Though low volume, custom print merchandise accounted for only 29.6 percent of unit based output, this marketplace segment contributed 34.6 percent from the firm's sales revenues. This relationship was just the reverse for high volume custom print and stock print products. Unit output and earnings contributions to your traditional strategy year are compared by marketplace segment in Table 1, below.
Unit Output and Revenue By Market Segment (Based on 1987 Projection From Past Sales Performance Under Conventional Strategy)
Unit Output/ High Volume, Low Volume, Stock PrintRevenue Custom Print Custom Print
Unit output 535 mil. 314 mil. 211 mil.
% Total output 50.5 29.6 19.9
Sales revenue $13.8 mil. $9.7 mil. $4.5 mil.
% Sales 49.3 34.6 16.1
Peak demand for high volume, custom print merchandise occurred from April through August. Product or service standardization, however, permitted the organization to produce
The firm's new strategy was a cropper on each in the major criteria incorporated to the strategy. The arbitrary "turn away loyal customers" decision rule was simply abominably stupid, and the decision to emphasize a minority segment on the firm's target industry was inexcusably short sighted. The firm's new strategy inferred that management would be happier using a high profit percentage even at the expense of lower absolute profits. In facet, even the profit percentage was lower. Suggested Changes to your Firm's Cost Procedure and the Firm's Strategy
Cooper, Robin, and Kaplan, Robert S. The Model of Cost Management Systems Englewood Cliffs, New Jersey: Prentice Hall, Inc., 1991.
The ability based cost procedure implemented by the company is based inside the practical capacity concept. As such, there is small danger that advertising and marketing will "give away the firm" through unrealistic pricing or that management will ignore excess ability cost.
As the statements of projected profit for 1987 under the a couple of price systems illustrate, the internet profit in 1987 isn't affected as extended as sales remain the same. If the lower price structure produced feasible by capability based costing does lead to higher sales, however, both gross and net profit will improve as the gross profit on increased sales is recognized. Inside process, some of the excess ability cost will shift from operating prices towards the cost of products sold.
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