Premium Essay

Relevent Cost Erosion

In: Business and Management

Submitted By sahel
Words 310
Pages 2
M,M3. Should the Challenger deal be charged for the lost sales of bikes through the regular distribution channel (erosion or cannibalization cost)? If so, what is the relevant erosion cost?

Erosion can be defined as a negative impact on one or more of a firm's existing assets. Product cannibalization refers to the situation where a new product of a firm competes with its existing product (s) and reduces sales of it. The estimation of erosion or cannibalization costs is paramount in making intelligent business decisions about the proper amount of components to obtain commitments in any given period. This is particularly true when a large number of products are made from a large number of the same components. However, I do not think that the erosion costs should be considered when looking at the decision to produce the challenger bikes. It has been assumed in the case that the sales of Baldwin bikes will be negatively affected if the Challenger deal is accepted. However, there is no certainty that the Baldwin sales will be really affected, and if so, then how much. It will be hard to charge Hi-Valu for the erosion cost without having enough data for the estimation of lost sales. If the possibility of introducing the new product is foregone because of the cannibalization cost, a competitor can use the opportunity to fill the requirement of the new product and will also grind down the sales of the firm's existing products. If Baldwin turned down the deal with Hi-Valu, Hi-Valu may make the deal with a competitor of Baldwin. In that case, the sales of Baldwin will still be affected, but it will not be able to charge erosion cost to anyone. The projected 3% sales decrease is not enough to kill the project. On top, the bicycle business was…...

Similar Documents

Free Essay

Soil Erosion

...Solutions of Soil Erosion Renfang(Alice) Liao Academic Skills 300-1 Professor Smithwick Aug 17, 2012 Introduction Soil erosion is a global issue troubling most of the countries. China ranked 129 among the 142 environmental suspensibility evaluated countries; one of the reasons is the serious soil erosion. 19% of China's land is affected by soil erosion, which is one of the highest rates (Liu& Diamond, 2005: 1181). The statistics are thought-provoking, and the effects of soil erosion are significant. In fact, soil erosion is a part of a vicious circle. Scientists and technicians around the world are working hard to find out the better and more efficient ways to monitor and control soil erosion. Soil erosion is a progress in which soil particles are carried away by force such as water ,wind and gravity. Water and wind erosion are the most important erosion types classified by the erosive agents (Toy, Foster, and Renard, 2002: 55). In this report, the vicious circle of soil erosion, reduction of vegetations and sediments in river is discussed. Among the technologies applied in soil management, the one suitable for local condition is the best. Discussion Soil Erosion and Vegetation Soil Erosion's effects on Vegetation Plants absorb what they need from soil with roots. The topsoil provides the best environment for plants' roots with loose structure, enough air, and rich organisms, but it is removed firstly through soil erosion (Plaster,......

Words: 922 - Pages: 4

Premium Essay

Cost

...Material Cost Classifications Consult Ch. 6 & 7 of Health Care Finance and other sources to complete the form. This worksheet requires you to match the definitions and examples of types of cost, and the types of centers where costs occur. Part 1: For each term in Column A, select the correct definition from Column B on the right. Write the corresponding letter of the definition next to the term. Column A F 1. Indirect costs A 2. Direct costs D 3. Fixed costs I E H B C G 4. Variable costs 5. Step-fixed costs 6. Responsibility centers 7. Revenue centers 8. Cost centers 9. Shadow cost centers Column B – Definitions A. Costs incurred directly as a result of providing a specific service or good B. Centers charged with controlling costs and generate revenue C. Have no revenue budget and no obligation to earn revenue D. Costs that do not vary as service volume varies E. Fixed over some range of service volume, but rise to a new level for a higher range of service volume F. Costs that cannot be tied directly to the patient’s stay in the bed G. Exist as budgets on paper only H. The places where costs occur and have budgets I. Costs that change as volume changes Part II: For each real-world example, select the correct term from the list on the left. Write the corresponding letter of the real-world example next to the term. Column A K 1. Indirect costs M 2. Direct......

Words: 423 - Pages: 2

Premium Essay

Cost Cost

...Part of the process of pricing your product is including the costs of producing that product. Those costs include the direct and indirect costs associated with producing your product. Direct Costs Direct costs are costs that can be easily traced to a particular object (also called a cost object), such as a product, the raw materials used to manufacture a product, or the labor associated with the work to produce the product. If your company produces a widget and a production manager is hired to oversee production of that widget, then the production manager's salary is a direct cost. If you own a carpet cleaning business, which is a service organization, and you hire workers just to clean carpets, their wages are direct costs. Direct costs are often, but not always, variable costs. Variable costs increase as more units of the product are manufactured. As a result, raw materials are variable and direct costs. But, if there is a supervisor overseeing the manufacturing of this particular product, their salary is probably the same regardless of how much of the product is manufactured, so it is a fixed cost. Direct Materials and Direct Labor The most common direct costs are direct materials and direct labor. Direct materials are the materials that can be specifically identified with the product. If you are a furniture maker, your direct materials would be the wood that goes into making your furniture along with the nails, varnish, and other products that you apply......

Words: 644 - Pages: 3

Premium Essay

Cost

...Question 1. Costs may be broadly classified as: Selling and administrative Product and marginal Fixed and variable Fixed and indirect Question 2. For a hot bread shop, which of the following costs would most likely be classified as variable rather than fixed? Flour Advertising Equipment lease payments Rent of premises Question 3. Which statement is correct in relation to fixed costs per unit of output? They stay the same irrespective of the level of activity They increase as the level of activity increases They decline as the level of activity declines None of the above Question 4. A total cost line is non-linear and of a convex nature, when it is: A fixed cost A linear variable cost Expenses involving economy of scale benefits Expenses where a high level of demand caused supply shortages Question 5. Which of the following would not normally represent an example of a semi-variable (semi-fixed) cost? Spare parts-vehicle service centre Electricity-hairdresser Telephone-butcher Depreciation of equipment Question 6. What does the point where the total cost line cuts the revenue line represent? Break-even point Relevant range The margin of safety Total fixed cost Question 7. What statistical technique can be used to determine the fixed and variable components of different cost types? Probability analysis Regression analysis Correlation Factor......

Words: 750 - Pages: 3

Free Essay

Soil Erosion

...Soil Erosion Environmental Science Wanda Black 2/12/15 Soil is solid material of geological and biological origin that is changed by chemical, biological and physical processes. This gives the soil the ability to support plant growth. Erosion is the process of soil and humus particles being picked up and carried away by water or wind. Erosion follows when soil is bared and exposed to the elements. This is how soil erosion happens as well as when there are no plants or trees and soil getting swept into the river. The negative impacts of soil erosion, is overgrazing, over cultivation and deforestation. Overgrazing is grassland that is constantly plowed and crops grown on it. The grasslands don’t get enough rain to support cultivated crops or are too steep for cropping and for grazing livestock. It reduces the ability of plants to grow and water to not penetrate the land. Overgrazing can be prevented by farmers getting information from the U.S. Natural Resources Conservation Service (NRCS). They do testing and analysis of soil. The NRSC have helped decrease soil erosion from 2.1 billion tons in 1992 to 1.7 billion tons in 2007 and made consequences of improved conversion practices such as windbreaks, grassed waterways and field border strips of perineal vegetation. If the land is left untreated it could cause a problem with the food chain. Overcultivation is when the soil has been plowed to control weeds and the soil is exposed to wind and water. The soil......

Words: 373 - Pages: 2

Premium Essay

Soil Erosion

...1.0 Introduction Soil erosion has been accelerated in many areas of the world especially Australia. It becomes a biggest problem in Australia which leads Australians have to confront it. Soil erosion means the removal or disappearance of soil by water or wind. It may due to the poor cultivation, overgrazing and stripping of the land. Today, soil erosion is one of the most critical environmental problems in Australia which threatening farmlands, streams and village.  This report below is concentrate on the types, causes and preventing of soil erosion. 2.0 Types of soil erosion There have various types of soil erosion but the two major types of soil erosion that often occur in Australia which is water erosion and wind erosion. 2.1 Water erosion Water erosion is the most widespread erosion in Australia. There have several types of water erosion which is sheet, rill and gully erosion. Firstly, Raindrop can be a main problem for farmers when they strike bare soil. Rain can washes away seed and splashes soil into the air. If the fields are on a slope the soil is splashed downhill which causes deterioration of soil structure (Sydenham & Thomas, 2008). Hence, soil that has been separated by raindrops is more easily moved than soil that has not been separated. Sheet erosion is caused by raindrops whereas rill erosion and gully erosion caused by rainfall. Sheet erosion is defined as the uniform removal of soil in thin layers from sloping land. When rains run off the slope,......

Words: 459 - Pages: 2

Free Essay

Erosion

...Shoreline depletion by erosion is a natural process that occurs due to a variety of reasons. Shores can be devastated due to short-term events such as storms, wave action, or tides and winds. Shorelines can also be affected by large scale events such as glacier or orogeny cycles that alter sea levels. Tectonic movements also cause coastal land to be depleted or increased. These processes are natural, and the rise and fall of coastlines is just another part of nature, but human activity has drastically depleted shorelines worldwide. Beaches are becoming smaller and smaller, and cities are spending millions of dollars a year on replacing the sand alone (Prasetya). There are many things that humans are doing to devastate the coastlines. Along the coast, activities such as land reclamation, port development, shrimp farming, and construction are leading causes in coastal depletion. Within river catchments and watersheds, activities such as river damming and diversion affect the coast. Offshore events affect beaches as well. Dredging and sand mining are just a few examples of harmful offshore processes. Each of these things, combined with natural forces, put the coasts in dire need(Coastal Managment). It jeopardizes coastal cities and environments’ health. People normally flock to coastal areas to inhabit, and developers now have to deal with the problems of erosion. A strong push has been made by the administration in the areas affected to manage the coastal problems and......

Words: 1194 - Pages: 5

Premium Essay

Erosion Modelling

...Erosion Modelling Soil erosion is a significant environmental process that degrades the soil in which we rely on for food, fuel, clean water, carbon storage, and as a substrate for buildings and infrastructure (Quinton 2011). It is the disruption of the soil mantle – the pedosphere, or the underlying rock base – the lithosphere by the action of matter of external geomorphic factors, such as water, snow, ice, air, weathered debris, organisms and man (Zachar 1982). Both abiotic and biotic forms of erosion forms patterns that are typical for a particular area such as climate, relief, nature of the surface, activity of the organism, and activity of man (Zachar 1982). It is the degradation or aggradations of the Earth’s surface by the movement of soil material by wind, rain, overland flow and gravity (ASSIGNMENT). Problems with Erosion The movement of sediment and associated pollutants over the landscape and into water bodies is of increasing concern with respect to pollution control and environmental protection. With the expected change in climate over the coming decades, there is a need to predict how environmental problems associated with sediment are likely to be affected so that appropriate management systems can be put in place (Morgan & Nearing). Erosion can impact the productivity of agricultural, post-mining and native systems and is a sign of land degradation (ASSIGNMENT). Soil erosion acts a mechanism for transferring pollutants to surface waters and reduces...

Words: 1174 - Pages: 5

Premium Essay

Cost

...Solution of 2012 Mid Term Exam Cost Accounting- Third Year Question No. One: 1- ABC Company Schedule of Cost of Goods Manufactured For October Direct material costs Beginning inventory of Direct Materials 4,000 Direct materials purchased ………………………135,000 =Cost of direct materials available for use………..139,000 (-)Ending inventory of Direct Materials………….. (5,000) Direct materials used…………………………………………………………….…134,000 Direct manufacturing labor costs………………………………………………….…50,000 Manufacturing overhead costs Salaries of factory supervisors………………….....15,000 Salaries of factory managers ……………………...10,000 Factory supplies (3000+8000-2500)……………......8,500 Factory rent…………………………………………9,500 Factory depreciation……………………………....25,000 Total Manufacturing overhead costs …………………………………………….…...68,000 Total Manufacturing costs………………………………………………………….252, 000 Add beginning work-in-process inventory, ……………………………………….…13,000 Deduct ending work-in-process inventory, ………………………………………… (15000) Cost of goods manufactured (to income statement) ………………………………$ 250,000 2- ABC Company Income Statement For March 2011 Revenues ( 8000* 50)………………………………………………………………400,000 Cost of units sold: Beginning finished goods, ……………………………… 0 Cost of goods manufactured ………………………….250,000 Cost of goods available for sale……………………….250, 000 Ending finished goods (2000 units* $25)………....... (50,00) Cost of Units sold…………………………………………………………………….(200,000) Gross......

Words: 472 - Pages: 2

Premium Essay

Cost

...CLASSIFICATION OF COSTS: Manufacturing We first classify costs according to the three elements of cost: a) Materials b) Labour c) Expenses Product and Period Costs: We also classify costs as either 1      Product costs: the costs of manufacturing our products; or 2      Period costs: these are the costs other than product costs that are charged to, debited to, or written off to the income statement each period. The classification of Product Costs: Direct costs: Direct costs are generally seen to be variable costs and they are called direct costs because they are directly associated with manufacturing. In turn, the direct costs can include: Direct materials: plywood, wooden battens, fabric for the seat and the back, nails, screws, glue. Direct labour: sawyers, drillers, assemblers, painters, polishers, upholsterers Direct expense: this is a strange cost that many texts don't include; but (International Accounting Standard) IAS 2, for example, includes it.  Direct expenses can include the costs of special designs for one batch, or run, of a particular set of tables and/or chairs, the cost of buying or hiring special machinery to make a limited edition of a set of chairs. Total direct costs are collectively known as Prime Costs and we can see that Product Costs are the sum of Prime costs and Overheads. Indirect Costs: Indirect costs are those costs that are incurred in the factory but that cannot be directly......

Words: 767 - Pages: 4

Premium Essay

Costs

...Direct Costs vs. Indirect Costs Direct costs are any costs that are paid directly towards the material, labor, etc. of a product or service. Any cost associated with administrative needs, or ‘behind-the-scenes’ type costs, are known as indirect costs. Almost every venue of manufacturing, healthcare, or business in general has some form of indirect costs. Many times, these costs are overlooked when paying for a service or product. They are costs wrapped into the total cost of an item or service that you don’t normally think about. Direct costs are involved and associated with every service or product purchased, as are indirect costs, usually, even when you don’t think about it. Indirect costs affect the healthcare field, research, accidents, etc. Indirect costs in healthcare could be anything from administration to disability pay while a patient is off from work. “Indirect costs in published U.S. studies were based on estimates from physician panel and survey data and included loss of earnings associated with unemployment and underemployment, productivity losses, as well as loss of caregiver earnings not considered in this study” (Ivanova, Birnbaum, Kidolezi, Ying, Mallett, & Caleo, 2010). “Researchers have long been unhappy at the bite indirect costs take out of research grants, but have rarely taken direct action to control expenditures that determine those costs – indeed they may have felt powerless to do so” (Johnson, 1991). Building plans for Stanford University......

Words: 1473 - Pages: 6

Premium Essay

Cost

...five-step decision process in order: A = Make predictions about future costs B = Evaluate performance to provide feedback C = Implement the decision D = Choose an alternative a. D C A B b. C D A B c. A D C B d. D C B A Answer: c Difficulty: 2 Objective: 1 44. The formal process of choosing between alternatives is known as a. a relevant model. b. a decision model. c. an alternative model. d. a prediction model. Answer: b Difficulty: 1 Objective: 1 45. Ruggles Circuit Company manufactures circuit boards for other firms. Management is attempting to search for ways to reduce manufacturing labor costs and has received a proposal from a consulting company to rearrange the production floor next year. Using the information below regarding current operations and the new proposal, which of the following decisions should management accept? Currently Proposed Required machine operators 5 4.5 Materials-handling workers 1.25 1.25 Employee average pay $8 per hour $9 per hour Hours worked per employee 2,100 2,000 a. Do not change the production floor. b. Rearrange the production floor. c. Either, because it makes no difference to the employees. d. It doesn't matter because the costs incurred will remain the......

Words: 7235 - Pages: 29

Free Essay

Cost

...calculated for only one life cycle not necessary to use the LCM of lives as it is for PW and FW . IE 347 Week 5 Industrial Engineering Dept. 1/8 Dr.Serhan Duran (METU) Annual Worth Analysis Basics When alternatives being compared have different lives, the AW method makes the assumption that: 1 2 3 The service provided by alternatives will be needed for at least the LCM of years or more The selected alternative will be repeated over each life cycle of the LCM in exactly the same manner The cash flow estimates will be the same in every life cycle Example Eric Forman, a project engineer is assigned to start up a new office in Wisconsin. Two lease options are available: Location A Location B First cost, $ $-15,000 $-18,000 Annual lease cost, $ per year -3,500 -3,100 Deposit return, $ 1,000 2,000 Lease term, years 6 9 For Location A, demonstrate the the equivalence at i = 10% of PW ($-55,888.4) over three life cycles and AW over one cycle. Dr.Serhan Duran (METU) IE 347 Week 5 Industrial Engineering Dept. 2/8 Annual Worth Analysis Basics PW A=? $1000 6 $1000 12 $1000 18 0 1 2 $3500 $15,000 $15,000 $15,000 1 From PW = $ − 55, 888.4 over 18 years AW = PW (A/P, 10%, 18) = −55, 888.4(0.12193) = −6, 814.47 2 Directly from AW over 6 years AW = −15, 000(A/P, 10%, 6) − 3500 + 1, 000(A/F , 10%, 6) = −15, 000(0.22961) − 3500 + 1, 000(0.12961) = $ − 6, 814.54 Dr.Serhan Duran (METU) IE 347 Week 5 Industrial Engineering......

Words: 1024 - Pages: 5

Premium Essay

Cost on It

...of IT evolution within enterprises is considered as the sharp weapon for competition. Competition among enterprises is not price competition, but the product quality, technology and innovation, and customer services competition. Through reading the book Information Technology for Managers, I learnt that Information Technology includes all tools that capture, store, process, exchange, and use information. To increase revenue and profits, many enterprises were using IT to gain competitive advantages. In the context of information technology development, enterprises in different levels of IT stages are carrying out various IT related strategies according to their needs and specific conditions. Therefore, there is no necessary link between the cost of IT investment and the achievement of business benefit. First of all, with the population of smart phone devices, people have enjoyed the benefit of IT in the daily life. The trend of personal IT consumption encourages the development of enterprise IT. For most companies, more than 85 percent of IT related budget is just maintaining the daily operation. For our company, taking advantage of the rest 15 percent part is pivotal to win in the marketplace. As the IT division controller, I plan to integrate IT operation with business management, setting up a communication platform both for employees and customers. The inside enterprise networking system will short the time to prepare conference, reduce travel expenses and save the......

Words: 431 - Pages: 2

Free Essay

Coastal Erosion of Louisiana's Wetlands

...Ashton Piland HNRS 2000 Underlying Causes of Louisiana’s Coastal Erosion “Time is a force we often think of as making things better, able to heal all wounds” (Tidwell 291). Mike Tidwell’s quote summarizes a popular attitude held by most people in times of despair. With time comes the ability to cope with the loss of a loved one, the acceptance of failure, and intellectual growth and maturity. What Tidwell says about time in Louisiana, however, conflicts with the previously quoted description because “In Louisiana, the opposite is true: since that day a year ago… the state has lost 17,845 more acres of land” (291). This chilling statistic prevents us from accepting time as a natural healer and leads us to believe that it is, in fact, the most influential factor in the loss of Louisiana’s coastal wetlands, fishing industry, and Cajun heritage. In Tidwell’s Bayou Farewell, evidence suggests the state’s failure to anticipate the problems from leveeing of the Mississippi River, the unintended consequences of the levees and mechanical drudging, and an overall attitude of denial are the main contributing factors in the destruction of Louisiana’s wetlands. The most pressing problem overlooked by the engineers responsible for building the Mississippi River levees is the lack of nutrients deposited into the land surrounding the river during floods. The Mississippi River carries sediments and soil from all over the country downstream where it eventually empties into the......

Words: 1587 - Pages: 7