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Carry out ongoing reviews of profitability and viability of various product

Question 5

Strategic Management Accounting Case Study (25 marks) This question builds on prior studies of Cost Volume Profit (CVP) analysis and relates to learning material and objectives from Online Modules 1 and 2.(For assistance on this question you are advised to undertake the case study from Mars Petcare which is provided online (with solution) in Topic Module 2 as the Reflection Task). This question specifically addresses the subject’s 1st, 2nd, 3rd, and 4th learning outcomes. FoodMaster Pasta & Sauce STRATEGIC MARKET ANALYSIS You have been asked to join the Strategic Management Committee of Mercury Australasia Ltd as the management accounting representative.

The main task of the Committee is to carry out ongoing reviews of the profitability and viability of various product lines across all of the subsidiary divisions of the Mercury Australasia. The Mercury Australasia subsidiary FoodMasters is Australia’s leading provider of packaged foods and condiments to the supermarket sector. It makes a range of simple to make sauces, gravies, mustards, and pasta sauces as well as several savoury packaged dried pasta and sauce meals. FoodMaster Pasta has been a very profitable product line and has been a staple of the weekly shopping for Australian families for the 26 years it has been available through supermarkets. The FoodMaster Pasta brand has previously been dominant in this very large FMCG sector. Recently, a new product launched by multi-national competitor Nestling has eaten into the market share and profitability of the FoodMaster Pasta range. FoodMaster estimate that their share of this 160 million unit pa Pasta and Sauce market has fallen from 40% to 30% in the past year and that they now share market leadership with competitor Nestling Noodles, which has increased its market share from 15% to 30 % in the same period.

The marketing department believe that this loss of market share is because the Nestling Noodles product range sells at a slightly lower price point than the FoodMasters range. Whilst the Pasta range remains the flagship product for the FoodMaster Group there is concern amongst members of the Mercury Australasia Strategic Committee that it this mature product is in decline and that it’s Return on Total Assets (a key company metric) may have fallen below the required rate of 20%. Product lines which do not meet the 20% Return on Total Assets (ROTA) benchmark may be discontinued.

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