Question: Refer to Problem 13-30. As a
Refer to Problem 13-30. As a result of the actions taken, quality has significantly improved in 2011 while rework and unit costs of the Mini have decreased. Music Master has reduced manufacturing capacity because capacity is no longer needed to support rework. Music Master has also lowered the Mini’s selling price to gain market share and unit sales have increased. Information about the current period (2011) and last period (2010) follows:
Conversion costs in each year depend on production apacity defined in terms of units of Mini that can be produced, not the actual units produced. Selling and customer-service costs depend on the number of customers that Music Master can support, not the actual number of customers it serves. Music Master has 70customers in 2010 and 80 customers in 2011.
Required:
1. Calculate operating income of Music Master Company for 2010 and 2011.
2. Calculate the growth, price-recovery, and productivity components that explain the change in operating income from 2010 to 2011.
3. Comment on your answer in requirement 2. What do these components indicate?
Data from Problem 13-30:
Music Master Company manufactures an MP3 player called the Mini. The company sells the player to discount stores throughout the country. This player is significantly less expensive than similar products sold by Music Master’s competitors, but the Mini offers just four gigabytes of space, compared with eight offered by competitor Vantage Manufacturing. Furthermore, the Mini has experienced production problems that have resulted in significant rework costs. Vantage’s model has an excellent reputation for quality, but is considerably more expensive.
Required:
1. Draw a simple customer preference map for Music Master and Vantage using the attributes of price, quality, and storage capacity.
2. Is Music Master’s current strategy that of product differentiation or cost leadership?
3. Music Master would like to improve quality and decrease costs by improving processes and training workers to reduce rework. Music Master’s managers believe the increased quality will increase sales. Draw a strategy map as in Exhibit 13-2 describing the cause-and-effect relationships among the strategic objectives you would expect to see in Music Master’s balanced scorecard.
4. For each strategic objective suggest a measure you would recommend in Music Master’s balanced scorecard.
Exhibit 13-2:
Transcribed Image Text:
2010 2011 1. Units of Mini produced and sold 2. Selling price 3. Ounces of direct materials used 8,000 9,000 $45 $43 32,000 33,000 4. Direct material cost per ounce 5. Manufacturing capacity in units 6. Total conversion costs 7. Conversion cost per unit of capacity (row 6 = row 5) 8. Selling and customer-service capacity 9. Total selling and customer-service costs 10. Selling and customer-service capacity cost per customer (row 9 ÷ row 8) $3.50 $3.50 12,000 $156,000 11,000 $143,000 $13 $13 90 customers 90 customers $45,000 $49,500 $500 $550 FINANCIAL PERSPECTIVE Increase Grow operating shareholder income value CUSTOMER Increase Increase PERSPECTIVE customer- market satisfaction share INTERNAL- BUSINESS- PROCESS Improve manufacturing quality and productivity Reduce delivery time to customers Meet specified delivery dates Improve post-sales service PERSPECTIVE Improve manufacturing capability Improve processes Align employee and organization goals Enhance Develop LEARNING AND GROWIH process skill information system capabilities PERSPECIIVE Empower workforce
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