Question

The firm Forgotten Legends produces specialty eleven-sided dice as well as a related product: role-playing games. Specialty eleven-sided dice have $151,000 in revenue, and role-playing games have $2,000,000 revenue.

Costs for specialty eleven-sided dice are $275,000, and costs for role-playing games are $1,750,000.

If the firm drops specialty eleven-sided dice, then revenue for role-playing games will decrease by 5%. The firm cannot avoid $10,000 of the cost of producing specialty eleven-sided dice.

The firm's specialty eleven-sided dice are an important part of the firm's differentiation strategy.

Which of the following is TRUE?

	a.	This firm's differentiation strategy is irrelevant.
	b.	Because the firm's strategy is differentiation, there are THE SAME recommendations for both strategic cost analysis and relevant cost analysis.
	c.	There is not enough information to conduct either relevant cost analysis or strategic cost analysis in this problem.
	d.	Because the firm's strategy is differentiation, there are DIFFERENT recommendations for strategic cost analysis and relevant cost analysis.

Answer 1

The correct answer is d . Because the strategy is differentiation, there are different recommendations for strategic cost analysis and relevant cost analysis.

From the relevant cost perspective, it is better to drop eleven sided dice because it is a loss incurring product but from strategic differentiation point of view it is better to keep the product.

Hence the answer is d.