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DQReponsesEconWeek4.docxDavid Hwu
Nov 12, 2020Nov 12 at 1:23pm
When making a large company decision as a name change there are relevant and irrelevant costs associated that would need to be considered. This would include implicit costs, explicit costs, sunk costs, unavoidable costs, and incremental costs. As Douglas (2012), mentions that the relevant cost is the cost that is relative to the decision deigning considered. In this scenario, the changing of the company name from Summer Lawn Care to Lawn and Tree Care has a relevant cost impact. The relevant cost is also considering as incremental cost which is the cost for a current or future period based on a decision to be made. The relevant or incremental, costs to be considered would include costs of changing business signage, change in state and federal organization fees, legal fees associated with changing the name, costs for business cards, website redesign, miscellaneous office expenses, and advertising costs.
For Irrelevant costs, these costs are not relevant to a decision that is going to be made. Irrelevant costs include both unavoidable and sunk costs. Unavoidable costs are contractually obligated to be paid and include management salaries and equipment and facility lease fees (Douglas, 2012).
Sunk cost as Douglas (2012), defines sunk cost are the costs that have been previously incurred and cannot be recovered. Sunk cost the company name change can be the company uniforms, vehicle signage, business cards, and website ads. The difference between sunk costs and unavoidable costs is that sunk costs have already been paid and cannot be recovered. Whereas unavoidable costs have not necessarily been paid yet but will be at some point in time in the future. Sunk costs and unavoidable costs are both considered explicit costs. Explicit costs are actual “out of pocket” payments that have been paid to another individual or business for products or services received.
Now for implicit cost Douglas (2012), defines implicit cost as a cost that reflects a lost opportunity when using a particular resource for another purpose. An example of the implicit cost would be the interest lost on money in a savings account if that money was taken out of the bank and used on capital improvements for a company. An example can be the lost opportunity of the resources used to pay for the company’s name change would be the implicit cost to the company.
Reference:
Douglas, E. (2012). Managerial Economics (1st ed.) [Electronic version]. Retrieved from https://content.ashford.edu/
Nov 12, 2020Nov 12 at 7:39pm
The partner that wants to change the company name from Summer Lawn Care to Lawn and Tree Care, wants the name to advertise and inform their clients that their services are not just limited to operating in the summer months. The name change could possibly yield more business resulting in higher profits year-round. The second partner that wants to keep the name Summer Lawn Care is reluctant, due to profit loss of having to discard/change already paid for business cards, vehicle paint, signage, and ads in Yellow Pages. These are the company sunk expenses, as they were already purchased/paid.
Sunk expenses are “Earlier paid for purchases of assets such as property, complexes, factory and machines, and depreciation costs based on these” (Douglas, 2012). Although the company has sunk expenses, if they decide to change their name, they may be able to recover some of the expenses. For example, utilizing the previously printed business cards, vehicle paint, signage, and ads in Yellow Pages with the same contact information for both companies, while gradually fading out the Summer Lawn Care name.
The Implicit expenses are the loss of interest income on funds and the depreciation of machinery. Therefore, this expense occurs to operate and maintain the business. With a name change would possibly be beneficial to the company leading to more business and a lot more opportunity expense. Related expenses are also regarded as small expenses that comprise direct labor expenses, supplies, new equipment and variable overhead expenses. Related expenses also comprise opportunity expenses or what would be the ideal substitute for the organization with the resources involved unrelated expenses or non-incremental expenses are the following: managers' wages rent and lease expenses, payments on debt and sunken expenses (Douglas, 2012).
Resource:
Douglas, E. (2012). Managerial Economics (1st ed.). San Diego, CA: Bridgepoint Education.
ThursdayNov 19 at 2:47pm
In a localize market that the Bulls Eye department store is centralized around, the management team needs to understand the community and market in which the stores operate in. With the business being like big box retails such as Walmart or Target that specializing in selling discounted clothing, shoes, household items, and other products, the store's management needs to identify with the fact the store is part of a local oligopoly where the decisions of one store can have an impact on how the other stores operate and succeed.
The value of Bulls Eye needs to be recognized by the management team and further analyzed to determine the action that is needed to be able to turn a profit. The location of the store has value to the community as it is in Show Low, with Target as its nearest competitor at 49 miles out of town. With the current losses experienced by the store, it is logical for the analyst to question the need to adapt to increase profitability for the store. It is critical for the manager to weigh how much demand the store has from the locals and if many are willing to make the 49-mile drive to Target to purchase discounted goods. The manager should consider the fluctuation of market demand within the local town to understand if the changes of prices will cause a shift in demand, or a change in preference for certain products by the consumers (Douglas, 2012).
In this scenario, with Bulls Eye's local market power the manager can implement price elasticity. The elasticity of price is directly related to the elasticity of demand, so as prices increase the elasticity of demand would increase as well. I would recommend the price increase only on items that are competitively priced with Target or Walmart. This leaves room for higher profitability while safely maintaining the recent increase in customers coming to the store.
Reference
Douglas, E. (2012). Managerial Economics. Retrieved from https://content.ashford.edu/
Tayvia Shamburger
ThursdayNov 19 at 9:29pm
The pros of raising prices at Bulls Eye Department Store, in assumption would be an increase in company revenue. Due to the increasing number of individuals shopping more, the products will start to run out faster. If the product is selling out faster and inventory low, Bulls Eye would need to spend additional money on inventory and adding more supply. Bulls Eye is operating at an oligopoly market structure. An oligopoly is a market in which there are only a few sellers; the word is derived from the Greek word oligos, meaning few, and the Latin word polis, meaning seller (Douglas, 2012).In this example price elasticity would work as the demand is there. However, management should run a detailed analytical report of sales to determine which item should receive the price increase. If every item is increasing in sales, management can implement a change in price over time allowing its customer to adjust to the change.
Repeat customers know pricing and will notice a change. The increase in cost can also have a negative impact. A negative impact would cost the store their representation as consumers tend to leave more bad reviews online than good. Loyal customers may leave due to an increase in price and how far the distance is for the next supplier such as Target, so they may feel the change was personal and cease shopping with Bulls Eye Department store in general. Another competitor such as Amazon offers a variety of discounted items as well. Online merchants such as Amazon offer conveniences such as one, the next day, or two-day shipping. Customers don’t even have to leave home or worry about in-store markups as the site itself compares other supplier costs along with reviews. Bulls Eye department store needs to analyze what’s coming in and going out to determine what’s best for their market structure.
Reference
Douglas, E. (2012). Managerial Economics. Retrieved from https://content.ashford.edu/
