...= 510,000+I = I= ([14 X 60.000]-510.000) = $ 330,000 CM 14 The firms profit is $ 330,000 in current production. New Situation The firm will produce 75.000 units ( 60.000 X 1,25=75.000) $ Total $ Direct Materials 10.00 Direct laBor 4.50 Variable Manufacturing Overhead 2.30 Fixed Manufacturing Overhead (300.000 / 75.000=4,00) 4.00 300,000 Variable Selling Expenses 1.20 Fixed Selling Expense (210.000+80.000)/75.000 3.87 290,000 Total Cost Per Unit 25.87 If the firm produce 75.000 units, total cost per unit become $ 25.87. It is clear that this cost is less than both first total cost per unit and product selling price. For this reason, If the firm can sell 75.000 units, the second option is more beneficial for the company. On the other hand, we know that this increase gives rise to $ 80,000 fixed selling expenses. We must calculate when the second option become more beneficial P= $ 32 VC= $ 18 CM=P-VC CM=32-18= 14 TFC= 590,000 I= 330,000 In the first option the firm gain $330,000. In the second case, to obtain same profit the firm must at least 65.714 units. Q= TFC+I = 590,000+330,000 = 65.714 units CM 14 In the second situation if the firm produces and sells 65.714 Daks, it gain equal operating income with first situation ( 60,000 units) If the firm produces and sells more than 65.714 Daks second option is better than first...
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...Labor economics: problem 5.2 Consider the demand for and supply of risky jobs : a. Derive the algebra that leads from equations (5.4) and (5.5) to equation (5.6). (5.4) π0=pα0E*- w0 E* (5.5) π1=pα1E*- w1 E* It is given that a profit-maximizing firm offers a risky environment if π1>π0 (when the profits the firm can earn when it chooses to be a risky firm exceed the profits the firm can earn when it chooses to be a safe firm) and a profit-maximizing firm offers a safe environment if π1<π0 (when the profits the firm can earn when it chooses to be a safe firm exceed the profits the firm can earn when it chooses to be a risky firm). Offering a safe working environment: | Offering a risky working environment: | π1<π0↔pα1E*- w1 E* < pα0E*- w0 E*↔pα1- w1 < pα0- w0 ↔pα1-pα0- w1 < - w0 ↔pα1-pα0 < w1 - w0 ↔θ<w1-w0 ↔ w1-w0 > θ (5.6) | π1>π0↔pα1E*- w1 E* > pα0E*- w0 E*↔pα1- w1 > pα0- w0 ↔pα1-pα0- w1 > - w0 ↔pα1-pα0 > w1 - w0 ↔θ>w1-w0 ↔ w1-w0 < θ (5.6) | b. Describe why the supply curve in figure 5.2 is upward sloping. How does you explanation incorporates θ? Why? Figure 5.2 illustrates the supply curve to risky jobs in a particular labor market. The supply curve indicates how many workers are willing to execute a risky job as a function of the wage differential between the risky job and the safe job (also known as the reservation price or ∆w=w1-w0). When it is assumed that all workers dislike risk, no worker would be...
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...how Zara’s parent company Inditex leveraged a technology-enabled strategy to become the world’s largest fashion retailer. Section Outline • The blend of technology-enabled strategy that Zara has unleashed seems to break all of the rules in the fashion industry. o The firm shuns advertising and rarely runs sales. o Unlike the other players, Zara is highly vertically integrated. o Inditex Corporation, the parent company of Zara, is now the world’s largest fashion retailer. 1.1 Why Study Zara? • Zara has entered many countries and its profitability is among the highest in the industry. • Zara’s products are fashionable but are comparatively inexpensive. • It is important to understand how counterintuitive and successful Zara’s strategy is, and how technology makes all of this possible. 1.2 Gap: An Icon in Crisis • In retail, having too much unwanted products (inventory) on hand will force you to mark down or write off items, affecting profits. • For years, Gap sold most of what it carried in stores. • When sales declined, Gap decided to chase the youth market and filled stores with miniskirts, low-rise jeans, and even a much-ridiculed line of purple leather pants. • The throngs of teenagers the firm sought to attract never showed up, and the shift in offerings sent Gap’s...
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...is 30d days.Leal consulted industry data and found that the industry average payment period was 39 days.Investigation of six california furniture manufactures revealed that their average payment period was also 39 days. Next,leal studied the production cycle and inventory policies.Casa de diseno tries not to hold any more inventory than necessary in either raw materials or finished goods.The average inventory age was 110 days.Leal determined that the industry standard as reported in a survey was 83 days. Casa de diseno sells to all of its customers on a net-60 basis,in line with the industry trend to grant such credit terms on speciality furniture.Leal discovered by aging the accounts receivable,that the average collection period for the firm was 75 days.Investigation of the trade assoc.. and Calif. manufactures averages showed that the same collection period existed where net-60 credit terms were given.Where cash discounts were offered,the collection period was significantly shortened.leal beleived that if Casa de Diseno were to offer credit terms of 3/10 net 60,the average collection period could be reduced by 40 percent. Casa de Diseno was spending an estimated $26,500,000 per year on operating cycle investments.leal considered this expenditure level to be the...
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...The Uppsala model is the most accepted paradigm regarding internationalization process of the firms. This model is based on the behavioural theory of the firm (Cyert and March, 1963); inspired by Cyert and March (1963) and Penrose (1959), the model describes the internationalisation process as slow, sequential and gradual, since it represents the firm’s gradual establishment in, integration of, and knowledge about foreign market. Zara and the Inditex group have made use of certain steps to make sure that their firm maintained a competitive advantage in the business environment. When a firm starts entering into foreign market, the first step or the stage chosen by the firm is to start export with the that country, as the firm has no knowedge, information of the resources in that country. In this stage the firm will gain no market experience. Initially, Zara followed the Uppsala Internationalization Model by first entering geographically close markets before advancing to more distant markets. For instance, Zara established a flagship store in a strategic location to build recognition and with the objective of obtaining market information and accumulating experience. The knowledge obtained would then guide Zara to open more stores in that nation (Lopez and Ying 2009). After obtain the experience that useful for operating locally, Zara added the number of its own stores in adjoining areas. This pattern of market expansion is called as “oil stain” by Inditex. The main reason that...
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...The Resource Based View – Jay Barney A firm’s competitive advantage lies in its resources. It exams the link between a firms resource ans sustained competitive advantage. To sustain a competitive advantage it requires that these resources heterogeneous and immobile. The key point of the theory is to identify the firm’s resources and see if it is VRIN (Value, Rarity, In-imitable and Non substitutable) and then protect them. Formal planning is highly imitable and thus cannot be a source of sustained competitive advantage. An argument for heterogeneity is the first mover advantage where the firm may gain access to good distribution channels; develop good reputations before competitors come. Likewise theyre are barriers to entry. How to apply the resource based view: Definitons: It resources include all assets, capabilities, organizational processes, firm attributes, information, knowledge etc. controlled by a firm that will help its efficiency. This will be broken down into human, physical and organization resources. A sustained competitive advantage when it is implementing a value creating strategy not simulteously being implemented by any current or potential competitor and when these other firms are unable to duplicate the benefit of this strategy. Not on calendar time. Critique * Priem and Butlers critique to 1991 paper states it is tautological (it is true in all possible interpretations). That’s its primary assertions are true by definition, and, thus not subject...
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...identified two types of isolating mechanisms, competitive and customers-based isolating mechanisms. And examples of normative strategies are provided for each type of isolating mechanisms to facilitate their application. Key words: Competitive advantage, Competitive isolating mechanisms, Customer-based isolating mechanisms INTRODUCTION The concept of isolating mechanisms has been developed in the literature to explain barriers that firms can establish to avoid imitation by competitors (Grant, 2005; Mahoney and Panidan, 1992). Isolating mechanisms can create barriers to impede competitors from imitating resources, capabilities and strategies. Isolating mechanisms are also instrumental in influencing industry dynamics, as they provide competitive barriers to imitation for new strategies, adopted in response to environment changes ( Segars and Grovers, 1995). Through the establishment of isolating mechanisms, the firms can sustain their competitive advantage and performance. Therefore, they are a key for superior performing firms. Mahoney and Pandian(1992) had identified a wide range of isolating mechanisms from the resource-based view, mainstream strategy, organizational economics and the industrial organization literature. Although the authors recognize that there are many organizational...
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...digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org. . Wiley-Blackwell and John Wiley & Sons are collaborating with JSTOR to digitize, preserve and extend access to Strategic Management Journal. http://www.jstor.org Strategic Management Journal, Vol. 12, 187-199 (1991) S A LONGITUDINALTUDY OF THE CAUSE AND CONSEQUENCESOF CHANGESIN IN DIVERSIFICATION THE U.S. PHARMACEUTICAL INDUSTRY1977-1986 W a CHARLES . L. HILL nd GARYS. HANSEN Graduate School of Business Administration, University of Washington, Seattle, Washington, U.S.A. The paper hypothesizes that diversification by firms based in the pharmaceutical industry during the 1977-86 time period was primarily undertaken to reduce the risks associated with being dependent upon a technologically dynamic environment. Consistent with this non-efficiency motive for diversification, declining economic performance is predicted. A longitudinal empirical analysis provides support for these propositions. INTRODUCTION The relationship between diversification...
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...Porter’s Competitive Forces Model Porter’s competitive forces model provides an overall view of the firm, its competitors, and the firm’s environment. In this model, the strategic position of the firm, and its strategies, are determined by competition with its traditional direct competitors. Porter’s model is about the firm’s general business environment. Five competitive forces in this model greatly affect and shape the firm. They are, traditional competitors, new market entrants, substitute products and services, customers, and suppliers. The competitive forces model describes competitive advantage as, firms doing better than the other because of access to more resources, or using commonly available resources more efficiently. With the help of a greater knowledge of information and resources, a firm’s revenue and productivity will grow. This positively effects a firm and helps to achieve more compared to competitors. Four competitive strategies that firms can pursue and how information systems support them: 1. Low-cost leadership 2. Product differentiation 3. Focus on market niche 4. Strengthen customer and supplier intimacy Information systems support the “Low-cost leadership” strategy through production. Products and services are produced at a lower price than competitors and enhances the quality and level of service. The “Product differentiation” strategy is supported by information systems by allowing the assembly of new products and services. Which...
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...POSITIVE ACCOUNTING THEORY, POLITICAL COSTS AND SOCIAL DISCLOSURE ANALYSES: A CRITICAL LOOK Markus J. Milne Accountancy and Business Law University of Otago Dunedin New Zealand Ph: 64-3-479-8120 Fax: 64-3-479-8450 Email: mmilne@commerce.otago.ac.nz POSITIVE ACCOUNTING THEORY, POLITICAL COSTS AND SOCIAL DISCLOSURE ANALYSES: A CRITICAL LOOK* ABSTRACT This paper critically reviews the literature seeking to establish evidence for a positive accounting theory of corporate social disclosures. It carefully traces through the original work of Watts and Zimmerman (1978) showing their concern with the lobbying behaviour of large US oil companies during the 1970s. Such companies were argued to be abusing monopolists and likely targets of selfinterested politicians pursuing wealth transfers in the form of taxes, regulations and other ‘political costs’. Watts and Zimmerman’s reference to “social responsibility” is shown to be a passing remark, and most likely refers to “advocacy advertising”, a widespread practice amongst large US oil companies at that time. Subsequent literature that relies on Watts and Zimmerman to present a case for social disclosures is shown to extend their original arguments. In the process, concern over the “high profits” of companies is shown to diminish, and the notion of political costs is so broadened that it blurs with other social theories of disclosure. Consequently, the positive accounting based social disclosures literature fails to provide distinct...
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...innovations by global competitors (e.g., Toyota and Honda) has challenged GM & Ford to reinvent themselves continuously. The challenge of continuous and dynamic change is affecting firms across multiple industries. These include even the IT Services Industry such as Accenture / IBM / Infosys & TCS and their business models & Service models are changing the nature of competition. The winners and losers resulting from changes in this particular industry remain unknown. Consider a situation where Complete Customer relationship management service for any organization ( which will have been implemented, supported & serviced ) by any of the traditional players being replaced by a cloud offering from an organization Salesforce.com for which payment can happen on pay-per–use model & supported by niche player whose entire business model is predicated on this. Being able to create a more attractive value proposition for customers is making it quite difficult for some of the more traditional players like IBM or Accenture since that means cannibalization of their existing revenue stream, changing the Business model of service & delivery and altering the Relationship matrix with customers in complete linear model. Challenging nature of competing in a global environment creates several tension-filled questions for firms: - In what markets should we compete? Should we offer standardized products across all markets or should we modify our products for local preferences? - How much risk...
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...resources necessary to run the business, high buyer power because customers can basically find an equal service from any firm in the industry, low substitution threat from other means of shipping transportation, and low threat of new entrants due to the high initial capital outlay and need of management experience. In this analysis, we will delve deeper into each of the dynamics within Porter’s 5 Forces to form an opinion of why the industry is attractive to be in and then discuss how competition greatly increased during 1988-1989. In the air express industry, where customers can ship their packages over long distances via airplane, there is high rivalry because the firms competing in the industry all do the same service. Since there is little differentiation between firms, each firm must battle for customers by either providing better or new services, integrating new competencies into their business processes, or doing business at a low price to create bigger economies to scale which will then cut down operating costs. Firms who want to compete provide aggressive products like next day delivery; integrate new business practices like owning and operating a fleet of jets with company employees; or undercut the competition in viscous price wars. Thus, rivalry with the industry is high. Supplier power is medium to high in the air express industry because firms in the air express industry require precious resources and rely on the...
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...generic strategies that a firm may apply in order to do so. (Overall cost leadership, Differentiation and Focus). In order to create and sustain competitive advantage, companies such as KFC (case in beginning of CH5) should analyze the value chains of their customers and suppliers to see where they can add value. Furthermore studies have shown that businesses combining multiple forms of competitive advantage outperform those that used only a single form. “Stuck in the middle” firms are those who do not apply any of the forms. These are the ones that perform the worst. 2. Briefly describe the three generic strategies – overall cost leadership, differentiation, and focus. Overall cost Leadership: “Generic strategy based on appeal to the industry wide market using competitive advantage based on low cost.” Requires a tight set of interrelated tactics that include: * Aggressive construction of efficient scale facilities. * Vigorous pursuit of cost reductions from experience * Tight cost and overhead control * Avoidance of marginal customer accounts * Cost minimization in all activities in the firm’s value chain, such as R&D, service, sales force and advertising. The key to an overall cost leadership strategy is the experience curve, which refers to how business “learns to lower cost with increasing experience in production processes. Products are often standardized and the overall cost leadership firm earns a higher profit than...
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...KINETIC AND POSITIONAL By: Ma, Hao; Business Horizons, Jan/Feb2000, Vol. 43 Issue 1, p53, 12p, 1 diagram Competitive advantage is considered the basis for superior company performance. To perform at such a level consistently, a firm often has to nurture an evolving system of competitive advantages to carry it through competition and over time. What are the various possible types of such advantages? How can a firm systematically analyze the multiple advantages it could possess and use them to achieve and maintain superior performance? Building on research in strategic management, answers to these questions and others can contribute to managers' knowledge about the nature and content of competitive advantage. Such knowledge can help managers nurture and renew their firms' advantages more effectively through time. The Dichotomy of Positional and Kinetic Advantages The essence of competitive advantage can be interpreted as the asymmetry or differential among firms along any comparable dimension that allows one firm to compete better than its rivals. Simply put, a competitive advantage can be one of two types: ° positional--a status-defining position that leads to better company performance; or ° kinetic--an action-oriented ability that allows a firm to function more effectively and efficiently. Positional advantage often derives from ownership or access-based sources. Specifically, it comes from a company's unique endowment of resources, market positions, established accesses...
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...There are several reasons that firms purchase other corporations. The main reason is for expanding the company. In doing this, the firm gains all of the corporation’s assets and liabilities. Once the companies merge, the shareholder value rises more than the both of the companies put together as separate entities. Firms also can gain huge tax benefits from purchasing the corporation. In a nutshell, a firm will gain several things. A few examples are: increased earnings per share, new distribution channels, added product lines, and better returns on investment (Why Do Firm's Purchase Other Corporations?, 2013). Lots of times, firms pay too much for their acquired corporations. Mergers are normally a lot cheaper on the check book. A lot of businesses purchase the majority of stock and buy the corporation in that manner. On the flip side, when a firm purchases a corporation via stocks, the firm inherits the problems of the corporation and must correct them. Even though the firm may pay too much for what the corporation is presently, it might not be too much money for what the corporation could be in the future (Too Much Cash, Too Little Innovation, 2005). The reason that the corporation was purchased can result in loss for the investor. There is a reason that firms decide to purchase entire corporations. The corporation might not have good management, poor owners, or could simply be a failure. This should be thought about when a firm decides to purchase a corporation...
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