Question

Question 1 (word limit: 800 words)

Adam has decided to purchase a sewing machine. He has two choices: Poppy and Iris. The sewing machines sold by Poppy and Iris offer the same features (work space, stitch quality and quietness, automatic end-of-stich features, easy to learn, lightning, and so on). Both are mail-order companies with good reputations. Both sewing machines sell for the same price. To help him make a decision, Adam gets more information on the two machines from the respective company websites. He discovers that the cost of operating and maintaining Poppy over a two-year period is estimated to be $400. For Iris, the operating and maintenance cost is $650. The sales information for Poppy emphasized the lower operating and maintenance costs. While the website for Iris, however, emphasized the service reputation of the product and the faster delivery time (Iris can be purchased and delivered one week sooner than Poppy). Based on all the available information, Adam has decided to buy Iris.

Required:

1. What are the strategic positions of the two companies (Poppy and Iris) and how do they differ?

(2 marks)

2. When asked why he decided to buy Iris, Adam responded, “I think that Iris offers more value than Poppy”. What are possible sources of this value?    

(2 marks)

3. Suppose that Adam’s decision was prompted mostly by the desire to receive the machine quickly. Informed that it was losing sales because of the longer time to produce and deliver its products, the management of Poppy decided to improve delivery performance by improving its internal processes. These improvements decreased the number of defective units and the time required to produce its product. Consequently, delivery time and costs both decreased, and the company was able to lower its prices on Poppy machines.

Explain how these actions translate into strengthening the competitive position of the Poppy machine relative to the Iris machine. Also discuss the implications for the management accounting information system (i.e. what sort of information should be collected and reported?).                                                                                        

(5 marks)

                                                                                                                        Total: 9 marks

Answer 1

1.) Both Poppy and Iris offers same features and also having same selling price (as given in question) , the difference is related to cost to operate and maintain the swing machine. Poppy's cost to operate and maintain the swing machine is $400 for the period of two years and Iris's  cost to operate and maintain the swing machine is $650. Prima Facie cost of operating and maintaining Iris's is higher than of Poppy but Iris supply machine two weeks sonner than Poppy.

Accordingly, if there is more demand of the product than Adam will need sewing machine at earliest so in that case he should go for machine from Iris even though cost to operate and maintain the swing machine is higher but it will helpful to fulfill the demand and it will lead to increase in profit.

On the other hand if demand is normal or less than it will be beneficial for him to go with Poppy.

2.) If Poppy delivers sewing machine in less time then it will be beneficial for Adam to purchase fro Poppy as both delivery time of the machine and consequently it will lead to decrease defective units and time require to produce the unit.

Hence, if Poppy delivers sewing machine in less time, machine should be purchased from Poppy.