Conflicts and Their Effects on Group Performance

Table of Contents Introduction Conflicts Factors through Which Conflict Affects a Group Group Characters that influence effects of conflict Conflict Effectiveness Conclusion References Introduction The production process has improved nowadays becoming complex day by day hence requiring people to change the method of production as the technology changes. On the same note, due to division of labor that has become the order of the day; many people have chosen to specialize in certain areas only in order to advance their productivity.Advertising We will write a custom research paper sample on Conflicts and Their Effects on Group Performance specifically for you for only $16.05 $11/page Learn More This has led to the need of people to work together so that each can perform the task he or she is well qualified in hence enhancing productivity and quality. As group working becomes more important so are the issues that affect the groups. Difference in opinion s and the fact that people are socialized differently, gives rise to disagreements in any group thus affecting its performance either positively or negatively. Conflicts are evident in every group and their effects to the performance and continuity of the group varies due to different factors. Conflicts These are disagreements over various issues affecting the group which can vary from personal behavior and interaction to professional and process accomplishment. Conflicts can be divided into three broad groups that are seemingly distinct from each other and each of which can be addressed separately (Thompson 2008). These are task conflict, process conflict and relationship conflict. Task conflict can be defined as the disagreement among the group members on how to accomplish a given task given the different ways that are available (Draft 2011). Task conflict is majorly unavoidable since people have different views on how to perform any given duty and many people have the tendency of trusting their view more than that of others. Disagreements on how the current promotion criterion is implemented or on the data base security system are examples of task conflicts (West 2012). On the other hand, relationship conflict is disagreements on personal factors which are not related to the tasks being performed such as; personal clothing, family issues and social political opinions among others. It is quite difficult to understand the complexity of human diversity which brings about difference in views and opinions, hence a group can perform well if it develops a common culture that relies on shared norms and values thus eliminating the possibility of opinion conflict (Draft 2011). Relationship conflicts tend to touch on the self esteem of a person and adversely affect how the members of the group will relate with each other. It also to some extent touches on the willingness of a member being ready to interact with others in the group.Advertising Looking for research paper on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Process conflict has been defined as the disagreement among the group members as regards to the execution of a given task, and the most qualified person to perform a certain duty. It highly touches on matters of logistics and division of labor among the participants (Passos 2005). In most cases it has been discovered that process conflict has quite different effects on group performance as compared to task and relationship conflict. Factors through Which Conflict Affects a Group It has been noted that conflict affect certain issues that directly influence the outcomes of the group and that it does not in itself directly affect the group. Such issues as the amount of trust that group members have both on the group as a whole and on individual group members highly determine the productivity of the group (West 2012). In conjunction with that, the bond that puts together in dividual members in the group is of importance, as it determines the likelihood that the members can enjoy working together hence, influencing group outcomes. The cohesiveness of the group if threatened by the conflicts will therefore negatively affect the outcomes of the group besides hindering the processing of any input. On the same note, loss of trust, in either a member of the group or the group in general, due to given conflicts will also impact negatively on the group productivity (Sosik Jung 2002). When there is argument as to why one should be given a certain duty and not any other, trust among the group members is affected thus, reducing the morale of working together therefore reducing the output of the whole group. Additionally, group members need to feel that their contribution is valued in the group’s proceedings for them to confidently give their opinions. When one’s contributions are openly challenged each time, the person feels that either him or her as a person or the contributions are not respected and therefore becomes unwilling to work with others. This has negative impacts on the group as it reduces productivity while at the same time it jeopardizes the group’s continuity (Child 2006). Besides, all forms of conflicts have varied effects on the cohesiveness of the group which in turn affects performance given that the productivity directly depends on the ability of people to work as a group. Therefore, conflict through affecting the confidence that people have with their surrounding, the feeling that group members have as regards to the respect they have from other group members and strengthening or weakening the group bond, is able to influence both group viability and performance (Shaw, Zhu, Duffy, Shih Susanto 2011).Advertising We will write a custom research paper sample on Conflicts and Their Effects on Group Performance specifically for you for only $16.05 $11/page Learn More Group Characters that influence effects of conflict Certain characters among the group members influence the way conflict affects the group. The way the group perceives and receives a conflict coupled with how the group members think the conflict will affect them individually plays a greater role in determining the effects conflict will have to the group (Brody 2005). Anger and frustration are common emotional reactions that accompany any form of conflict and these emotions tend to impact negatively on the group performance. Strong and negative emotional attachment to conflicts will reduce trust, respect and weaken the bonds that hold the group together thus reducing the group’s productivity. On the other hand, members who have had a heated debate, especially over personal issues, where emotions were high and negative would not be able to give any task the concentration it requires for its optimum execution thus they produce below their ability and expectations (Shaw et al. 2011). It is important to note that, negative emotions tend to mostly affect the outcomes of the group, if the conflict in question is relationship conflict. On the contrary, as far as task and process conflicts are concerned, negative emotions does not in any way influence the performance of the group. The way various conflict issues are addressed also influences the effects of conflicts on group performance (Thompson 2008). If members felt that they would openly discuss their opinions with others, then the effects of task conflict on cohesion, trust and respect among the group members is positive hence the performance of the group is enhanced. But as relationship conflict is concerned, the norms of discussing openly the issue of the conflict have adverse negative effects on self esteem and thus, reduces the viability and productivity of the members. On the other hand, encouragement of open discussions as regards to process conflict will encourage people to feel free to seek for guidance where they are not sure of which action to take and therefore, increase the productivity of the group (Passos 2005). It is therefore advantageous if the group encourages open discussion on matters that are directly related to the task to be completed and the logistics of completion, while discouraging the same on personal issues which are not task related (Brody 2005).Advertising Looking for research paper on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More The probability that the group members perceives in the opportunity to resolve the conflict will also to larger extent influence how the conflict will impact on the group’s output. If a certain member who has a relationship conflict with another in the group has no hopes that the conflict can be resolved, there is no possibility that the two can ever be at ease when working together and this will negatively impact on the group’s continuity. Process conflict and task conflict are also highly affected by the possibility of conflict resolution among the individual group members. When group members have the belief that it is possible to solve any issues that may arise from a conflict, they stop thinking that conflicts are only detrimental to the group and thus, their personality is boosted which triggers positive effects on trust as well as group bonding therefore, improving group output. On the same note, high possibility of conflict resolution enhances cooperation among the group and reduces competition which would lead to every person wanting to outdo the other in their actions thus, disregarding some contributions which would be helpful (John, Greer, Levine Szulanski 2008). Though some researchers have argued that the importance attached to a certain conflict by group members influences the effects of the conflict to the group, this has been refuted by many recent researchers who have noted that it is not necessarily the case. In recent researches, it has been depicted that the interpretation of the level of importance is what matters (Child 2006). Conflict Effectiveness Relationship conflict tends to have negative effects on the group performance though mostly, people try to avoid directly working together with those they share different views with or they avoid bringing personal issue to work place hence, effects of relationship conflict are not very pronounced. On the other hand, task conflict is moderated by open discussions which tend to re store trust and respect of the group members. Furthermore, task conflict and process conflict can be avoided by developing, as part of the group culture, the opinion that it is actually possible to solve any conflict that may arise (John et al. 2008). It should however be noted that to some extent some level of task conflict is advantageous as it has led to innovation. Additionally, all these types of conflicts are correlated to a larger extent and therefore, the possibility of one conflict leading to another one is very high. It is important to note that, open discussions are partly advantageous and partly detrimental as far as process conflict is concerned and should therefore be handled with care. Conclusion Group working is inevitable and therefore group conflicts will always be an issue that should be addressed diligently for the sake of performance. Though research on the effects of conflicts to group performance and how the negative effects can be mitigated, more still needs to be done as these researches present several limitations. The interrelationship of the conflicts together with the effects of different group characteristics, still need to be explored more. Furthermore, given that sometimes the conflicts present both positive and negative effects, it is paramount that it is known what type of conflict to encourage to what extent and the method of achieving this. References Brody, R. (2005). Effectively Managing Human Service in Organizations. Thousand Oaks: Sage Publishers. Child, D. (2006). The Essentials of Factor Analysis. New York: Continuum International Publishing. Draft, L. R. (2011). Management. Stanford: Cengage Learning. Passos, A. M. (2005). Exploring the Effects of Intragroup Conflict and Past Performance Feedback on Team Effectiveness. Journal of Managerial Psychology, 20, 231-244. Shaw, D. J., Zhu, J., Duffy, K. M., Shih, H. Susanto, E. (2011). A Contingency Model of Conflict and Team Effectiveness. Journal of Applied Psychology, 9 6 (2), 391-400. Sosik, J. J. Jung, D. I. (2002). Work-Group Characteristics and Performance in Collectivistic And Individualistic Cultures. The Journal of Social Psychology 142 (1), 5-23. Thompson, L. L. (2008).Making The Team Work: A Guide for Managers. Upper Saddle River: Prentice hall. West, A. M. (2012). Effective Teamwork: Practical Lessons from Organizational Research. Hoboken: John Willey sons. John, A. K., Greer, L., Levine, S., Szulanski, G. (2008). The Effects of Conflict Types, Dimensions and Emergent States on Group Outcomes. Springer Science Business Media B.V 2008, 465-495. This research paper on Conflicts and Their Effects on Group Performance was written and submitted by user Jaydin J. to help you with your own studies. You are free to use it for research and reference purposes in order to write your own paper; however, you must cite it accordingly. You can donate your paper here.

Origin and Meaning of the Last Name Boyle

Origin and Meaning of the Last Name Boyle A variant of OBOYLE, from the Irish Ó BAOGHILL. Of uncertain derivation, but the Boyle last name is considered by most to be connected to the Irish geall, meaning pledge or vain pledge, or thought to mean having profitable pledges. The OBoyles were chieftains in Donegal, ruling west Ulster with the ODonnells and the ODoughertys. Boyles can also be found in Kildare and Offaly. BOYLE is one of 50 common Irish surnames of modern Ireland, as well as the 84th most popular last name in Scotland. Surname Origin:  Irish, Scottish Alternate Surname Spellings:  BOYLES, O BOYLE, O BAOIGHILL, O BAOILL Clan Boyle: Clan Boyle in Scotland originated with Anglo-Norman knights bearing the de Beauville or, more commonly,  de Boyville name  from Beauville, near Caen. They are believed to have arrived in Scotland after the Norman conquest of England in 1066. There is a record of a David de Boivil witnessing a charter as early as 1164. Originally, the name was confined to the south-west of Scotland where it was pronounced bowl. The surname spelling also changed over time, with the shortened variant  Boyll appearing in 1367 and Boyle in 1482. The land surrounding Kelburn Castle in Ayrshire has been the home of Clan Boyle since the 13th century and is currently occupied by the 10th Earl of Glasgow, Patrick Robin Archibald Boyle.  The Boyle clan motto is Dominus provedebit which means God will provide. A branch of the Boyles from Kelburn became established in Ireland and eventually became the Earls of Cork.  Richard Boyle (1566–1643), the 1st Earl of Cork, was Lord Treasurer of the Kingdom of Ireland. Famous People with the BOYLE Last Name: Robert Boyle - Irish born scientist, and 7th son of Richard Boyle, Earl of CorkT.C. Boyle - American writer and novelistWillard S. Boyle – Canadian physicistSusan Boyle - Scottish born singer made famous by Britains Got Talent Genealogy Resources for the BOYLE Last Name: Family Boyle Surname DNA ProjectThis free project uses results from Y-DNA testing to map individuals with the Boyle surname into different branches of the Boyle family tree. Joining the project entitles you to a discount on DNA testing. Boyle Family Genealogy ForumSearch this popular genealogy forum for the Boyle last name to find others who might be researching your ancestors, or post your own Boyle surname query. DistantCousin.com - BOYLE Genealogy Family HistoryExplore links to databases and genealogical resources for the Boyle last name. Looking for the meaning of a given name? Check out First Name MeaningsCant find your last name listed? Suggest a surname to be added to the Glossary of Surname Meanings Origins. Sources Cottle, Basil. Penguin Dictionary of Surnames. Baltimore, MD: Penguin Books, 1967. Menk, Lars. A Dictionary of German Jewish Surnames. Avotaynu, 2005. Beider, Alexander. A Dictionary of Jewish Surnames from Galicia. Avotaynu, 2004. Hanks, Patrick and Flavia Hodges. A Dictionary of Surnames. Oxford University Press, 1989. Hanks, Patrick. Dictionary of American Family Names. Oxford University Press, 2003. Smith, Elsdon C. American Surnames. Genealogical Publishing Company, 1997.

The Last Flight of Space Shuttle Challenger Essay

The Last Flight of Space Shuttle Challenger - Essay Example This turned out to be the first blunder that led to the tragic incident. It happened to be the 10th mission for the Challenger Orbiter, while it was the 25th mission for the Space Transportation Systems (STS) and this proved a great challenge when considering the complexity of modern federal bureaucracy and relying on private contractors. The unfortunate Challenger seemed to take off normally, but after flying for about 73 seconds, the Mission Control did not receive any signal from it. Instead, just soon after the Challenger’s final radio signal, a blinding flash of light was seen by the people in the Mission Control room. This massive flash was actually the huge explosion and 2 destruction of the Orbiter and its fuel tanks, and its Solid Rocket Boosters that were blown into the air with the impact and hurtled down into residential areas. (Charles, T. pg. 110) The tragic disaster of the Space Shuttle Challenger, was considered to be the worst ever disaster that the United Sta tes space program experienced, because it had left all seven crew members dead including Christa McAuliffe, who was the â€Å"First Teacher in Space.† This financial loss of almost $ 2 billion left the world in a state of shock and made America lose their trust in NASA (National Aeronautics and Space Administration) Investigations on the disaster of Space Shuttle Challenger were carried out by the Presidential Commission who drew up the causes which were responsible. One of the chief findings of the Commission was that the pressure seal that joins the right solid Rocket Motor in the aft field had failed, causing the disaster. The faulty design was susceptible to many other factors which were unacceptable. These factors include – the quality and character of the material, physical wear and tear and the ‘reaction of the joint to dynamic loading.’ (Charles, T. pg.111) Besides finding out the technical fault, the Commission found that the process of decision m aking was to blame for the catastrophe, which could have easily been avoided if more caution was executed. Michael T. Charles’s study findings, further points to the lapse in the organizational setting which include such phenomena as pressured decision making, Congressional 3 funding, lucrative business contracts, the bureau- political discrepancies within and among NASA, including military and many other agencies of the government who are in competition for space dollars. Charles T. (pg. 111) points out that even though NASA, a governmental agency who has the responsibility of the development and management of this Space Shuttle Program and has such a good reputation, yet it became a part of the tragedy because the different departments are quite dependant on each other and therefore wrong interactions between them would have inevitably lead to the disaster. In addition, NASA is in collaboration with other private firm contracts to lend their support in the developing and de signing of the STS. However, the contract of constructing the Solid Rock Boosters was given to a company called ‘The Morton Thiokol Corporation where the flaw which caused the disaster was found. Managerial responsibility was another drawback pointed out by the Commission, which also contributed to the mishap. A team of managers was placed in charge for different parts of the

BOGART - A CASE IN POINT Study Example | Topics and Well Written Essays - 1000 words

BOGART - A IN POINT - Case Study Example When their scheme was identified the men had managed to leave the premises with sensitive and basic information involving the B.I.D. program. The fiasco ultimately cost the company, approximately, 1,000,000 dollars to recover, repair, and pay the necessary technicians to fix the damages and eliminate the self destruct â€Å"booby-traps† they had set. These costs amounted to, nearly, twice as much as it cost to initially implement and finance the new software's development. There are a number of aspects to the case study here one can criticize Bogart’s approaches and practices in relation to this topic. However, there are 10 specific changes that would have helped the Bogart Company to prevent and proactively deal with the issues created by the developers. These ten suggestions explain where the Bogart Company went wrong and changes that they could implement that might have prevented problems. These implementations could, also, aid them in deterrence of such issues in th e future. 1. Know Your Staff: These gentlemen were newly hired and immediately handed an immensely important task; it might have been wiser not to put so much faith and responsibility in someone whose company loyalties cannot be known. 2. Never Let Employees Work on Sensitive Projects at Home: These new hired developers should never have been allowed to work from home. Outside the workplace environment there is no way for supervisors, managers, or other staff to have access to the work that these employees are doing. 3. Management Need to be involved in Sensitive Projects: The development of team involved only these two men involved two others. With such a small team working on something so intrinsically important to the future of the business, there should be a level of involvement form supervisory and management staff. They should have been more heavily present. This, alone, could have had a huge effect on the behaviors of employees. 4. Trademark and Protect Interests from the Sta rt: Once the unique elements of their system had been determined, they should have immediately trademarked and guaranteed their rights, earlier on, preceding the copyright efforts of the dishonest employees. 5. Regular In-depth Reviews of the Work: The designers were able to encrypt the system with booby-traps that could completely compromise and shutdown the system. It more people had been involved or aware of the process then these employees may not have had the â€Å"free reign† that allowed them to do as they did. Stronger interactive behaviors from supervisors are essential. 6. Make Sure Staff Feels Importance and Loyalty to the Company: Be sure to install a sense of importance and relevance to staff contributions, in this way, your staff can be your eyes, ears, and guardians of the company’s ethics and standards. In this case, it was the honesty and keen eye of another employee that identified the designers hidden trademark logo. Had that employee, in the case st udy, not identified that trademark the outcome in this case might be a great deal different (Mayhew, 2013). 7. Implement Strict Policy from the Start: The Company used the signing of stricter security policies as a ploy to

Advantages Of Bluetooth Technology implementation In Modern Life Case Study

Advantages Of Bluetooth Technology implementation In Modern Life - Case Study Example The Bluetooth technology in business information system uses a weak signal so that it doesn't interfere by means of cell phone signal or additional signals. This technology is identical to the radio signal technology. The Bluetooth technology can be utilized to transfer data between different sections at the Business Information System. The current status of the technology Bluetooth has held every corner of society resorting overwhelming trend since Ericsson proposed the new technology-Bluetooth in 1998. The development of Bluetooth is improved rapidly in recent years. As a new short distance wireless transmission technology, Bluetooth has been paid close attention to the fields of science, industry, and entertainment. Bluetooth service utilizes radio waves to transfer data that's mean distances between each Bluetooth devices has to in short distance. Another weakness point about Bluetooth is security; because of the underlying communication medium is an open system for everyone. In these cases, this technology is not effectively operational. It is suitable for only office-based communications and data handling. According to Flint, Karvinen, McKnight, & Tee (2008), Bluetooth is a new and modern type of technology in the telecommunications sector. This new technology allows connecting wirelessly to computers, mobile phones, and personal digital assistants or PDAs. This wireless connection allows easy interconnection by a short-range wireless link. In this way, we can transfer data within a short distance with high data rate. By means of this technology, users of wireless technology, cellular phones, PDAs can purchase a 3in1 mobile phone that is able to offer the facility of portability at the office or home. It also presents the capability to obtain rapidly synchronized information in a notebook or desktop computer.

Product analysis of Nestle

Product analysis of Nestle Nestlà © is the largest food company in the world, marketing over 8,500 brands and 30,000 products. It operates nearly 500 factories across 5 continents and employs over 200,000 employees worldwide. As the World Food Company, Nestlà © is the provider of the best food for whatever time of day and for whatever time of your life. Nestlà © RD Singapore plays an important role in the development of products for Nestlà © Nutrition, with focus on creating products with micronutrient fortification to address deficiencies. Nestlà © has an extensive product mix targeted at many different segments of the market. The chosen product category for in-depth analysis is Nestlà © milk products, which is targeted at parents of young children (age 1 5) and health conscious adult consumers who desire to retain heart and bone health. In the adult category in specific, the functional milks offer a range of functional benefits, from cholesterol management and heart health to bone health. A product mix is the set of all products a particular seller offers for sale. A product mix consists of various product lines and has a certain width, length, depth, and consistency. The table below shows the product-mix width and product-line length for Nestlà © products in Singapore. Product-Mix Width Baby Foods Milk Cereals Chilled Dairy Ice Cream Confec-tionery Choco-lates Beverages Culinary/ Foods Healthcare Nutrition Perfor-mance Nutrition Pet Care Product Line Length Junior Foods Growing Up Milk Breakfast Cereals Yogurt Drink Drumstick Kit Kat Milo Maggi Noodles Nutren PowerBar ALPO Dog Food Infant Cereals Full Cream Milk Yogurt MatKool Milkybar Nescafe Maggi Porridges Peptamen Pro Plan Dry Food Adult Milk Take Home Tubs Crunch Maggi Stock Nestle Ice Cream Smarties Sauces Seasonings Potong Milo Yang Sheng Le Nestle Gold Recipe Collections Uncle Tobys The width of a product mix refers to how many different product lines the company carries. Nestlà ©s range of product lines includes baby foods, milk, cereals, dairy products, confectionery, ice cream and chocolates, culinary foods and pet care products. Nestlà © also provides a broad range of nutritional and flavored beverages and offers product line with specific nutritional functions. The length of a product mix refers to the total number of items in the mix. Nestlà © had an average product length of 2.8. Within the range of Nestlà ©s milk products include growing up milk, full cream, filled milk and adult milk. The depth of a product mix refers to how many variants are offered of each product in the line. For instance, Nestlà © adult milk comes in two functional forms (bone and heart health). The consistency of the product mix refers to how closely related the various product lines are in end use, production requirements, distribution channels, or some other way. Nestlà ©s product lines are consistent insofar as they are consumer goods that go through the same distribution channels. Company can expand its business in four ways: it can add new product lines, thus widening its product mix; it can lengthen each product line; it can add more product variants to each product and deepen its product mix; or it can pursue more product-line consistency. To reach our targeted market, Nestlà © can add new product line in the area of elderly health food, thus widening its product mix. In Singapore, the National Mental Health Survey (NMHS) conducted in 2003 reported a prevalence of dementia among the elderly as 5.2% for > 60 years, 6.0% for > 65 years, and 13.9% for > 75 years. Health Minister Khaw Boon Wan expects the numbers to double by year 2020. According to research, nutritional deficiencies in elderly are one of the factors influencing their cognitive functioning. In the article Many over-50s not eating properly (The Straits Times, September 2, 2010), the columnist shared a recent survey results indicating that older Singaporeans are not getting enough nutrition, with only 1 per cent of 421 respondents aged 50 years old and above have a balanced diet that meets the recommendations of the Health Promotion Board (HPB). Contrary to common belief, dementia is not an inevitable part of the ageing process and preventive and protective factors can help reduce the risk or delay the onset of dementia (Health Promotion Board). The best way to fight dementia is to maintain a good cognitive function and having a healthy and balanced diet is essential. There is a growing need and market for Nestlà © to produce brain-healthy functional foods targeted at the segment of the silver market who desire to retain memory, brain health and have a balanced diet. In Singapore, although there are already a number of brain health supplements targeted at the elderly, fortified food products aimed at this group are lacking. The first reason why Nestlà ©s product may be modified to reach the targeted segment is because Nestlà © Research Centre (NRC) is internationally renowned for its work in the food and nutritional sciences. For instance, as milk is particularly sensitive to heat, Nestlà © developed a soft sterilization of milk that protects the delicate amino acid, lysine and etc in their dairy products. In the article Brain food (The Business Times, December 02, 2009), Fernando Gomez-Pinilla, a professor of neurosurgery and physiological science at UCLA Medical School shared his findings on how dietary factors affect brain function. And he emphasized that Omega-3 fatty acids, with DHA are essential for normal brain function, and has been proven to enhance synaptic plasticity. Through Prof Gomezs exploration, he has proven that folates and antioxidants also helped reduce age-related decline in cognitive function. Presently, Nestlà © offers different milk products fortified with iron, zinc, vitamin A and other micronutrients aimed at addressing specific health deficiencies and they have existing product such as NESTLÉ ® NAN ® infant milk formula that contains DHA and ARA, two important ingredients that support brain development of young children. Nestlà © Research teams can work on improving the ingredients used in their existing products and offer milk products fortified with Omega-3 fatty acids, folates and antioxidants aimed at maintaining the cognitive function of the aging population. What is needed is a marketing effort, advertising the new range of products as brain-boosting functional food to the elderly. Next, Nestlà © had distinctive product lines catering to the needs of infant, young children; adults who are concerned with their health; and athletics who wants a performance boost. Nestlà © RD Singapore has always been focusing on creating products with micronutrient fortification to address deficiencies, therefore, with Nestlà ©s expertise in the field and food and nutritional sciences, they can aim to develop an additional product line with a range of milk products cater for the management of elderly health, besides, the development of brain healthy fortified food is for the benefit of the aging population in Singapore. In the longer run, Nestlà © can also introduce a range of new food products such as elderly snacks, healthy food and drinks and healthier culinary products with a different positioning and target the different segments of the silver market. Question 2 (18 marks) In this section, I will move on to discuss how Nestlà © currently makes use of the marketing mix concepts of pricing, promotion and distribution channels to reach its key target market for Nestlà © adult milk products in specific. Their adult milk products are targeted at health-conscious adult consumers who desire to retain heart and bone health. Price is the one element of the marketing mix that produces revenue and communicates to the market the companys intended value positioning of its product or brand. Nestlà ©s consumers range from the poorest to the wealthiest, and those seeking for convenience food or specific alternatives with perceived consumer benefits. These offer opportunities for them to provide high quality nutritious products. (Nestle Management Report, 2007). Nestlà © has adopted value pricing through winning loyal customers by charging a fairly low price for a high-quality offering. For instance, Nestlà © targets the lower income group through their Popularly Positioned Products (PPP) strategy, which focuses on creating items that are both highly nutritious and affordable on a daily basis for low-income consumers. Value pricing involves re-engineering their companys operations to become a low-cost producer. Nestlà © set strategic price points for their products, considering the fact that those with lower incomes have an even greater need for highly nutritious foods. (Nestle Management Report, 2007). Nestlà © had developed product lines rather than single products and introduce price steps, known as their multi-price point strategy, aimed at capturing all market opportunities. In this way, their targeted consumers are able to trade up and down without trading out of Nestlà ©s products. An illustration of their multi-price point strategy for a packet of 900g of adult milk within the product line is estimated as follow: Nestlà © also stimulate purchase of their milk products through various promotional pricing. For instance, the Nestlà © milk powder promotion at FairPrice offers a redemption of $10 NTUC FairPrice gift vouchers when customer accumulate $100 worth of Nestlà © milk powders purchase. The promotion encourages purchase of Nestlà © milk products within a specified time. Nestlà © also establish special prices in certain events to draw more customers. Nestlà © had an unmatched geographic presence in many markets, including emerging markets. Nestlà © has created very close relationships between their brands and their consumers as well as an in-depth understanding of their consumers and an expertise in related trends. This has also enabled Nestlà © to develop local management teams, build local manufacturing and RD and establish local supply-chain initiatives including long-term relationships with suppliers. Internationally, Nestlà ©s milk product is available in more than 100 countries throughout the World. (Nestle Management Report, 2007) Nestlà © used intensive distribution strategy by placing their milk products in as many outlets as possible, knowing that their targeted consumer requires a great deal of location convenience. Intensive distribution increases product availability. In Singapore, we can find Nestlà ©s milk product in popular outlets like convenience stores, pharmacies, and all leading supermarkets. These places are situated within 10 minutes walking distance from consumers homes. Marketing communications is the means by which firms attempt to inform, persuade, and remind consumers about the products and brands that they sell and Nestlà © enhance consumer communication with nutritional messaging. The marketing communications mix consists of six major modes of communication: advertising; sales promotion; events and experiences; public relations and publicity; direct marketing; and personal selling. Advertising can be used to build up a long-term image for a product or trigger quick sales. Nestlà © employed the used of various media and methods to promote their milk products. Just recently, they started an integrated print/radio ad for Nestlà © Nesvita Omega plus Acticol milk, advertising it as Singapores 1st and only milk with plant sterols which are shown to lower blood cholesterol. Consumers have been hearing on the radios and seeing in the papers about the benefit of having a lower cholesterol levels associated with consuming Nesvita Omega plus Acticol mi lk daily. Nestlà © also drew attention to their products by arranging special events. Nestlà © held a health exhibition Nestlà © Presents Health and You 2010 which caters for the young and old. They had activities which appealed to all in the family at the event, including free cholesterol and bone density checks by Nestlà © Nesvita Omega plus Acticol for the health conscious and health seminars and talks by health professionals, nutritionists and doctors. In addition, Nestlà © had a strategic partnership with Singapore Heart Foundation (SHF) known as Love Your Heart. The partnership allows Nestlà © to carry the SHF logo on the Nestlà © Omega Plus range, endorsing it as the preferred adult milk choice as it has the added benefit of heart health as well as calcium for bone health. Nestlà © also promotes heart health through the media, such as the Cholesterol Challenge in which the public are invited to lower their bad cholesterol. By becoming part of a special and more personally releva nt moment in consumers lives, Nestlà ©s involvement with events broadened and deepened the relationship with their target market. Question 3 (28 marks) The brand name for our new product is Nestlà © MindFit Silver, a fortified milk powder offering benefits as follow: maintain the cognitive function of elderly by slowing down and stabilizing age-related brain decline and provide specific nutritional food value for a balanced diet. Our target segment of the silver market for the Nestlà © MindFit Silver is elderly who desire to retain memory, brain health and have a balanced diet. This segment can be described demographically by age (50-55 and older). Nestlà © strategy is based on a positioning of product differentiation. Product is the first and most important element of the marketing mix. Packaging is a major styling weapon that provides the buyers first encounter with the product and is capable of either turning the buyer on or off (Kotler et al, 2009). Packaging is defined as all the activities of designing and producing the container for a product. We will introduce elegant gold and silver-trim packaging container as we wanted a sophisticated-looking package that reflects the quality of Nestlà © MindFit Silver. A good packaging helps to identify our brand and convey descriptive and persuasive information to our target consumers. Functionally, structural design is crucial. We make out that resealability, freshness and easy-to-open and close packaging are of huge importance to the elderly consumers, and has incorporated these packaging innovations in our new product. The label on our package will carry our brand name, logo and the Nestlà © nutritional compass that provides our consumers with tips and nutritional facts that guide them towards informed choices about their diet. We will also have a picture of a sharp-looking senior ambassador in his 50s on the product label; this makes it easier for the elderly to distinguish our product from other brands on the shelves. Pricing decisions must be consistent with the firms marketing strategy, target markets, and brand positioning. The Nestlà © MindFit Silver will be introduced at $18 estimated retail price per 400g tin and we will use several pricing techniques to stimulate purchases. In the first 6 months of product launch, we will offer a cash rebates of $4 to draw more first-time customers. We expect to come up with more variations of the Nestlà © MindFit Silver, such as cereals, infusion of more flavorings and priced them differently to meet the needs of more consumers. We will also establish special prices in conjunction with HPBs dementia campaign to draw more customers. Marketing channels are sets of interdependent organizations involved in the process of making a product available for use or consumption. Our channel strategy is to use selective distribution, marketing Nestlà © MindFit Silver through Hospital pharmacies, selected Unity Pharmacies, Guardian and Watsons stores, selected NTUC Fairprice, and selected Cold Storage outlets. By doing so, we can gain adequate market coverage with more control and less cost than intensive distribution. As we are targeting the elderly consumers, we implemented home delivery as an additional point of access. This is because we understand that some elderly has difficulty going out to buy groceries due to health problems. Since the awareness of nutrition service for cognitive health is our objective, other channels of distribution could include local broadcast media or public forums at community centre. Place should take into account the convenience of the product to the consumer and where the consumer can obta in it most readily. In support of channel partners, we will provide full-color posters displaying the picture and key benefits of Nestlà © MindFit Silver. Our training staff will work with retail sales personnel to explain the benefit of the product. Finally, we plan to arrange special payment terms for retailers that place volume orders with us. Marketers need to creatively employ multiple forms of communications to effectively reach and influence target markets. The marketing communications mix consists of six major modes of communication: advertising; sales promotion; events and experiences; public relations and publicity; direct marketing; and personal selling. We will make use of advertising; sales promotion; events and experiences; public relations and publicity to market Nestlà © MindFit Silver to the targeted segment of the silver market. We will start an integrated television, print and radio ads targeting the elderly. TV advertising is an effective means of vividly demonstrating our product attributes and persuasively explaining their corresponding benefits to the elderly. Our TV ad will show a smart looking elderly man sharing with his friends about the benefits of Nestlà © MindFit Silver, and how the milk product help him to stay sharp and alert. This is a creative way to reinforce the message that Nestlà © MindFit Silver help maintain the cognitive functions in elderly. Out print ads on newspaper and magazines can provide much more product details and can also effectively communicate user and usage imagery. Our radio ad will add a tag line promoting the Nestlà © MindFit Silver as a brain healthy food for the aged parents. As the multimedia advertising efforts continues, we will also distribute new point-of-purchase displays to support our retailers and increase the number of spontaneous buying decision. We will add consumer sales promotions such as distributing samples to elderly at the store and we will organize contest offering prizes such as cash and holiday trips as a result of purchasing our products within the specified time period. We will also participate in the 50plus Expo, a consumer fair for the elderly organized by the Council for Third Age. The expo is targeted for those aged 50 and above and is devoted to shopping, performances, talks, demonstrations and more. We will educate consumers on the benefits of drinking Nestlà © MindFit Silver as a daily healthy beverage and at the same time, generate channel support for our product launch. Nestlà © has been actively involved in sponsorships of a variety of causes. A sponsored event must meet the marketing objectives and communication strategy, and the audience delivered by the event must match the target market of our product. Nestlà © will sponsor the Health Promotion Board (HPB)s Dementia Awareness Campaign. To raise awareness of dementia, HPB has air on Channel 8 and Suria a short film on dementia that is being directed by local director, Royston Tan. Other activities in conjunction with the campaign include informative talks held at Tan Tock Seng Hospital, shopping centre, hotels, and public library. Nestlà © can strategically identify itself at the events using banners and signs advertising Nestlà © MindFit Silver as the top brain food choice for active seniors. Nestlà © will also provide free product samples at the events to generate buying crowds. Social network such as Facebook has become an important force in marketing. A key aspect of social networks is word of mouth. Consumers talk about dozens of brands each day and Facebook offer exposure and the targeted market are more likely to spread the brand message. IT classes have opened up a whole new world for the elderly who learn how to surf internet and use Facebook and these elderly are becoming more internet savvy and Facebook is a popular social network among them. To reach our targeted market, we will set up a Facebook page for Nestlà © MindFit Silver, and will post updates on our latest promotions, contests, events and generate thread discussion. Our aim is that more elderly can be linked to our Facebook page, to learn more about our products, and share their feedback on our product. We believed that an integrated marketing communications (IMC) can produce stronger message consistency and greater sales impacts as it forces management to think about every way the customers comes in contact with our product. IMC should improve our companys ability to reach the right customers with the right messages at the right time and in the right place. (Kotler et al, 2009).

The Effect of Temperature on the Rate of Reaction Essay -- GCSE Chemis

The effect of temperature on rates of reaction Aim: The aim of this experiment is to find out if the reaction rate of sodium thiosulphate solution and hydrochloric acid will be affected by a temperature change. Prediction: I predict that as a result of increasing the temperature of the sodium thiosulphate, the rate of reaction will be faster. Because of the increase in temperature, the particles will gain more kinetic energy. This will therefore cause them to move faster and produce more successful collisions, causing the rate to increase. Plan: Na S O + 2HCl S + SO + 2NaCl + H O Before carrying out the experiment, I must first of all begin the preliminary work. This part of the experiment will enable me to choose an appropriate scale of temperatures, and to decide upon the amount of sodium thiosulphate solution that will be used (the concentration). After doing this, I will then begin to carry out the experiment. I will firstly put a measured amount of sodium thiosulphate solution into a glass bottle, measure the temperature, and then add the hydrochloric acid. Immediately afterwards I will seal the lid and put it on top of a black mark, then start the stopwatch. I will observe from above and when the black mark is no longer visible, I will stop the stopwatch, measure the temperature again and record these results. I will repeat the experiment a further two times to ensure reliable results and continue this method for each temperature. To make certain that my experiment will not be dangerous, I will carry out some basic safety precautions. I will firstly ensure that there is a safe working area around me by clearing the desks and removing stools. I will then make sure that I am wearing safety glasses at all times and han... ...there were some sources of error and areas that I could have improved if repeating the experiment. I also noticed that there were a few anomalous results on my graph and these could be due to a few sources of error that occurred during my experiment. I felt that by timing the reaction from personal judgement about when the black mark was no longer visible was not as accurate as I would have liked. Also the fact that it was quite difficult to achieve the exact temperature of the sodium thiosulphate solution by heating it, made the experiment a little inaccurate. To give myself completely accurate results I would have to repeat the reactions that gave me anomalous results paying attention to detail and spending longer on each experiment. However, despite this I still managed to achieve quite regular repeats and results that clearly followed and backed up my prediction. The Effect of Temperature on the Rate of Reaction Essay -- GCSE Chemis The effect of temperature on rates of reaction Aim: The aim of this experiment is to find out if the reaction rate of sodium thiosulphate solution and hydrochloric acid will be affected by a temperature change. Prediction: I predict that as a result of increasing the temperature of the sodium thiosulphate, the rate of reaction will be faster. Because of the increase in temperature, the particles will gain more kinetic energy. This will therefore cause them to move faster and produce more successful collisions, causing the rate to increase. Plan: Na S O + 2HCl S + SO + 2NaCl + H O Before carrying out the experiment, I must first of all begin the preliminary work. This part of the experiment will enable me to choose an appropriate scale of temperatures, and to decide upon the amount of sodium thiosulphate solution that will be used (the concentration). After doing this, I will then begin to carry out the experiment. I will firstly put a measured amount of sodium thiosulphate solution into a glass bottle, measure the temperature, and then add the hydrochloric acid. Immediately afterwards I will seal the lid and put it on top of a black mark, then start the stopwatch. I will observe from above and when the black mark is no longer visible, I will stop the stopwatch, measure the temperature again and record these results. I will repeat the experiment a further two times to ensure reliable results and continue this method for each temperature. To make certain that my experiment will not be dangerous, I will carry out some basic safety precautions. I will firstly ensure that there is a safe working area around me by clearing the desks and removing stools. I will then make sure that I am wearing safety glasses at all times and han... ...there were some sources of error and areas that I could have improved if repeating the experiment. I also noticed that there were a few anomalous results on my graph and these could be due to a few sources of error that occurred during my experiment. I felt that by timing the reaction from personal judgement about when the black mark was no longer visible was not as accurate as I would have liked. Also the fact that it was quite difficult to achieve the exact temperature of the sodium thiosulphate solution by heating it, made the experiment a little inaccurate. To give myself completely accurate results I would have to repeat the reactions that gave me anomalous results paying attention to detail and spending longer on each experiment. However, despite this I still managed to achieve quite regular repeats and results that clearly followed and backed up my prediction.

Deutsche Brauerei

QUESTION FOR REPORT/ DISCUSSION 2. What are the characteristics of Fund flow statement and its uses? What do the financial forecast and sources and uses of funds statement of company tell us? Discuss about breakeven analysis. What does the breakeven chart of the company tell us? [pic] Fund Flow Statement Financial statements mainly include profit and loss account and balance sheet. Profit and loss account lists out all the expenses made by the firm and revenue earned over a period of time. Balance sheet depicts the financial position of the firm at a particular point of time. While fund flow statement is complimentary to both balance sheet and profit and loss account, it brings a clear idea about the movement of funds in and out of the firm, during a particular period of time. Meaning of Fund Flow The financial statement of the business indicates assets, liabilities and capital on a  particular date and also the profit or loss during a period. But it is possible that there is enough profit in the business and the financial position is also good and still there may be deficiency of cash or of working capital in business. If the management wants to find out as to where the cash is being utilized, financial statement cannot help. Therefore, a statement is prepared of the sources and applications of funds from where Working Capital comes and it is utilized. This is called Fund Flow statement. Meaning of ‘Fund’ In a popular and generally accepted sense the term ‘fund’ is used to denote the excess of current assets over current liabilities : Working Capital  Ã‚  Ã‚  Ã‚   =  Ã‚  Ã‚   Current Assets – Current Liabilities Meaning of ‘Flow’ of Fund Flow of funds means transmigration (coming and going) of funds. In other words, Flow of funds means change in Working capital, as in funds flow statement the words ‘funds’ mean net working capital. Hence Coleman rightly states that, â€Å"The fund statement is statement summarizing the significant financial changes which have occurred between the beginning and the end of a company’s accounting period. † The flow of fund if is represented by changes in working capital, then it can happen, only if a transaction involves changes on both current item and noncurrent item. Every transaction has double entry. Various cases can be that transaction involves Change on current assets and on fixed assets (cash purchase of fixed assets) o Cash being current item and fixed assets are non current ? Change on current assets and on current assets (credit sale of inventory) o Debtors is a current item and inventory is also current in nature ? Change on current assets and change on current liabilities (payment made to creditors) o Cash is current asset and creditor, current liability ? Change on current liabilities and change on current liabilities (short term loan taken to clear overdraft) ? Change on fixed assets and on fixed liabilities (sale of investments to redeem debentures) So, amongst all these combinations, transactions which involve change, on one hand on current item and on other hand on non current item, they would only lead to fund flow. E. g. * Sell investments in cash. * Issue of shares * Raising long term loans, etc. Thus fund flow statement enumerates various sources from which funds come in organization and various applications which lead to usage of funds. It is an important tool to check the efficiency of management in the firm. It can make future projections about working capital requirements and thus firm can arrange for those requirements and can allocate funds in a more efficient manner. Preparation of fund flow statement involves preparation of adjusted profit and loss account which is prepared by excluding the non fund and non operating items from the initial figure of net profit. Different Names of Fund-flow Statement * A Funds Statement * A statement of sources and uses of fund * A statement of sources and application of fund * Where got and where gone statement * Inflow and outflow of fund statement Objectives of Fund Flow Statement The main purposes of Fund Flow Statement are: 1. To help to understand the changes in assets and asset sources which are not readily evident in the income statement or financial statement. 2. To inform as to how the cans to the business have been used. 3. To point out the financial strengths and weaknesses of the business How to Prepare a Fund Flow Statement Fund flow statements are prepared by taking the balance sheets for two dates representing the coverage period. The increases and decreases must then be calculated for each item. Finally, the changes are classified under four categories: (1) Long-term sources, (2) long-term uses, (3) short-term sources, (4) short-term uses. It is also important to zero out the non-fund based adjustments in order to capture only the changes that are accompanies by flow of funds. However, income accrued but received and expenses incurred but not received reckoned in the profit and loss statement should not be excluded from the profit figure for the fund flow statement. Fund flow statements can be used to identify a variety of problems in the way a company operates. For example, companies that are using short-term money to finance long-term investments may run into liquidity problems in the future. Meanwhile, a company that is using long-term money to finance short-term investments may not be efficiently utilizing its capital. Steps in Preparation of Fund Flow Statement: 1) Preparation of schedule changes in working capital (taking current items only). 2) Preparation of adjusted profit and loss account (to know fund from [or] fund lost in operations). 3) Preparation of accounts for non-current items (Ascertain the hidden information). 4) Preparation of the fund flow statement. Importance of funds flow statement: Funds flow statement is an important analytical tool for external as well as internal uses of financial statements. The users of funds flow statement can be listed as under: 1. Managements of various companies are able to review cash budgets with the aid of funds flow statements. They are extensively used by the management in the evaluation of alternative finance & investments. In the evaluation of alternative finance & investment plans, funds flow statement helps the management in the assessment of long-range forecasts of cash requirements & availability of liquid resources. The management can judge the quality of management decisions. 2. Investors are able to measure as how the company has utilized the funds supplied by them & its financial strength with the aid of funds statements. They gauge can the company capacity to generate funds from operations. On the basis of comparative study of the past with the present, investors can locate & identify possible drains on funds in the near future. 3. Funds statement serve as effective tools to the management for economic analysis as it supplies additional information, which cannot be provided by financial statements, based on historical data. . Fund statement explains the relationship between changes in working capital & net profits. Funds statement clearly shows the quantum of funds generated from operations. 5. Funds statement helps in the planning process of a company. They are useful in assessing the resources available and the manner of utilization of resources. 6. Funds statement explains the financial c onsequences of business activities. They provide explicit & clear awareness to questions regarding liquid & solvency positions of the company, distribution of dividend & whether the working capital has been effective or otherwise. 7. Management of companies can forecast in advance the requirements of additional capital & can plan its capital issue accordingly. 8. Fund statement provides clues to the creditors & financial institutions as to the ability of a company to use funds effectively in the best interest of the investors, creditors & the owners of the company. 9. Funds statement indicates the adequacy or inadequacy of working capital. 10. The information contained in fund flow statement is more reliable, dependable & consistent as it is prepared to include funds generated from operations & not net profit after depreciation. 11. Funds flow statement clearly indicate how profits have been invested, whether investments in fixed assets or inventories or ploughed back. Financial forecast: A financial forecast is normally an estimate of future financial outcomes for a company. Using historical internal accounting and sales data, in addition to external market and economic indicators, a financial forecast is an economist's best guess of what will happen to a company in financial terms over a given time period — which is usually one year. In this case, the company has forecasted its data for the years 2001 and 2002. Sources of funds 1. Net Income: Net income  is equal to the  income  that a firm has after subtracting costs and  expenses  from the total  revenue. Net  income can be distributed among holders of common stock as a  dividend  or held by the firm as  retained earnings. The items deducted will typically include  tax expense, financing expense (interest expense), and  minority interest. Net income is informally called the  bottom line  because it is typically found on the last line of a company's  income statement. [pic] The forecasted net income is increasing in the projected year. It has been projected that there would be an increase in the net income of 28% in 2001 and 17% in 2002. This can be credited to their expansion strategy in the coming years. There has been a dip in the net income in the year 1999 owning to the depreciation of Ukrainian currency by 125%. 2. Allowance for doubtful accounts: The allowance for doubtful accounts is a balance sheet account that reduces the reported amount of accounts receivable. Providing an allowance for doubtful accounts presents a more realistic picture of how much of the accounts receivable will be turning to cash. If a firm has made a sufficient provision in its allowance for doubtful accounts, reported earnings will not be penalized by bad debts when the bad debts occur. If uncollectible accounts are larger than expected, however, the firm will have to increase the size of the account and reduce reported income. [pic] There has been a sharp increase in allowance for doubtful accounts in the year 2001 which subsequently reduced. This can be linked to the increase in the credit they plan to give to the distributors owning to their expansion plans for the period and their recovery policy. The increase in doubtful accounts is a bad sign for the financial position for the company. 3. Depreciation: A  noncash expense  that reduces the  value  of an  asset as a  result  of  wear and tear, age, or  obsolescence. Most assets lose their value over time (in other  words, they depreciate), and must be replaced once the end of their useful life  is reached. Because it is a  non-cash expense, depreciation lowers the  company's  reported  earnings  while increasing  free cash flow. Calculated by two methods: 1. Straight Line Depreciation Method 2. Declining Balance Depreciation Method [pic] There has been gradual rise in the depreciation in the projected years. This can be related to increase in their number of assets (they are planning to buy more equipments and properties) which would lead to devaluation eventually. 4. Short-Term Debt: The account which comprises of any debt incurred by a company that is due within one year. The debt in this account is usually made up of short-term bank loans taken out by a company. The value of this account is very important when determining  a company's  financial health. If the account is larger than the company's  cash and cash equivalents, this suggests that the company  may be  in poor financial health and does not have  enough cash to pay off its short-term debts. Although  short-term debts are due within a year, there may be a portion of the long-term debt included in this account. This portion pertains to payments that must be made on  any long-term debt throughout the year. [pic] In initial years they heavily depended on short term debts. Over the years the financial health of the company improved which lead to the reduction in the debts. Owning to their credit policy and increase in investment in fixed assets, the company is not able to recover the money. This could have lead to increase in short term borrowings. 5. Accounts Payable: An accounting entry that represents an entity's obligation to pay  off a short-term debt to  its creditors. The accounts payable entry is found on a balance sheet under the heading current liabilities. Accounts payable are debts that must be paid off within a given period of time in order to avoid default. [pic] Increase in accounts payable shows that the company is making more purchases on credit. It could be due to taking more time to pay bills, buying more products on credit, paying higher prices for credit purchases. 6. Other Current Liabilities: A balance sheet entry used by companies to group together current liabilities that are not assigned to common liabilities such as debt obligations or accounts payable. Companies will group together these other current liabilities into one account on the balance sheet for the sake of simplicity. [pic] Since this category is made up of accruals and similar items, it increases as the company gets larger. It increased in 1999 owning to higher investment in Ukraine. The increase in the other current liabilities has been more or less stable in the projected years. 7. Total sources of cash: It is the sum total of all the components of sources of funds. [pic] Uses of Funds 8. Dividend Payments Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be paid to the shareholders as a dividend. Many corporations retain a portion of their earnings and pay the remainder as a dividend. [pic] There is a sharp increase in the dividend payment as the company is projecting a higher increase in their profits. The dividends are paid from the net income from the same year. Increase in dividend payments implies strong commitment to maintain higher level of dividends in the future. 9. Increases in cash balance Amount of available cash that a management decides to maintain in cash planning, to avoid or cover up cash shortfalls resulting from mismatch between cash inflows and outflows during an accounting period. [pic] The company is having optimum cash balance hence maintaining sufficient working capital. 10. & 11. Increases in accounts receivable Accounts receivable (A/R) is one of a series of accounting transactions dealing with the billing of customers who owe money to a person, company or organization for goods and services that have been provided to the customer. In most business entities this is typically done by generating an invoice and mailing or electronically delivering it to the customer, who in turn must pay it within an established timeframe called credit or payment terms. [pic] In Germany, the company has maintained a tight hold on the credit that they supply to the distributors; thus there isn’t a significant change in the accounts receivable as compared to Ukraine. pic] Increases in accounts receivable (Ukraine) that is disproportionate to any growth in revenue may indicate the company is having trouble collecting money from its customers. Depending on the company's cash situation, this could require the company to borrow money to plug the hole from the unpaid money it is owed by its customers. Eventual ly, the company might need to write-off some of these accounts receivable as bad debt, in recognition of the fact that some customers might never pay. In extreme cases, the company might run out of cash and have to shut down. 12. Increases in inventories Inventory is a list for goods and materials, or those goods and materials themselves, held available in stock by a business. An organization's inventory can appear a mixed blessing, since it counts as an asset on the balance sheet, but it also ties up money that could serve for other purposes and requires additional expense for its protection. Inventory may also cause significant tax expenses, depending on particular countries' laws regarding depreciation of inventory. Inventory appears as a current asset on an organization's balance sheet because the organization can, in principle, turn it into cash by selling it. Some organizations hold larger inventories than their operations require in order inflating their apparent asset value and their perceived profitability. [pic] The fragile distribution system in Ukraine pre-2000 lead to increase in the inventories of the company as company is working on improving the distribution channel due to which the product flow has been projected to be smooth in coming years leading to decrease in inventory which is a healthy financial sign. 13. Increases in other assets Assets are economic resources owned by business or company. Two major asset classes are tangible assets and intangible assets. Tangible assets contain various subclasses, including current assets and fixed assets. Current assets include inventory, while fixed assets include such items as buildings and equipment. Intangible assets are nonphysical resources and rights that have a value to the firm because they give the firm some kind of advantage in the market place. Examples of intangible assets are goodwill, copyrights, trademarks, patents and computer programs, and financial assets, including such items as accounts receivable, bonds and stocks. pic] There is a negative growth in the increase in the other assets because of the depreciation of other assets and they are not planning to acquire any new assets in near future. By 2002 they are planning to buy enough assets just to overcome the negative growth. 14. Reductions in long-term debt Long-term debts are loans and financial obligations that last for over one year. For example, debts obliga tions such as bonds and notes, which have maturities greater than one year, would be considered as long-term debts. pic] Reduction in long term debts from 1998 to 1999 could be due to overnight success of the company in Ukraine. The sound financial condition of the company has ensured the stable repayment of long term loans and would continue to do so in future. 15. Capital Expenditures Capital expenditures (CAPEX or capex) are expenditures creating future benefits. A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset ith a useful life that extends beyond the taxable year. Capex are used by a company to acquire or upgrade physical assets such as equipment, property, or industrial buildings. [pic] The sharp increase in the CAPEX can be explained by the inflow of capital through long term debts and the operating profit the company is planning to achieve in the projected period. 16. Total uses of cas h: It is the sum total of all the use components in the fund flow statement. [pic] Break Even Analysis The break-even point for a product is the point where total revenue received equals the total costs associated with the sale of the product (TR=TC). A break-even point is typically calculated in order for businesses to determine if it would be profitable to sell a proposed product, as opposed to attempting to modify an existing product instead so it can be made lucrative. Break even analysis can also be used to analyse the potential profitability of an expenditure in a sales-based business. Breakeven analysis is a management accounting tool used for profit planning of a firm. Profit planning is a function of the selling price of a unit of product, the variable cost of making and selling the product, the volume of product unit sold and in case of multi-product companies, sales mix and finally, the total fixed costs. Breakeven point (for output) = fixed cost / contribution per unit. Break-even analysis is a technique widely used by production management and management accountants. It is based on categorising production costs between those which are â€Å"variable† (costs that change when the production output changes) and those that are â€Å"fixed† (costs not directly related to the volume of production). Total variable and fixed costs are compared with sales revenue in order to determine the  level of sales volume, sales value or production at which the business makes neither a profit nor a loss (the â€Å"break-even point†). Break even analysis depends on the following variables: 1. The fixed production costs for a product. 2. The variable production costs for a product. 3. The product's unit price. 4. The products expected unit sales. On the surface, break-even analysis is a tool to calculate at which sales volume the variable and fixed costs of producing your product will be recovered. Another way to look at it is that the break-even point is the point at which your product stops costing you money to produce and sell, and starts to generate a profit for your company. Break even analysis solves various managerial problems: †¢   Setting price levels: A price level is a hypothetical measure of overall prices for some set of goods and services, in a given region during a given interval, normalized relative to some base set. Hence with the help of BEP analysis a firm can determine the price level of product and particular sales volume which is necessary to produce an X amount of operating profit.   Targeting optimal variable/ fixed cost combinations †¢   Determining the financial attractiveness of different strategic options for your company. Break even Chart A breakeven chart is a strategic tool used to plot the financial revenue of a business unit against time or sales to determine the point when sales output is equal to revenue generated. This is reco gnised as the breakeven point. The information used to determine and analyse the breakeven point includes fixed, variable and total costs and the associated sales revenues. The analysis of a breakeven chart considers whether a venture runs at a profit or a loss. A sale above the breakeven point indicates continued and profitable growth. The principle of break-even theory is that during the early stages of a business venture, total costs, both fixed and variable, exceed sales. As output increases, sales begin to rise faster than costs and, eventually, they become equal (breakeven point). If sales continue to rise and exceed total costs, the business achieves profitability. The tool assumes that all the goods which are produced will be sold and that costs, namely the price, will remain constant. Likewise, it also relies on the capacity in terms of output to remain unchanged. Breakeven charts are universally applied to simply and graphically illustrate and forecast a company's projected revenue, and to calculate the time for profitability to be reached. It is used by financial and marketing strategists to predict the effect that changes in price will have on the percentage change in sales over time. It is also a useful tool to analyse the relationship between fixed and variable costs and to predict the effect on profitability of changes to those costs. Income Statements | | | | | | | |   |   |   |   |   |   |   | |Sales: Germany |62032 |62653 |64219 |66216 |68203 |70249 | |Sales: Ukraine |0 |4262 |17559 |25847 |37479 |48722 | |Total Net Sales |62032 |66915 |81778 |92063 |105682 |118971 | |Production Cost & Expenses |32258 |35366 |44271 49827 |61393 |71609 | |Excise duties |9143 |9108 |10486 |11557 |11625 |13087 | |Allowance for doubtful accounts |5 |7 |38 |24 |2 01 |60 | |Total Variable Cost |41406 |44481 |54795 |61408 |73219 |84756 | |   |   |   |   |   |   |   | |Administrative & Selling Expenses |12481 |13014 |16274 |18505 |18500 |18500 | |Depreciation |3609 |4314 |5844 |6068 |6766 |7448 | |Total Fixed Cost |16090 | | | | | | | | | | | | | | |(â‚ ¬ per hectoliters) | | | |Per unit Sales | |9206300/1173000 = | |78. 8508099 | | | |Per unit variable cost | | | | | |61408000/1173000 = | |52. 35123615 | | | |Contribution per unit | | | | | |Per unit Sales – Per unit variable cost = | |26. 3384484 | | | | | | |Breakeven Point = |Fixed cost/Contribution per unit | | | | | | | |24573000/26. 13384 = |940274. 633 | | | | | |Hence Number of units requires to be sold to reach breakeven point=940275 hectoliters | | | | | | | | | |Net Sale in year 2000 = 1173000 hectoliters | | |Revenue calculated from the sale of Breakeven volume sales = |breakeven point volume* per unit sale price |â‚ ¬ 73797559. 3 | | | | | |Total Variable cost at Breakeven Point = Breakeven volume * Per |940275 * 52. 32123615 = |â‚ ¬ 49224558. 57 | |unit variable cost | | | | | | | | Total Fixed Cost = â‚ ¬ 24573000 | | | | | | |Total cost of Production of Beer |Fixed cost + variable cost |â‚ ¬ 73797558. 57 | | | | | This analysis identifies the break-even volume, where revenues just equal total costs and Deutsche Brauerei recovers all its fixed cost at the break-even volume sale. Sales above Break-even Point will bring profits for the company. Margin of Safety (volume) = Total volume Sold – Breakeven volume 1173000 – 940275 = 232725 hectoliters Margin of Safety (Revenue) = per unit sale price * Margin of safety volume = 78. 48508099 * 232725 = â‚ ¬ 18265440. 47 Variable Cost for selling 232725 hectoliters = per unit variable cost * Margin of Safety (volume) = 52. 35123615 * 232725 = â‚ ¬ 12183441. 43 Deutsche Breuerei has already covered up fixed cost expense with break even volume sale hence they will make profit above the sale of break even volume. Net profit = Margin of Safety (Revenue) – Variable Cost for selling 232725 hectoliters = â‚ ¬ 18265440. 47 – â‚ ¬ 12183441. 43 = â‚ ¬ 6081999. 041 From the above analysis it is seen that as the volume increased above the break even volume, the profits rise disproportionately faster. The analysis of a breakeven chart shows that Deutsche Breuerei has to sell more than 940275 hectoliters of beer to start making the profit for the venture. A sale above the breakeven point indicates a continued and profitable growth, and venture makes a profit of â‚ ¬6081999. 041. Hence Deutsche Breuerei should stick to the current price level of beer and profit planning. Break even chart of Venture shows that if they can reduce the Production Cost in coming years through new facility and equipment they can increase the profits in long term. As the company is showing a healthy sales of good they can invest on production facility to reduce the per unit production cost and expenses to increases the overall profits. ———————– DEUTSCHE BRAUEREI Case Analysis- Question 2 MBA PHARM. TECH. (4th year) [pic] [pic] |ROLL NO. |NAME |ROLL NO. NAME | |38 |Devang Mehta |41 |Upasana Nagpal | |39 |Anand Menon |42 |Abhilash Nair | |40 |Manish Mishra |43 |Kadambari Narang | SCHOOL OF PHARMACY AND TECHNOLOGY MANGEMENT †0[pic]? 0[pic]? 0[pic]? 0[pic] 1[pic]†1[pic]x1[pic]|1[pic]? 1[pic]u1 [pic]2[pic]2[pic]2[pic]I2[pic]? 2[pic]N3[pic]l3[pic]A4[pic]A4[pic]? 4[pic]eOA »Ã‚ ­A »A »Ã¢â‚¬Å"| ­h ­Ã‚ »WI8A! h`fJh? *B*[pic]OJQJ^J[? ]ph333h? *B*[pic]CJOJQJph! hNu—h? *B*[pic]CJOJQJNet income =Revenue – Cost of goods sold – Sales discounts – Sales returns and allowances – Expenses – Minority interest – Preferred stock dividends Deutsche Brauerei QUESTION FOR REPORT/ DISCUSSION 2. What are the characteristics of Fund flow statement and its uses? What do the financial forecast and sources and uses of funds statement of company tell us? Discuss about breakeven analysis. What does the breakeven chart of the company tell us? [pic] Fund Flow Statement Financial statements mainly include profit and loss account and balance sheet. Profit and loss account lists out all the expenses made by the firm and revenue earned over a period of time. Balance sheet depicts the financial position of the firm at a particular point of time. While fund flow statement is complimentary to both balance sheet and profit and loss account, it brings a clear idea about the movement of funds in and out of the firm, during a particular period of time. Meaning of Fund Flow The financial statement of the business indicates assets, liabilities and capital on a  particular date and also the profit or loss during a period. But it is possible that there is enough profit in the business and the financial position is also good and still there may be deficiency of cash or of working capital in business. If the management wants to find out as to where the cash is being utilized, financial statement cannot help. Therefore, a statement is prepared of the sources and applications of funds from where Working Capital comes and it is utilized. This is called Fund Flow statement. Meaning of ‘Fund’ In a popular and generally accepted sense the term ‘fund’ is used to denote the excess of current assets over current liabilities : Working Capital  Ã‚  Ã‚  Ã‚   =  Ã‚  Ã‚   Current Assets – Current Liabilities Meaning of ‘Flow’ of Fund Flow of funds means transmigration (coming and going) of funds. In other words, Flow of funds means change in Working capital, as in funds flow statement the words ‘funds’ mean net working capital. Hence Coleman rightly states that, â€Å"The fund statement is statement summarizing the significant financial changes which have occurred between the beginning and the end of a company’s accounting period. † The flow of fund if is represented by changes in working capital, then it can happen, only if a transaction involves changes on both current item and noncurrent item. Every transaction has double entry. Various cases can be that transaction involves Change on current assets and on fixed assets (cash purchase of fixed assets) o Cash being current item and fixed assets are non current ? Change on current assets and on current assets (credit sale of inventory) o Debtors is a current item and inventory is also current in nature ? Change on current assets and change on current liabilities (payment made to creditors) o Cash is current asset and creditor, current liability ? Change on current liabilities and change on current liabilities (short term loan taken to clear overdraft) ? Change on fixed assets and on fixed liabilities (sale of investments to redeem debentures) So, amongst all these combinations, transactions which involve change, on one hand on current item and on other hand on non current item, they would only lead to fund flow. E. g. * Sell investments in cash. * Issue of shares * Raising long term loans, etc. Thus fund flow statement enumerates various sources from which funds come in organization and various applications which lead to usage of funds. It is an important tool to check the efficiency of management in the firm. It can make future projections about working capital requirements and thus firm can arrange for those requirements and can allocate funds in a more efficient manner. Preparation of fund flow statement involves preparation of adjusted profit and loss account which is prepared by excluding the non fund and non operating items from the initial figure of net profit. Different Names of Fund-flow Statement * A Funds Statement * A statement of sources and uses of fund * A statement of sources and application of fund * Where got and where gone statement * Inflow and outflow of fund statement Objectives of Fund Flow Statement The main purposes of Fund Flow Statement are: 1. To help to understand the changes in assets and asset sources which are not readily evident in the income statement or financial statement. 2. To inform as to how the cans to the business have been used. 3. To point out the financial strengths and weaknesses of the business How to Prepare a Fund Flow Statement Fund flow statements are prepared by taking the balance sheets for two dates representing the coverage period. The increases and decreases must then be calculated for each item. Finally, the changes are classified under four categories: (1) Long-term sources, (2) long-term uses, (3) short-term sources, (4) short-term uses. It is also important to zero out the non-fund based adjustments in order to capture only the changes that are accompanies by flow of funds. However, income accrued but received and expenses incurred but not received reckoned in the profit and loss statement should not be excluded from the profit figure for the fund flow statement. Fund flow statements can be used to identify a variety of problems in the way a company operates. For example, companies that are using short-term money to finance long-term investments may run into liquidity problems in the future. Meanwhile, a company that is using long-term money to finance short-term investments may not be efficiently utilizing its capital. Steps in Preparation of Fund Flow Statement: 1) Preparation of schedule changes in working capital (taking current items only). 2) Preparation of adjusted profit and loss account (to know fund from [or] fund lost in operations). 3) Preparation of accounts for non-current items (Ascertain the hidden information). 4) Preparation of the fund flow statement. Importance of funds flow statement: Funds flow statement is an important analytical tool for external as well as internal uses of financial statements. The users of funds flow statement can be listed as under: 1. Managements of various companies are able to review cash budgets with the aid of funds flow statements. They are extensively used by the management in the evaluation of alternative finance & investments. In the evaluation of alternative finance & investment plans, funds flow statement helps the management in the assessment of long-range forecasts of cash requirements & availability of liquid resources. The management can judge the quality of management decisions. 2. Investors are able to measure as how the company has utilized the funds supplied by them & its financial strength with the aid of funds statements. They gauge can the company capacity to generate funds from operations. On the basis of comparative study of the past with the present, investors can locate & identify possible drains on funds in the near future. 3. Funds statement serve as effective tools to the management for economic analysis as it supplies additional information, which cannot be provided by financial statements, based on historical data. . Fund statement explains the relationship between changes in working capital & net profits. Funds statement clearly shows the quantum of funds generated from operations. 5. Funds statement helps in the planning process of a company. They are useful in assessing the resources available and the manner of utilization of resources. 6. Funds statement explains the financial c onsequences of business activities. They provide explicit & clear awareness to questions regarding liquid & solvency positions of the company, distribution of dividend & whether the working capital has been effective or otherwise. 7. Management of companies can forecast in advance the requirements of additional capital & can plan its capital issue accordingly. 8. Fund statement provides clues to the creditors & financial institutions as to the ability of a company to use funds effectively in the best interest of the investors, creditors & the owners of the company. 9. Funds statement indicates the adequacy or inadequacy of working capital. 10. The information contained in fund flow statement is more reliable, dependable & consistent as it is prepared to include funds generated from operations & not net profit after depreciation. 11. Funds flow statement clearly indicate how profits have been invested, whether investments in fixed assets or inventories or ploughed back. Financial forecast: A financial forecast is normally an estimate of future financial outcomes for a company. Using historical internal accounting and sales data, in addition to external market and economic indicators, a financial forecast is an economist's best guess of what will happen to a company in financial terms over a given time period — which is usually one year. In this case, the company has forecasted its data for the years 2001 and 2002. Sources of funds 1. Net Income: Net income  is equal to the  income  that a firm has after subtracting costs and  expenses  from the total  revenue. Net  income can be distributed among holders of common stock as a  dividend  or held by the firm as  retained earnings. The items deducted will typically include  tax expense, financing expense (interest expense), and  minority interest. Net income is informally called the  bottom line  because it is typically found on the last line of a company's  income statement. [pic] The forecasted net income is increasing in the projected year. It has been projected that there would be an increase in the net income of 28% in 2001 and 17% in 2002. This can be credited to their expansion strategy in the coming years. There has been a dip in the net income in the year 1999 owning to the depreciation of Ukrainian currency by 125%. 2. Allowance for doubtful accounts: The allowance for doubtful accounts is a balance sheet account that reduces the reported amount of accounts receivable. Providing an allowance for doubtful accounts presents a more realistic picture of how much of the accounts receivable will be turning to cash. If a firm has made a sufficient provision in its allowance for doubtful accounts, reported earnings will not be penalized by bad debts when the bad debts occur. If uncollectible accounts are larger than expected, however, the firm will have to increase the size of the account and reduce reported income. [pic] There has been a sharp increase in allowance for doubtful accounts in the year 2001 which subsequently reduced. This can be linked to the increase in the credit they plan to give to the distributors owning to their expansion plans for the period and their recovery policy. The increase in doubtful accounts is a bad sign for the financial position for the company. 3. Depreciation: A  noncash expense  that reduces the  value  of an  asset as a  result  of  wear and tear, age, or  obsolescence. Most assets lose their value over time (in other  words, they depreciate), and must be replaced once the end of their useful life  is reached. Because it is a  non-cash expense, depreciation lowers the  company's  reported  earnings  while increasing  free cash flow. Calculated by two methods: 1. Straight Line Depreciation Method 2. Declining Balance Depreciation Method [pic] There has been gradual rise in the depreciation in the projected years. This can be related to increase in their number of assets (they are planning to buy more equipments and properties) which would lead to devaluation eventually. 4. Short-Term Debt: The account which comprises of any debt incurred by a company that is due within one year. The debt in this account is usually made up of short-term bank loans taken out by a company. The value of this account is very important when determining  a company's  financial health. If the account is larger than the company's  cash and cash equivalents, this suggests that the company  may be  in poor financial health and does not have  enough cash to pay off its short-term debts. Although  short-term debts are due within a year, there may be a portion of the long-term debt included in this account. This portion pertains to payments that must be made on  any long-term debt throughout the year. [pic] In initial years they heavily depended on short term debts. Over the years the financial health of the company improved which lead to the reduction in the debts. Owning to their credit policy and increase in investment in fixed assets, the company is not able to recover the money. This could have lead to increase in short term borrowings. 5. Accounts Payable: An accounting entry that represents an entity's obligation to pay  off a short-term debt to  its creditors. The accounts payable entry is found on a balance sheet under the heading current liabilities. Accounts payable are debts that must be paid off within a given period of time in order to avoid default. [pic] Increase in accounts payable shows that the company is making more purchases on credit. It could be due to taking more time to pay bills, buying more products on credit, paying higher prices for credit purchases. 6. Other Current Liabilities: A balance sheet entry used by companies to group together current liabilities that are not assigned to common liabilities such as debt obligations or accounts payable. Companies will group together these other current liabilities into one account on the balance sheet for the sake of simplicity. [pic] Since this category is made up of accruals and similar items, it increases as the company gets larger. It increased in 1999 owning to higher investment in Ukraine. The increase in the other current liabilities has been more or less stable in the projected years. 7. Total sources of cash: It is the sum total of all the components of sources of funds. [pic] Uses of Funds 8. Dividend Payments Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business (called retained earnings), or it can be paid to the shareholders as a dividend. Many corporations retain a portion of their earnings and pay the remainder as a dividend. [pic] There is a sharp increase in the dividend payment as the company is projecting a higher increase in their profits. The dividends are paid from the net income from the same year. Increase in dividend payments implies strong commitment to maintain higher level of dividends in the future. 9. Increases in cash balance Amount of available cash that a management decides to maintain in cash planning, to avoid or cover up cash shortfalls resulting from mismatch between cash inflows and outflows during an accounting period. [pic] The company is having optimum cash balance hence maintaining sufficient working capital. 10. & 11. Increases in accounts receivable Accounts receivable (A/R) is one of a series of accounting transactions dealing with the billing of customers who owe money to a person, company or organization for goods and services that have been provided to the customer. In most business entities this is typically done by generating an invoice and mailing or electronically delivering it to the customer, who in turn must pay it within an established timeframe called credit or payment terms. [pic] In Germany, the company has maintained a tight hold on the credit that they supply to the distributors; thus there isn’t a significant change in the accounts receivable as compared to Ukraine. pic] Increases in accounts receivable (Ukraine) that is disproportionate to any growth in revenue may indicate the company is having trouble collecting money from its customers. Depending on the company's cash situation, this could require the company to borrow money to plug the hole from the unpaid money it is owed by its customers. Eventual ly, the company might need to write-off some of these accounts receivable as bad debt, in recognition of the fact that some customers might never pay. In extreme cases, the company might run out of cash and have to shut down. 12. Increases in inventories Inventory is a list for goods and materials, or those goods and materials themselves, held available in stock by a business. An organization's inventory can appear a mixed blessing, since it counts as an asset on the balance sheet, but it also ties up money that could serve for other purposes and requires additional expense for its protection. Inventory may also cause significant tax expenses, depending on particular countries' laws regarding depreciation of inventory. Inventory appears as a current asset on an organization's balance sheet because the organization can, in principle, turn it into cash by selling it. Some organizations hold larger inventories than their operations require in order inflating their apparent asset value and their perceived profitability. [pic] The fragile distribution system in Ukraine pre-2000 lead to increase in the inventories of the company as company is working on improving the distribution channel due to which the product flow has been projected to be smooth in coming years leading to decrease in inventory which is a healthy financial sign. 13. Increases in other assets Assets are economic resources owned by business or company. Two major asset classes are tangible assets and intangible assets. Tangible assets contain various subclasses, including current assets and fixed assets. Current assets include inventory, while fixed assets include such items as buildings and equipment. Intangible assets are nonphysical resources and rights that have a value to the firm because they give the firm some kind of advantage in the market place. Examples of intangible assets are goodwill, copyrights, trademarks, patents and computer programs, and financial assets, including such items as accounts receivable, bonds and stocks. pic] There is a negative growth in the increase in the other assets because of the depreciation of other assets and they are not planning to acquire any new assets in near future. By 2002 they are planning to buy enough assets just to overcome the negative growth. 14. Reductions in long-term debt Long-term debts are loans and financial obligations that last for over one year. For example, debts obliga tions such as bonds and notes, which have maturities greater than one year, would be considered as long-term debts. pic] Reduction in long term debts from 1998 to 1999 could be due to overnight success of the company in Ukraine. The sound financial condition of the company has ensured the stable repayment of long term loans and would continue to do so in future. 15. Capital Expenditures Capital expenditures (CAPEX or capex) are expenditures creating future benefits. A capital expenditure is incurred when a business spends money either to buy fixed assets or to add to the value of an existing fixed asset ith a useful life that extends beyond the taxable year. Capex are used by a company to acquire or upgrade physical assets such as equipment, property, or industrial buildings. [pic] The sharp increase in the CAPEX can be explained by the inflow of capital through long term debts and the operating profit the company is planning to achieve in the projected period. 16. Total uses of cas h: It is the sum total of all the use components in the fund flow statement. [pic] Break Even Analysis The break-even point for a product is the point where total revenue received equals the total costs associated with the sale of the product (TR=TC). A break-even point is typically calculated in order for businesses to determine if it would be profitable to sell a proposed product, as opposed to attempting to modify an existing product instead so it can be made lucrative. Break even analysis can also be used to analyse the potential profitability of an expenditure in a sales-based business. Breakeven analysis is a management accounting tool used for profit planning of a firm. Profit planning is a function of the selling price of a unit of product, the variable cost of making and selling the product, the volume of product unit sold and in case of multi-product companies, sales mix and finally, the total fixed costs. Breakeven point (for output) = fixed cost / contribution per unit. Break-even analysis is a technique widely used by production management and management accountants. It is based on categorising production costs between those which are â€Å"variable† (costs that change when the production output changes) and those that are â€Å"fixed† (costs not directly related to the volume of production). Total variable and fixed costs are compared with sales revenue in order to determine the  level of sales volume, sales value or production at which the business makes neither a profit nor a loss (the â€Å"break-even point†). Break even analysis depends on the following variables: 1. The fixed production costs for a product. 2. The variable production costs for a product. 3. The product's unit price. 4. The products expected unit sales. On the surface, break-even analysis is a tool to calculate at which sales volume the variable and fixed costs of producing your product will be recovered. Another way to look at it is that the break-even point is the point at which your product stops costing you money to produce and sell, and starts to generate a profit for your company. Break even analysis solves various managerial problems: †¢   Setting price levels: A price level is a hypothetical measure of overall prices for some set of goods and services, in a given region during a given interval, normalized relative to some base set. Hence with the help of BEP analysis a firm can determine the price level of product and particular sales volume which is necessary to produce an X amount of operating profit.   Targeting optimal variable/ fixed cost combinations †¢   Determining the financial attractiveness of different strategic options for your company. Break even Chart A breakeven chart is a strategic tool used to plot the financial revenue of a business unit against time or sales to determine the point when sales output is equal to revenue generated. This is reco gnised as the breakeven point. The information used to determine and analyse the breakeven point includes fixed, variable and total costs and the associated sales revenues. The analysis of a breakeven chart considers whether a venture runs at a profit or a loss. A sale above the breakeven point indicates continued and profitable growth. The principle of break-even theory is that during the early stages of a business venture, total costs, both fixed and variable, exceed sales. As output increases, sales begin to rise faster than costs and, eventually, they become equal (breakeven point). If sales continue to rise and exceed total costs, the business achieves profitability. The tool assumes that all the goods which are produced will be sold and that costs, namely the price, will remain constant. Likewise, it also relies on the capacity in terms of output to remain unchanged. Breakeven charts are universally applied to simply and graphically illustrate and forecast a company's projected revenue, and to calculate the time for profitability to be reached. It is used by financial and marketing strategists to predict the effect that changes in price will have on the percentage change in sales over time. It is also a useful tool to analyse the relationship between fixed and variable costs and to predict the effect on profitability of changes to those costs. Income Statements | | | | | | | |   |   |   |   |   |   |   | |Sales: Germany |62032 |62653 |64219 |66216 |68203 |70249 | |Sales: Ukraine |0 |4262 |17559 |25847 |37479 |48722 | |Total Net Sales |62032 |66915 |81778 |92063 |105682 |118971 | |Production Cost & Expenses |32258 |35366 |44271 49827 |61393 |71609 | |Excise duties |9143 |9108 |10486 |11557 |11625 |13087 | |Allowance for doubtful accounts |5 |7 |38 |24 |2 01 |60 | |Total Variable Cost |41406 |44481 |54795 |61408 |73219 |84756 | |   |   |   |   |   |   |   | |Administrative & Selling Expenses |12481 |13014 |16274 |18505 |18500 |18500 | |Depreciation |3609 |4314 |5844 |6068 |6766 |7448 | |Total Fixed Cost |16090 | | | | | | | | | | | | | | |(â‚ ¬ per hectoliters) | | | |Per unit Sales | |9206300/1173000 = | |78. 8508099 | | | |Per unit variable cost | | | | | |61408000/1173000 = | |52. 35123615 | | | |Contribution per unit | | | | | |Per unit Sales – Per unit variable cost = | |26. 3384484 | | | | | | |Breakeven Point = |Fixed cost/Contribution per unit | | | | | | | |24573000/26. 13384 = |940274. 633 | | | | | |Hence Number of units requires to be sold to reach breakeven point=940275 hectoliters | | | | | | | | | |Net Sale in year 2000 = 1173000 hectoliters | | |Revenue calculated from the sale of Breakeven volume sales = |breakeven point volume* per unit sale price |â‚ ¬ 73797559. 3 | | | | | |Total Variable cost at Breakeven Point = Breakeven volume * Per |940275 * 52. 32123615 = |â‚ ¬ 49224558. 57 | |unit variable cost | | | | | | | | Total Fixed Cost = â‚ ¬ 24573000 | | | | | | |Total cost of Production of Beer |Fixed cost + variable cost |â‚ ¬ 73797558. 57 | | | | | This analysis identifies the break-even volume, where revenues just equal total costs and Deutsche Brauerei recovers all its fixed cost at the break-even volume sale. Sales above Break-even Point will bring profits for the company. Margin of Safety (volume) = Total volume Sold – Breakeven volume 1173000 – 940275 = 232725 hectoliters Margin of Safety (Revenue) = per unit sale price * Margin of safety volume = 78. 48508099 * 232725 = â‚ ¬ 18265440. 47 Variable Cost for selling 232725 hectoliters = per unit variable cost * Margin of Safety (volume) = 52. 35123615 * 232725 = â‚ ¬ 12183441. 43 Deutsche Breuerei has already covered up fixed cost expense with break even volume sale hence they will make profit above the sale of break even volume. Net profit = Margin of Safety (Revenue) – Variable Cost for selling 232725 hectoliters = â‚ ¬ 18265440. 47 – â‚ ¬ 12183441. 43 = â‚ ¬ 6081999. 041 From the above analysis it is seen that as the volume increased above the break even volume, the profits rise disproportionately faster. The analysis of a breakeven chart shows that Deutsche Breuerei has to sell more than 940275 hectoliters of beer to start making the profit for the venture. A sale above the breakeven point indicates a continued and profitable growth, and venture makes a profit of â‚ ¬6081999. 041. Hence Deutsche Breuerei should stick to the current price level of beer and profit planning. Break even chart of Venture shows that if they can reduce the Production Cost in coming years through new facility and equipment they can increase the profits in long term. As the company is showing a healthy sales of good they can invest on production facility to reduce the per unit production cost and expenses to increases the overall profits. ———————– DEUTSCHE BRAUEREI Case Analysis- Question 2 MBA PHARM. TECH. (4th year) [pic] [pic] |ROLL NO. |NAME |ROLL NO. NAME | |38 |Devang Mehta |41 |Upasana Nagpal | |39 |Anand Menon |42 |Abhilash Nair | |40 |Manish Mishra |43 |Kadambari Narang | SCHOOL OF PHARMACY AND TECHNOLOGY MANGEMENT †0[pic]? 0[pic]? 0[pic]? 0[pic] 1[pic]†1[pic]x1[pic]|1[pic]? 1[pic]u1 [pic]2[pic]2[pic]2[pic]I2[pic]? 2[pic]N3[pic]l3[pic]A4[pic]A4[pic]? 4[pic]eOA »Ã‚ ­A »A »Ã¢â‚¬Å"| ­h ­Ã‚ »WI8A! h`fJh? *B*[pic]OJQJ^J[? ]ph333h? *B*[pic]CJOJQJph! hNu—h? *B*[pic]CJOJQJNet income =Revenue – Cost of goods sold – Sales discounts – Sales returns and allowances – Expenses – Minority interest – Preferred stock dividends