Question

Part 1:

A) Pick two companies, go to their websites and identify their major

strategies.

B) Pick one of the companies from part (a) and go to the website of a

competitor in the same industry. Now compare the strategies of both

companies and list any similarities and differences.

Part 2:

Somerset Corporation makes a special-purpose machine, S4H, used in the textile

industry. Somerset has designed the S4H machine for 2018 to be distinct from its

competitors. It has been generally regarded as a superior machine. Somerset

presents the following data for 2017 and 2018.

2017 2018

Units of S4H produced and sold 5,000 5,500

Selling price $400 $440

Direct materials (pounds) 15,000 15,375

Direct materials costs per pound $40 $44

Manufacturing capacity for S4H (units) 10,000 10,000

Conversion costs $1,000,000 $1,100,000

Conversion costs per unit of capacity $100 $110

Selling and customer-service capacity (customers) 60 58

Total selling and customer-service costs $360,000 $362,500

Selling and customer-service capacity cost per customer $6,000 $6,250

Somerset produces no defective machines, but it wants to reduce direct materials

usage per S4H machine in 2017. Conversion costs in each year depend on

production capacity defined in terms of S4H units that can be produced, not the

actual units produced. Selling and customer-service costs depend on the number

of customers that Somerset can support, not the actual number of customers it

serves. Somerset has 75 customers in 2017 and 80 customers in 2018.

Required:

1. Is Somerset’s strategy one of product differentiation or cost leadership?

Explain briefly.

2. Describe briefly key measures that you would include in Somerset’s balanced

scorecard and the reasons for doing so.

3. Calculate the the revenue and cost effect of the price-recovery component, and

What is the net effect on operating income as a result of the price-recovery

component?