Based on the information presented in the scenario/case study discuss Albatross Anchor’s competitiveness in relation to (please address all items in the below list and provide support for your conclusions): 1. Cost
a) Cost of Production: To understand the cost of production we must first understand what two costs are valuable to company along what can make a company gain or lose profit. First we look at Variable cost which “depends on what materials and labor are needed for the company” and in this case it is anchors which can vary with the volume of anchors that is produced (Russell & Taylor, 2011). The fixed costs are “those that do not vary with output and typically in rents, deprecation, insurance, set-up cost and normal profit” (economicsonline.co.uk). Fixed costs are usually known as your overheads. When it comes to Albatross Anchor and the manufacturing of its anchor we can see that the fixed cost are down because they chose to manufacture in house. Looking at the cost we can see that the cost of manufacturing mushrooms/bell anchors are $8.00 per pound and $11.00 per pound for the snag hook anchors. One has to understand that Albatross sells their products are the same rate as their competitors and their product are made primarily for fresh water which can be a disadvantage. Another disadvantage that I noticed is that all of their produces are made in house which affect their cost as well. When it comes to shipping they only have two means which is shipping (larger freight ships) and truck shipping. Although there profit margin may at times be less than 35% we also have to think if they operating efficiently and everything that maybe affected if the manufacturing, shipping or receiving lines go down.
b) Economies of Scale in material purchasing: “A company that achieves Economies of Scales lower the average cost per unit through increased production since fixed costs are shared over an increased number of goods”...