- Scott Cook and Tom Proulx collected what is known as Primary Data. According to Professor Hossain from the website Spirkle Express Documents (2012), primary data, or raw data, is data that is collected through the process of investigation. Primary data is unfiltered and pertains directly to the field under investigation. In the course of their investigation, Scott and Tom became intimately aware of what their customers needed based on what is actually useful to them. Instead of creating a product that created a need, Scott and Tom created something that already is needed, that being personal finance management. I believe the most important learning that Scott and Tom received is how invaluable customer focus is in developing products. By concentrating on understanding their market, the duo was able to craft their corporate strategy to ensure business success. Their techniques such as the follow-me-home method of customer feedback enabled the company to modify its products and show to the clients how much they value how they feel about their offerings.
- If I were to do a consumer study, I would utilize primary data too to get a comprehensive understanding of the market. Primary data is expensive and often gets overwhelming, but the massive amount of information that one will receive and the additional insights one can derive will only result in better refinement of the business plan. Secondly, I would utilize focus groups to narrow down my client field. Scott and Tom used beta testers and invited customers for trial in controlled environments. This enabled them to address specific technical and commercial concerns. Controlling the field of questions, answers and solutions is critical because unlike broad-strokes primary data, it seeks to determine potential solutions. Lastly, constant feedback and evaluation is something that I would utilize. Sending out surveys (friendly, easy to accomplish, non-invasive surveys) would help me keep up with changes in the market and help me proactively manage the business.
- I believe that the survey would yield an answer of “highly attractive”. Based solely on the case facts, the annual sales of the company exceed US$ 3 billion and ranks as one of America’s most admired companies to work for. This indicates the size of the market that requires the products and services of the company. However, the case facts do not go beyond these statistics and to prove the attractiveness of the market, it would be essential to conduct more quantitative and qualitative research (such as external analysis using Porter’s 5 forces or other similar frameworks).
- In a more formalized way, Intuit could hire a market research company that could conduct all the market research activities for them. However, the company still conducts the same type of activities Scott and Tom did during their formative years because it has the necessary framework for conducting the study, the resources to implement its research, access to quality respondents, and does not need to do the research blindly meaning the research already indicates that it is being conducted by Intuit. If the company hired another firm to do this activity, they may lose their edge by way of customer feel and client relations.
Re: Recommendations on Activity Based Costing (ABC)
Dear Sir,
Based on the information provided in the company background and the provided financial model, I am recommending the following:
- Activity based costing should be adopted as the cost-accounting method for the company.
Activity based costing accounts for items based on their activities and not on the products. It identifies the respective activities in the entity and assigns each of them with their respective costs, depending on their consumption levels. Unlike conventional costing, activity based costing allocates overheads into ‘direct’ costs. The adoption of activity based costing complements the current accounting system of the company.
The main criticism of traditional costing is that it distorts costs because it uses a single, volume based cost driver thus which is often direct labor usage. This makes this cost system appear to report inaccurate product costs. The activity based system improves the control of overheads through a cost/cause relationship because it reports activities rather than individual cost items. This method is highly flexibility, which is sufficient to relate costs to processors, customers, and management responsibilities and not confined to products. It is scientific and defines manufacturing cycle times and improvements clearly.
For example, the case identifies the following costs:
The table summarizing each product as examined through traditional and ABC shows that the company can reduce its selling price for titanium frames and increase its price for carbon frames because their real costs are different from what is currently computed. Assuming no selling price changes are made, ABC shows the real level of profit for the company (see table below).
Traditional cost accounting shows that the profit is only 236,300 but ABC shows that it is in fact 237,100 with titanium frames contributing more than carbon frames. The real net income for titanium frames under ABC is 30% more than the traditional calculation but for carbon it is in fact 74% less than what the traditional method shows. This means that the company may explore the possibility of increasing the price for carbon frames to up its contribution and decrease the price of titanium to get more market share.
- The company should utilize the CVP analysis especially the break-even point of production.
The company’s breakeven point is at the point where the company is making zero profits and zero losses. It is calculated as follows:
T.R = T.C
P * X = TFC + V * X
P* X – V * X = TFC
(P-V) * X = TFC
X = TFC/P-V
Where:
T.C = Total Costs
T.R = Total Revenue
TFC =Total Fixed Costs
X = Sales
V = Unit Variable Cost
P = Unit Sales Price
The calculations for break-even units indicate that the number of units to break-even given the product mix is 2,201 units. This is composed of 786 carbon frames and 1,215 titanium frames. The break-even point in dollar value is 2,448,570.
Assuming costs increased by 10% for all direct materials and the fixed costs increase by another 50,000, the breakeven point for the sales mix increases by 1,053 units to 3,254. The break-even value also increases to 3, 61,900 with the cost additions.
With these findings, I believe that Competition Bikers will be better equipped to compete and regain lost profitability by next year.
Signed,
References
- Hossain, M. Breakeven Analysis. 2012. SBADecision Making Through Primary and Secondary Data. Retrieved from http://spirkleexpressdocuments.blogspot.com/2012/02/decision-making-through-primary.html
- Research Rockstar. 2013. DIY or Hire a Market Research Company. Retreived from http://www.researchrockstar.com/diy-or-hire-a-market-research-company/ HYPERLINK "http://www.sba.gov/content/breakeven-analysis" http://www.sba.gov/content/breakeven-analysis
- DeBare, I. 2010. How to Perform Break Even Analysis. Inc. Retrieved from HYPERLINK "http://www.inc.com/guides/2010/12/how-to-perform-a-break-even-analysis.html" http://www.inc.com/guides/2010/12/how-to-perform-a-break-even-analysis.html
- Difference Between. 2012. The Difference Between Job Costing and Process Costing. Retrieved from HYPERLINK "http://www.differencebetween.net/business/difference-between-job-costing-and-process-costing/" http://www.differencebetween.net/business/difference-between-job-costing-and-process-costing/
- Financial Calculators. 2012. Break Even Analysis. Retrieved from HYPERLINK "http://www.dinkytown.net/java/BreakEven.html" http://www.dinkytown.net/java/BreakEven.html
