Accounting Perspective - JRM

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Accounting Perspective - JRM

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Accounting Perspective - JRM

  1. 1. JAY MODI ACCOUNTING # 1 ACOUNTING IMPLICATION ON PORTER’S FIVE FORCES • Bargaining power of Supplier • Bargaining power of customer • Threat of substitute • Threat of new entrant • Rivalry of Competitor STRAWBERRY Companies Product Mix Prices (€) Large Box Small Box Large Box Small Box Company x 0.15 wheat 4.89 n/a 0.20 Oat n/a 3.69 0.15 Straw 3.89 Company Y n/a n/a n/a n/a Company Z 0.30 wheat 6.10 0.50 Oat n/a 6.10 n/a 0.20 Straw 6.10 Missouri S & T cereal 0.35 wheat 4.65 n/a 0.35 Oat n/a 4.65 0.30 Straw 4.65 Major competitor is Company X as they are targeting the small box market like our company. Reference: Integrated case
  2. 2. JAY MODI ACCOUNTING NUTS Companies Product Mix Prices (€) Large Box Small Box Large Box Small Box Company x 0.30 wheat 5.39 0.45 Oat n/a 5.49 n/a 0.25 nut 5.59 Company Y 0.175 wheat 7.50 n/a 0.175 Oat n/a 3.81 0.15 nut 4.08 Company Z 0.25 wheat 5.82 0.40 Oat n/a 5.82 n/a 0.35 nut 5.82 Missouri S & T cereal 0.40 wheat 0.20 wheat 4.39 2.20 0.25 Oat 0.125 Oat 4.39 2.20 0.35 nut 0.175 nut 4.39 2.20 RAISIN Companies Product Mix Prices (€) Large Box Small Box Large Box Small Box Company x 0.30 wheat 5.89 0.45 Oat n/a 6.19 n/a 0.25 raisin 5.39 Company Y 0.175 wheat 7.50 n/a 0.175 Oat n/a 3.81 0.15 raisin 4.08 Company Z 0.15 wheat 4.00 n/a 0.20 Oat n/a 4.00 0.15 raisin 4.00 Reference: Integrated case
  3. 3. JAY MODI ACCOUNTING Missouri S & T cereal 0.40 wheat 0.20 wheat 4.19 2.10 0.35 Oat 0.175 Oat 4.19 2.10 0.25 raisin 0.125 raisin 4.19 2.10 # 2 COMPETITORS STRATEGY Based on the analysis we can say that following business strategies are used by the Competitors: COMPANY X • Cost Leadership • Produce small and large boxes • Four products • Grocery chains – Advertised early and stopped • Target Market: Everyone COMPANY Y • Product differentiation • Independent Grocers – High prices and High advertising $ • Grocery Stores – Advertised early and stopped • Target Market: Advertising sensitive consumers COMPANY Z • Cost Leadership & Product differentiation • Grocery Stores • Large and small boxes • Four products • Dropped prices 4th quarter Reference: Integrated case
  4. 4. JAY MODI ACCOUNTING # 3 SWOT ANALYSES STRENGTHS • Capital • Committed team • Strong Business Plan • Complete market segmentation • Advance forecasting WEAKNESS • New to Market—Lack of Knowledge • Limited suppliers of Raw Materials • Lack of Market reputation • Heavy debt OPPORTUNITY • Niche Market—creating new market for existing product. THREATS • Existing Competition • Changing market • Response time—from market, dependent on market, manufacturing in short period after receiving the order. Reference: Integrated case
  5. 5. JAY MODI ACCOUNTING # 4 MISSOURI S & T COMPANY’S STRATEGY: BUSINESS STRATEGY • Product Differentiation • Quality Assurance • Competitive Price CORPORATE STRATEGY • Gaining Market Share • Creating Monopoly Market Reference: Integrated case
  6. 6. JAY MODI ACCOUNTING # 5 & # 6 PRODUCT MIX What constraint stops us from increasing our capacity? THEORY OF CONSTRAINT ---Internal Process Constraints 1. Identify the systems constraint The materials in calibrated machine flows in sequence (one-to-one) i.e. the plant takes one raw-material and can make only one final product. Because of this we are facing the constraints of slow production. 2. Decide how to exploit the system the constraints The constraint can be solved if our company will come with the calibrated machine in which the flow of sequence should be one-to-many i.e. the plant takes one raw-material and can make many final products. 3. Scheduling the production based on available capacity If our company follows the above decision than it can increase its capacity from 25000 units per day to 30,000 units per day. 4. Available options to utilize the capacity 100% Right now the company has very limited options to increase the capacity and implement the decision as it requires further investment. So the company is focusing towards utilizing the available resources to the maximum extent. 5. If new problem arises go to step 1 GIVEN: Reference: Integrated case
  7. 7. JAY MODI ACCOUNTING • Our company has three machines • Maximum capacity is 25,000 units per day ASSUMPTIONS: • Current constraint cannot be changed in the short-run Which products offer the highest contribution margin per unit of the constraint? CALCULATION OF CONTRIBUTION MARGIN Product/Activity Selling Variable C.M (€) price (€) cost (€) Strawberry 4.65 1.87 2.78 Nuts 4.39 1.66 2.73 Raisins 4.19 1.5 2.69 Blueberry 4.46 1.72 2.74 Original 4.14 1.46 2.68 Mixed Fruit 4.18 1.49 2.69 CALCULATION OF INTEREST PER UNIT LOAN € 14,000,000 APR 7.50% Reference: Integrated case
  8. 8. JAY MODI ACCOUNTING UNITS PER ANNUM € 90,00,000 TOTAL INTEREST € 1,050,000 INTEREST PER UNIT € 0.12 NUMBER OF UNITS TO BE PRODUCED PER DAY: DECISION RULE Label Units Strawberry 8,000 Nuts 10,000 Raisin 7,000 TOTAL 25,000 QUANTITY OF INGREDIENTS INGREDIENTS Labels Whea Oats Strawberry Nuts Raisin Blueberry t Strawberry 35% 35% 30% No No No Nuts 40% 25% No 35% No No Raisin 40% 35% No No 25% No Original 55% 45% No No No No Blueberry 40% 35% No No No 25 % Mixed 25 % 25 Fruits % 50 % Reference: Integrated case
  9. 9. JAY MODI ACCOUNTING CONTRIBUTION MARGIN Product/Activity Selling Variable Fixed Cost Interest C.M (€) price (€) cost (€) (€) (€) Strawberry 4.65 1.87 1.85 0.1167 0.8133 Nuts 4.39 1.66 1.85 0.1167 0.7633 Raisins 4.19 1.5 1.85 0.1167 0.7233 Blueberry 4.46 1.72 1.85 0.1167 0.7733 Original 4.14 1.46 1.85 0.1167 0.7133 Mixed Fruit 4.18 1.49 1.85 0.1167 0.7233 CALCULATION OF INTEREST LOAN € 14,000,000 APR 7.50% UNITS PER ANNUM € 90,00,000 TOTAL INTEREST € 1,050,000 Reference: Integrated case
  10. 10. JAY MODI ACCOUNTING INTEREST PER UNIT € 0.12 TARGET CUSTOMERS Packaging/ Strawberry Nuts Raisin Labels LG BOX X X SM BOX X X X LG BAG X X SM BAG X X X As we are targeting the ‘niche’ market so will offer only three products i.e. Strawberry, nuts and raisin. The reason for selecting this products being its sales in the past. For both the categories i.e. large and small, the total sales consisted of 59 %. BALANCE SHEET for the year ending…. Assets Amt. ( million $) Liabilities & Amt. ( million $) Owner’s Equity Land 2 Equity shares 14 Building 10 Bank Loan 6 Assembling Line 6 Liquid Cash 2 TOTAL 20 TOTAL 20 Reference: Integrated case
  11. 11. JAY MODI ACCOUNTING DEBT/EQUITY RATIO = Total Liabilities Shareholder’s Equity = 20, 000,000 14, 000,000 = 1.43 Implication: As the ratio is above 1 we can say that most of the assets are financed through debt i.e. loan. Reference: Integrated case

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