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The AP Degree for Marketing Management

MP Economics Microeconomics and Corporate Analysis

This Assignment consists of two parts. When evaluating, individual parts will be weighed approximately as follows: Corporate Analysis: 50% Microeconomics : 50%

All written and electronic material is permitted

October 2013.

Corporate Analysis
Break-even Analysis

(20 Points)

A small Furniture company, which specializes in producing dining tables at relatively low cost. The marketing manager is about to calculate prices for the next price catalogue. The company's production engineer has estimated following unit costs of an ordinary dining table:

- Wood - Surface: - Packaging: - Transportation to the costumers: - Salaries for employees: - Share of the rent: - Share of the depreciation: - Share of the fixed labour costs: - Marketing expenditures:

325 DKK V 30 DKK V 15 DKK V 50 DKK V 130 DKK V 30 DKK F 10 DKK F 120 DKK F 100 DKK F

1. Identify the different types of costs.

Fixed Costs
Share of the Fixed Labour Costs Share of the Depreciation Marketing Expenditures Share of the Rent

Variable Costs
Wood Surface Packaging Salaries for Employees Transportation to the customers

If we think of the costs in total, the types of costs should be stated as they are done above. For instance, we rent for the building,depreciation cost,fixed labour cost are fixed costs. But if we think of them as individual costs per unit, then fixed cost SHARE of each unit would differ depending on the number of products we produce,therefore it would be variable dependent on quantity produced.

The company expects to sell 22,000 tables at a price of 1,100 DKK per unit. The total fixed costs are expected to be DKK 5,720,000. 2. Calculate the expected gross profit and the profit of an output of 22,000 tables.

Variable cost per unit is 325+30+15+50+130 = 550 and contribution margin per unit is (P)1100 (VC)550 = 550, in order to find gross profit, we multiply CM per unit by Q, 550x22,000 = 12,100,000 = GROSS PROFIT. NET PROFIT = GROSS PROFIT FIXED COST = 12,100,000 5,720,000 = 6,380,000 3. What is break-even turnover? CMR = 50%

4. Calculate break-even units? CMPU = 550 The company's sales manager proposes to participate in a housing exhibition, which will cost 45,000 DDKincl. salary and travel expenses. 5. How many additional tables need to be sold to cover the cost of this exhibition? We need to divide the cost of exhibition by net profit per unit to find the result. Net Profit per unit is 6380000/22000= 290 DKK additional units approx.. 155 units.

Profitability Analysis

(30 Points)

JYSK A/S
Income statement
Year Net turnover Other income Cost of goods sold Other external cost 2011 2012 2600190 2867019 66972 71132 1616837 1790659 358283 394175

Gross Profit Fixed Costs: Admin Costs and Salaries Depreciations Profit before interest (EBIT) Financial income Financial expenses Profit before tax Tax Profit after tax

692042 338952 14014 339076 15751 4558 350269 98662 251.607

753317 392252 14304 346761 19752 10705 355808 89328 266.480

Balance sheet
Description: Equipments and Furniture Financial Assets
Total Fixed Assets Current assets:

2011 87958 19863 107821 486367 35698 360537 131949 1014551 1122372

2012 197431 19902 217333 61223 49726 275009 238074 1175039 1392372

Description: Equity: Share Capital


Current Liabilities:

2011 700479 160095 261798 1122372

2012 716959 203133 47228 1392372

Creditors Short term loan Total Liabilities & Equity

Stock Trade debtors Other debtors Cash


Total Current assets

Total Assets

JYSK A/S
2010
Retur on investment (ROI) Profit margin ratio (PMR) 28.30 % 12.63 %

2011

2012

31.98 % 24.9% 13.04 % 9.29%

Assets turnover ratio (ATR) Retur non debt (ROD) Return on equity (ROE) Gross profit ratio (GPR) Break-even turnover Index: Net turnover Staff costs

2.24 0.63 % 33.49% 26% 186411 100% 100%

2.45 2.05 1.22 % 4.27 % 36.61% 49.62% 27 % 26.27 % 326189 114% 112%

1.1 Based on the income statement and balance sheet for JYSK A/S (for year 2012), calculate ratios for profitability and earnings capacity? 1.2 Analyse the calculated figures in connection with the reported ratio for the previous two years? Statistics Denmarks 10-year review has the following average key figures for businesses in "wholesale trade in textiles, and household articles, etc.": Gross profit margin = Profit margin ratio = Return on equity = 25.3% 5.3% 27.6%

1.3 Please comment on the ratios of JYSK A/S compared to its competitors. Suggest how JYSK may get even better ratios in the coming years? Looking at the values, JYSK is above these values, we can conclude JYSK has big market share. In order to get better ratios,they can lessen the variable costs of products sold, about fixed cost they can negotiage to lessen the loan interest percentage and so on.

Micro economics
Assignment

(50 points)

The past year, prices for dining tables increased by 15%. That led to a decrease in sales by 20%.
5

3.1 Calculate the price elasticity and assess what this means for the price of dining tables. Price elasticity is 20/15 = 1.33 so it is elastic. Which means a change in price of a dining table results in a larger change in demand. Customers are price sensitive and they are reacting to price change and that cause the sales to decrease. At a meeting with the company's auditor, the director expressed his dissatisfaction with the company's earnings. He does not believe, however, that he can afford to raise prices when he sees the market as being in a situation of perfect competition. 3.2 Explain what the director means by that statement. In a perfect competition market, the market decides the price of a product. Producer/supplier does not have an effect on price,therefore they can not raise the price,if they do, they wont be able to sell any products as same product is available at a lower price. 3.3 Discuss whether it will be possible moving such dining tables, into another form of competition. If the company can lean on innovation and differentiate the dining tables they can deliver customer extra value therefore they can switch to Oligopoly competition where they can have affect on price. 4.1. The price is not the only factor that determines how many dining tables people will buy. Demand is also affected by other determinants. Give examples of other determinants and discuss in which way these determinats could affect the sales of dining tables from JYSK A/S. Other determinants can be total benefits and sacrifices one can have out of buying one dining table, or another table that can be used as a dining table can effect the customers choice (availability of substitues). If there are lots of substitues at lower prices or sub. that one can use better than a dining table,customer would go for that one and the sale of JYSKs dining tables get effected by a decrease or increase dependant on the situation. 4.2. Like demand, supply is not simply determined by price. What are the other determinants of supply? Regulations of production or import. Tax rates, Profitability of the operation can be determinants of supply. Give examples and discuss in which way these determinats could affect JYSK A/Ss supply of dining tables. If the tax rates for tables increase then jysk can have trouble finding suppliers to provide enough tables to demand. 4.3. In the short run JYSK A/S has both fixed and variable production factors to increase production. Give examples of both the fixed and variable production factors which JYSK A/S has when it comes to increase production in the short run.

Extra machinery to be bought would be fixed cost, extra workers to produce more would be variable cost etc.