Mertz, SA, Has Done a Cost Analysis for Its Production of of Flags

question 59

Essay

Mertz, SA., has done a cost analysis for its production of flags. The following activities and cost drivers have been developed: $\begin{array}{ll}\text { Activity } & \text { Cost Formula } \\\text { Maintenance } & £ 13,000+£ 2 \text { per machine hour } \\\text { Machining } & £ 45,000+£ 6 \text { per machine hour } \\\text { Inspection } & £ 70,000+£ 500 \text { per batch } \\\text { Setups } & £ 2,000 \text { per batch } \\\text { Purchasing } & £ 80,000+£ 150 \text { per purchase order }\end{array}$ Following are the actual costs of producing 75,000 flags:
1,000 machine hours; 15 batches; 10 purchase orders $\begin{array}{lr}\text { Maintenance } & £ 14,000 \\\text { Machining } & 50,000 \\\text { Inspection } & 70,000 \\\text { Setups } & 32,000 \\\text { Purchasing } & 82,000\end{array}$

---

Definitions:

Organizational Strengths

Organizational strengths are the unique resources, capabilities, and positive attributes that enable an organization to achieve its goals and maintain a competitive advantage.

Failures of Substance

Refers to errors or mistakes due to inadequate knowledge, skills, or capabilities.

Strategy Selection

The process of choosing the most appropriate course of action for an organization to achieve its goals.

Sustainable Competitive Advantage

The ability to outperform rivals in ways that are difficult or costly to imitate.