Quality: tutorial solutions

BEA2010 Managerial Accounting

Quality Metal Service Center




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Quality Metal Service Center

Objectives
• Case study: based on material covered in Lecture 3
• Identify and discuss QMSC’s strategy

• Discuss the proposal described in Exhibit 3
– Is the capital investment proposal attractive for
QMSC?
– Is it an attractive proposal for Ken Richards?
• Is ROA useful in evaluating district managers’ performance?




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, Quality Metal Service Center
• QMSC’s strategy
Porter’s five forces model
1. Supplier power is high
–There are only few, concentrated suppliers
– They are large and have lots of resources
– Ability to forward integrate
2. Buyer power is high
– The product is undifferentiated
– Customer loyalty is low
– Large size buyers have significant power since they can buy directly
from the mills
– Small to medium-sized companies have relatively less power
because:




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Quality Metal Service Center

• QMSC’s strategy
2. Buyer Power is high (cont.)
a. They cannot buy mill-level quantities and as a result they are
more dependent on the distributors
b. They do not buy large enough volumes to justify pre-production
processing equipment
3. Threat of substitutes is high
– There are suppliers selling to customers directly
– Substitute metal: aluminium
– Other materials: plastics, paper, glass and fiber-foil
4. Entry barriers are low
– Low capital intensity: leased space and moderate working capital




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