Blue Ridge Case 5-4 Analysis

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AnalWhat is Blue Ridge’s Competitive strategy?
Blue Ridge’s strategy prior to the new ink would be cost leadership. This strategy is where a firm outperforms competitors in producing products or services at the lowest cost. Using an ABC costing system is evidence that the firm is attempting to accurately cost their products, and produce them at lower costs than competitors. ABC will also be used for more accurate information of each customer group, along with their profitability. Their limited selection of product lines is another example of why their strategy is cost leadership. However, the company is now innovating and creating a higher quality product, which is moving toward a differentiation strategy. This is a strategy in which a firm succeeds by developing and maintaining a unique value for the product or service as perceived by customers. The new ink is non-toxic and does not wash out like the old ink. This will add value to their “medium quality” product as well as their customers. The new ink is differentiating Blue Ridge’s product from their competitors. However, if they do not own a patent on the ink, it will be easy for competitors to imitate their product and Blue Ridge will no longer have a sustainable advantage. What type of cost system does Blue Ridge use, and is it consistent with their strategy? Blue Ridge uses an ABC costing system, which is consistent with their cost leadership strategy. ABC will help the firm determine accurate cost. As stated by Blocher on page 129, ABC is a costing approach that assigns resource costs to cost objects such as products, services, or customers based on activities performed for cost objects. The ABC costing system has several benefits, they include: Better profitability measures, better decision making, process improvement, cost estimation, and cost of unused capacity. ABC provides better profitability measures by providing accurate product cost, which will allow the firm to make more informed strategic...
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