FATHER SATURNINO URIOS UNIVERSITY
ACCOUNTANCY PROGRAM
LA VIDA DREAM CHIC; A STRATEGIC COST MANAGEMENT ANALYSIS OF A
HYPOTHETICAL BUSINESS IN THE CLOTHING INDUSTRY
A final requirement for MACC 317 – Strategic Cost Management (A32)
Instructor: Carl Angelo E. Cupay, CPA
Members:
Cyrille Ann Cagalawan
Christel Camacho
Jessa Dapadap
Jasmine Angel Gubat
Mary Jhissa Handayan
Joanna Marie Christine Maglinao
Page 1 of 27
Table of Contents
I. Defining the Business ........................................................................................................................ 4
Business Name:.................................................................................................................................. 4
Vision: ................................................................................................................................................ 4
Location: ............................................................................................................................................ 4
Size: .................................................................................................................................................... 4
o
Number of employees: .......................................................................................................... 4
o
Investment requirements: .................................................................................................... 4
o
Organizational Structure ..................................................................................................... 4
o
Departments: ......................................................................................................................... 5
Customers: ......................................................................................................................................... 5
How the business works.................................................................................................................... 5
Finance sources ................................................................................................................................. 5
II. Environmental Analysis .................................................................................................................. 7
PESTLE Analysis .............................................................................................................................. 7
Opportunities and Threats ............................................................................................................... 8
SWOT Strategy ................................................................................................................................. 8
Benchmarking ................................................................................................................................... 9
III. Formulating Strategy ................................................................................................................... 10
Critical Success Factors .................................................................................................................. 10
Competitive Advantage Strategy ................................................................................................... 11
Discussion on Chosen Strategy ...................................................................................................... 11
Other Pricing Strategies ................................................................................................................. 12
IV. Total Quality Management .......................................................................................................... 15
Prevention ........................................................................................................................................ 16
Appraisal.......................................................................................................................................... 16
Internal Failure ............................................................................................................................... 17
External Failure .............................................................................................................................. 18
Cost Quality Report ........................................................................................................................ 19
VI. Target Costing .............................................................................................................................. 22
Target Price and Assumptions ....................................................................................................... 22
Computation of Target Cost .......................................................................................................... 23
VII. Value Chain Analysis .................................................................................................................. 25
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Page 3 of 27
I. Defining the Business
Business Name:
LA VIDA DREAM CHIC
Vision:
La Vida Dream Chic envisions to positively inspire and improve our clients'
confidence through our high-quality apparel
Location:
San Francisco St, Butuan City.
Size:
Small to Medium Business
o Number of employees:
Ten to Fifteen employees
o Investment requirements:
P250,000.00 - P400,000.00
o Organizational Structure
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o Departments:
 Pre-production Department
 Production Department
 Post-production Department
Products: Local brands and design







Minimalist tops
Breezy jumpsuit
Sweatshirt and sweatpants
Stylish pants
Shoes
Stylish accessories
Trousers





Female
Teenagers and young adults
Lower middle class and working class
Price-conscious
Trend-conscious
Customers:
How the business works
La Vida Dream Chic is a fashion apparel business that established in a local market. It
is situated in a location where it can be easily seen, recognized, and seen by a large number of
consumers, since many onlookers, particularly teens and young people, pass through it
frequently. It is open from 8:00 a.m. to 4:30 p.m. Monday to Saturday.
When it comes to escorting consumers, the organization has adequate workers to meet
their demands. Customers may seek advice, comments, and ideas from the store regarding
their fashion preferences, color, style, brand, and quality.
This local business has many rivals in the local marketplace, but it guarantees that
the clients are satisfied and that the products listed are of the highest quality.
Finance sources
The company chooses the equity financing as the source of our business capital. It is
the process of raising capital through the sale of shares. To raise money for a long-term goal
and funds to invest in its growth, the company decides to sell portion of ownership to an
investor in return for capital.
Personal funds of the owners are contributed to start up the business. The share of
each partner’s total amount is used to secure and sustain the business in the long run. Legal
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liability bores by each partner for this business venture consist of capital contribution of
business owners. The expected total capital contribution is amounted to P250,000.00 to
P400,000.00, which put this business into the small business category. AII profits and losses
are endured by all partners.
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II. Environmental Analysis
PESTLE Analysis
A PESTLE analysis would analyze the macro environment of La Diva Dream Chic.
This model looks at the Political, Economic, Social, Technological, Legal and Environmental
factors relating to La Diva Dream Chic and the fashion industry we operate in.
POLITICAL
ECONOMIC
• Tax Policies impose by
the government.
• national and local tax
legislation in fashion
industry.
• Rising
Maintenance
Cost
• 4% Inflation rates
• Increasing labor cost
• Consumers spending
growth
TECHNOLOGICAL
LEGAL
• New technological
advancements which
could increase
productivity.
• Online Shop set up
• New rules being
imposed due to
Pandemic.
• The La Diva Dream
Chic must adhere to
the country’s and Local
City rules and
regulations set for the
industry.
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SOCIO-CULTURAL
•
Social Media
Platforms utilization
for advertising.
• Changing demands of
Consumers.
• Customers
demographics.
ENVIRONMENTAL
• Demand for Ecofriendly Products
• Style Choices
influenced by Climate.
• Environmental
Regulations
Opportunities and Threats
OPPORTUNITIES
THREATS
• Tax Policies impose by the
• Rising Maintenance Cost
government
• Increasing labor cost
• national and local tax legislation in
• Consumers spending growth
fashion industry.
• Changing demands of Consumers.
• Social Media Platforms utilization
• Customer’s demographics.
for advertising.
• New rules being imposed due to
• Customer’s demographics.
Pandemic.
• New technological advancements
• Style Choices influenced by
which could increase productivity.
Climate.
• Online Shop set up
• 4% Inflation rates
• The La Diva Dream Chic must
adhere to the countries and Local
City rules and regulations set for the
industry.
• Demand for Eco-friendly Products
• Environmental Regulations
SWOT Strategy
In any firm, competition is inevitable. It creates rivalry among the companies
however, it also gives benefits. Considering possible things that give advantages to the other
business would also help us identify and develop our own business’s deficiency which could
be useful in the long run. In the case of our business which is associated with the
fashion/clothing industry, we have noticed that this kind of business is not new to people. The
fashion/clothing industry has widely spread in Butuan City.
The best practices of our competitors that we have identified and presumed, they have
already expanded their dealing through the use of social media platforms making them wellknown to a greater number of consumers. Another is by lowering the prices of their products
considering the current situation, where local citizens would prefer products with affordable
prices. Lastly, to motivate their employees, they use rewards and bonuses to recognize their
efforts and inspire them to perform more efficiently.
We’ve anticipated that these strategies from the competitors are relevant and would
help us achieve our objectives. Potential customers would preferably choose our products and
we’ll meet their satisfaction by the time we consider these tactics and use them to develop our
business.
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Benchmarking
In any firm, competition is inevitable. It creates rivalry among the companies.
However, it also gives benefits. Considering possible things that give advantage to the other
business would also help us identify and develop our own business’s deficiency which could
be useful in the long run. In the case of our business which is associated with fashion/clothing
industry, we have noticed that this kind of business is not new to people. Fashion/clothing
industry has widely spread in Butuan City.
The best practices of our competitors that we have identified and presumed, they have
already expanded their dealing through the use of social media platforms making them wellknown to a greater number of consumers. Another is by lowering the prices of their products
considering the current situation, where local citizens would prefer products with affordable
prices. Lastly, to motivate their employees, they use rewards and bonuses to recognize their
efforts and inspire them to perform more efficiently. Furthermore, the proven and tested
strategies of other companies who are also engaged into Fashion/Clothing industry are;
offering low price, issuing discount on their next purchase, buy one get one promo, etc., as an
added incentive to the customers. Through these, customers would possibly continue to
purchase in your store and it would give them instant gratification on each visit according to
Haute House CEO & on-air fashion expert, Jordan Landes-Brenman.
We’ve anticipated that these strategies from the competitors are relevant and would
help us achieve our objectives. Potential customers would preferably choose our products and
we’ll meet their satisfaction by the time we consider these tactics and use them to develop our
business.
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III. Formulating Strategy
Critical Success Factors
1. Efficiency
Manpower, machinery, material, and techniques all contribute to clothing production
efficiency. This factor greatly affects the success of the business since our customers look for
product which has higher quality at a lower price which drives the necessity to maintain
maximum efficiency levels. Lastly, this factor is important in order to increase productivity
and profitability of our business.
2. Producing quality products
In the apparel industry, fabric selection and durability are used to determine the quality of
these products or apparel. This is regarded as a crucial success element for our company since
we must satisfy the needs of our customers through our products. Thus, in order for La Diva
Dream Chic to achieve our mission of positively inspiring and improving our clients'
confidence through our high-quality clothes, we must offer high-quality items.
3. Technology
As the world evolves, technology becomes an increasingly vital tool for everyone.
Furthermore, information technology has become an essential component in the clothing
business. We may use software to monitor what is happening on in every department of our
organization. Technology may also assist us in enhancing productivity by improving planning
and coordination across different departments within a production unit and maximizing value
realization by integrating supply chain operations within and outside the garment factory.
4. Training and HR
Training our employees and human resources is critical for our organization, especially in
the industry to which we belong. To guarantee that we create and sell high-quality items, we
must prioritize our work force. Our employees will be exposed to a series of training and
workshops in order to acquire and strengthen the skills necessary for production.
5. Product development
It is obvious that the only constant in the world is change. Consumers update their fashion
style in response to trends, and they seek out more creative and fashionable products. As a
result, it is critical that our company can adapt to these changes and continue to produce
products that meet the demands of our valued customers. Finally, product development is
essential for attracting new customers as well as maintaining existing ones.
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Competitive Advantage Strategy
The fashion/clothing industry has an extremely competitive environment. Businesses
within our industry are open to differentiating their products to make them more unique
among the others and some are offering customers excessive forms of merchandise and
prices. The appropriate competitive strategy our company should apply is the hybrid
technique in which embodies both the cost leadership and differentiation of a product. Which,
considering that we supply and produce generic products commonly available in almost all
the said industry, we have to build a concrete foundation regarding the implementation of this
strategy.
As a part of an industry with several competitors and changing customers’ demands
was one of our bases to adopt a strategic approach to address this pressure. We observed the
customers of the clothing apparel here in the City of Butuan and we found out that most
customers expect to get everything at once. They wanted a high-quality product, unique, and
excellent service from the store, and most of all at a low price. A hybrid strategy would be the
perfect strategy to respond to these changes in the competitive environment to be more
flexible, effective, and competitive. Utilizing a strategy that aims to innovate strength, close
orientation towards customer needs and organizational learning will be able to help us
achieve our critical success factors by building capabilities and opportunities that provide
enduring sources of competitive advantage. La Vida Dream Chic will stand out as we provide
a different product among the others through mass customization. We will not just women
wear the same from competitors but we also produce customized products at a price similar
to those of mass-produced products. We will be consistent in addressing our business vision
which is to provide high-quality women's wear at a low price considering the body types of
our customers for them to be confident. In addition, we will continue to be adaptive to our
customers’ needs and demands since without them our business is nothing.
Discussion on Chosen Strategy
In the early age of implementation, we will distinguish the factors affecting the
strategy’s failure based on the other similar businesses' past execution. The reasons for the
conclusion we derived will be applied to make certain our strategy will
succeed. Consequently, this is followed by the company’s president presenting the strategic
plan to its subordinates and communicating the desired outcome of the strategy to be
implemented. Following the identification of organizations' roles in implementing the
strategy, provide a detailed department designation. The finance department will have the
responsibility of making a budget proposal for the production concerning all of the
anticipated direct expenses, infrastructure and administrative expenditures, and cost sharing
obligations. The vice president of production, together with her assistant and all those under
her authority, will have to engage in to accomplish the high quality, unique, and low-cost
production of the supply needed to produce generic products in mass customization. The
manager, who has a direct connection with the company’s president, is required to carefully
observe how the internal business processes are carried out and employees perform the
tasks. Give support and encouragement to the employees to take action to achieve the goal.
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Strategy implementation also talks about the control systems and culture that can lead to
a competitive advantage. As La Diva Dream Chic chooses a hybrid strategy, which aims to
achieve differentiation and low price. One way for it to be put into action is through its
institutionalization. Institutionalization discusses the values and principles, as well as the
employees’ willingness to change. Strategies are not always meant to be effective. That’s
why personality traits become a significant component in strategy formulation. Therefore,
institutionalization is essential since, without it, the plan will be weakened. The strategist
must communicate the plans to the organization’s members to win their support. Another
strategy implementation that is important to make the strategy work is setting the proper
organizational climate. It is especially important in the internal environment of the
organization, because it doesn’t only provide standards for what others do, but also a matter
of practice.
Other Pricing Strategies
Various factors can affect a business’ potential revenue. One of the most important
factors that can help to determine the price point at which we can maximize profits on sales
of our products are the pricing strategies. The pricing strategy that we have identified that is
relevant and helpful for our business is the customer-based strategy's price skimming. Since
our business is in line with clothing/fashion industry, we produce our unique products that are
hip for our target customers. This customer-based strategy price skimming is the most
applicable strategy to apply to this type of business, because most of the time a particular
trend fashion is only popular at a certain period. Fashion will change and develop towards
something new or different. Price skimming is the strategy where we can benefit the most by
charging our products at higher prices during the time of its hit and later will slowly lower its
prices at the moment a new trend is rising.
With this pricing strategy that aims to produce and serve high quality products and by
consistently sticking to our business' vision which is to positively inspire and Improve our
clients' confidence through our high-quality apparel, we can able to achieve our critical
success factors.
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Objectives
Measures
Objectives


Increase
revenue
Increase
shareholder
wealth
Initiative
Measures


Target
Performance
Initiatives
Increase
revenue
10%
Return
assets

net
by

on
Target
Perfromance
Develop new
sales policies
Develop new
products


25%
25%
Four Perspectives of The Balanced Scorecard
Financial Perspective
Customer Satisfaction
Objectives
1. Increase
Customer
Satisfaction
Measures
Conduct
Customer
Satisfaction
Survey
Increased
Customer’s
in Validation.
Initiative
Target
Performance
Identify
the 90% - 95% of the
customers’ demands. customers
give
5star ratings.
2. Increase
Understand
the 10%
Customers
customer’s demands
Confidence
and needs.
our products
3. Improve Product Use of defect Enhanced
product 25%
Quality
data
design and durability
through utilization of
high-quality
materials.
Page 13 of 27
1. Productivity
2.Flexible
manufacturing






3.Selling
market
activities
and 
Objectives

Productivity
=
(Production times
X Quality %)
/total
working
times
Quality ratio
Average sample
preparation time
Average
manufacturing set
up times per order
Number of new
collections/designs
Orders of new
collections/designs
Reduce production time and A 75% increase
sample preparation times.
on
sales
monthly.
Number of new
customers visited
Number of visits
to
current
customers
Organize
a
marketing Attain 25% of
management and marketing new customers
team where as to be responsible every week.
in setting up an active market
and utilize the advance of
technology that will be able to
give the company a new
channel of marketing and
selling.
Measures
Invest
in
research
and
development;
creativity
and
innovation
capability
in
manufacturing.
Also,
establish a design departments
and commercializing designs or
collections.
Initiative
Internal Business Process
Page 14 of 27
Increase
in
customer
satisfaction and
loyalty.
Target Performance
Increase
employees’
capabilities
Average hours of Managers
should
training
per enhance the training
employee
time given. Employing
competent
external
trainers to instruct the
staff
Increase
Empowerment
Provide
additional
motivation
index
authority to employees
and alignment
to provide proposals
and decisions.
Reduce
employee
turnover rate
New
or
improved
product and
process ideas
Increase the training
hours by 10% each
year for the next 3
years.
Increase
the
empowerment index
by 5% each year for
at least the next 3
years.
Employee turnover Providing competitive Reduce the turnover
rate
advantages. Enhance rate by 5% each year
the participation of for the next 3 years.
employees in decisionmaking. Increase the
rotation of work.
Number of new
products produced,
number
of
improved products
Managers must present
unique ideas of new
products to introduce
and
propose
improvement ideas for
products
and
processes.
Innovation and Learning
IV. Total Quality Management
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10% increase of new
products
produced;
5% improvement of
products
and
processes for the next
3 years.
Prevention
In the apparel industry, we must meet the expectations and demands of our customers
in terms of quality products. However, there are risks and possibilities of occurring of poorquality products. Thus, in order to prevent this from happening, the following activities will
be implemented by La Diva dream Chic:
1.
Quality Planning
In this activity, La Diva Dream Chic will prepare a document that contains data and
plans that are needed in order to produce quality products This activity includes determining
of materials that will be utilized, the process of manufacturing, policies, and the quality
standards of the product.
2.
Quality Education and Training
The staff and other workers have a great factor and play a vital role in the
manufacturing department in the fashion/apparel industry. Thus, it is of great importance that
we provide adequate learning and training to our laborers in order to help them develop and
enhance their skills needed for the production.
3.
System Development for prevention
According to Guoqing Wang, Wenhao Zhao, in The Principles of Integrated
Technology in Avionics Systems (2020), system development practice process and system
implementation target results are built for the system development goal realization and
system verification process. In order to prevent the possibility of producing a poor-quality
product, La Diva Dream Chic will adapt a system that the activities of planning, analysis,
designing, building, testing, deploying, and maintaining an information system.
4.
Quality Improvement
It is evident that our consumer’s demands and expectations continue to change and
develop because of new trends taking place. In order to satisfy their demands, it is the
responsibility of La Diva Dream Chic to continuously enhance the quality of the products.
Appraisal
To meet the customer’s expectations and demands, evaluating the materials or the products is
necessary by detecting the failures or damages of our apparels. To put it into action, the
following activities must be implemented.
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1. Testing and Inspecting Materials
Testing and inspecting of materials are done before, during, and after manufacturing.
La Diva Dream Chic will check for any damages of the materials like misprinting of the
fabric, stains, shade variations, and more to ensure that the quality is within the acceptable
design standards of our customers.
2. Work in Process Testing and Inspection
This type of inventory must be completely monitored because it will be a waste of
money and time if unfinished products are not yet done. La Diva Dream Chic will focus on
facilitating the flow of the materials in the work in process to identify whether the process is
in a good condition or not.
3. Final Product Testing and Inspection
La Diva Dream Chic conducts final product testing and inspection to prevent the loss
of customers. The 5 steps in the final stage of the manufacturing process; the picking,
packing, conformity, and on-site test, workmanship, and closing will be performed in order to
provide critical insights into the quality of our customers’ expectations.
4. Depreciation of Testing Equipment
Lack of testing equipment is a loss for a business because it must be hard to conduct a
test and inspections without it. In order to perform the tests especially in the WIP, La Diva
Dream Chic must provide equipment to easily conduct the test of our materials and products
and for a faster process of making of clothes.
Internal Failure
Internal failure actions address flawed processes, products, and services before they
are given to customers. La Vida Dream Chic has developed methods to retain its industry’s
competitiveness; however, there are some factors outside the company's control. The
following are the internal failures that are possibly visible in our business:
1. Machine Failures
Machine failure is a big factor in our company's quality problems. Correct machine
setup is a critical factor to consider in order to avoid faults in the finished garments. Having a
machine in poor condition might affect the work of an operator which stops us from getting a
quality product to be delivered to our customers.
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2. Quality Assurance
La Vida Dream Chic is a clothing industry that made its product to sell to its
customers. The techniques for ensuring the quality of raw materials are critical in producing a
high-quality product. These could prevent problems from arising at the source, which would
otherwise result in a negative brand image. Quality assurance provides confidence that
quality requirements will be fulfilled, and with that, we could meet the customer’s
expectations in our products.
3. Poor skill level of operator
The level of operator expertise has a considerable impact on the quality of the
clothing company's garment items. Unskilled machine operators could be one of the problems
our company will face. Lack of knowledge in making our desired products could result in
poor quality of the products to be sold to our customers. It is necessary to consider this
internal failure in our business especially that we are the ones who manufacture our products.
External Failure
La Vida Dream Chic has implemented strategies to maintain its competitiveness in the
industry, however, there are causes that the business itself can’t control. The external causes
of business failure occur outside the business that has little or no control over. The following
are the possible external failures of La Vida Dream Chic.
1. Poor Economic Environment
The economy of the country is unpredictable since it will always be influenced by the
activities of the country. It consists of exchange rates, interest rates, lack of finance, financial
crisis, and recession. For instance, when the pandemic happened the Philippines economy
decline to its lowest. La Vida Dream Chic will possibly experience difficulties if the
country’s economy is not doing well. According to Boyle (2019), a severe economic
recession can cause some businesses to close down. This is due to the fall in economic
growth frequently brings consumers to buy less as their buying power falls. Also, consumers
will tend to prioritize what they need such as food, water, etc. instead of buying clothes. This
often leads to inflation resulting from a significant expense of production and a deficiency in
raw materials as their cost goes up. A poor economic environment is difficult for the business
owners to run and it harms them as a whole. It would be difficult for them to finance since
financial institutions and bank loans would also experience difficulties, loans will have a high
interest rate that results in the business owners decide to just close the company instead of
borrowing an amount with a high-returns.
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2. Catastrophic Unpredictable Event
It is tremendously difficult to anticipate naturally occurring fiascos like storms,
floods, earthquakes, and other natural phenomena. This is the same with man-made
catastrophes such as acts of terrorism. To protect our business against such events, La Vida
Dream Chic will take insurance to cover the danger so that if these events will happen the
business can be paid by the insurance company. However, an insurance cover is not a
hundred percent fallback of the company because if there is a delay in getting the payment
from the insurance company or agency it can adversely influence the business' income,
making the business fail. As a solution to this unpredictable event, La Vida Dream Chic will
set aside an amount of money for the expense of an emergency.
3. Bankruptcy of Supplier
La Vida Dream Chic will not stay on producing products similar to the competitors,
thus to make our products different from others we are open to customizing women's wear for
our consumers who wants a customized product. Customization will happen particularly by
using a JIT system. We will only produce the product if it is needed or ordered. Additionally,
being dependent on one supplier can cause the business to fizzle especially if the supplier will
encounter a huge problem. The business might find it difficult in finding another supplier
inside a short space of time to allow the business to flow as usual. We may have the
capability to find a new one but the cost of its process includes paying the employees,
business premise, and overhead costs will be continuing to be paid. Generating these
expenses with no returns will drive the business into failure.
Cost Quality Report
Considering the above details that arise from the company’s current level of defective
products and services, the following are the quality cost report that provides an estimate of
the financial consequences of the company’s current level of defects.
Page 19 of 27
La Vida Dream Chic
Quality Cost Report
For the Year 1 to 5
Year 5
Year 4
Year 3
Year 1
Year 2
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
Quality
Planning
3,760
0.75%
3,400
0.68%
3,200
0.64%
2,700
0.54%
2,000
0.40%
Quality
Education and
Training
2,500
0.50%
2,200
0.44%
2,000
0.40%
1,800
0.36%
1,300
0.26%
System
Development
prevention
7,000
1.40%
6,500
1.30%
5,500
1.10%
5,000
1.00%
4,500
0.90%
Quality
Control
Administration
2,700
0.54%
2,400
0.48%
2,100
0.42%
1,000
0.20%
800
0.16%
Quality
Improvement
2,840
0.57%
2,700
0.54%
2,400
0.48%
1,500
0.30%
1,000
0.20%
Total
Prevention
Cost
18,800
3.76%
17,200
3.44%
15,200
3.04%
12,000
2.40%
9,600
1.92%
Testing
and
Inspecting
Materials
3,000
0.60%
2,800
0.56%
2,500
0.50%
1,500
0.30%
1,000
0.20%
Work
in
Process
Testing
and
Inspection
3,300
0.66%
3,100
0.62%
2,700
0.54%
3,050
0.61%
1,500
0.30%
Final Product
Testing
and
Inspection
3,000
0.60%
2,800
0.56%
2,500
0.50%
1,017
0.20%
1,300
0.26%
Depreciation
of
Testing
Equipment
4,700
0.94%
4,500
0.90%
3,500
0.70%
2,033
0.41%
1,400
0.28%
Total
Appraisal
Cost
14,000
2.80%
13,200
2.64%
11,200
2.24%
7,600
1.52%
5,200
1.04%
Prevention
Cost
Appraisal
Cost
Page 20 of 27
Internal
Failure Cost
Machine
Failures
7,500
1.50%
7,000
1.40%
6,500
1.30%
6,000
1.20%
5,500
1.10%
Quality
Assurance
9,000
1.80%
8,000
1.60%
7,000
1.40%
7,500
1.50%
8,500
1.70%
Poor skill level
of operator
7,500
1.50%
7,000
1.40%
6,500
1.30%
6,700
1.34%
4,000
0.80%
Total Internal
Failure Cost
24,000
4.80%
22,000
4.40%
20,000
4.00%
20,200
4.04%
18,000
3.60%
Product
Returns
6,000
1.20%
10,000
2.00%
16,000
3.20%
20,000
4.00%
30,000
6.00%
Warranty
Claims
6,000
1.20%
10,000
2.00%
16,000
3.20%
25,000
5.00%
30,000
6.00%
Total
External
Failure Cost
12,000
2.40%
20,000
4.00%
32,000
6.40%
45,000
9.00%
60,000
12.00%
Total Quality
Cost
68,800
13.76%
72,400
14.48%
78,400
15.68%
84,800
16.96%
92,800
18.56%
External
Failure Cost
Prevention Cost increased in Year 5 from Year 1 by (18,800 – 9,600) = 9,200
Appraisal Costs increased in Year 5 from Year 1 5 by (14,000– 5,200) = 8,800
Internal Failure Costs increased in Year 5 from Year 1 5 by (24,000 – 18,000) = 6,000
Total Increase = 24,000
External Failure Costs decreased in Year 5 from Year 1 by = 48,000
Net Quality Cost Benefit = 48,000 - 24,000 = 24,000
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VI. Target Costing
La Vida Dream Chic is an apparel business located in Butuan City, Agusan Del Norte,
engaged in a clothing/fashion industry which manufactures and retails high quality and
fashionable clothing products. Thus, in line with this, La Vida Dream Chic considers Target
Costing as the best Cost Management Strategy.
In general, Target costing is the process of determining the maximum allowable cost
for a new product and then developing a prototype that can be profitably made for that
maximum target cost figure. Moreover, it is the process of determining the maximum
allowable cost for a new product and then developing a prototype that can be profitably made
for that maximum target cost figure.
Target Price and Assumptions
Target profit pricing is a strategy for informing management of the total number of
units that must be sold in order to achieve the intended profit for a certain period. To
calculate the target profit pricing, La Vide Dream Chic used the Contribution Margin
Method, which helps in computing sales volume and sales revenue by achieving the profit
targets. Coordination across the company's numerous divisions setting target price allows it to
develop a cohesive plan in the event of significant market pattern changes, allowing it to
successfully predict and respond to market changes.
La Vida Dream Chic is an apparel business where it produces trendy products for its
target customers. Recently, a new fashion arises which is now “in” to the taste and style of
our target customers. Pairs of trousers, the trendy fashion today are now a target product that
the company is planning to produce.
La Vida Dream Chic’s estimated costs include, but are not limited to, the following
items:
Selling
100,000
General and Administrative
350,000
Raw Materials
300,000
Direct Labor
350,000
Others
600,000
To create a pair of trousers the estimated variable costs such as raw materials, direct
labor, and utilities are the following:
Selling Price Per Unit
350.00
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Variable Cost Per Unit
250.00
Raw materials (cloth, thread, etc.)
60.00
Direct labor
70.00
Others
120.00
Computation of Contribution Margin Method
Price
350.00
Variable Costs per unit
250.00
Fixed Costs
450,000.00
Target Profit
100,000.00
Sales Volume = 100,000 + 450,000 / (350 – 250)
Total Sales Volume = 5,500 units
Sales Revenue = 5,500 x 350
Total Sales Revenue = 1,925,000
To achieve 100,000.00 of profits, La Vida Dream Chic has to produce 5,500 units of
trousers at a selling price of 350.00 per unit.
Computation of Target Cost
La Vida Dream Chic have an opportunity to expand and develop new trendy products.
The apparel business has observed that Trousers demand has increased in the market as it
became a new trend to the target customer. Considering the features and prices of the new
trendy trousers that are already in the market, the production department believes that a price
of P350.00 would be the perfect price. At that price, marketing estimates that 5,500 units of
new Trousers could be sold annually. La Vida Dream Chic desires a profit equal to 20% of
the selling price.
The target cost of P280.00 includes the following cost: research and development
costs, design costs, production costs, marketing costs, distribution costs, and so on. The
actual costs are the responsibility of each department to manage within the target cost of the
product.
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Profit Margin = 350 x 20%
Profit Margin = 70
Target Cost = 350 – 70
Target Cost = 280.00 per unit
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VII. Value Chain Analysis
LA VIDA DREAM CHIC’S VALUE CHAIN
Infrastructure
Due to the high-quality product and shifting client demands that it gets to the point
where majority of the consumers anticipate to receive everything at once, The company's
infrastructure has been set up to respond to and support this component.
In an apparel industry, information technology has become a necessary component.
We could utilize software to keep track of what's going on in each department of our
company. It also supports a variety of tasks, including store manager evaluation tools as well
as production and distribution management.
The CEO is in charge of the brand's overall direction, and she maintains regular
contact with the headquarters, which are in charge of brand management, human resources,
information technology, and transportation. A group of commercials sits behind these
headquarters, analyzing market trends, sales, and plans to serve as recommendations for store
managers, as well as Human Resources directors. Store managers are in charge of
maintaining the store's image and branding, keeping inventories replenished, and maintaining
a sense of exclusivity, all while saving money on marketing and promotion.
Human Resource
To acquire a competitive advantage over existing local businesses and improve La
Vida Dream Chic's profitability and attract more customers within Butuan City, the business
must have effective Human Resource Management.
In La Vida Dream Chic business model, Human Resources Management is very
important. Mentioned in one of our critical success factors in conducting and Trainings and
Workshop for our employees and human resources. It is critical for our organization
especially in the industry to which we belong, to guarantee that we create and sell highquality item. Thus, in order for us to produce high-quality product, we must prioritize our
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work force. Our employees will be exposed to a series of training and workshops in order to
acquire and strengthen the skills necessary for production.
Technology Development
Mobile technology is getting further developed each day. From Insta shopping to
savvy wallets, mobile commerce is a definitive tech apparatus. It has affected our day to day
existences; however it has become one of the quickest developing areas in ecommerce. This
is generally in light of the fact that utilizing our cell phones for shopping on the web is
becoming easier and more straightforward. With advanced wallet choices like Paymaya,
Gcash, Android Pay and etc., continually developing with new advances like qr code, unique
finger impression and facial acknowledgment, they're ready to turn into the favored
installment for retail purchases. ming up. On top of e-commerce growth, we toss social media
in with the general mish-mash, similar to Instagram's shopping highlight brands can be
available in their clients' beloved channels with a completely coordinated advanced trade
offering. This gives them more prominent deceivability and gives them more freedoms or
opportunity to make a sale. These mobile sales sites have revolutionized the online sales
industry, demonstrating how mobile commerce is innovate every aspect of the fashion
industry.
La Vida Dream Chic will make a gross investment in mobile commerce to facilitate
and increase operational efficiency, since 3 out of 5 women would rather shop online than instore. The mobile commerce will not be similar to others because La Vida Dream Chic online
shop has a feature of 3D body scanning. One of the disadvantages of online shopping is how
to find a perfect fit. Usually, we immediately conclude that we got scam and so on, but La
Vida Dream Chic’s online shop featuring 3D body scanning and garment fitting will solve
that matter. This advancement is a huge advantage to our business and could reduce returns.
Procurement
Procurement varies depending on the requirements needed for the types of business.
La Vida Dream Chic decided to use the outsourcing method to acquire the needed materials
to create the product. The company underwent the process of identifying its internal needs
and services as a strategy to secure future endeavors. Evaluated the supplier’s characteristics
to know if it is capable of supplying in the long run and producing the required quality. The
requirements should be complied with before proceeding with contract negotiation.
Furthermore, the company recognizes the importance of supplier relationships. Thus, it
established a good rapport and conducted an assessment of the critical factors affecting the
overall outcome.
La Vida Dream Chic decided to only allow domestic businesses to supply the needed raw
materials such as fabrics and threads to support local businesses in the market through Blak
Fabrics, a shop that produces excellent quality products. Blak Fabrics is based in Cebu City,
Philippines. They supply fabrics to apparel businesses all over the country. Moreover, other
procurement, such as machinery, equipment, and office supplies, has different supplier. As
for the acquisition, the company has allocated a sufficient budget to limit spending and
prevent unnecessary expenses. The company is financially stable, and its revenues have risen,
allowing it to fund the entire operation and help achieve its goal.
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