Unit 3 Albatross

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: The current cost of production for the two different anchors are $8 per anchor for the bell/mushroom type, and $11 per anchor for the snag hook anchors.

b) Economies of Scale in material purchasing: Due to the limited areas of warehousing the material, economies of scale is not realized. The limitation of total area and the inefficiencies that are currently in place are preventing Alabatross Anchor from appreciating the profits available to companies that do not have the same restrictions. Because they are running inefficiently, they are not able to achieve capacity output maximization. “The capacity output is a potential output which may be equated to a maximal output or an economically-derived output given the stock of capital and state of technology” (FAO website, 2013).

c) Cost of Raw Materials Sitting Idle in the Warehouse: These costs are incurred due to the inactivity of the received materials. Raw materials of all types are initially recorded into an inventory asset account with a debit to the raw materials inventory account and a credit to the accounts payable account. Therefore the longer these products sit unused, the longer they remain a cost to the company.

d) Cost of Finished Goods Sitting Idle in the Warehouse: The cost of finished goods sitting in inventory includes all expenses along the way and includes the three main components that go into the production of goods of direct labor, direct materials and overhead. In addition, when finished goods are maintained in inventory, a firm will incur carrying costs. This includes warehousing costs such as rent, utilities and salaries, financial costs such as opportunity cost, and inventory costs related to perishability, shrinkage and insurance.

2. Speed of...