Case Teaching Package
A case teaching package is available for this case. It includes strategies for case presentation, key concepts, solutions to the assignment questions in the case, and suggestions for the most effective ways to work this case into your course.

Length
This case is 8 pages in length and its case teaching package is 16 pages.

Abstract

This disguised case set in 1992 illustrates target cost, standard cost, ideal cost, and value chain analysis, some of the tools of "strategic cost management."

This case study describes a cost management problem in a real, but disguised, contemporary setting. It also describes the way the company’s standard cost system was used to address the problem. The focus of the case is to contrast this with a target cost methodology which also uses value chain analysis and ideal cost.

Linkages to Textbooks or Journal Articles/Fit Within a Course

We cover this case in one 90-minute class period. We use the case after we have discussed standard cost systems and after we have introduced the value chain concept. As noted above, we see the purpose of the discussion as reinforcement for the student on the calculational aspects of target cost (using a value chain) and ideal cost.

We see this as a class where the instructor takes most of the responsibility for the pace of the discussion and for bringing out the insights which result from the calculations. We still start with a "cold call" and we still push for student answers to the questions, but we expect to exert more control over the discussion than is normal for a "decision case."

Study Questions

Questions 2 through 5 deal with some calculations that may help students think about question 1.

1. What can the mill do about this "problem"?
2. Can you calculate a "target cost" at the Montclair mill for the product described in Exhibits 1 and 2? So what? Assume here that the "referent" product is the one made by our competitor—Ajax Paper. For this particular end-use our "higher value" is not "worth it" to the customer (Reebok).
3. Can you calculate the "ideal cost" for this product? So what?
4. Suppose Montclair could use 75% scrap in the raw material mix, and could use green* scrap paper (reduce dye cost from $500 to $250), and could achieve 75% yield at the paper machine. How would the $2,276 standard cost (at the machine)change? So what?
5. Suppose Montclair changed its distribution strategy to "stream-line" DC operations and eliminate inventory at the merchant. Then, the merchant would treat Montclair products as "mill direct" items rather than "stocking" items. How would this change in the "value chain" affect the mill target cost for the product described in the case? So what?

The downloadable file for this case is in Microsoft® Word 7.0 for Windows®.

If you do not have Microsoft Word, you can download the free Microsoft® Word Viewer 97 right here:   For Windows 3.x   For Windows 95

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