BEA2017 Intermediate Management Accounting its Strategy
Required:
Titanium Operations
1) Is Titanium’s strategy one of product differentiation or cost leadership? Explain.
2) Calculate the change in Titanium’s operating income in 2015 and 2016.
3) Calculate the growth, price-recovery, and productivity components of changes in operating income between 2015 and 2016.
4) Does the strategic analysis of operating income indicate Titanium was successful in implementing its strategy in 2016? Explain.
5) Determine whether the plan for downsizing the current cafeteria operation would be acceptable to Titanium Corporation. Show all calculations.
6) Is the Delicious Foods proposal more advantageous to Titanium Corporation than the downsizing plan? Show all calculations.
7) Provide a recommendation given the case facts and your analysis.
8) Pay attention to detail within your answers in terms of spelling, grammar, and formatting.
Answer:
Part 1: Titanium operations
1. Product differentiation versus cost leadership strategy:Product differentiation could be defined as a marketing procedure, which showcases the variances between products. The intention is to depict a product more attractive compared to the other competing products (Dopson & Hayes, 2016). Effective product differentiation h
elps in developing competitive advantage for the seller of the product, since the customers view the product as superior or unique. On the other hand, cost leadership strategy implies an organisation that minimises production costs in relation to its competitors so that lower prices could be charged for its products compared to the other organisations operating in the same industry. With the help of cost leadership strategy, it becomes possible to exploit production scale, well-defined scope and other economies, using advanced technology and manufacturing highly standardised products (Weygandt, Kimmel & Kieso, 2015). These patterns constitute of greater customer service, simultaneous cost leadership as well as product leadership and thus, the concept of cost leadership is deemed to be different from price leadership.
From the provided case study, it has been identified that Titanium has evaluated two alternatives, which include downsizing cafeteria staff and providing a minimised menu or contracting with an external vendor. This implies the presence of cost-cutting measures across the organisation in order to maintain competitive prices of its products.
2. Change in Titanium’s operating income:From the above analysis, it is evident that Titanium has been able to raise its operating profit. This is primarily due to the improvisation in cost optimisation or productivity (Horngren et al., 2016). Hence, it could be stated that Titanium has been successful in implementing its strategy in the year 2016.
Part 2: Titanium support function
5. Acceptance of the plan for downsizing the current cafeteria operation:It has been identified from the provided information that Titanium would continue subsidising its reduced operation; however, it would not incur above 20% of the existing subsidy. In this case, the subsidy of downsized operation is computed as 24.04%, which is more than 20% of the current subsidy. Therefore, Titanium would not accept the downsized operation.
6. Evaluation of whether Delicious Foods proposal is more advantageous to the Titanium Corporation than the downsizing plan:
As the subsidy under current or downsized operation is greater than subsidy under outsourced operation; therefore, it is more beneficial for Titanium Corporation.
7. Recommendations:
After considering all the provided facts and calculations conducted, outsourcing alternative could be recommended to Titanium Corporation. This is because this alternative would help in maximising its revenue base as well as minimising its expenses, which would lead to rise in profit margin (Vladychyn, 2017). If Titanium decides to outsource its operations, the cafeteria services could be obtained at lower subsidised cost in comparison to the current or downsized operation. Therefore, the organisation needs to opt for outsourcing alternative so that it could earn maximum profit.
References:
Dopson, L. R., & Hayes, D. K. (2016). Managerial accounting for the hospitality industry. Wiley Global Education.
Horngren, C. T., Datar, S. M., Rajan, M. V., Beaubien, L., & Graham, C. (2016). Cost accounting: A managerial emphasis (7th Canadian ed.). Toronto, Canada: Pearson Canada Inc.
Vladychyn, M. (2017). Using Managerial Accounting Tools for Analysis, Control and Operative Regulation of the Foreign Trade Activities of Trading Enterprises. Accounting and Finance, 72(4), 20-27.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Financial & managerial accounting. John Wiley & Sons.
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