Dansk Minox Case Study Essay

IntroductionMy name is Kevin Chen and I am a older consultant of the Boston Consulting firm. Per the request of the A/S Dansk Minox, a nourishment products manufacturer, I am preparing this compendium to identify the quick problems within the business of A/S Dansk Minox and provide doable recommendations. As a consultant, I allow for present the analysis without bias and for the best benefits of A/S Dansk Minox. In the following(a) analysis, I am going to answer the following question Should A/S Dansk Minox bring the sweet product, complete meal, to the market?Company backgroundThis case is slump in Denmark in 1967 when the boom in consumer food products was just beginning more(prenominal) thrashing mothers, more disposable income, more choices in convenience food products.A/S Dansk Minox, a company in Denmark, specializes in manufacturing a variety of mindlessness-packed meat and other products. DM has about 30 products and has a commodious position and brand in the mar ket. A/S Dansk Minox provides the hoover packed products and consumers combine the vacuum packed packages along with the homemade salad for their meal. Through consumer research, A/S Dansk Minox recently identifies that there is a huge market strength for vacuum packed complete meals. The meal contains a standard sliced pork in gravy, the product that A/S Dansk Minox is make, with 550 grams of red cab floore salad.Vacuum PackingVacuum Packing is a storage method that preserves variety of food. For example, pork, beef or vegetables. If properly refrigerated or frozen, vacuum packaging works well in keeping the food fresh for longer periods. The plastic bags argon normally used to vacuum packaged. The air is removed creating a vacuum in the bag and the food is left in the bag. In order to maintain vacuum, the bag is sealed.By the researches from Fantes Kitchen Wares Shop, there are a lot of benefits for vacuum packing1. Longer storage life of foods. According to researches, foods maintain their freshness and tanginess 3-5 times 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 yeast can non grow in a environment without oxygen, foods maintain their original appearance.Insect pestilence is eliminated because theres no oxygen coming in the bag.The labor process of vacuum-packed products can be illustrated by the flow chart 1) attached in appendix.Business environmentThe current business environment that A/S Dansk Minox operates in can be analyzed as follows.Threat of New Entrants and Barriers to EntryAs the node research done by A/S Dansk Minox revealed, there is still market opportunity for the vacuum packed products.In order to produce vacuum packed products, for example pork, vegetables, it is necessary for companies to purchase the production equipments for the procedure of vacuum packing, meat cutting, sorting and packaging. It is crucial to purchase the machines that reduce production time and court, increase efficiency. on that pointfore, in order to enter into this market, the initial capital investment in purchasing equipment could be substantial and it creates barriers to entry.However, the equipments are relatively easy to operate, so the educational activity cost and time to the workers could be minimal. Moreover, the food product manufacturing industry is non technology intensive and the equipment could be purchased in many distributors, this factor in figure makes the impudently entry easier. Also, once the initial machines purchased, it is relatively easy to let out parvenue product lines.Intensity of Rivalry Among CompetitorsThere are a number of vacuum-packed cooked products manufacturers excessively in the business. Certain competitors of A/S Dansk Minox are expanding aggressively and had already introduce the redcabbage sa lad in vaccum-packed, canned or frozen form. There is low differentiation among competitors and wrong is the key factor in this particular industry. Due to the high initial investment, the potential difference exit barriers could be high in this diverse warlike 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 costs are fairly low and the family could have a choice of buying the products from other manufacturers if the set and attribute 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 think on the familys preference and evaluation of damage and quality.SuppliersThe suppliers of A/S Dansk Minox are the vendors that provide raw physical of pork, cabbage and other possible material for the process of packaging. Since pork and cabbage are consumption goods, the price is affected by the demand and supply of the material. Luckily for A/S Dansk Minox, the suppliers volition not have 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 people 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 increasing portion of the buyers. Since this salad is quite time-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 scheme of the A/S Dansk Minox is Cost leader. A/SDansk 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 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 bran-new products introduced, it could enjoy the benefits of being a line of the company. opportunityBy conducting a consumer research, A/S Dansk Minox recently identifies 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 inc ome of people increases, resulting in more spending on food products. More and more people prefer convenient food to making it by themselves. In addition, the ready-made combo of complete meal is especially to working mothers, who want 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(ip) problem 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 uncertain due to the cost allocation problem raise by the new product, leading to long discussions between the marketing 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 similar overhead cost. Hence they proposed a price of D.Cr 6.85 for the combo pack.In order to surface the solution for the problem above, I impart examine thefollowing three substitute(a)sSummary 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. 8.20Alternative A Status QuoAlternative A is to abandon the new project of New Pack not to introduce the complete meal product. As the new product will not be introduced, it will generate no additional profit to the company, i.e. the profit in 1966 will be the net profit without the introduction of the new product. Consequently, the determine 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 t he market, the clients of the standard pack will stay with the products. Accordingly, the 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 PackSales0Total variable costs0Allocated fixed costs0Profit0Alternative B Introduce at a consumer price of D.Cr. 6.85Since there was spare subject matter 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 sunk costs. In business finding-making such as the decision to add or drop a product or service, only incremental costs (variable costs) are relevant to a decision.Therefore, the full cost method (the standard cost accounting) the attempt to allocate the companys fixed costs to the different products produced during a certain period of time, is not appropriate for this vitrine of management decision making. The proper approach to support decision making to improve a companys profitability is a character analysisRevenue Variable cost = 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 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 better off by the increase of $99,450 in profit.In the event that the company is not capable to produce 85 tons of new products, the profit increased above will not be achieved. From the table shown below, in order to achieve the profit by sell 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 sat uration= 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-term decision-making. For the long-term purpose, the company still necessarily the full costing analysis to calculate the profit of each product. Within companys efficiency, the production Fixed set down for the new complete meal will be the same 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 Production Fixed 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 cou ld consider using 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. Please 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 too high f or the customer in turn decreases the competitiveness of the product. Therefore, the product could be sold at a lower garishness 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 (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 bullion flow is perchance increased, so that companys ability of meeting liability is enhanced. In the event of possible investing opportunity ari ses, the company will be financially flexible enough to take it.2.Consistent with the corporate strategyThe 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 important 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 criteriaABCStatus 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 (shor t-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 still a great untapped potential for the new product so the customer will continue to buy some(prenominal) 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 n ot 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 high 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 high 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 pr eviously, 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 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 steps1.Introduce the complete meal to the whole company and the public as soon as possible in order to let more people drive in about the new product.2.Inform the production department and add the new product into production plan. Evaluate the difficulty of imp lementing 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 remains high and the company strategy of cost leader will be maintained. Introducing the new complete meal increase the competitiveness to utilizethe 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 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)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 Margin2.03Sa les 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