Stuart Daw Case

766 Words Dec 13th, 2011 4 Pages
Question 1

Is there a way to estimate the cost of services and product to customers such that Stuart’s Branded Foods can be competitive in their market? Use the illustrations of the two customers to demonstrate your approach. What would be the selling price per kit or per cup for each customer?

The costing approach should be based on per Transaction Basis rather than on per kit or per pound basis because of the following reasons:

• Current costs are allocated on a per kit basis, which is not an efficient cost allocation method.
• Operational costs should be same irrespective of number of kits.
• Equipment costs should be on a per kit basis as it depends on the number of kits sold.
• Operational costs including Personnel costs,
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What impact might it have upon the business strategy of the firm?

If Stuart Daw adopts the Transaction based Pricing Strategy it may face the following impact

On Performance:
• The price per cup for both small as well as large customers is reduced.
• It can maintain competitiveness in the large customer segment by maintaining 15% Profit Margin.
• Revenue stream generated from the customer segments may get impacted with changes in Transaction Costs and subsequently Price per Kit.
• Improved cost allocation will ensure that the company can maintain competitiveness without any appreciation in costs to customers.

On Strategy:
• The company should target to serve the large customer base with better profit margins and also choose to serve those small customers who are willing to pay the targeted price per kit.
• For difficult to serve small customers alternate and cost effective means of ordering, transporting and fulfilling the orders should be sought.
• Personnel costs, both direct and indirect should be brought under control.
• Promote bulk orders among the small customers so that effective price/cup for small customers can be brought down.

Question 3

What advice would you offer to Stuart Daw?

Our advice to Stuart Daw would be:
• Stuart Daw should adopt the new Transaction Cost allocation mechanism, which will enable it to remain competitive in the large customer segment.
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