Based on Variable cost, analysis of one product shows that product 103 creates an income of $13.726/- million. Besides, the fixed cost of generating product 103 is $8.793 million of which they can be avoided, those costs include selling costs, indirect labor cost, and general administrative costs, henceforth, the net contribution generated by-product 103 is $4.933/- million after the sales of 986,974/- units of product 103 during the year 2004. Nevertheless, the other costs related to product 103 is fixed costs irrespective of their decision of either to produce the product 103 or not. The current form shows that the net loss incurred by-product 103 is $2.209/- million. In addition, if the super manufacturing company may come with a decision of not producing the product 103, then the company will experience an additional loss of $2.671/-million through the net contribution that might have been lost by failure to produce product 103.
Contrary, if the superior manufacturing company decides not to produce product 103, then the net loss of the company will increase amounting to $3.359 million. Hence, Water’s decision to retain the production of product 103 is a good decision. This is because the net generated from product 103 will be used to cover the fixed cost in the superior manufacturing company (Anthony, 2014).
Free mark Abbey Winery Case:
Question: How much should Mr. Jaeger be willing to pay to learn whether botrytis would form if the storm were to hit the Napa Valley?
Global Hotel Industry Case:
The threat of New Entries-Barrier to Entry
As stated by Michael Porter in the year1980, the barrier to entry has been a great threat to new entrants. This comprises to what extent of the scope and the size of the operation is required and economies of scale in order to acquire a cost-effective structure. This includes differentiation of products and hence creating customer loyalty by the quality and the reliability and brand image.
Threats of Substitute Products
Porter explained that products termed as a substitute being potential products or services that can carry out a similar function as another product. These substitutes can lower cost and much often enhance the product’s performance and increase its value. The hotel industry is not threatened by substitute products. An operator of hotel can strive to a reduced cost basis in a current and enjoyable restaurant and offer good value to the potential customers.
Bargaining Power of Suppliers
Porter brought attention that suppliers in the market can be very determinant if they maybe many compared to their buyers whereby their buyers do not a rightful power and command in the operation of the industry. There is a high demand for booking and global information in the hospitality industry. Nevertheless, the only thing with power over any supplier would be people trained to work on the hotel industry whereby the demand is high.
Bargaining Power of Buyers
Customers buying goods in the industry may be very commanding in case they maybe more many in number than the suppliers in the market. Some buyers may exercise their power in bulk purchases of hotel rooms. Customers in the hotels may not buy the hotel rooms if sold at a higher price (Grebenshchikova & Yakushev, 2017)
Jockeying for position among current competitors
The intensity of rivalry is dependent on size and number of direct competitors as equally balanced competitors leads to intense competition. The market share rivalry becomes intense when product differentiation and costs are low. In high preservation areas or carrying industry such as hotel is where rivalry becomes more intense in fixed costs.
References
Anthony, R., 2014. Management Control Systems. Boston, Mass.: McGrawHill
