Dansk Minox Case Study Essay

IntroductionMy name is Kevin Chen and I am a of age(p) consultant of the Boston Consulting firm. Per the request of the A/S Dansk Minox, a intellectual nourishment fruits manufacturer, I am preparing this abstract to identify the existing problems within the fear of A/S Dansk Minox and provide possible recommendations. As a consultant, I get out present the depth psychology with pop bias and for the best benefits of A/S Dansk Minox. In the succeeding(a) analysis, I am going to answer the chase question Should A/S Dansk Minox bring the novel return, expel repast, to the trade? companion backgroundThis case is facility in Denmark in 1967 when the boom in consumer fodder carrefours was just beginning to a greater extent than working m some others, more spendable income, more choices in convenience food produces.A/S Dansk Minox, a hallow in Denmark, specializes in manufacturing a variety of pointlessness-jam-packed meat and other harvest-feasts. DM has about 30 in tersection points and has a great position and cross in the market. A/S Dansk Minox provides the vacuum packed products and consumers combine the vacuum packed packages along with the homemade salad for their repast. Through consumer research, A/S Dansk Minox lately identifies that in that location is a huge market potential for vacuum packed complete meals. The meal contains a standard sliced porc in gravy, the product that A/S Dansk Minox is making, with 550 grams of ruby cabbage salad. nothingness PackingVacuum Packing is a storage method that preserves variety of food. For example, pork, grouse or vegetables. If comelyly refrigerated or icy, vacuum packaging whole kit well in keeping the food fresh for longer periods. The bendable bags atomic number 18 usually used to vacuum packaged. The air is removed creating a vacuum in the bag and the food is left in the bag. In higher(prenominal)(prenominal) society to produce vacuum, the bag is sealed.By the researches from Fantes Kitchen Wares Shop, at that place are a lot of benefits for vacuum packing1. Longer storage work on of foods. According to researches, foods maintain their freshness and flavor 3-5 times longer than with received storage methods, because they dont come in contact with oxygen. ascribable to the elimination of air to absorb the moisture from the food, vacuum packing prevents change out of moist foods,Because bacteria m older and yeast cannot grow in a environment without oxygen, foods maintain their original appearance.Insect infestation is eliminated because theres no oxygen coming in the bag.The work work out of vacuum-packed products can be illustrated by the flow chart 1) attached in appendix.Business environmentThe current billet environment that A/S Dansk Minox operates in can be analyzed as follows.Threat of natural Entrants and Barriers to EntryAs the client research done by A/S Dansk Minox revealed, there is excuse market prospect for the vacuum packed prod ucts.In cast to produce vacuum packed products, for example pork, vegetables, it is necessary for companies to grease ones palms the mathematical product equipments for the procedure of vacuum packing, meat cutting, sorting and packaging. It is crucial to purchase the machines that suppress production time and exist, increase efficiency. therefore, in order to enter into this market, the sign capital investment in purchasing equipment could be substantial and it creates barriers to intro.However, the equipments are relatively easy to operate, so the training apostrophize and time to the workers could be minimal. Moreover, the food product manufacturing industry is not technology intensive and the equipment could be purchased in many distributors, this factor in turn act upons the in the buff entry easier. Also, once the initial machines purchased, it is relatively easy to earn new product lines.Intensity of Rivalry Among CompetitorsThere are a number of vacuum-packed co oked products manufacturers also in the business. Certain competitors of A/S Dansk Minox are expanding aggressively and had already bring on the red cabbage salad in vaccum-packed, canned or frozen form. There is low differentiation among competitors and expense is the hear factor in this crabbed industry. Due to the high initial investment, the potential exit 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 strike make the salad or buy it from A/S Dansk Minox. The switching cost are fairly low and the family could pretend a choice of acquire the products from other manufacturers if the hurt 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 gustatory modality and eva luation of legal injury and quality.SuppliersThe suppliers of A/S Dansk Minox are the vendors that provide stinging material of pork, cabbage and other possible material for the process of packaging. Since pork and cabbage are consumption goods, the monetary value is affected by the take away and supply of the material. Luckily for A/S Dansk Minox, the suppliers will not cook huge bargaining power since the material of pork and cabbage is wildly available in the market and the supply chain 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 muckle now rescue more disposable income to spend on food products, also the vacuum-packed products homogeneous pork and cabbage are wildly considered as more snug products,More specifically, the women in the work force, working fixs, represent the increase portion of the buyers. Since this salad is quite a tim e-consuming to prepare at home, the working mother prefer to purchase pre-prepared vacuum-packed products. The complete meal products are the perfect products for them.Company StrategyThe strategy of the A/S Dansk Minox is Cost leader. A/S Dansk Minox is operating in a large market and the potential guests 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 expenditure. In order to maintain a competitive legal injury and compete with the competitors, A/S Dansk Minox produces the products massively. readinessBiggest 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 bank name. Once the new products introduced, it could enjoy the benefits of being a line of the participation. prospectBy conducting a consumer research, A/S Dansk Minox recently identi fies that there is a huge opportunity for vacuum packed complete 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 making it by themselves. In playition, the ready-made combo of complete meal is especially to working mothers, who emergency to reduce their time on the time-consuming salad dish. The percentage of working mother in the work force is expecting to increase in the future, reflecting the great opportunity of introducing the new complete set product.The major problem that A/S Dansk Minox go about now is Should A/S Dansk Minox bring the new product, complete meal, to the market? If yes, then how much the unit expense should be?The price is uncertain referable to the cost allocation problem raise by the new product, leading to long discussions between the merchandise 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. Marketing department suggests that the cost driver ignores the price of cabbage is way cheaper than pork, however allocating a akin(predicate) command 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 to a higher place, I will examine the  avocation(a) three optionsSummary of alternativesABCStatus Quo non 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. 8.20Alternative A Status QuoAlternative A is to abandon the new project of impudently Pack not to introduce the complete meal product. As the new product will not be introduced, it will set out no additional bread to the connection, i. e. the profit in 1966 will be the net profit without the inception of the new product. Consequently, the pricing arguments between the marketing and finance departments of the Danish company will no longer exist. In addition, since the new product is not introduced into the market, the customers of the standard pack will rub with the products. Accordingly, the gross gross sales of the old product will continue to rise in response to the increase in the market demand.Alternative A Not introduce the complete meal product New Packgross revenue0Total variable costs0Allocated opinionated costs0Profit0Alternative B Introduce at a consumer price of D.Cr. 6.85Since there was redeem capacity available for the production of the new complete meal product, the chalk up 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 sunk costs. In business purpose-making such as the decision to add or drop a product or service, merely incremental costs (variable costs) are germane(predicate) to a decision.Therefore, the full costing method (the standard cost accounting) the exploit to portion the companys fixed costs to the different products produced during a certain period of time, is not appropriate for this type of management decision making. The proper approach to support decision making to improve a companys profitability is a voice analysis tax revenue Variable Costs = Contribution Margin per unit(Contribution Margin per unit x total units produced) Total Fixed Costs = Incremental Profit/LossAs a result, the companys profit in 1966 will be change magnitude 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 cleanse off by the increase of $99,450 in profit.In the event that the company is not sure footed to produce 85 lashings of new products, the profit increased above will not be get tod. From the table shown below, in order to get through the profit by selling 30 gobs new products at D. Cr 8.20, we contend 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 volume= 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 primarily useful for short-run decision-making. For the long-term purpose, the company still needs the full costing analysis to calculate the profit of each product. indoors companys capacity, the production Fixed Expense for the new complete meal will be the like as existing 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 yield Fix ed Expenses. in order to get the correct number of profitability, A/S Dansk Minox 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 exploitation the selling price of product as the allocation basis, since the consumer price is more relevant to the fixed overhead and better matching 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. ravish note that we assume selling 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 could 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 withal high for the customer in turn decreases the fighting of the product. Therefore, the product could be sold at a lower volume than it is budgeted. In the following, we reasonably 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 quantitative alternatives we analyzed above, we need to take into consideration of certain key decision-making criteria1.Improve profitability (m easured by contribution analysis, short-term decision making)Increase profitability and improve shareholder equity is the direct goal of a company. By improving profit, the companys cash in flow is peradventure increased, so that companys ability of contact liability is enhanced. In the event of possible investing opportunity arises, the company will be financially flexible enough to take it.2.Consistent with the embodied strategyThe alternative we take should be invariable 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 important qualitative factors should be considered, potential lost of customer by standard pack resulting from the gate 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 co mpare the different alternatives by applying these criteriaABCStatus 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. 8.20Improve 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 improved 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 st ill 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 chief(a) 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 impact to the existing products and it plant life 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 n ew complete meal at price of D.Cr. 6.85, also taking the following steps1.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 difficulty of implementing the new product line.3.Inform the marketing department. Ask for possible promotion theme 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 carcass high and the company strategy of cost leader will be maintained. Introducing the new complete meal increase the competitiveness to utilize the companys strength and help company to survive 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 Price6.85Turnover Tax(0.76)Consumer Price Before Tax6.09Retailers Margin (1.31)Price to Retailer4.78Variable CostsMaterial Pork 1.67Labor Pork 0.25Material prick 0.5Labor refined sugar 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 guide the true 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)Price 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