Variables of Manufacturer Trade Promotions

This report will provide insight on what your management team should do concerning production costs. We will examine 2 different scenarios and provide our decision as to which makes most sense. In the first scenario, the total fixed cost of the production is 1,000,000. In the second

The timing of capacity changes also needs to be taken into consideration to achieve maximum efficenty given that demands of their products varies with seasonal changes. The ability to react to market demand changes quickly will determine manufacturers flexibility in keeping up with these demands. Manufacturers needs facilities to produce, whether warehouses to store its raw materials or finished goods, or manufacturing plants to produce their products. Services facilities are needed by certain manufacturing industries such as consumer electronics to cater for returns. Distribution centres also determine the efficenty of production distribution and un-nesessary inventory holding will result in higher holding cost. Such facilities require large investments and are integral of the manufacturer’s supply chain strategy and thus proper planning is needed when making these decisions regardong the size, location which affect the overall operations. How manufacturers run their productions also determine how successful will they be in terms of productivity and quality levels. Different types of equipment and processes also affect the cost and output of the manufacturing plant. Information systems that flow both upstream and downstream affects the forecasting, planning, inventory and production levels, they must be robust to ensure the manufacturing firm is able to react accordingly to changing demands and variations. In addition to their internal environment,

As for cost structures for this industry, the fixed costs are going to consist of machinery and equipment in order to produce the automobiles. These fixed costs also serve as a barrier of entry into the industry; small firms will not be able to afford the fixed costs. For the variable costs, labor, materials, and advertising are going to be the main costs (Investopedia, 2009). These costs also change according to the output produced; whether the companies cut back on production or increase in production. These costs don’t serve so much as a barrier of entry into the industry, but in order to compete in this industry, an entering firm must come up with them on an extremely large scale.

Home Depot has high fixed costs in running its retail operation. A large number of Home Depot stores exist to meet the needs of consumers wanting the convenient purchase of often large items. The inventory that sits at each store and distribution center is a very high fixed costs that incur (Edmonds & Tsay & Olds). However, this diverse and high inventory level is needed for Home Depot to compete.

Additionally, forward buying activities from distributors due to frequent trade promotions and volume dis-counts enforce the effect of demand fluctuations. During promotions, distributors buy huge amounts of pasta at a lower price. This forward buying leads to lower demand in future periods and contributes to high peaks in or-der quantity and low levels of orders in the following periods. Connected to this problem is the incentive system of the sales force, which relies heavily on trade promotions in order to achieve quarterly targets. Another factor related to these aspects is batch ordering and

Raising maximum distributor order, more than customer demand is one good choice made in the three games. According to the supply chain order, the maximum distributor order totals to 15units compared to a maximum demand of 9units. These figures prove that backordering costs will not occur during business operations. Good inventory management techniques require placing adequate orders to reduce backordering costs. The cost and time of backordering affects operations and hence the need to adequate inventory to match demand changes. An average customer order of 7units compared to average distributor order of 5units points to low backordering costs. A minimum customer order of 4units means that market demand is under control from

* Since the capacity is being expanded to increase production of Product C, it could be assumed that this increase should be allocated to this product. Production of Product A is to be scaled down, but its level of fixed costs has been assumed to be unchanged.

The customers, wholesalers and retailers may order in large quantities with the expectation that they will receive a greater allocation of products that are in short supply. The impact on the supply chain is significant as the forecasted demand is greatly, and unrealistically, increased with these inflated orders. Eventually orders disappear and cancellations pour in, making it impossible for the manufacturer to determine the real demand for its products

If more is produced when it comes to the budget, the fixed cost would be favorable. I believe that the each unit would lower cost when it comes to production in units. But since the total fixed overhead is extended over a huge amount of units, this will cause a lower production in unit. Lastly, it will increase the

The first tool to compensate demand fluctuation is building inventory as given in the case text. Quantitative trade-off of this tool is basically the opportunity cost of holding inventory which is given as $8 per unit per month. In addition, keeping products for long time intervals in inventory could lead them to hold outdated products which can be though both quantitative and qualitative trade-off. Considering that these aspects should have been included in the inventory holding cost; no additional modification related to these trade-offs are considered.

Price elasticity of demand enables business organizations to predict how their total revenue will be effected in the event they change the prices of their products. When a given good has inelastic price elasticity of demand i.e. Ed 1, then the percentage change in the quantity demanded is greater that the change in price. Thus, raising the prices of such commodities results to decline in the total revenue because the business may loss customers to their competitors. Nonetheless, reducing the prices of goods with elastic elasticity of demand increases the total

Variable Costing: Only those costs of production that vary directly with activity (variable costs) are treated as product costs. Under variable costing, only the variable manufacturing costs are included as a part of the cost of the product manufactured. The fixed manufacturing costs are treated as an expense of the period in which they are incurred. Selling and administrative costs

Capacity planning is a necessary function of an organization to ensure that the highest rate of output is reached through the current processes taking place within an organization. These strategically defined processes must have the ability to provide flexibility to meet future capacity demand, whether due to opportunity growth or adjustments to make decreases to maximize profits. “Capacity decisions related to a process need to be made in light of the role the process plays within the organization and the supply chain as a whole, because changing the capacity of a

One will note that six of the costs to consider are incremental. By definition, incremental costs would not be incurred if the part were purchased from an outside source. If a firm does not currently have the capacity to make the part, incremental costs will include variable costs plus the full portion of fixed overhead allocable to the part 's manufacture. If the firm has excess capacity that can be used to produce the part in question, only the variable overhead caused by production of the parts are considered incremental. That is, fixed costs, under conditions of sufficient idle capacity, are not incremental and should not be considered as part of the cost to make the part.

➢ Fixed costs - with high fixed costs as a percentage of total cost, companies must sell more products to cover those costs, increasing market competition.