Q1 Provide example of one Saudi Company and analyze the steps that the managers in this company can take to achieve its vision and use core competencies. (2 Mark)

Answer to Q1:

Jarir bookstore is a market leader in the Middle East for consumer IT products, Electronics, Office supplies and Books (Jarir-Company-Profile, n.d.). It operates a retail and a wholesale division for its products. The company’s vision is to obtain a leading position as a supplier of IT products and stationery at global market. Accordingly, the company has been taking up expansions at a global level.

A few crucial steps that the company can take to ensure a smooth transition include:

• Preparation of a strategy to design a plan for expansion.
• Identification of roles responsible to ensure the plan is being implemented as per expectations.
• Defining milestones to ensure the progress is tracked from time to time.
• The proposed structure upon expansion as the ownership can get diluted. It is necessary for the company to decide what type of entities would be setup upon expansion such as JVs or subsidiaries.
• Various sourcing decisions, location, structure for the entities to be set up.
• Plan for incorporating the new entities operations into the parent entity.

These are a few measures the company can take to achieve its vision. The company is very well placed for such expansion as it has optimized its presence in the Middle East market.

Core competencies are the critical capabilities, resources, and other possible fads since they all advocate the building of competitive advantage based on something internal to the firm (Drejer, 2002). A few core competencies that Jarir bookstore possess such as skilled and expert top management, experience of years of existence in the business, well organised operations that manage its huge turnover reflecting the company’s capability for stress management, are all core competencies that Jarir bookstore possess and these will be instrumental in all of the above steps towards achieving company’s vision.

Q2: The following data were obtained from the accounting information system of Attawfik Corporation:

                       Units           Total Cost                                      

Month         Produced                                       

January              60       SAR1,533.4                   

February            50               1,300                      

March                80               2,000                      

April                  30                  833.5                   

a.   Use the data for February and March and the two - point method to determine a cost function.

b.   Use the high - low method to determine a cost function.

Answer to Q2:

1. Two-point method

Let is denote input function as x and total cost as c.

To take two points, we consider the months of February and march as below

February (x,c) = (50,1300)

March (x,c) = (80,2000)

The cost function is denoted as f(x)= mx+b

Where b denotes the vertical intercept or initial amount

m denotes the slope indicating constant rate of change, which is Δ output/Δ input = (2000-1300)/(80-50) = 700/30 = 23.33

Substituting the values in the formula c=mx+b, we get

February: 1300=23.33(50)+b

1300=1166.5+b

b=1300-1166.5

=133.5

Cost function c=23.33x+133.5

2. High low method

The high and low activities are witnessed in the months of March (highest) and April (lowest).

This method gives the total cost function that includes fixed and variable components.

y=f+vx

Variable cost v = (Highest cost-lowest cost)/(Highest units-lowest units)

=(2000-833.50)/(80-30) = 1166.50/50 = 23.33

Fixed cost:

y=f+vx

833.50=f+(23.33*30)

f=833.50-699.90

f=133.60

This will result in cost function y=133.60+23.33x

Q3: XYZ Corporation sells its product for $17 per unit.Its variable cost is $10 per unit, and total fixed costs are $800.Assuming next period’s estimated sales are 300, calculate the following amounts:

a.Degree of operating leverage

b.Margin of safety in units

c.Margin of safety in revenues

Answer to Q3:

a) Degree of operating leverage = [ sales - variable cost ] / [sales- variable cost-fixed cost ]

where sales = 17x300 = 5,100

Variable cost = 10 x 300 = 3,000

Fixed costs = 800 (given)

Substituting these values in the formula, we get

= (5100-3000) / (5100-3000-800)

= 2100/1300

Degree of operating leverage = 1.615

b) Margin of safety in units = Total sale units- Break even units

Firstly, we calculate the break-even units as below:

Break even units= Fixed cost/ contribution per unit

Contribution per unit = selling price - variable cost per unit = 17-10 = $ 7 per unit.

Therefore, break-even units= 800/7 = 114.28 or 115 units.

This leads us to margin of safety units = 300 – 115 = 185 units

c)Margin of safety in revenue = Margin of safety units x selling price = 185 x 17 = 3145