My name is Kevin Chen and I am a senior adviser of the Boston Consulting house. Per the petition of the A/S Dansk Minox. a nutrient merchandises maker. I am fixing this analysis to place the bing jobs within the concern of A/S Dansk Minox and supply possible recommendations. As a adviser. I will show the analysis without prejudice and for the best benefits of A/S Dansk Minox. In the undermentioned analysis. I am traveling to reply the undermentioned inquiry: Should A/S Dansk Minox conveying the new merchandise. complete repast. to the market? Company backgroundThis instance is set in Denmark in 1967 when the “boom” in consumer nutrient merchandises was merely get downing more on the job female parents. more disposable income. more picks in convenience nutrient merchandises.
A/S Dansk Minox. a company in Denmark. specializes in fabricating a assortment of vacuum-packed meat and other merchandises. DM has approximately 30 merchandises and has a great place and trade name in the market. A/S Dansk Minox provides the vacuity packed merchandises and consumers combine the vacuity packed bundles along with the homemade salad for their repast. Through consumer research. A/S Dansk Minox late identifies that there is a immense market potency for vacuity packed complete repasts. The repast contains a criterion “sliced porc in gravy” . the merchandise that A/S Dansk Minox is doing. with 550 gms of ruddy chou salad.
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Vacuum PackingVacuum Packing is a storage method that preserves assortment of nutrient. For illustration. porc. beef or veggies. If decently refrigerated or frozen. vacuity packaging works good in maintaining the nutrient fresh for longer periods. The plastic bags are normally used to hoover packaged. The air is removed making a vacuity in the bag and the nutrient is left in the bag. In order to keep vacuity. the bag is sealed.
By the researches from Fante’s Kitchen Wares Shop. there are a batch of benefits for vacuity packing:1. Longer storage life of nutrients. Harmonizing to researches. nutrients maintain their freshness and spirit 3-5 times longer than with conventional storage methods. because they don’t come in contact with O.
Due to the riddance of air to absorb the wet from the nutrient. vacuity packing prevents dry out of moist nutrients. Because bacteriums mold and yeast can non turn in a environment without O. nutrients maintain their original visual aspect.
Insect infestation is eliminated because there’s no O coming in the bag.
The production procedure of vacuum-packed merchandises can be illustrated by the flow chart 1 ) attached in appendix.
Business environment: The current concern environment that A/S Dansk Minox operates in can be analyzed as follows.
Menace of New Entrants and Barriers to EntryAs the client research done by A/S Dansk Minox revealed. there is still market chance for the vacuity packed merchandises.
In order to bring forth vacuity packed merchandises. for illustration porc. veggies. it is necessary for companies to buy the production equipments for the process of vacuity packing. meat cutting. screening and packaging. It is important to buy the machines that cut down production clip and cost. addition efficiency. Therefore. in order to come in into this market. the initial capital investing in buying equipment could be significant and it creates barriers to entry.
However. the equipments are comparatively easy to run. so the preparation cost and clip to the workers could be minimum. Furthermore. the nutrient merchandise fabrication industry is non engineering intensive and the equipment could be purchased in many distributers. this factor in bend makes the new entry easier. Besides. one time the initial machines purchased. it is comparatively easy to present new merchandise lines.
Intensity of Rivalry Among CompetitorsThere are a figure of vacuum-packed cooked merchandises makers besides in the concern. Certain rivals of A/S Dansk Minox are spread outing sharply and had already present the ruddy chou salad in vaccum-packed. canned or frozen signifier. There is low distinction among rivals and monetary value is the cardinal factor in this peculiar industry. Due to the high initial investing. the possible issue barriers could be high in this diverse competitory industry.
Merchandise SubstitutesFor this peculiar merchandise of vacuum-packed ruddy chou salad. the Danish homemakers really frequently make it on their ain. Therefore. the household could take do the salad or purchase it from A/S Dansk Minox. The shift costs are reasonably low and the household could hold a pick of purchasing the merchandises from other makers if the monetary value and quality match their criterion.
In term of nutrient hive awaying methods. the ruddy chou salad could be in the transcribed or frozen signifier every bit good. They are the replacements depend on the family’s penchant and rating of monetary value and quality.
SuppliersThe providers of A/S Dansk Minox are the sellers that provide natural stuff of porc. chou and other possible stuff for the procedure of packaging. Since porc and chou are ingestion goods. the monetary value is affected by the demand and supply of the stuff. Luckily for A/S Dansk Minox. the providers will non hold immense bargaining power since the stuff of porc and chou is wildly available in the market and the supply concatenation is considered to be comparatively stable.
BuyersSince the porc and salad are really popular nutrient in Denmark. so the possible purchasers of the merchandise could be anyone in the state. Since people now have more disposable income to pass on nutrient merchandises. besides the vacuum-packed merchandises like porc and chou are wildly considered as more convenient merchandises. More specifically. the adult females in the work force. working female parents. represent the increasing part of the purchasers. Since this salad is rather time-consuming to fix at place. the working female parent prefer to buy pre-prepared vacuum-packed merchandises. The complete repast merchandises are the perfect merchandises for them.
Company Scheme: The scheme of the A/S Dansk Minox is Cost leader. A/S Dansk Minox is runing in a big market and the possible clients could be any household in the state. The demand of vacuity packed merchandise by is extremely elastic. which means the demand of the merchandises are extremely influenced by the monetary value. In order to keep a competitory monetary value and compete with the rivals. A/S Dansk Minox produces the merchandises massively.
Strength: Biggest strength of the organisation is the trade name trueness that already exists. Having 30 merchandises in the market. A/S Dansk Minox is wildly recognized by the consumers and is a sure name. Once the new merchandises introduced. it could bask the benefits of being a line of the company.
Opportunity: By carry oning a consumer research. A/S Dansk Minox late identifies that there is a immense chance for vacuity packed complete repasts. even the rivals already present the ready-made ruddy chou salad to the market. The chance came from the facts that the disposable income of people additions. ensuing in more disbursement on nutrient merchandises. More and more people prefer convenient nutrient to doing it by themselves. In add-on. the ready-made jazz band of “complete meal” is particularly to working female parents. who want to cut down their clip on the time-consuming salad dish. The per centum of working female parent in the work force is anticipating to increase in the hereafter. reflecting the great chance of presenting the new complete set merchandise.
The major job that A/S Dansk Minox facing now is: Should A/S Dansk Minox conveying the new merchandise. complete repast. to the market? If yes. so how much the unit monetary value should be? The monetary value is unsure due to the cost allotment job rise by the new merchandise. taking to long treatments between the selling and finance sections. Company identifies the cost driver as ‘per kilogram’ of stuff and the new merchandise monetary value at D. Cr 8. 20 is proposed by finance section. Marketing section suggests that the cost driver ignores the monetary value of chou is manner cheaper than porc. nevertheless apportioning a similar operating expense cost. Hence they proposed a monetary value of D. Cr 6. 85 for the combo battalion.
In order to happen the solution for the job above. I will analyze the undermentioned three options: Summary of alternativesABCStatus Quo: Not present the “complete repast product” ; abandon the new projectIntroduce the “complete repast product” at a consumer monetary value of D. Cr. 6. 85Introduce the “complete repast product” at a consumer monetary value of D. Cr. 8. 20Alternative A: Status QuoAlternative A is to abandon the new undertaking of New Pack – non to present the “complete repast product” . As the new merchandise will non be introduced. it will bring forth no extra net income to the company. i. e. the net income in 1966 will be the net net income without the debut of the new merchandise. Consequently. the pricing statements between the selling and finance sections of the Danish company will no longer be. In add-on. since the new merchandise is non introduced into the market. the clients of the standard battalion will remain with the merchandises. Consequently. the gross revenues of the old merchandise will go on to lift in response to the addition in the market demand.
Alternative A: Not present the “complete repast product” New PackSales:0Total variable costs0Allocated fixed costs0Profit0Alternative Bacillus: Introduce at a consumer monetary value of D. Cr. 6. 85Since there was trim capacity available for the production of the new “complete meal” merchandise. the entire sum of the fixed costs will non alter due to the proposed production of the new merchandise. Besides because these fixed disbursals are costs that have already been incurred and that can non be recovered. they are considered as sunk costs. In concern decision-making such as the determination to add or drop a merchandise or service. lone incremental costs ( variable costs ) are relevant to a determination.
Therefore. the full costing method ( the criterion cost accounting ) – the effort to apportion the company’s fixed costs to the different merchandises produced during a certain period of clip. is non appropriate for this type of direction determination devising. The proper attack to back up determination devising to better a company’s profitableness is a part analysis: Gross – Variable Costs = Contribution Margin per unit ( Contribution Margin per unit ten entire units produced ) – Entire Fixed Costs = Incremental Profit/LossAs a consequence. the company’s net income in 1966 will be increased by $ 99. 450 ( See Table 1 for item ) if the new merchandise is introduced at a consumer monetary value of D. Cr. 6. 85. Compared to Alternative A. A/S Dansk Minox is better off by the addition of $ 99. 450 in net income.
In the event that the company is non capable to bring forth 85 dozenss of new merchandises. the net income increased supra will non be achieved. From the tabular array shown below. in order to accomplish the net income by selling 30 dozenss new merchandises at D. Cr 8. 20. we need to at least sell 52 dozenss of new merchandise at D. Cr 6. 85.
Contribution Margin for a consumer monetary value of D. Cr. 6. 85 ten Minimum gross revenues volume= incremental net income for presenting the merchandise at a consumer monetary value of D. Cr. 8. 201. 17X = 60. 900 *X = 52. 051* see alternate C for detailLong term decisionHowever. the part analysis is chiefly utile for short-run decision-making. For the long-run intent. the company still needs the full costing analysis to cipher the net income of each merchandise. Within company’s capacity. the production Fixed Expense for the new “complete meal” will be the same as bing merchandises as D. Cr. 0. 54 per kg. All other operating expense will be the same as the bing merchandise every bit good.
In the event of exceed capacity. demand to apportion extra Production Fixed Expenses. in order to acquire the right figure of profitableness. A/S Dansk Minox needs to happen an appropriate cost driver to apportion the production fixed disbursals. As indicated by the selling section. the entire gross revenues measure ( expressed in kgs ) may non be a proper manner to apportion the fixed costs. A/S Dansk Minox could see utilizing the merchandising monetary value of merchandise as the allotment footing. since the consumer monetary value is more relevant to the fixed operating expense and better fiting disbursal with net income. Therefore. from the following tabular array. we relative use the Production Fixed Expense: new packStd. Pack6. 854. 85X0. 54X=0. 76Therefore. in the long tally. 0. 76 production fixed disbursal should be allocated to 1 Kg of “complete meal” . Please note that we assume selling monetary value at D. Cr. 6. 85.
In the instance of retail merchandising monetary value as D. Cr. 6. 85 and with an allotment of D. Cr. 1. 20 for production fixed disbursals. the entire unit cost will be D. Cr. 5. 22.
Alternate C: Introduce at a consumer monetary value of D. Cr. 8. 20In malice of the selling department’s statements. company could make up one’s mind to put the monetary value at
D. Cr. 8. 20 so that the full fixed disbursal could be covered. In this instance. the uncertainness of apportioning fixed operating expense is eliminated and the company guarantee that the new merchandise is making net income. However. the merchandising monetary value is excessively high for the client in bend decreases the fight of the merchandise. Therefore. the merchandise could be sold at a lower volume than it is budgeted. In the undermentioned. we reasonably presume that the gross revenues volume bead to 30 dozenss when the monetary value is at D. Cr. 8. 20. Please see table 2 at appendix for item.
The net income in 1966 will be increased by $ 60. 900. Compared to Alternative A. A/S Dansk Minox is better off by the addition of $ 60. 900 in net income.
ConclusionsIn order to better evaluate and compare all the qualitative and quantitative options we analyzed supra. we need to take into consideration of certain cardinal decision-making criteria:1. Improve profitableness ( measured by part analysis. short-run determination devising ) Increase profitableness and better stockholder equity is the primary end of a company. By bettering net income. the company’s hard currency flow is perchance increased. so that company’s ability of meeting liability is enhanced. In the event of possible puting chance arises. the company will be financially flexible plenty to take it.
2. Consistent with the corporate strategyThe option we take should be consistent with the scheme of the company. so that the action will be towards the company end and will be sustainable.
3. Lost of clients by the Standard PackTo better evaluate the options. some of import qualitative factors should be considered. possible doomed of client by standard battalion ensuing from the debut of the new merchandise is one of them.
4. Within capabilityAre the options come-at-able? Or they are out of the capacity of the company and will non be able to accomplish? The following tabular array shows how we compare the different options by using these standards: ABCStatus Quo: Not present the “complete repast product” ; abandon the new projectIntroduce the “complete repast product” at a consumer monetary value of D. Cr. 6. 85Introduce the “complete repast product” at a consumer monetary value of D. Cr. 8. 20Improve profitableness utilizing part analysis ( short-run determination devising ) NoAssuming 85 dozenss of new merchandises are sold at monetary value of D. Cr 6. 85. so the profibility will be improved by D. Cr. 99. 450Assuming 30 dozenss of new merchandises are sold at monetary value of D. Cr 8. 20. so the profibility will be improved by D. Cr. 60. 900.
Consistent with strategyN/AThe company’s scheme is cost leader. the monetary value of D. Cr. 6. 85 is consistent with the company’s scheme and increase the fight of the company. The company’s scheme is cost leader. the monetary value of D. Cr. 8. 20 might be excessively high for certain client. ensuing in losing the fight of the company.
Lost of clients by the Standard PackNoIt is confirmed that there is still a great untapped potency for the new merchandise so the client will go on to purchase both new and old merchandises. Gross saless of standard battalion will non be affected. Since there is still a great untapped potency for the new merchandise so the client will go on to purchase both new and old merchandises. Gross saless of standard battalion will non be affected.
Within capabilityN/AThere are trim capacity available for the company and the production will non transcend at this minute. If the new merchandise maintain increasing in the hereafter. there is possibility of transcending budgeted capacityThere are trim capacity available for the company and the production will non increase excessively much due to the high merchandising priceIn decision. by comparing the options against the cardinal decision-making standards. option B. which introduces the “complete repast product” at a consumer monetary value of D. Cr. 6. 85 is the best option for A/S Dansk Minox.
Since the chief end for A/S Dansk Minox is bring forthing higher hard currency flow. bettering profitableness should be the primary standards that we should see in determination devising. Alternate C improves profibility by D. Cr. 99. 450. which is D. Cr 38. 550 higher than alternate B and D. Cr 99. 450 higher than alternative A.
Furthermore. alternate B is consistent with the company scheme. From the content that we demonstrated antecedently. the concern scheme of the company is cost leader. A/S Dansk Minox produces the merchandises massively in order to maintain a low merchandising monetary value and lucifer with the rivals. Therefore. presenting the new merchandise monetary value at D. Cr. 6. 85 does a better occupation in suiting in company’s scheme than the other options.
In add-on. alternate B will non hold immense impact to the bing merchandises and it works within the capableness of the company. comparing to other options.
A/S Dansk Minox is confronting an exciting chance of presenting a new merchandise line that could perchance increase the net income enormously. We extremely recommend the company present the new “complete meal” at monetary value of D. Cr. 6. 85. besides taking the undermentioned steps:1. Introduce the “complete meal” to the whole company and the populace every bit shortly as possible in order to allow more people know about the new merchandise.
2. Inform the production section and add the new merchandise into production program. Measure the trouble of implementing the new merchandise line.
3. Inform the selling section. Ask for possible publicity subject and program that could do the biggest gross revenues impact.
4. Name retail merchants at each degree of selling channel sing the debut of the new merchandise.
5. after few months. behavior client research in order to measure the success of the new merchandise or possible commandsNot merely alternate C is a solution that comparatively easy to be implemented. it is besides expected to bring forth highest hard currency flow to run into the company’s runing end. By puting the monetary value of new merchandise at every bit low as D. Cr. 6. 85. the demand of the merchandise remains high and the company scheme of cost leader will be maintained. Introducing the new “complete meal” addition the fight to use the company’s strength and assist company to last in this extremely competitory market.
Appendixs: Flow chart 1 ) Table 1Alternative B: present the “complete repast product” at a consumer monetary value of D. Cr. 6. 85New PackConsumer Price6. 85Turnover Tax ( 0. 76 ) Consumer Price Before Tax6. 09Retailer’s Margin ( 1. 31 ) Monetary value to Retailer4. 78Variable Costss: Material: Pork 1. 67Labor: Pork 0. 25Material: Cabbage 0. 5Labor: Cabbage 0. 25Packaging 0. 26Transportation. Storage0. 2Margins and Discounts to Jobbers 0. 38Sundry Variable Costss 0. 1Total Variable Costss ( 3. 61 ) Contribution Margin1. 17Sales volume @ 85 dozenss 1x 85. 000 kgIncremental Profit99. 4501 Assume the existent gross revenues volume of the “complete repast product” is the same as the gross revenues budget when the “complete repast product” is introduced at a consumer monetary value of D. Cr. 6. 85.
Table 2Alternative C: present the “complete repast product” at a consumer monetary value of D. Cr. 8. 20New PackConsumer Price8. 20Turnover Tax ( 0. 91 ) Consumer Price Before Tax7. 29Retailer’s Margin ( 1. 57 ) Monetary value to Retailer5. 72Variable Costss: Material: Pork 1. 67Labor: Pork 0. 25Material: Cabbage 0. 5Labor: Cabbage 0. 25Packaging 0. 26Transportation. Storage0. 2Margins and Discounts to Jobbers 0. 46Sundry Variable Costss 0. 1Total Variable Costss ( 3. 69 ) Contribution Margin2. 03Sales volume @ 30 dozenss 1x 30. 000 kgIncremental Profit60. 9001 The existent gross revenues volume of the “complete repast product” is 30 dozenss when the “complete repast product” is introduced at a consumer monetary value of D. Cr. 8. 20bibliographiesA/S Dansk Minox Gordon Shillinglaw. Columbia University ISBN 0-538-88967-5 to Accounting
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