Pure mountain water is a critical input to Power, a popular mountain climber’s d
ID: 2435318 • Letter: P
Question
Pure mountain water is a critical input to Power, a popular mountain climber’s drink. Competition, however, is fierce. Power Drink Inc. has been approached by Pure Mountain Water Inc. with a strategic partnering proposal that will reduce Power’s costs sufficiently to justify a higher price for mountain water. Pure Mountain could convert a water truck to a noncontaminated container truck to transport water directly after quality inspection. The cost for the container truck is $.10 per liter. The container truck is capable of pumping the water directly into the mixing tank for the mixing activity. How much can Pure Mountain Water reduce its price per liter and still maintain its profit from sales to Power? Information on the activities and the cost per liter for each activity is summarized below:
a. $.10
b. $.15
c. $.20
d. $.25
e. None of the above is correct.
2. Pure mountain water is a critical input to Power, a popular mountain climber’s drink. Competition, however, is fierce. Power Drink Inc. has been approached by Pure Mountain Water Inc. with a strategic partnering proposal that will reduce Power’s costs sufficiently to justify a higher price for mountain water. Pure Mountain could convert a water truck to a noncontaminated container truck to transport water directly after quality inspection. The cost for the container truck is $.10 per liter. The container truck is capable of pumping the water directly into the mixing tank for the mixing activity. What is the maximum price increase for the container truck water Power could pay and not decrease profits? Information on the activities and the cost per liter for each activity is summarized below:
a. $.10
b. $.15
c. $.20
d. $.25
e. None of the above is correct.
3.
Which of the following statements about the limitations of Value Chain Analysis is false?
a. Truly comparable activities may be difficult to identify.
b. Information may be difficult to obtain.
c. ROI (return on investment) measures are accurate measures of profitability and power.
d. Measures that correlate better with firm value are needed.
e. Successful differentiation and costs management will require detailed costs analysis.
Explanation / Answer
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The answer is (b) 0.15 Here the cost data per each litre for each activity for Power Drink production process is irreelevant. As for Pure Mountain Inc , the costs after quality inspection need not be incurred. These costs are : Bottling-0.10 Storage - 0.05 Shipping - 0.10 Total - 0.25 These are the reduction in costs. However the cost of non contaminated truck is 0.10 per litre. Hence, the net effect is -0.25 + .10 = -0.15.------------------------------------------------------------------------------------------------------------------------------
Statement C is false. Return on Investment is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. Value analysis on the other hand identifies the key activities within a firm which form the value chain for that organisation and have a sustainable competitive advantage for a company. Both are entirely two different concepts. Hence, ROI cannot be the weakness of Value chain analysis.Related Questions
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