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Effects of dropping one model from product mix

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5-50 Relevant Costs: dropping a product

Merchant Company manufactures and sells three models of electronic printers. Ken Gail, president of the company, is considering dropping model JT484 from its product line because the company has experienced losses for this product over the past three quarters. The following product-level operating data have been complied for the most recent quarter:

CATEGORY TOTAL JT284 JT384 JT484
Sales $1,000,000 $500,000 $200,000 $300,000
Variable Costs 600,000 300,000 100,000 200,000
Contribution Margin 400,000 200,000 100,000 100,000
Fixed Costs:
Rent 50,000 25,000 10,000 15,000
Depreciation 60,000 30,000 12,000 18,000
Utilities 40,000 20,000 5,000 15,000
Supervision 50,000 15,000 5,000 30,000
Maintenance 30,000 15,000 6,000 9,000
Administrative 100,000 30,000 20,000 50,000
Total Fixed Costs 330,000 135,000 58,000 137,000
Operating income (loss) 70,000 65,000 42,000 (37,000)

In addition, the following information is also available:

? Factory rent and depreciation will not be affected by a decision to drop model JT484.
? Quarterly utility bills will be reduced from $40,000 to $31,000 if JT484 is dropped.
? Supervision costs for JT484 can be eliminated if dropped.
? The maintenance department will be able to reduce quarterly costs by $7,000 if JT484 is dropped.
? Elimination of JT484 will make it possible to eliminate two administrative staff positions with combined salaries of $30,000 per quarter.

A. Should Merchant Company eliminate JT484?
B. Merchant's sales manager believes that it is important to continue to produce JT484 to maintain a full product line. He expects the elimination of JT484 will reduce sales of the remaining two products by 5% each. Will this information change your answer to (a)? Explain.

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a. If the company eliminates the product, its new numbers will become:

Sales $700,000
Variable Costs ($400,000)
________
Contribution Margin $300,000

Rent ($50,000) unaffected by change
Depreciation ($60,000) unaffected by change
Utilities ($31,000) reduced by $9000 by change
Supervision ($20,000) ...

Solution Summary

A financial analysis of whether one model amongst a company's product mix should be dropped including the effects upon total contribution margin and fixed cost coverage.

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See Also This Related BrainMass Solution

The Marketing Mix: Products and Branding Strategies

I need help with the problem pasted below. The solution to the problem (CASE02) should be completed prior to the solution of SLP02. I will need 4 pages and please follow the directions in the below Case02 document carefully.

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>CASE 02<<
The Marketing Mix: Products and Branding Strategies - Case02 Assignment
Questions/Tasks
Susan Fournier (1998) argues that customers have relationships with brands. Do Customers have relationships with Brands? Yes or No? Defend your position. Either way, if they have relationships or do not have relationships with brands, so what?

In order to answer these questions and complete these tasks, you are required to select a movie studio (service only) and ONE brand from the remaining two product categories shown below and explore the idea that consumers have relationships with the products, paying particular attention to the implications of whether or not having a relationship might have for marketing managers in the management of and the development of marketing strategies for those brands, (the "So what?" in the above question).

The three product categories are:
Good & Service - eg Cell phone service (e.g. brands such as Verizon, Sprint, AT&T.)
Good Only - eg Hand gun (e.g. brands such as Colt, Beretta, Smith & Wesson, Glock); Motorcycle (e.g. brands such as Honda, Harley Davidson, Yamaha); or Newsmagazine (e.g. brands such as Business Week, Forbes, and Fortune) and
Service Only - eg Movie studios (e.g. brands such as Paramount, 20th Century Fox, or Disney).
Note that since one of the choices (a movie studio) is fixed, you need to choose two additional products, one from each of the remaining product categories, a good and a good with services.

In terms of selecting ONE brand from each of the TWO remaining product categories, you should choose a good and service (eg, cell phone brand, say Verizon) and a good only (eg, a hand gun brand, say Colt; a newsmagazine, say Business Week; or a Motorcycle brand, say Harley Davidson). The brands shown above are only examples. You can select others not shown if you prefer, but in addition to the Movie Studio (service only); they must be a Good only and a Good & Service.

The Situation
Some authors argue that consumers have relationships with brands. Others argue that a relationship with a brand is not possible because a relationship has to be 2-way. In other words, brands can't respond to consumers.
The Task
Thus, in response to Fournier (1998) using the information you gather using the three product categories. You are to answer the question: Do Customers have relationships with Brands? Yes or No? Defend your position. Either way, if they have relationships or do not have relationships with brands, so what?
Expectations

Note that it is not assumed that you will agree with Dr. Fournier that people have relationships with brands, (nor is it assumed that you will necessarily disagree). Clearly marketing scholars disagree about this so you can too! You might choose two brands, examine them, examine what it means to "have a relationship with a brand" and conclude that this idea does not hold water and has no benefits for marketers, in the process explaining why Dr. Fournier is wrong in your opinion. On the other hand you might conclude that her idea holds for one of the brands you have examined and not for the other, or perhaps holds for some people and not for others. In that instance, contrasting the two is very important. Or you might conclude that it holds for both.

Note how the case you will make in favor or against the issue of people relating to brands takes you beyond the basics of product management to thinking about branding, product meanings, the roles brands play, the views customers have of brands developed through marketing and non-marketing influences, and the implications of these for marketing managers. Note that this last is the primary focus of this case.

Note also that the materials describing the situation introduce you to three of the major journals in marketing, the Journal of Marketing, the Journal of Brand Management, and the Journal of Consumer Behavior. In that regard, I believe it important that you be introduced to some "academic" research which you should find both interesting and easy to understand. The topics covered in these articles (brand relationships and brand communities) are important and relatively new ones in Marketing and I hope you'll find them stimulating enough to feel that at some point in the future you might try reading more articles in these journals. There are other sources which present new ideas in Marketing in a more "managerially friendly" form, such as the Harvard Business Review, Sloan Management Review, and California Management Review, to name but three. Now that you know these sources exist try to use them as you build your case and continue to use them, even after graduating.

The resources describing the situation include Susan Fournier (1998) in which, among other things, she argues that consumers have relationships with brands. Others have stated that they don't, (e.g. Vargo and Lusch (2004) state that "inanimate items of exchange cannot have relationships"). Perhaps they have relationships, but only under certain circumstances. I leave that for you to consider.

I stress, that I want you to address the implications that brand relationships might have for marketing managers in the management of brands. Hint: you are to consider THREE brands (a movie studio which falls in one of the three product categories and TWO brands one chosen because it is a good and one chosen because it is a service). I am forcing this issue to give you the opportunity to see if a relationship is formed based on the product category therefore allowing you to compare the results in your analysis between brands in differing product categories. I stress that it is not sufficient simply to write about customers and their relationships with the brands. That's relatively easy. You need to do that to set the stage for your thinking about how marketers might use such insights. Feel free to be creative.

Sources of information for this case may include:
Introspection - you should NOT rely solely on anecdotal evidence.
Questioning friends and colleagues - you should NOT rely solely on anecdotal evidence.
Researching background information on the Internet and in magazines - strongly recommended.
In preparing your CASE 2, ensure that you demonstrate your learning of the marketing concepts and frameworks for analysis outlined in the modular learning objectives (Attached) by using and referencing the background and case material.
1. Explain fundamental marketing concepts related to products, both goods and services, including what each of these are, as well as brands, and the Product Life Cycle.
2. Analyze whether customers develop relationships with brands and the implications of this for brand management.
3. Identify and research top Marketing Journals and explain some the cutting edge marketing issues of brand relationships and brand communities.

In addition, if you use the comments of friends, relatives, or colleagues, you need reference those friends, relatives or colleagues as sources.

While you may be tempted to simply rely on anecdotal information and write about your own relationship (or non-relationship) with a chosen brand, you will learn a lot more by broadening your horizons and thinking like a marketer, which means setting aside your own perceptions and understanding the way others perceive products. If you are in an Internet-constrained environment simply say so in your assignment and focus on Fournier S. (1998)) and Vargo, S. L. & Lusch, R. F. (2004)

You should also bear in mind that a fundamental goal, as with all the cases you build in MKT501, is to stimulate your learning. Your answers should therefore demonstrate that learning.
Note that this assignment does NOT require you to prepare a detailed essay. Instead use section headings for each of the topics you address in your paper followed by a discussion of that topic. For example, make sure that you list the brands you examine.

If you wish to include supportive or illustrative materials, feel free to include these in an appendix (e.g. uploaded as an additional file) of no more than three pages. Make sure that you refer to this material in the body of the paper.
Case-related articles in the academic press
Fournier, S. (1998, Mar). Consumers and their brands: Developing relationship theory in consumer research. Journal of Consumer Research. 24(4). PDF available via EBSCOhost on 5 November 2009 Attached (Consumers and their Brands.pdf)
Vargo, Stephen L & Lusch, Robert F (2004, January). Evolving to a New Dominant Logic for Marketing. Journal of Marketing. 68(1) 1-17. PDF available via EBSCOhost on 5 November 2009 Attached (Evolving to a new Dominant Logic for MKT.pdf)
Albert, Noël; Merunka, Dwight; & Valette-Florence, Pierre (2008). When consumers love their brands: Exploring the concept and its dimensions. Journal of Business Research 61 1062-1075. PDF available via Science Direct on 5 November 2009.
Chaudhuri, Arjun & Holbrook, Morris B. (2002, September). Product-class effects on brand commitment and brand outcomes: The role of brand trust and brand affect . Journal of Brand Management, 10(1). 33-59 PDF version available in EBSCOhost on 5 November 2009 Attached (Product-class effects on brand.pdf)
Grubb, Edward L & Grathwohl, Harrison L (1967, October 1). Consumer Self-Concept, Symbolism and Marketing Behavior: A Theoretical Approach. Journal of Marketing. 31(4). 22-28. PDF available via EBSCOhost on 5 November 2009 Attached (Consumer Self-Concept.pdf)

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>>Modular Learning Objectives<<
By the end of this module, the student shall be able to satisfy the following outcomes expectations:
? Case
o Identify and research top Marketing Journals and explain some the cutting edge marketing issues of brand relationships and brand communities
o Explain fundamental marketing concepts related to products, both goods and services, including what each of these are, as well as brands, and the Product Life Cycle
o Analyze whether customers develop relationships with brands and the implications of this for brand management
? SLP
o Analyze an organization's products and competitive product positioning
o Explain fundamental marketing concepts related to products, both goods and services, including what each of these are, as well as brands, and the Product Life Cycle

Having developed an understanding of how consumers make purchase decisions, and how marketers analyze markets and select targets, we turn our attention in Modules 02-05 to how firms can win and retain customers. In Module 02 we focus on one of the four elements of the Marketing Mix, the Product (the first of the 4 P's describing the Marketing Mix) and the closely associated concept of the brand. This raises a number of questions such as:

What is a Product?

What is branding and why do firms do it?

How can new products be developed?

What are some of the important and current issues facing product and brand managers?

We will be placing our emphasis on brands, branding and brand management. Apart from understanding the fundamental concepts (such as Product, Good, Service, Brand, Positioning, etc.) we shall be exploring the idea that brands can enable firms to establish a competitive advantage. In the case we focus on how customers view brands and in the SLP we shall apply many of the frameworks being taught to further analyze the product your chosen organization produces and the markets it serves with them.

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