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12-21
12-21 Strategy, Balanced Scorecard, and Merchandising Operation. 1. Gianni & Sons' Strategy Gianni & Sons is a T-shirt wholesaler who buys T-shirts in bulk, applies a design, and sells to retail stores at a premium price. Gianni’s strategy is one of product differentiation due to two primary reasons. Firstly, the company wishes to be known for their distinctive, influential, and innovative Gianni T-shirt. Additionally, Gianni aims to target the product to a specific market - teenagers. 2. Balanced Scorecard - Key Measures Financial Perspective Income measures: Increase operating income and gross margin percentage by increasing T-shirt selling price. Reasoning: Growth in these measures suggests Gianni & Sons can charge a premium price due to effective product differentiation. Customer Perspective Retail T-shirt return rate, market share percentage of premium T-shirts, customer satisfaction survey ratings, and the customer-retention percentage. Reasoning: Progress in these critical measures can provide Gianni with an increase market share and, in turn, an increase operating income. Internal-Business-Process Perspective Innovation Process: Number of new T-shirt designs and new-product development times. Operations Process: Number of defective T-shirts due to silk-screening and other T-shirt customizations. Reasoning: Offering new T-shirts designs faster without decreasing quality will improve customer satisfaction and, in turn, increase market share, and operating income. Learning-and-Growth Perspective Employee measures: Develop employee silk-screening skills, employee-satisfaction ratings, and employee turnover rates. Reasoning: Progress in the employee measures provide Gianni improvements in the design and silk-screening process which, in turn, increases customer satisfaction, market share, and operating income.
12-22
| Favorable | |||||||||
| Variance | |||||||||
| Unfavorable | |||||||||
| Gianni & Sons | 1. Operating Income Statement | ||||||||
| 2016 | 2017 | 2016 | 2017 | ||||||
| Units of Input | 215,000 | 245,000 | Revenues | $ 6,000,000.00 | $ 6,975,000.00 | ||||
| Units of Scrap | 15,000 | 20,000 | Costs | ||||||
| Units of Output | 200,000 | 225,000 | Direct Materials | $ 3,225,000.00 | $ 3,185,000.00 | ||||
| Average Selling Price | $ 30.00 | $ 31.00 | Conversion Costs | $ 1,633,500.00 | $ 1,593,750.00 | ||||
| Average Input Cost | $ 15.00 | $ 13.00 | Total Costs | $ 4,858,500.00 | $ 4,778,750.00 | ||||
| Actual Units of Capacity | 4,500 | 4,250 | Operating Income | $ 1,141,500.00 | $ 2,196,250.00 | ||||
| Conversion Costs | $ 1,633,500.00 | $ 1,593,750.00 | |||||||
| Conversion Cost Per Customer | $ 363.00 | $ 375.00 | Change in Operating Income | $ 1,054,750.00 | |||||
| Actual Number of Customers | 3,600 | 3,500 | |||||||
| 2. Growth Component | Price-Recovery | Productivity | |||||||
| Revenue Effect of Growth = | $ 750,000.00 | Revenue Effect of Price-Recovery = | $ 225,000.00 | Direct Materials Costs = | $ 40,625.00 | ||||
| Conversion Costs = | $ 93,750.00 | ||||||||
| Direct Materials Costs = | $ 483,750.00 | ||||||||
| $ 241,875.00 | Conversion Costs = | $ 54,000.00 | $ 53,125.00 | ||||||
| Cost Effect of Price-Recovery = | $ 429,750.00 | ||||||||
| Cost Effects of Growth Component | |||||||||
| Direct Materials Costs = | $ 403,125.00 | Revenue Effect of Price-Recovery = | $ 225,000.00 | ||||||
| Conversion Costs = | $ - 0 | Cost Effect of Price-Recovery = | $ 429,750.00 | ||||||
| Cost Effect of Growth = | $ 403,125.00 | Change in O.I. Due to Price-Recovery = | $ 654,750.00 | ||||||
| Revenue Effect of Growth = | $ 750,000.00 | ||||||||
| Cost Effect of Growth = | $ 403,125.00 | ||||||||
| Change in O.I. Due to Growth = | $ 346,875.00 | ||||||||
| Revenue | $ 6,000,000.00 | $ 750,000.00 | $ 225,000.00 | - | $ 6,975,000.00 | ||||
| Costs | $ 4,858,500.00 | $ 403,125.00 | $ 429,750.00 | $ 53,125.00 | $ 4,778,750.00 | ||||
| Operating Income | $ 1,141,500.00 | $ 346,875.00 | $ 654,750.00 | $ 53,125.00 | $ 2,196,250.00 | ||||
| Change in Operating Income | $ 1,054,750.00 |
Units of Input Required to Produce 2017 Output in 2016 =
Change in O.I. Due to Productivity =
Income Statement Amounts in 2016
Revenue & Cost Effects of Growth in 2017
Revenue & Cost Effects of Price-Recovery in 2017
Cost Effect of Productivity in 2017
Income Statement Amounts in 2017
3. Analysis In 2017, Gianni & Sons' differentiation strategy proved to be effective and successful. All three components of Growth, Price-Recovery, and Productivity produced favorable variances in operating income. The company increased productivity and sales, despite charging a higher, premium price.