Question 1:

Black Falcon Pty Ltd makes premium range dog biscuits used toprovide high level nutrition for dogs, which it introduced to themarket in 2016 in the highly competitive premium dog food market.Black Falcon realises that it would be competing against well-knownbrands that have held market share based on their reputation formany years.  From the feedback received at trade fairsduring 2017, Black Falcon has been generally regarded as an equalstandard of quality as the other premiumproviders.  However, the product was initially providedat a low introductory price to encourage customers and retailers topurchase Black Falcon’s dog food. Black Falcon is now seeking toincrease the price each year as the firm’s reputation grows.

Black Falcon produces very few defective products and insistsupon the highest quality materials from its suppliers. ConversionCosts in each year depend on production capacity defined in termsof units that can be produced, not the actual units produced.Selling and customer-service costs depend on the number ofcustomers that Black Falcon can support, not the actual number ofcustomers it serves. See Table 1 below for information.

Table 1 - Performance and cost details for 2-yearperiod	2018	2019
Number of bags produced and sold	13500	15000
Selling price	$125	$135
Direct materials (20 kilograms per bag)	540,000	630,000
Direct materials cost per kilogram	$2.00	$2.10
Units of Manufacturing practical capacity	15,000	15,000
Total conversion costs	$129,000	$132,000
Conversion indirect overhead cost per unit of capacity (Standardfixed capacity cost per unit)	$8.60	$8.80
Customer number capacity for selling and customer-service	4,300	4,200
Total selling and customer-service costs	$8,200	$7,600
Selling and customer-service capacity cost per customer(Standard fixed capacity cost per unit)	$1.91	$1.81

REQUIRED:

1. Identify the business strategy adopted by Black FalconPtyLtdand explain briefly how you reached your decision on the typeof business strategy adopted.   
2. Calculate the operating profit for the two accountingyears.
3. Prepare the variances for the change in profit between the twoyears due to the growth strategy.
4. Prepare the variances to reconcile the change in profit betweenfor the two accounting years due to the productivity strategy.
5. Discuss the change in Black Falcon’s operating profitfor thetwo accounting years.