cost ch 11

# cost ch 11 - 112 1. The banks strategic position is defined...

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Unformatted text preview: 112 1. The banks strategic position is defined by elements of all three general strategies. Broadening the market and selecting customer segments are focusing strategies. Offering special services to selected customer segments is both focusing and differentiation. Finally, improving process efficiency and eliminating nonproductive costs have some cost leadership elements. However, it appears that focusing and differentiation are more strongly emphasized than cost leadership. 2. Cost management was useful in identifying the profitable customer segments that were chosen to be emphasized. A key role for strategic cost management is the identification of sources of profitability. The ABC customer profitability analysis defined the five customers, allowing bank executives to decide which ones should be emphasized. Additionally, cost management will continue to serve an important role in strategic positioning. First, it can be used to assess the profitability success of targeted markets and customer segments. Second, it can be used to help identify opportunities for cost reduction so that the differentiation and focusing strategies have a greater chance of creating a competitive advantage. 115 1. Supplier cost: First, calculate the activity rates for assigning costs to suppliers: Inspecting components: \$1,200,000/1,000 = \$1,200 per sampling hour Expediting work: \$960,000/100 = \$9,600 per order Reworking products: \$6,844,500/1,500 = \$4,563 per rework hour Warranty work: \$21,600,000/4,000 = \$5,400 per warranty hour Next, calculate the cost per component by supplier: Supplier cost: Grayson Lambert Purchase cost: \$144 200,000......................... \$ 28,800,000 \$129 800,000......................... \$ 103,200,000 Inspecting components: \$1,200 20............................... 24,000 \$1,200 980............................. 1,176,000 Expediting work: \$9,600 10............................... 96,000 \$9,600 90............................... 864,000 Reworking products: \$4,563 90............................... 410,670 \$4,563 1,410.......................... 6,433,830 Warranty work: \$5,400 200............................. 1,080,000 \$5,400 3,800.......................... 20,520,000 Total supplier cost.......................... \$ 30,410,670 \$ 132,193,830 Units supplied.................................. 200,000 800,000 Unit cost..................................... \$ 152.05 * \$ 165.24 * *Rounded to the nearest cent. The difference favors Grayson; furthermore, when the price concession is considered, the cost of Grayson is \$143.05, which is much less than the Lambert component. Aldredge should give serious consideration to accepting the contractual offer made by Grayson. The savings are in the millions....
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## This homework help was uploaded on 04/18/2008 for the course ACCT cost taught by Professor Staff during the Spring '08 term at Oklahoma State.

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cost ch 11 - 112 1. The banks strategic position is defined...

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