Strategic Positioning Fowler’s Farm is a 1,000-acre dairy and tobacco farm located in southernVirginia. Jack Fowler, the owner, has been farming since 1982. He initially purchased 235 acres andhas made the following purchases since then: 300 acres in 1985, 150 acres in 1988, dairy equipmentand buildings worth $350,000 in 1988, and 315 acres in 1998. The cost of farmland has inflated overthe years so that, although Jack has a total investment of $1,850,000, the land’s current market valueis $2,650,000. The current net book value of his buildings and equipment is $300,000, with an estimated replacement cost of $1,250,000. Current price pressures on farm commodities have affectedFowler’s Farm as well as others across the country. Jack has watched as many of his neighbors eitherhave quit farming or have been consolidated into larger, more profitable farms.Fowler’s Farm consists of three different operating segments: dairy farming, tobacco, and cornand other crops intended for livestock feed. The dairy farm consists of 198 milk-producing cows thatare grazed on 250 acres of farmland. The crop farm consists of the remaining acreage that coversseveral types of terrain and has several types of soil. Some of the land is high and hilly, some of it islow and claylike, and the rest is humus-rich soil. Jack determines the fertilizer mix for the type of soiland type of crop to be planted by rules of thumb based on his experience.The farm equipment used consists of automated milking equipment, six tractors, two tandemaxle grain bed trucks, and numerous discs, plows, wagons, and assorted tractor and hand tools. Thefarm has three equipment storage barns, an equipment maintenance shed, and a 90,000-bushel grainelevator/drier. The equipment and buildings have an estimated market value of $1,500,000.Jack employs five full-time farmhands, a mechanic, and a bookkeeper and has contracted parttime accounting/tax assistance with a local CPA. All employees are salaried; the farmhands and thebookkeeper make $25,000 a year, and the mechanic makes $32,000 annually. The CPA contract costs$15,000 a year.In the most recent year, the farm produced 256,000 gallons of raw milk, 23,000 bushels of tobacco,and 75,300 bushels of corn. Jack sells the tobacco by contract and auction at the end of the harvest.The revenue this year was $1,345,000, providing Jack a net income after taxes of $233,500.Jack’s daughter Kelly has just returned from college. She knows that the farm is a good businessbut believes that the use of proper operating procedures and cost management systems could increaseprofitability and improve efficiency, allowing her father to have more leisure time. She also knowsthat her father has always run the farm from his experience and rules of thumb and is wary of scientific concepts and management principles. For example, he has little understanding of the accountingprocedures of the farm, has not participated in the process, and has adopted few, if any, methods tomaintain control over inventories and equipment. He has trusted his employees to maintain the farmappropriately without using any accounting or operating procedures over inventories or equipment,preventive maintenance schedules, or scientific application of crop rotation or livestock management.Required1. What is the competitive strategy for Fowler’s Farm?a. Cost leadership because of increased competitionb. Differentiation because of innovation in the farming industryc. Differentiation because of unique products at Fowler’s Farmd. Cost leadership because of cost pressures in the industry2. Explain briefly your choice for the competitive strategy for Fowler’s Farm in requirement 1
Strategic Positioning Fowler’s Farm is a 1,000-acre dairy and tobacco farm located in southern
Virginia. Jack Fowler, the owner, has been farming since 1982. He initially purchased 235 acres and
has made the following purchases since then: 300 acres in 1985, 150 acres in 1988, dairy equipment
and buildings worth $350,000 in 1988, and 315 acres in 1998. The cost of farmland has inflated over
the years so that, although Jack has a total investment of $1,850,000, the land’s current market value
is $2,650,000. The current net book value of his buildings and equipment is $300,000, with an estimated replacement cost of $1,250,000. Current price pressures on farm commodities have affected
Fowler’s Farm as well as others across the country. Jack has watched as many of his neighbors either
have quit farming or have been consolidated into larger, more profitable farms.
Fowler’s Farm consists of three different operating segments: dairy farming, tobacco, and corn
and other crops intended for livestock feed. The dairy farm consists of 198 milk-producing cows that
are grazed on 250 acres of farmland. The crop farm consists of the remaining acreage that covers
several types of terrain and has several types of soil. Some of the land is high and hilly, some of it is
low and claylike, and the rest is humus-rich soil. Jack determines the fertilizer mix for the type of soil
and type of crop to be planted by rules of thumb based on his experience.
The farm equipment used consists of automated milking equipment, six tractors, two tandemaxle grain bed trucks, and numerous discs, plows, wagons, and assorted tractor and hand tools. The
farm has three equipment storage barns, an equipment maintenance shed, and a 90,000-bushel grain
elevator/drier. The equipment and buildings have an estimated market value of $1,500,000.
Jack employs five full-time farmhands, a mechanic, and a bookkeeper and has contracted parttime accounting/tax assistance with a local CPA. All employees are salaried; the farmhands and the
bookkeeper make $25,000 a year, and the mechanic makes $32,000 annually. The CPA contract costs
$15,000 a year.
In the most recent year, the farm produced 256,000 gallons of raw milk, 23,000 bushels of tobacco,
and 75,300 bushels of corn. Jack sells the tobacco by contract and auction at the end of the harvest.
The revenue this year was $1,345,000, providing Jack a net income after taxes of $233,500.
Jack’s daughter Kelly has just returned from college. She knows that the farm is a good business
but believes that the use of proper operating procedures and cost management systems could increase
profitability and improve efficiency, allowing her father to have more leisure time. She also knows
that her father has always run the farm from his experience and rules of thumb and is wary of scientific concepts and management principles. For example, he has little understanding of the accounting
procedures of the farm, has not participated in the process, and has adopted few, if any, methods to
maintain control over inventories and equipment. He has trusted his employees to maintain the farm
appropriately without using any accounting or operating procedures over inventories or equipment,
preventive maintenance schedules, or scientific application of crop rotation or livestock management.
Required
1. What is the competitive strategy for Fowler’s Farm?
a. Cost leadership because of increased competition
b. Differentiation because of innovation in the farming industry
c. Differentiation because of unique products at Fowler’s Farm
d. Cost leadership because of cost pressures in the industry
2. Explain briefly your choice for the competitive strategy for Fowler’s Farm in requirement 1
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