The output that each firm can give is small relative to total output of the industry such that the firm is a price taker and the adjustment in their output does not have significant effect on the market price of the product. Similarly there is no individual buyer whose purchase is sufficiently vast to impact available on the market price. Prices can move freely to reflect the changing conditions of supply and demand. There is no requirement on the demand for and supply of goods and services. There is a flexibility to enter and exit the industry.
In the case the management team decides to remain in the current method, then other solutions can be done without the need to lay off some employees. Other solutions can be recommended. III. Relevant Stakeholders a. Oscar Gamble, as Shields Corporation’s Controller: high net income means security and profitability of the company; low net income may mean lay off of some employees to reduce expenses, thus somehow increasing income; b. Accounting staff : high net income means security of employment, while low net income may mean lay off of employees including the accounting staff to reduce administration expenses; c. Owners of the company: high net income means
Only a single product is produced under monopoly and there is no product differentiation. Under monopolistic competition every producer produces differentiated products. Products are similar but not identical. They are close substitutes rather than perfect substitutes. They differ from one an¬other in design, colour, flavour, packing etc.
If complete data on cost structure of a product is not available than there is no benefit of doing this analysis as it would yield incorrect result. APPLICATION OF BREAK_EVEN ANALYSIS Break-even point (unit) = (Total fixed cost)/(price-variable cost per unit) = 1,220,000/(650-345) =4000units Break-even point (value) = (Total fixed cost)/(Price-vaariable cost per unit )×price per unit = (1,220,000 )/(650-345)×650 =$2600000 Margin of safety (value) = Budgeted Sales – Break-even Sales = 3,261,868 – 2600000 = 661868 Margin of safety (percentage) =(Margin of safety(value))/(Budgeted Sales) ×100 = 661868/3261868 ×100 =20.29% Break-even chart
Price equals marginal cost and firms earn an economic profit of zero in perfect competition. In a monopoly, the price is set above marginal cost and the firm earns a supernormal profit. Economic efficient happen when firms produce an equilibrium in which the price and quantity of a good in perfect competition whereas monopolist produces an equilibrium at which the price of a good is higher and the lower quantity. Therefore, governments always seek to regulate monopolies by legislation. 2.0 Characteristic of Perfect Competition and Monopoly Sloman and Hinde (2007) point out perfect competition is a market in the condition broad range of firms selling the identical product without any restriction on entry and exit and price taker at the same time.
They also argue further that the firm should have the same market value and the same weighted Average Cost of capital at all capital structure level because the value of the company should depend on the return and on the company’s risk of its operation. Miller brought forward the next version of the irrelevance theory of capital structure. He appealed that capital structure decision of firm with both corporate and personal taxes circumstance is irrelevant. This theory was criticize on the ground that perfect market does not existing in real life. The three well-known theory is suggested by the previous researcher which is trade off theory, Pecking order theory and Agency Cost Theory.
They concluded that low cost strategy is not able to provide sustainability in an organisation in the long term and cannot provide a competitive advantage. They mentioned that this what it does, it causes prices wars in firms. So, they believed that the best strategy is best cost strategy which entails providing the best value for a relative low price. The cost leadership strategy involves producing and selling volumes of standard and no frills products and underprizing everybody(Datta
DCF undervalues everything because of its simplifying assumptions. DCF ignores the options to extend, contract, expand or defer investment decisions, since all expected cash flows are pre-committed. The method excludes the management flexibility that is present in real options. The method also ignores the strategic value of projects i.e. the benefit of expanding to new markets or development of new technology etc.
One of the approaches is the traditional incremental budget and the other one is the zero based budgeting. In the first case just as the name states, the budgetary allocation is done as an increment from the previous period. The traditional incremental budget entails that a department within a firm has access to as much resources as it can spend (Warrick & Zawacki, 1984, p.277). That is to say if a department uses all the financial resources allocated to it, it can apply for more finances to take care of other operations which could otherwise not have been budgeted for. Similarly, if a department realizes that it has some unused resources within a stipulated period, then the managers can look for ways of spending the resources until the accounts read zero.