Horngren’s Cost Accounting A Managerial Emphasis 17th Global Edition by Srikant M. Datar test bank

THREE: Identifying most critical capability-whether it is technology, production or marketing.
FOUR: Checking the adequacy of cash available to fund the strategy, or will additional funds need to be raised-through issue of debt or equity.
Diff: 3
Objective:  2
AACSB:  Analytical thinking
 

 
21) Generally, companies follow one of two broad strategies:  offering a quality product at a low price, or offering a unique product or service priced higher than the competition.  Assume you are opening a small food outlet across the street from your campus.  How might that business be operated under each of the two broad strategies?  Consider the following specific operational areas:
 
a.    target customers
b.    products offered
c.     product pricing
d.    location choice
e.     advertising content
f.     advertising media
Answer:  The purpose of this question is to explore some of the differences in business operations as a result of a broad strategic choice.  Answers will differ from student to student, but you should see some specific themes.
 
Operational Area
Low Price Strategy
Differential Strategy

Target customers
Target customers might be students on a tight budget.
Target customers might be more wealthy students, faculty, or perhaps neighbors who live nearby.

Products offered
Few products, heavy emphasis on tight cost control, probably set up as a high volume operation.
High quality products, probably a reasonable choice, restaurant might have a lot of ambience.

Product pricing
Priced at or lower than the competition in the area.
Higher priced products.

Location choice
Convenient to the target customers.
Not as convenient, perhaps in a higher-end shopping or entertainment area.  Customers might seek out the high quality and be willing to travel a bit for it.

Advertising content
Advertising would emphasize the low price of the products offered.
Advertising would emphasize quality or ambience.

Advertising media
Media that would be looked at by the target customers, such as student newspapers.
Media that would be looked at by the target customer, local magazines and newspapers.

 
Diff: 3
Objective:  2
AACSB:  Application of knowledge
 

 
22) Generally, companies follow one of two broad strategies: offering a quality product at a low price, or offering a unique product or service priced higher than the competition. Is it possible to follow a strategy that is "in the middle"?
Answer:  There is some dispute about the correct answer to this question. Some will argue that it is not good for companies to get "caught in the middle" because the customer might get confused as to whether or not the company is competing on price or is trying to make some other appeal. If the customer is confused about how the company is giving them value, they might perceive they are getting no value and abandon the product to a competitor with a clearer customer value proposition. The other side of the argument is that cost management is a necessary part of any strategy and even if the company chooses to pursue a differential strategy, management of the company should always be seeking ways to manage costs and increase customer value simultaneously regardless of their strategy. The student should be able to articulate one or the other arguments coherently.
Diff: 3
Objective:  2
AACSB:  Application of knowledge
 
23) What competitive advantage could a company obtain from having a successful cost management program?
Answer:  There are three broad outcomes from a successful cost management program: 1) costs are reduced with no loss in customer value. In this scenario, a company might gain a competitive advantage by lowering its price with no loss in profit, or maintain the same price and increase profit; 2) customer value is increased with no change in costs. This scenario might increase customer satisfaction resulting in increased customer loyalty and perhaps increase the overall demand for the product; 3) customer value might be increased while costs are reduced simultaneously. This scenario would result in the benefits described in both 1) and 2).
Diff: 3
Objective:  2
AACSB:  Analytical thinking
 
Objective 1.3
 
1) R&D, production, and customer service are business functions that are all included as part of:
A) the value chain
B) benchmarking
C) customer relationship management
D) the supply chain
Answer:  A