Blue Ridge Manufacturing
Autor: lilmissa424 • February 8, 2018 • Case Study • 508 Words (3 Pages) • 735 Views
Marissa Mandle
February 20, 2018
ACCT511
Case I: Blue Ridge Manufacturing
Blue Ridge’s primary focus started out as being a cost leader. Organizations that use cost leadership as their competitive strategy (such as Walmart) focus on efficiency, low costs, lower quality, high volume sales, and high volume production. With that being said, Blue Ridge has made its first steps towards shifting towards differentiation by introducing a new high quality ink that will not wash out. Following this change, the company also seems to be trying to reach more customers across the country by placing ads in nationwide magazines and newspapers, which further shows its shift away from cost leadership towards differentiation. It hasn’t made the full switch yet, but it does show that it’s trying to shift into a different strategy category. Currently, Blue Ridge uses the ABC costing system which is typical of the cost leadership strategy. ABC assists in identifying the most profitable customers. Before using ABC, management had no way to identify each customer group’s profitability (large, medium, and small).
When we look at what needs to be determined to further assess the situation, the actual costs of selling and administrative need to be calculated. These numbers are in figure 1. Following that we need to determine cost drivers for related activities in all three customer groups; figure 2 shows this. Figure 3 shows the percentage of sales information. Figure 4 shows the cost driver percentages for each customer type. Figure 5 allocates activity costs to customer types. Figure 6 shows the sales and revenues per customer group.
In conclusion, the most profitable customer group is the large size because they have high revenues and low costs. Medium size are still profitable but it holds less revenue. The small size are the largest group for Blue Revenue, which is bad because their profits are negative. Blue Ridge should focus on the large size customer group because it holds the most profits for the firm. If they choose to go nationwide with their products, they need to figure out how to bring more profitability and less costs to the medium and small size groups.
Shipping | Sales | Marketing | Other | |
Entering purchase orders | $85,360 | $6,850 | ||
Commissions | $15,520 | |||
Shipping activities | $21,125 | $10,275 | ||
Invoicing | $13,700 | |||
Cost to make sales calls | $46,560 | $6,850 | ||
Checking credit | $6,850 | |||
Samples & catalog info | $1,625 | $2,970 | ||
Special handling charges | $1,625 | $3,425 | ||
Distribution management | $3,250 | $2,970 | ||
Marketing, by customer type | $7,760 | |||
Advertising/promotions | $8,910 | |||
Marketing | $4,875 | $14,850 | $3,425 | |
Admin office support | $13,700 | |||
Licenses & fees | $3,425 |
Figure 1 - Actual costs
Activity | Cost Driver |
Entering purchase orders | Number of orders |
Commissions | Sales dollars (medium) |
Shipping activities | Number of shipments |
Invoicing | Number of invoices |
Cost to make sales calls | Sales dollars (large) |
Checking credit | Percent of accounts > 60 days |
Samples & catalog info | Sales dollars |
Special handling charges | Management estimate (20% medium, 80% small) |
Distribution management | Sales dollars |
Marketing, by customer type | Sales dollars |
Advertising/promotions | Management estimate (25% medium, 75% small) |
Marketing | Number of units sold (excludes specials) |
Admin office support | Number of units sold (excludes specials) |
Licenses & fees | Sales dollars (medium) |
Figure 2 - Cost drivers
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