Dansk Minox Case Study Essay

IntroductionMy name is Kevin Chen and I am a senior consultant of the Boston Consulting firm. Per the request of the A/S Dansk Minox, a aliment proceedss manufacturer, I am preparing this analysis to identify the living both(prenominal)ers within the business of A/S Dansk Minox and provide possible recommendations. As a consultant, I leave present the analysis without bias and for the outmatch benefits of A/S Dansk Minox. In the following analysis, I am press release to answer the following question Should A/S Dansk Minox shape the naked overlap, end up repast, to the market? high society backgroundThis case is set in Denmark in 1967 when the boom in consumer pabulum intersections was just beginning more running(a) contracts, more disposable income, more choices in convenience victuals produces.A/S Dansk Minox, a phoner in Denmark, specializes in manufacturing a cast of vacancy-jam- pack toge in that locationd meat and other yields. DM has about 30 proceedss a nd has a bully position and brand in the market. A/S Dansk Minox provides the pointlessness packed products and consumers combine the vacuum packed packages along with the homemade salad for their repast. Through consumer research, A/S Dansk Minox recently identifies that there is a huge market potential drop for vacuum packed fuck repasts. The meal contains a regulation slit porc in gravy, the product that A/S Dansk Minox is reservation, with 550 grams of inflamed cabbage salad.Vacuum PackingVacuum Packing is a storage method that conserve variety of food. For example, pork, beef or vegetables. If properly refrigerated or frozen, vacuum packaging works well in keeping the food judicious for longer periods. The plastic bags atomic number 18 usually used to vacuum packaged. The precedent pressure is removed creating a vacuum in the bag and the food is go away in the bag. In auberge to importanttain vacuum, the bag is sealed.By the researches from Fantes Kitchen W b es Shop, there be a lot of benefits for vacuum packing1. longer storage life of foods. According to researches, foods maintain their freshness and flavor 3-5 multiplication longer than with conventional storage methods, because they dont come in contact with oxygen.Due to the elimination of air to absorb the moisture from the food, vacuum packing prevents dry out of moist foods,Because bacteria mold and barm can non grow in a purlieu without oxygen, foods maintain their original appearance. biting louse infestation is eliminated because theres no oxygen coming in the bag.The mathematical product process of vacuum-packed products can be illustrated by the meld chart 1) attached in adjunct.Business environmentThe current business environment that A/S Dansk Minox operates in can be analyzed as follows.Threat of sunrise(prenominal) Entrants and Barriers to EntryAs the customer research done by A/S Dansk Minox revealed, there is still market prospect for the vacuum packed produ cts.In mark to produce vacuum packed products, for example pork, vegetables, it is undeniable for companies to purchase the production equipments for the procedure of vacuum packing, meat cutting, sorting and packaging. It is significant to purchase the machines that reduce production time and court, increase efficiency. Therefore, in hostelry to enter into this market, the initial capital investment in purchasing equipment could be substantial and it creates barriers to entry.However, the equipments atomic number 18 comparatively easy to operate, so the training bell and time to the workers could be minimal. Moreover, the food product manufacturing industry is not applied science intensive and the equipment could be purchased in many distributors, this cipher in acidify arrests the hot entry easier. Also, once the initial machines purchased, it is relatively easy to take in bran- pertly product lines.Intensity of Rivalry Among CompetitorsThere are a flake of vacuum-p acked cooked products manufacturers withal in the business. Certain competitors of A/S Dansk Minox are expanding sharply and had already acquaint the redcabbage salad in vaccum-packed, preserve or frozen form. There is low differentiation among competitors and determine is the key factor in this token industry. Due to the high initial investment, the potential go away barriers could be high in this diverse competitive industry.Product SubstitutesFor this particular product of vacuum-packed red cabbage salad, the Danish housewives very often make it on their own. Therefore, the family could choose make the salad or buy it from A/S Dansk Minox. The switching be are fairly low and the family could have a choice of buying the products from other manufacturers if the set and quality match their standard.In term of food storing methods, the red cabbage salad could be in the canned or frozen form as well. They are the substitutes depend on the familys preference and evaluation of scathe and quality.SuppliersThe suppliers of A/S Dansk Minox are the vendors that provide raw satisfying of pork, cabbage and other possible temporal for the process of packaging. Since pork and cabbage are consumption goods, the harm is change by the necessitate and supply of the material. Luckily for A/S Dansk Minox, the suppliers go away not have huge bargaining power since the material of pork and cabbage is wildly available in the market and the supply kitchen range is considered to be relatively stable.BuyersSince the pork and salad are very popular food in Denmark, so the potential buyers of the product could be anyone in the country. Since plurality now have more disposable income to spend on food products, also the vacuum-packed products like pork and cabbage are wildly considered as more convenient products,More specifically, the women in the work force, working mothers, represent the change magnitude portion of the buyers. Since this salad is quite time-consumin g to prepare at home, the working mother prefer to purchase pre-prepared vacuum-packed products. The eff meal products are the perfect products for them.Company StrategyThe dodge of the A/S Dansk Minox is Cost leader. A/SDansk Minox is operating in a large market and the potential customers could be any family in the country. The demand of vacuum packed product by is highly elastic, which means the demand of the products are highly influenced by the price. In order to maintain a competitive price and compete with the competitors, A/S Dansk Minox produces the products massively.StrengthBiggest strength of the organization is the brand loyalty that already exists. Having 30 products in the market, A/S Dansk Minox is wildly recognized by the consumers and is a trusted name. Once the current products go ind, it could enjoy the benefits of being a line of the confederacy.Opport unityBy conducting a consumer research, A/S Dansk Minox recently identifies that there is a huge opportuni ty for vacuum packed all over meals, even the competitors already introduce the ready-made red cabbage salad to the market. The opportunity came from the facts that the disposable income of people increases, resulting in more spending on food products. More and more people prefer convenient food to reservation it by themselves. In addition, the ready-made jazz group of complete meal is especially to working mothers, who want to reduce their time on the time-consuming salad dish. The voice of working mother in the work force is expecting to increase in the future, reflecting the great opportunity of introducing the raw(a) complete set product.The major business that A/S Dansk Minox facing now is Should A/S Dansk Minox bring the new product, complete meal, to the market? If yes, then how much the unit price should be?The price is un authoritative due to the cost assignation problem raise by the new product, leading to long discussions between the trade and finance departments. Company identifies the cost driver as per kilogram of material and the new product price at D.Cr 8.20 is proposed by finance department. merchandising department suggests that the cost driver ignores the price of cabbage is way cheaper than pork, save allocating a similar overhead cost. Hence they proposed a price of D.Cr 6.85 for the combo pack.In order to find the solution for the problem above, I leave alone examine thefollowing three preferencesSummary of alternativesABCStatus Quo Not introduce the complete meal product abandon the new projectIntroduce the complete meal product at a consumer price of D.Cr. 6.85Introduce the complete meal product at a consumer price of D.Cr. 8.20 alternate(a) A Status Quo option A is to abandon the new project of New Pack not to introduce the complete meal product. As the new product leave alone not be introduced, it will generate no additional acquire to the corporation, i.e. the profit in 1966 will be the net profit without the introduc tion of the new product. Consequently, the set arguments between the marketing and finance departments of the Danish companionship will no longer exist. In addition, since the new product is not introduced into the market, the customers of the standard pack will stay with the products. Accordingly, the sales of the old product will touch on to rise in response to the increase in the market demand.Alternative A Not introduce the complete meal product New PackSales0Total variable cost0 entirelyocated quick-frozen costs0Profit0Alternative B Introduce at a consumer price of D.Cr. 6.85Since there was spare capacity available for the production of the new complete meal product, the total amount of the fixed costs will not change due to the proposed production of the new product. Also because these fixed expenses are costs that have already been incurred and that cannot be recovered, they are considered as sink costs. In business decision-making such as the decision to add or drop a pr oduct or service, only incremental costs (variable costs) are relevant to a decision.Therefore, the encompassing costing method (the standard cost accounting) the attempt to deal the participations fixed costs to the different products produced during a certain period of time, is not appropriate for this lineament of management decision making. The proper approach to support decision making to improve a fraternitys favourableness is a contribution analysisRevenue Variable Costs = function strand per unit(Contribution Margin per unit x total units produced) Total Fixed Costs = incremental Profit/LossAs a result, the associations profit in 1966 will be increased by $99,450 (See Table 1 for detail) if the new product is introduced at a consumer price of D.Cr. 6.85. Compared to Alternative A, A/S Dansk Minox is cave in off by the increase of $99,450 in profit.In the event that the union is not capable to produce 85 hemorrhoid of new products, the profit increased above will not be achieved. From the table shown below, in order to achieve the profit by changeing 30 tons new products at D. Cr 8.20, we need to at least sell 52 tons of new product at D. Cr 6.85.Contribution Margin for a consumer price of D.Cr. 6.85 x Minimum sales heap= incremental profit for introducing the product at a consumer price of D.Cr. 8.201.17X = 60,900 *X = 52,051* see alternative C for detailLong term decisionHowever, the contribution analysis is earlier useful for short-term decision-making. For the long-term purpose, the bon ton still needs the full costing analysis to calculate the profit of each product. Within companys capacity, the production Fixed expenditure for the new complete meal will be the same as animate products as D.Cr. 0.54 per kilo. All other overhead will be the same as the existing product as well.In the event of exceed capacity, need to allocate additional Production Fixed Expenses. in order to get the redress number of lucrativeness, A/S Dansk Mi nox needs to find an appropriate cost driver to allocate the production fixed expenses. As indicated by the marketing department, the total sales quantity (expressed in kilograms) may not be a proper way to allocate the fixed costs. A/S Dansk Minox could consider utilize the merchandising price of product as the allocation basis, since the consumer price is more relevant to the fixed overhead and better duplicate expense with profit. Therefore, from the following table, we proportional apply the Production Fixed Expensenew packStd.Pack6.854.85X0.54X=0.76Therefore, in the long run, 0.76 production fixed expense should be allocated to 1 Kg of complete meal. Please note that we comport exchange price at D.Cr. 6.85.In the case of retail selling price as D.Cr. 6.85 and with an allocation of D.Cr. 1.20 for production fixed expenses, the total unit cost will be D.Cr. 5.22.Alternative C Introduce at a consumer price of D.Cr. 8.20In spite of the marketing departments arguments, company c ould decide to set the price atD.Cr. 8.20 so that the full fixed expense could be covered. In this case, the uncertainty of allocating fixed overhead is eliminated and the company ensure that the new product is making profit. However, the selling price is in like manner high for the customer in turn decreases the engagement of the product. Therefore, the product could be sold at a lower volume than it is budgeted. In the following, we pretty assume that the sales volume drop to 30 tons when the price is at D.Cr. 8.20. Please see table 2 at appendix for detail.The profit in 1966 will be increased by $60,900. Compared to Alternative A, A/S Dansk Minox is better off by the increase of $60,900 in profit.ConclusionsIn order to better evaluate and compare all the qualitative and denary alternatives we analyzed above, we need to take into consideration of certain key decision-making criteria1.Improve profitability (measured by contribution analysis, short-term decision making)Increase profitability and improve shareholder equity is the primary goal of a company. By improving profit, the companys cash flow is possibly increased, so that companys ability of meeting liability is enhanced. In the event of possible investment funds opportunity arises, the company will be financially flexible affluent to take it.2.ordered with the corporate schemaThe alternative we take should be consistent with the strategy of the company, so that the action will be towards the company goal and will be sustainable.3.Lost of customers by the Standard PackTo better evaluate the alternatives, some distinguished qualitative factors should be considered, potential lost of customer by standard pack resulting from the introduction of the new product is one of them.4.Within capabilityAre the alternatives attainable? Or they are out of the capacity of the company and will not be able to achieve?The following table shows how we compare the different alternatives by applying these criteriaA BCStatus Quo Not introduce the complete meal product abandonthe new projectIntroduce the complete meal product at a consumer price of D.Cr. 6.85Introduce the complete meal product at a consumer price of D.Cr. 8.20Improve profitability using contribution analysis (short-term decision making) NoAssuming 85 tons of new products are sold at price of D.Cr 6.85, so the profibility will be amend by D.Cr. 99,450Assuming 30 tons of new products are sold at price of D.Cr 8.20, so the profibility will be improved by D.Cr. 60,900.Consistent with strategyN/AThe companys strategy is cost leader, the price of D.Cr.6.85 is consistent with the companys strategy and increase the competitiveness of the company.The companys strategy is cost leader. the price of D.Cr.8.20 might be too high for certain customer, resulting in losing the competitiveness of the company.Lost of customers by the Standard PackNoIt is confirmed that there is still a great untapped potential for the new product so the customer will continue to buy both new and old products. Sales of standard pack will not be affected.Since there is still a great untapped potential for the new product so the customer will continue to buy both new and old products. Sales of standard pack will not be affected.Within capabilityN/AThere are spare capacity available for the company and the production will not exceed at this moment. If the new product keep increasing in the future, there is possibility of exceeding budgeted capacityThere are spare capacity available for the company and the production will not increase too much due to the high selling priceIn conclusion, by comparing the alternatives against the key decision-making criteria, alternative B, which introduces the complete meal product at a consumer price of D.Cr. 6.85 is the best option for A/S Dansk Minox.Since the main goal for A/S Dansk Minox is generating higher cash flow, improving profitability should be the primary criteria that we should consider in decision making. Alternative C improves profibility by D.Cr. 99,450, which is D.Cr 38,550 higher than alternative B and D.Cr 99,450 higher than alternative A.Moreover, alternative B is consistent with the company strategy. From the content that we demonstrated previously, the business strategy of the company is cost leader. A/S Dansk Minox produces the products massively in order to keep a low selling price and match with the competitors. Therefore, introducing the new product price at D.Cr. 6.85 does a better job in fitting in companys strategy than the other alternatives.In addition, alternative B will not have huge intrusion to the existing products and it works within the capability of the company, comparing to other options.RecommendationsA/S Dansk Minox is facing an exciting opportunity of introducing a new product line that could possibly increase the profit hugely. We highly recommend the company introduce the new complete meal at price of D.Cr. 6.85, also taking the following step s1.Introduce the complete meal to the whole company and the public as soon as possible in order to let more people know about the new product.2.Inform the production department and add the new product into production plan. Evaluate the obstruction of implementing the new product line.3.Inform the marketing department. Ask for possible promotion division and plan that could make the biggest sales impact.4.Call retailers at each level of selling channel regarding the introduction of the new product.5.after few months, conduct customer research in order to evaluate the success of the new product or possible commandsNot only alternative C is a solution that relatively easy to be implemented, it is also expected to generate highest cash flow to meet the companys operating goal. By setting the price of new product at as low as D.Cr. 6.85, the demand of the product remains high and the company strategy of cost leader will be maintained. Introducing the new complete meal increase the comp etitiveness to utilizethe companys strength and help company to stomach in this highly competitive market.AppendicesFlow chart 1)Table 1Alternative B introduce the complete meal product at a consumer price of D.Cr. 6.85New PackConsumer hurt6.85Turnover Tax(0.76)Consumer price Before Tax6.09Retailers Margin (1.31)Price to Retailer4.78Variable CostsMaterial pork 1.67Labor pork 0.25Material Cabbage 0.5Labor Cabbage 0.25Packaging 0.26Transportation, Storage0.2Margins and Discounts to Wholesalers 0.38Sundry Variable Costs 0.1Total Variable Costs(3.61)Contribution Margin1.17Sales volume 85 tons 1x 85,000 kgIncremental Profit99,4501 Assume the actual sales volume of the complete meal product is the same as the sales budget when the complete meal product is introduced at a consumer price of D.Cr. 6.85.Table 2Alternative C introduce the complete meal product at a consumer price of D.Cr. 8.20New PackConsumer Price8.20Turnover Tax(0.91)Consumer Price Before Tax7.29Retailers Margin (1.57)Pr ice to Retailer5.72Variable CostsMaterial Pork 1.67Labor Pork 0.25Material Cabbage 0.5Labor Cabbage 0.25Packaging 0.26Transportation, Storage0.2Margins and Discounts to Wholesalers 0.46Sundry Variable Costs 0.1Total Variable Costs(3.69)Contribution Margin2.03Sales volume 30 tons 1x 30,000 kgIncremental Profit60,9001 The actual sales volume of the complete meal product is 30 tons when the complete meal product is introduced at a consumer price of D.Cr. 8.20bibliographiesA/S Dansk Minox Gordon Shillinglaw, Columbia University ISBN 0-538-88967-5 to Accounting