Superior Manufacturing Co. Harvard Case Solution & Analysis

Superior Manufacturing Co. Case Study Solution

This report will provide the solutions to the problems occurred at Superior Manufacturing Company.As the company had introduced standardized costing system, strengths and weaknesses have also been discussed and the recommendations have also been made. Moreover, analyzing company’s sales by different perspectives such as adding values and decreasing values has also been done in order to identify that how much cost is needed to cover the losses being incurred in the company.

Appendices show the level of profitability of all product lines. Moreover, it also shows the effects of selling 100,000 additional units to each product line.

Analysis

To analyze the case, following questions have to be answered:

Question 1:

Based on the 2004 statement of profit and loss data (Exhibits 1 and 2), do you agree with Water’s decision to keep product 103?

As per the data given in Exhibit 1&2, there is no agreement with the Water’s decision as the Product 103 has higher cost than other two products. All indirect costs and direct costs have more implementation on development of Product 103. Moreover, the number of units sold of this product line is lesser than other two products. Despite of the highest selling price of this product, revenue generated through Product 103 is lesser than other two products. Consequently, the net loss of Product 103 is the highest among all products. Therefore, the company should withdraw this product and use same resources to concentrate on other product’s development so that less cost is implemented on other products and company could generate higher profits.

Question 2:

Should Superior lower as of January 1, 2006 its price of product 101? To what price?

As the industry is facing a competitive environment, and company’s biggest competitor is decreasing its price of Product 101 to$22.50.However, the company is earning a small amount of $1.40 on its product. Moreover, it’s the only product line in which company is operating positively.

However, to compete with Samra Company, Superior Manufacturing have a margin of $1.40, which can be forgiven in order to have a strong competition in the market. But, if the company would sell its product on cost that is $22.88, it cannot reach to competitors selling price. Therefore, company should apply any strategy to decrease its cost and to compete strongly in the market.

Superior Manufacturing Co. Harvard Case Solution & Analysis

Question 3:

Why did Superior improve profitability during the period January 1 to June 30, 2005? How useful was the data in Exhibit 4 for the purpose of this analysis?

As the traditional cost system was changed and standard cost system was introduced in early 2005, it improved the profitability of the company. Under this cost system, standard cost per unit was based on last fiscal year’s actual cost per unit, in which anticipated costs were adjusted. Per unit standard cost determines a finished product of 100 lb.

The data provided in exhibit 4 was very useful for the company as it determined the costs which were favorable and unfavorable to the costs structure and the foundation of new standard costing system introduced to the company. Moreover, this data was used for analyzing the performance of cost structure, valuation of inventories and for preparing budgets for coming years. This data would help the company to make more favorable decision and determine the unfavorable costs and eliminate the min order to generate more profitability.

Question 4:

Why is it important that Superior has an effective cost system? What is your overall appraisal of the company’s cost system and its use in reports to management? List the strengths and weaknesses of this system and its related reports for the purposes management uses the system’s output. What recommendations, if any, would you make to Waters regarding the company’s cost accounting system and its related reports?

The company is facing loss and strong competition for many years. Moreover, some strong decisions have also been made in few years. Therefore, it is very important for the further establishment of the company to make effective decision which is favorable itself and its future. As it has been operating in a competitive market and facing loss from last few years, therefore, development of effective cost system is very important for the company to generate profits and facilitate company with growth and prosperity................

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