Following a strategy of product differentiation, Westwood Corporation (W) makes a high-end kitchen range hood, KE8. W’s data for 2012 and 2013 follow on the next slide.In 2013, W produced no defective units and reduced direct materials usage per unit of KE8. Conversion costs in each year are tied to manufacturing capacity. Selling and customer service costs are related to the number of customers that the functions are designed to support. W has 23 customers (wholesalers) in 2012 and 25 customers in 2013.
Units of KE8 produced and sold 40,000 42,000
Selling Price $100 $110
Direct Materials (sq ft) 120,000 123,000
DM cost per sq ft $10 $11
Manufacturing capacity for KE 850,000units 50,000units
Conversion Costs $1,000,000 $1,100,000
CC per unit $20 $22
Selling & Customer Service capacity 30customers 29customers
Selling & Customer Service Costs$720,000 $725,000
Cost per customer$24,000 $25,000
Required:
(1) Describe elements you would expect to see in W’s BSC.
(2)Calculate the growth, price recovery and productivity components that explain the change in the 2012 to 2013 income. Can you use the worksheet to get the variances?(3) Suppose during 2013, the market size for high-end rangehoods grew 3% and all increases in market share are due to W’s product differentiation strategy. How much of the change in OI is due to the industry market size factor, cost leadership and product differentiation?
(4) How successful was the strategy implementation?