(a) With reference to Merino Designs in self-study problem 2, demonstrate the meaning of the structural cost drivers’ scope, technology and experience.

(b) Classify Merino Designs’ likely strategy as low cost or product differentiation. Explain.

Self-study problem 2

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Merino Designs The Merino Jacket Sheep farming $ 25.98 $ 19.59 Revenue (wool kg) Profit/Sales = 24.6% Costs: Operating costs Sales/Assets = $0.15 Margin $ 6.39 ROA 3.6% Assets $175.97 + $0.32 handling cost Knitting mills Revenue 152 Profit/Sales = 8.2% Costs: Wool $ 26.30 + Sales/Assets = $0.31 ROA $ 22.50 $ 36.80 Colour dyeing 2.5% + $4.25 freight + $2.96 tax Knitting Accessories (buttons etc.) 24 8.60 $ 45.31 $ 12.49 SG&A Margin Assets $489.97 Distributor Revenue $220.00 Profit/Sales = 11.3% Costs: Knitted garments $159.21 Sales/Assets = $3.87 Operating cost Margin $ 35.98 $ 24.81 ROA 43.7% Assets $ 56.86 Retailer Revenue $450.00 Profit/Sales = 6.7% Costs: Knitted garments $220.00 Sales/Assets = $4.56 ROA $199.65 $ 30.35 Operating costs 30.7% Margin Assets $ 98.68 The overall value chain Revenue $847.98 Profit/Sales = 8.7% Profit $ 74.04 Sales/Assets = $1.32 Assets $821.48 ROA 9.0%