Strategic Cost Management - Tailoring Controls to Strategies

Question

1. How would you categorize the three products in terms of the BCG matrix and Porter's low cost/product differentiation categories? Are there inconsistencies between BCG and Porter and, if so, can you resolve them?

(i) In terms of BCG matrix:

For yellow Clearbrite dye, as it had high market share which accounted for average about 50% share of its business from 1996 to 2003 and high market growth, it could be categorized as stage between “star” and “cow”.

For blue Clearbrite dye, as it had middle near high market share which accounted for 49%, 36% and 22% share of its business in 2001, 2002 and 2003 respectively and high market growth, it could be categorized as “question mark”.

For red Clearbrite dye, as it had high market share which accounted for 36%, 45% and 43% share of its business in 2001, 2002 and 2003 respectively and low market growth, it could be categorized as “cow”.

     In terms of Porter’s low cost/product differentiation categories:

For yellow Clearbrite dye, as it was provided to customers at the lowest cost with low price, it could be categorized as “low cost” category.

For blue Clearbrite dye, as it was provided to customers at the high price and had better capacity than its competitors, it could be categorized as “product differentiation” category.

For red Clearbrite dye, as it was provided to customers at the high price and owned special patent, it could be categorized as “product differentiation” category.

(ii) For yellow Clearbrite dye, according to above answer, it could be categorized as “star” in terms of BCG matrix and “low cost” in terms of Porter’s theory. For “star” category, it often means the business is in its growth stage of its product life cycle. However, for “low cost” category, it often occurs when the business in the maturity or decline stage of its product life cycle. In my opinion, this may be the inconsistence between BCG and Porter. In order to resolve this problem, for yellow Clearbrite dye, it can reallocate its resources and change its competitive advantage from low cost to product differentiation, this could bring it more long time life cycle.

1. Calculate the return on assets (ROA) for the Clearbrite product line. Do you consider ROA an appropriate measure for Clearbrite? (Note that Clearbrite only represents part of Monarch. You need to break down the aggregate figures for Monarch to get to Clearbrite's results.)

Sales for Clearbrite:

1.285[pic 1]

Variable product cost for Clearbrite:

1.285[pic 2]

Contribution margin for Clearbrite:

32.1468-14.7386 = $17.4082 million

Fixed manufacturing expense for Clearbrite:

1.285[pic 3]

 million[pic 4]

Manufacturing profit for Clearbrite:

17.4082-=$ 11.3665 million[pic 5]

Now assume: Clearbrite is about 10% of Monarch products. Then:

Plant-level selling and Admin. Expense: 1.88 million

Profit before tax for Clearbrite:

11.3665- 1.88=$ 9.4865 million

Return on Asset for Clearbrite product line: