Unit 3: Albatross Anchor
Question One
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:
Cost of production is costs incurred by Albatross Anchor when manufacturing an anchor. There are two types of costs – fixed and variable. Variable costs depend on what materials and labor are needed to make the anchor and vary with the volume of anchors produced. Fixed costs, such as rent or utilities, are always constant no matter how many anchors are produced (Russell & Taylor, 2011, p. 230).
Manufacturing costs are $8.00 per pound for the Albatross mushroom/bell anchor and $11.00 per pound for Albatross snag hook anchor. Albatross sells the anchors for the same price as competitors. However, Albatross can have a 35% less profit margin.
b) Economies of Scale in material purchasing:
A company that achieves economies of scale lowers the average cost per unit through increased production since fixed costs are shared over an increased number of goods (Hindle, 2008). As a company grows and production units increase, a company will have a better chance to decrease its costs. According to theory, economic growth may be achieved when economies of scale are realized (Heakal, 2009). There are two types of economies of scale – external and internal. External are economies that benefit a firm because of the way in which its industry is organized. Internal are cost savings that accrue to a firm regardless of the industry in which it operates (Hindle, 2008). Economies of scale give companies access to a larger market by allowing them to operate with better geographical reach. If Albatross were to purchase materials in bulk it could save them money. However, since they make the anchors as orders are received, it would not be good economies of scale as the materials would sit in the warehouse causing higher
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:
Cost of production is costs incurred by Albatross Anchor when manufacturing an anchor. There are two types of costs – fixed and variable. Variable costs depend on what materials and labor are needed to make the anchor and vary with the volume of anchors produced. Fixed costs, such as rent or utilities, are always constant no matter how many anchors are produced (Russell & Taylor, 2011, p. 230).
Manufacturing costs are $8.00 per pound for the Albatross mushroom/bell anchor and $11.00 per pound for Albatross snag hook anchor. Albatross sells the anchors for the same price as competitors. However, Albatross can have a 35% less profit margin.
b) Economies of Scale in material purchasing:
A company that achieves economies of scale lowers the average cost per unit through increased production since fixed costs are shared over an increased number of goods (Hindle, 2008). As a company grows and production units increase, a company will have a better chance to decrease its costs. According to theory, economic growth may be achieved when economies of scale are realized (Heakal, 2009). There are two types of economies of scale – external and internal. External are economies that benefit a firm because of the way in which its industry is organized. Internal are cost savings that accrue to a firm regardless of the industry in which it operates (Hindle, 2008). Economies of scale give companies access to a larger market by allowing them to operate with better geographical reach. If Albatross were to purchase materials in bulk it could save them money. However, since they make the anchors as orders are received, it would not be good economies of scale as the materials would sit in the warehouse causing higher