Relevant Information:
Three products:
A: six manual assembly operations
50% of labor usage
B: 3 machining and 3 assembly steps
30% of labor usage
C: 9 steps done on automatic numerically controlled machines
20% of labor usage
Labor usage seemed to represent usage of capacity
Company charged each product for its share of other costs according to the amount of labor the product used
All costs= $100 million
Price is set at 10% above cost.
Background:
a. As an internal auditor of Narnia Inc, I am providing future estimates of the companies performance, determining weather the company will be prosperous in the future and in what direction the company should take in regards to management and expansion of production.
b. Objectives of the organization are to maximize shareholder value, while remain ethical
As an individual would be to provide a strong quantitative and qualitative analysis for your supervisor while determine if the profit is worth expansion
c. The readers are head executives and board of governors
d. Size up:
What industry do you operate in: manufacturing and sales of tangible goods
How does the organization compete? Originally the organization competed on the unique product and differentially, whereas competitors are specializing. Once competitors enter the market Narnia is competing: if a customer purchases all three products from Narnia it would cost them $160.60 in comparison if they were the buy the products from the three separate companies it would cost $171.60. Eleven dollars difference (after expansion).
Compete based on their lower price of product C from competitor company Z and same pricing as product B with company Y, more established in the market (first mover advantage)
What are the constraints: The products offered by Narnia and companies XYZ are similar and substitutes. Narnia does not have a method to allocate the other costs precise product that it originates from compared to competitors
Key success factors: Narnia produced the product first, first mover advantage, developed customer base, experience in producing the product. Narnia offers a product that is in demand shown through their consistent sales. It is cheaper to buy products ACB from Narnia instead of buying the products from XYZ
History of company: Narnia moved into the market first, has been around for 6 months, Narnia was not able to match demand with the products so competitors joined the market. The product that Narnia sells is in high demand
Company Values:
Environment and the economy: operate in a competitive environment with a high demand for products they produce. Appears to be a lucrative business, the product is marked up 10%, it is an affordable market
Major issues: the new competitors specifically company X entering the market are producing similar products to Narnia’s pricing them slightly below Narnia’s products. (Penetration pricing) and stealing their market share
Now that the three new competitors has entered the market there is potential to be greater supply than demand
Company X is more efficient than Narnia at producing product A because their total costs are significantly lower
Key issue:
