Blue Ridge

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Blue Ridge Manufacturing is a company selling and producing “sport towels” for the US market. Most of these towels are distributed in connection with major sporting events or commercial promotions such as soft drink, beer. Blue Ridge’s customers are mostly in southeastern states, and divided into three groups: large, medium and small. Towels supplied for these customers are produced in large volume at a “medium” quality. Its manufacturing is a modern plant with upgraded facilities accompanied by activity-based costing system. Those advanced manufacturing techniques ensure the company’s competence and high volume production. These are characteristics of the cost leadership strategy, in which firm produces commodity at low price to attract larger portion of market. Thus, Blue Ridge’s current competitive strategy is cost leadership. However, Blue Ridge recently makes a break-through in developing the ink, which is non-toxic and won’t wash out. Due to these characteristics of this new ink, Blue Ridge intends to upgrade its towel quality and sell its product at higher price. Market and sales area will expand nationally to support for this strategy. All these suggest the company’s efforts to move to a differentiation strategy in the future. Currently, to determine product cost, Blue Ridge is applying the activity based costing system, which is consistent with cost leadership strategy. This accounting system facilitates the company to determine more accurate cost for each product line as well as identify customer profitability. To assess the profitability of the three customer groups of Blue Ridge-large, medium and small customer account sizes, Blue Ridge should firstly assign factory overhead to each type of customer, and then analyze each group’s profitability by deducting its cost from its sales. For factory overhead, Blue Ridge needs to assign selling and administrative costs (SG & A) to SG & A activities, and then, assign these SG &A...
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