$1, 500,000Operating income for 2016Add growth componentDeduct price-recovery componentAdd productivity componentOperating income for 201791,000(82,000)145,000$1, 654,000The industry market size for electric motors did not grow in 2017, input prices did not change, and Pinewayreduced the prices of its motors.1. Was Pineway's gain in operating income in 2017 consistent with the strategy you identified in require-ment 1 of Exercise 12-19?2. Explain the productivity component. In general, does it represent savings in only variable costs, onlyfixed costs, or both variable and fixed costs?Required 1. Is Pineway's 2017 strategy one of product differentiation or cost leadership? Explain briefly.2. Ramsey Corporation, a competitor of Pineway, manufactures electric motors with more sizes andfeatures than Pineway at a higher price. Ramsey's motors are of high quality but require more timeto produce and so have longer delivery times. Draw a simple customer preference map as in Ex-hibit 12-1 for Pineway and Ramsey using the attributes of price, delivery time, quality, and designfeatures.RequiredDraw a strategy map as in Exhibit 12-2 with at least two strategic objectives you would expect to see undereach balanced scorecard perspective. Identify what you believe are any (a) strong ties, (b) focal points,(c) trigger points, and (d) distinctive objectives. Comment on the structural analysis of your strategy map.For each strategic objective indicate a measure you would expect to see in Pineway's balanced score-card for 2017.3.4.

Question
Asked Jan 23, 2020
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Analysis of growth, price-recovery, and productivity components (continuation of 12-19). An analysis of Pineway’s operating-income changes between 2016 and 2017 shows the following:

Reference:

Balanced scorecard. Pineway Electric manufactures electric motors. It competes and plans to grow by selling high-quality motors at a low price and by delivering them to customers in a reasonable time after receiving customers’ orders. There are many other manufacturers who produce similar motors. Pineway believes that continuously improving its manufacturing processes and having satisfied employees are critical to implementing its strategy in 2017.

$1, 500,000
Operating income for 2016
Add growth component
Deduct price-recovery component
Add productivity component
Operating income for 2017
91,000
(82,000)
145,000
$1, 654,000
The industry market size for electric motors did not grow in 2017, input prices did not change, and Pineway
reduced the prices of its motors.
1. Was Pineway's gain in operating income in 2017 consistent with the strategy you identified in require-
ment 1 of Exercise 12-19?
2. Explain the productivity component. In general, does it represent savings in only variable costs, only
fixed costs, or both variable and fixed costs?
Required
help_outline

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$1, 500,000 Operating income for 2016 Add growth component Deduct price-recovery component Add productivity component Operating income for 2017 91,000 (82,000) 145,000 $1, 654,000 The industry market size for electric motors did not grow in 2017, input prices did not change, and Pineway reduced the prices of its motors. 1. Was Pineway's gain in operating income in 2017 consistent with the strategy you identified in require- ment 1 of Exercise 12-19? 2. Explain the productivity component. In general, does it represent savings in only variable costs, only fixed costs, or both variable and fixed costs? Required

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1. Is Pineway's 2017 strategy one of product differentiation or cost leadership? Explain briefly.
2. Ramsey Corporation, a competitor of Pineway, manufactures electric motors with more sizes and
features than Pineway at a higher price. Ramsey's motors are of high quality but require more time
to produce and so have longer delivery times. Draw a simple customer preference map as in Ex-
hibit 12-1 for Pineway and Ramsey using the attributes of price, delivery time, quality, and design
features.
Required
Draw a strategy map as in Exhibit 12-2 with at least two strategic objectives you would expect to see under
each balanced scorecard perspective. Identify what you believe are any (a) strong ties, (b) focal points,
(c) trigger points, and (d) distinctive objectives. Comment on the structural analysis of your strategy map.
For each strategic objective indicate a measure you would expect to see in Pineway's balanced score-
card for 2017.
3.
4.
help_outline

Image Transcriptionclose

1. Is Pineway's 2017 strategy one of product differentiation or cost leadership? Explain briefly. 2. Ramsey Corporation, a competitor of Pineway, manufactures electric motors with more sizes and features than Pineway at a higher price. Ramsey's motors are of high quality but require more time to produce and so have longer delivery times. Draw a simple customer preference map as in Ex- hibit 12-1 for Pineway and Ramsey using the attributes of price, delivery time, quality, and design features. Required Draw a strategy map as in Exhibit 12-2 with at least two strategic objectives you would expect to see under each balanced scorecard perspective. Identify what you believe are any (a) strong ties, (b) focal points, (c) trigger points, and (d) distinctive objectives. Comment on the structural analysis of your strategy map. For each strategic objective indicate a measure you would expect to see in Pineway's balanced score- card for 2017. 3. 4.

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Expert Answer

Step 1

Cost Leadership Strategy:

 This is a strategy in which a firm distinguishes it by lowering the market prices. The increase in price results in losses while there is an increase in the share of the market due to lower prices which increases the income. The cost is also saved from the productivity improvement.

Step 2

1.

Determine whether the gain in operating income in 2017 is consistent with the strategy identified.

The gain in operating income is consistent with the cost leadership strategy and the reasons for this are as follows:

  • The strategy of cost leadership lowers the price of the product in the market and it reduces costs through better and efficient manufacturing processes.
  • The increase in productivity of producing the products results in lowering the costs. The productivity component is of $145,000.
  • The price of the product reduces resulting in losses which have been captured in the product recovery component of $82,000 assuming that the cost of inputs remains the same.
  • The units sold increase due to the decreased p...

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