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Market in Action
文/刘璐璐
【Abstract】Heineken is an international leading beer and cider producer. This company initially merely produced valves, since pumps and flow controllers were recognid to be having even larger markets, Destin strategically and ambitiously expanded its product diversity. Under existing costing system, it was shown that the pump gment was making loss. So, the managers of Destin started to suspect whether they were using the correct costing system. Three costing systems (the existing standard costing system, the revid costing system and activity-bad costing system) had been ud to calculate the unit cost of each product. This essay will compare and contrast
the three costing systems in the Destin’s context and then provide the reasonable recommendation.
【Key words】Costing system; international market; government intervention; price elasticity 【作者简
介】刘璐璐(1991.10- )，女，汉族，河南平顶山人，助教，硕士，河南工学院旅游教研室，研究方向：国际
旅游与酒店管理。
Motives Bad on Resource View(In Chine).Science Rearch
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I. The nature and characteristics of Heineken
The firm has been chon is Heineken, which is an international leading beer and cider producer. Its brand
has been permeating into customers’ minds with the cosmopolitan and metropolitan n. When talking about Heineken, it is always pictured that men in suits with loo ties are drinking in the pub after a-whole-day intensive work in a metropolis. This is attributed to its effective advertising. The target market of Heineken is the roughly 25-to-35-year-old consumers who are mature and lf-confident (Heineken, 2015).
Destin Brass Products Co. produces valves, pumps
and flow controller, which reprents 24%, 55% and 21% of the company’s revenues respectively (Bruns 1997).This company initially merely produced valves, since pumps and markets, Destin strategically and ambitiously expanded its product diversity. Even though the manufacturing process of three products were practically same (each machinist
operates two machines and asmbles products at the same time), the competition levels of each product were remarkably
different (flow controllers with little competition, valves with
moderate competition and pumps with high competition
and considerable price pressure). Destin’s competitors had been keeping reducing the price of pumps so that Destin had to match the price to maintain the market share. However, under existing costing system, it was shown that the pump gment was making loss. So, the managers of Destin started to suspect whether they were using the correct costing system. Three costing systems (the existing standard costing system, the revid costing system and activity-bad costing system)
essay will compare and contrast the three costing systems in the Destin’s context and then provide the reasonable recommendation.
II. Market structure
In order to analysing in more details, it is narrowed Heineken international down to its UK market. The UK alcohol market is led by huge multinational breweries, and beer category is especially concentrated, with the top five companies accounting for the majority of total volume sales in 2013 (EUROMONITOR INTERNATIONAL, 2014). Also, like Coca-Cola and Pepsi, alcohols particularly be
ers are once perceived and labelled ‘favourite’ by drinkers, they tend to stick with it and will hardly switch their tastes, which involuntarily build a barrier for new entrants. Therefore, the structure of UK alcoholic drinks market can be best described by the model of an oligopoly.
In the pump market, Destin’s competitors were continuously lowering their prices. In order to keep competitiveness in this market Destin had no choice but to match their prices accordingly. This had resulted in the shrinking of the gross margin. As the competition continues, further price reduction is expected. Hence, the first problem here is whether or not Destin should reduce its price. After eliminating the possibility of technical factors, Destin’s managers thought the competitors might be using the other more efficient costing system which brought more accurate unit cost of pumps to the competitors. The existing standard costing system was allocating the overhead merely bad on production-run labour cost. However, when breaking the overhead into specific categories it can be discovered that some categories might be irrelevant to the basis. For instance, the machines were depreciated becau of the usage of the machines so the direct labour cost cannot determine the degree of depreciation. Thus, the issue here is that whether or not the existing costing system (the standard costing system) was reporting accurate unit costs. And the further issue is that which costing system is relatively more efficient and how would unit costs change under the new costing sy
stem. III. The reasons to government intervention, how to achieve and the impacts on suppliers and consumers There are veral reasons why the government may want to intervene the market price. Firstly, protectionism requires government to heighten the barriers for inbound products, for example, levying a heavy tax on imported cars. Secondly, the government aims to promote the general welfare, for example, introducing the minimum wage. Thirdly, the government wants to correct market failure, for instance, putting a tax on over-consumed products such as cigarettes and cars which cau pollution and congestion. The price ceilings would discourage suppliers, and conquently result in insufficient supply. By contrast, the price floor would stimulate too many suppliers so that demand would be short. According to the information which has been given in Exhibit 5, under activity-bad costing system (ABC), the unit costs of valves, pumps and flow controllers are $37.76, $48.87 and $100.58 respectively (The calculations are shown in Appendix Table 1). It is notable that under ABC method the calculated unit costs of pumps and flow controllers are dramatically different from the figures calculated from the other two costing systems. Execution of ABC method would incur a cut in pricing for the pumps, which would help Destin to maintain the competitiveness in the pump market. However, this would also cau a remarkable increa in the unit cost of flow controllers, which impliedly explains why even though Destin raid flow controller prices by 12.5% there was still no apparent effect on demand.
Table 2 compares and contrasts how the unit costs have been calculated under three costing systems. It is easily discovered that each product is costed by the same amount of direct material and direct labour, so the only reason to this huge difference in unit costs is that they allocate the overhead differently.
Specifically, under standard costing system, the overhead was allocated bad on only one pool—production-run labour cost. The underlying assumption under this method was all the overhead costs were only relevant to the number of labour hours, which is too general and biad.
Under revid standard costing system, three bas, which are material costs, t-up labour hours and machine hours, are ud to allocate the overhead. This method is more specific and making more n becau, for example, prima facie, material receiving and handling costs are relevant to the direct material and it is reasonable to allocate them bad on the direct material costs. However, the two costs are actually relevant to how many times the employees have received and handled the material. Moreover, even though machine depreciation and maintenance costs are cloly relevant to the usage of the machines, packing and shipping costs are not determined by the usage of the machines, instead they should be relevant to the number of shipments. Therefore, although this method is more accurate compared to the first method, it is still too general and cannot reflect w
here the costs actually went to.
In contrast to the two previous methods, ABC system allocates the overhead into ven different pools, and each category is determined by each different activity. As shown in Table 2, the total overhead under standard costing system and ABC system could be coincidentally clo (in valves), but normally they would be different. For example, the figure of “handling” category of flow controllers under ABC system
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is 38.76 which exceeds the figure of the total overhead under standard costing system, and it is reasonable becau employees were spending 100/129 of their time handling the components of flow controllers. Hence, ABC method is recognid as the most accurate method amongst the three. To further compare standard costing system and ABC
system, the net incomes have been calculated under the
know是什么意思
december怎么读two systems (as shown in Table 4 and 5). It can be easily
found that the calculated net income under ABC system is a little bit higher than which under standard costing system. However, theoretically, they should be identical becau the only difference between the two method is the different allocation of the overhead and the total cost would not be
changed by different allocations. Therefore, the difference here must be rounding.
The actual gross margins have been calculated and
compared in Table 3. It is revealed that the actual gross margin of pumps under ABC system is higher than its planned gross margin, which could be rationally reduced to keep the competitiveness. Additionally, it shows a negative gross margin in flow controller category, which means it was under-
priced, the company should increa the price to make it profitable. The other alternative of increasing price could be improving the production process. This could be achieved by reducing the times of employees receiving and handling the material.
IV. Real-life example of government intervention and its objectives
印度老虎According to BBC News (2014), alcohol minimum unit
price (MUP) was announced by the UK government in 2014.
The main reason of introducing this price floor is that the
great majority of the UK population recogni that misusing alcohol is causing harms. As noted in an Impact Asssment of UK government (2012), £21 billion has been spent on alcohol-related harms annually by UK government. It is also recognid minimum pricing to be the most effective and efficient way of reducing alcohol consumption and hence
alcohol-related harm, and believed decisive action to address the affordability of alcohol is required.
ABC method ems to be the best costing system, so it
is recommended that Destin should adopt ABC method. As shown in Table 2, the larger figure of the total overhead of flow controllers is mainly derived from the big allocation of material receiving and handling costs. To utili this information, it is also recommended that firstly the company could order half-finished goods instead of individual components to reduce the receiving and handling costs before the process; condly Destin could reduce the monthly production-runs for flow controllers during the process; thirdly Destin could reduce
the times of shipments after processing. Moreover, if the
company is going to increa the price of flow controllers, it is recommended that the elasticity of demand to price needs to be taken into consideration. V. How do the price elasticity of demand and the price elasticity of supply affect the magnitude of the impact from
this market intervention
Generally, the impact that this policy would bring to
suppliers and consumers is illustrated below in figure 1 and
figure 2(Appendix 1). Theoretically, for demand and supply, the more elastic they are the more significant the supply excess is (the bigger magnitude of the impact from this market intervention is). Specifically, in this particular Heineken ca, becau there is no more tax, and the extra money will flow to producers and retailers but not government (more profit margin) (NHS Health Scotland, 2014), it can be rationally predicted that more alcohol-providers will appear. However, given the existing market structure (oligopoly), it will be difficult to enter the business for new entrants. Therefore, it can be assumed that it is inelastic supply. For demand side, according to Rearch UK
(2012), it is estimated that a 10 per cent increa in the retail price of alcohol will reduce consumption by 4.4 per cent. After calculations, it can be known that the price elasticity of demand is -0.44 which is
inelastic as well. Thus, the magnitude of the impact from this government intervention cannot be very big.
However, in the real world situation, given the primary purpo of this inter vention, which is to reduce the comsumption of alcohol by increasing the unit price, the relationship between the magnitude of intervention impact and elasticity can be en from the different angle. For supply, the more elastic the less significant magnitude of the impact that this market intervention will bring in practice. Becau if it is elastic a great number of suppliers would be trying to enter the market, and they would be competing and fighting for the great profit margin, eventually some suppliers might take the risk of getting caught and ll alcohols at lower prices. In terms of demand, on the contrary, the bigger the price elasticity of demand the more effective this market intervention would be. It is becau that if the price is incread but drinkers do not really care and still buy as many alcohol as before, theresponsible怎么读
significance of this adjustment would be meaningless. VI. Who is likely to benefit and who is likely to be disadvantaged by this intervention记单词软件
As can be en in figure 3(Appendix 2), before the
intervention this market was working at equilibrium. Then, becau of the effect of this price floor, the quantity of alcohol purchas dropped to Q (intervention) so that the total surplus will be reduced. Although the total surplus is compromid it
does not mean the producer surplus and consumer surplus are both smaller. Instead, the producer surplus is taking
advantage of the greater profit margin and squeezing the
合肥会计培训Appendix 2fieldtest
consumer surplus aside as shown in figure 3 ction ‘B’.授权书英语
Therefore, for suppliers, the loss (shown in figure 3
ction ‘loss’) caud by the dropped quantity sold can
be compensated by the bigger profit margin taken fromwow是什么
consumers, which is why Heineken even has slightly larger
revenue in 2014 compared to 2013 (See Appendix 2 Heineken
2014 Annual Report). Hence, alcohol producers are likely to
economically benefit from this policy. Social-scientifically,
people who are misusing alcohol at harmful levels are more
than likely to benefit. According to a rearch conducted by
Hertua, K. et al (2008), there is a great potential that higher
alcohol prices can protect the most advantaged people of
society against alcohol-related issues.
Oppositely, the responsible drinkers are likely to be
disadvantaged, becau they are not the source of social
alcohol-related problems but they are paying extra. Their
surplus is significantly compromid as shown in figure 3.
Appendix 1
Appendix 3
References：
[1]Alcohol Drinks in the United Kingdom.(2014).EUROMONITOR
INTERNATIONAL.Retrieved from /
alcoholic-drinks-in-the-united-kingdom/report
[2]Alcohol floor price announced for England and Wales.(2014).BBC
News.Retrieved from /news/uk-26040550.
[3]Alcohol minimum pricing. (2014). NHS Health Scotland.
Retrieved from /topics/health/alcohol/
MinimumPricing.aspx.
[4]A MINIMUN UNIT PRICE FOR ALCOHOL.(2012).Impact
Asssment.Retrieved from www.library.uq.edu.au/_//filething/
files/get/apa_6.pdf.
[5]Commentary:The government’s alcohol strategy. (2012).
Rearch UK. Retrieved from alcoholrearchuk/special-
reports/the-governments-alcohol-strategy/.
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