2011 is due to the industry-market-size factor, cost leadership, and product differentiation.
4. How successful has Westwood been in implementing its strategy? Explain.
