A start-up company struggles to understand its operating margins. How much of the large monthly fluctuations in margins is real and how much is caused by its costing system? Skim the section on The Genomics Analysis Market on pages 1-3 of the case but pay attention to the information on competitive position.
Case Questions:
1. Work the Youngstown Products numerical example on the following page. (This should take only a few minutes and is basically a short refresher on a phenomenon we saw in the Bridgeton case.) Answer is inline in Youngstown case question.
2. The cartridge margins shown in Tables A and B vary from 17% to 65%. What elements of cost account for the difference between the 2000 Actual and 2001 Budget margins in Table A? What elements of cost account for the difference between the margins in the original 2001 Budget in Table A versus the revised 2001 Budget in Table B? For each element, why do you think costs changed between 2000 and 2001 between the original and revised budgets in 2001? What would you predict for each cost in the long-run? The elements account for the difference between 2000 Actual and 2001 Budget are the estimated material and scrap cost, overhead cost based on cartridge production volume. Revised material and scrap cost, overhead cost account for the difference between original and revised 2001 Budget in Table B. The estimated and actual production volume affects each element of cost. Larger volume means lower per unit cost. In long-run, the cost should approach to a steady level.
3. Kelly, Puleski, and Yeltin meet to discuss concerns about both “long-term profitability of the business” and “short-term profitability.” Discuss how well the current standard cost systems helps the board and analysts distinguish and understand these two issues. The current system doesn’t do well at estimating the cost. The estimated material and scrap cost, overhead cost depends