fixed costs in the weekly decision period biz cafe ted mitchell
TRANSCRIPT
![Page 1: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/1.jpg)
Fixed Costs in the Weekly Decision Period Biz Cafe
Ted Mitchell
![Page 2: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/2.jpg)
Fixed Costs in Biz-Cafe
• Rent is fixed for every decision period (month) and and is NOT a discretionary cost (it can NOT be changed)
• Managers and Servers is defined as a Discretionary Fixed Cost (it can be changed)
• Advertising and Radio is defined as a Discretionary Fixed Cost (it can be changed at the beginning of each week))
• Discretionary Cost (you can change the cost by changing the number of servers or changing the wages)
• It is a fixed cost for the decision period (does not change during the week and does not vary directly with changes in the sales volume, Q)
![Page 3: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/3.jpg)
Fixed Costs do NOT Changefor the time period
Dollars
Quantity of Coffee Sold
RentAdvertisingSalariesNumber of ServersNumber of Radio Spots
![Page 4: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/4.jpg)
Variable Costs and Fixed Costs
Dollars
Quantity of coffee sold
Fixed Cost
Total Variable
Cost
![Page 5: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/5.jpg)
You have to know the Difference
• Between a • 1) Fixed Cost for the decision period• And a• 2) Variable Cost for the decision period• Cost of Goods Sold is the Total Variable Cost• Direct cost of making a single cup of coffee is
the variable cost per cup, V
![Page 6: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/6.jpg)
Weekly Report on Marketing Performance
Week #1
Revenue, R = P x Q $3.50 x 1069 cups $3,741.50
Cost of Goods sold, V x Q $0.32 x 1069 Total variable Cost =$342.08
Gross Profit, G = (P-V) x Q $3.18 x 1069 $3,399.42
Servers Fixed Marketing Cost $1,741.50
Adv & promotion Fixed Marketing Cost $2,800.00
Total Fixed Marketing Cost = $4,541.50
Marketing’s Contribution to Weekly Profit
($1,142.08)
Calculating the the direct cost for making a cup of coffee (aka variable cost per cup, V)
![Page 7: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/7.jpg)
Servers are
• Part of the Product/Service mix• Once selected they are a fixed cost for week• Need to have sufficient numbers each working• Recommend wages for 10 hrs per week at
$10 per hour = $100 a week per server• Recommend starting with 20 servers• And 3 managers at $250 a week
![Page 8: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/8.jpg)
You will choose something for
• All Four P’s of the marketing mix• Recommend a Staring Price of $3.50• Recommend the $6 coffee to start with for
Product• And 20 servers for Service Quality • Promotion• Hours of Operation (Place)
![Page 9: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/9.jpg)
How much to Spend on Advertising and Promotions?
Ted Mitchell
![Page 10: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/10.jpg)
How much to spend on advertising?
• The Affordable Method is the most you can afford to spend after you decide on how what a normal profit is
• Assume you believe a normal net profit is $2,500 a week
![Page 11: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/11.jpg)
If we need profit = $2,523 then we can afford to spend $2,000 on advertising
Weekly Estimated
Revenue, R 2436 cups x $3.50 $8,527
COGS, Total Variable Costs 2436 cups x $0.282Per cup of Best Coffee
$687
Gross Profit, G = R- COGS (P-V) = $3,22 $7,840
Servers and managers 20 servers x $100 ea3 man x 250 = 750
$2,750
Advertising Afford to spend$4,523 – $2,423
$2,000
Inescapable Weekly Overhead expense (conservative)
$667
Approximating profit with advertising
Need $2,423 to keep the shareholders happy
$2,423
![Page 12: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/12.jpg)
How much to spend on advertising?
• The Objective-Task Method is spend enough to create an adequate awareness level
• The goal of advertising is to create awareness of the cafe among potential customers
• If you are zero awareness spend lots of $• If you are 90% awareness then spend zero $
![Page 13: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/13.jpg)
To get the business up and running
• You need to spend more than $4,523 in the first few weeks on advertising
• And accept a weekly loss for the first few weeks
![Page 14: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/14.jpg)
You need to know Customer Awareness level
• You have to Buy the Professional Market Study to get the market’s awareness level
• Be sure to buy it!• The awareness will grow without advertising
but it grows very, very slowly!
![Page 15: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/15.jpg)
You will choose something for
• All Four P’s of the marketing mix• Recommend a Staring Price of $3.50• Recommend the $6 coffee and 20 servers to
start with for Product/Service Quality • Recommend general awareness advertising
and 10 radio spots in the first week for Promotion
• Hours of Operation (Place)
![Page 16: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/16.jpg)
What Place Decisions?
Ted Mitchell
![Page 17: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/17.jpg)
You have
• Three strategic place decisions1) the location in the town
• 2) The type of furnishings• 3) The weekly decision as to the number of
days and hours to stay open• What does it cost to stay open an additional
hour?
![Page 18: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/18.jpg)
You will choose something for
• All Four P’s of the marketing mix• Recommend a Staring Price of $3.50• Recommend the $6 coffee and 20 servers to
start with for Product/Service Quality • Recommend general awareness advertising
and 10 radio spots in the first week for Promotion
• Recommend open on the weekends and start with 70 Store Hours of Operation (Place)
![Page 19: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/19.jpg)
This is NOT an optimal decision set for the first week
• Price Tag: of $3.50 for medium cup• Product and Service $6 coffee and 20 servers• Promotion: general awareness advertising
and 10 radio spots • Place and Time: 70 Store Hours of Operation• This a reasonable decision for the first week • It is NOT a good decision for week 4!
![Page 20: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/20.jpg)
Start Exploring the
• Consequences of Changing ONE Marketing Input at a time.
• Do NOT Try to change two or more things at a time.• When exploring the practice games be systematic.
Deal with the most strategic elements of marketing activities first.
• Remember the practice game is to help you prepare a strategy for playing the ‘Single-Shot’ game
![Page 21: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/21.jpg)
To earn the points in a Practice game
• You must finish the game on the last decision period (week) specified for that particular game
• Usually on 16th or 8th week of the simulated decisions
• Keep making decision until the computer will not let you advance any further
![Page 22: Fixed Costs in the Weekly Decision Period Biz Cafe Ted Mitchell](https://reader033.vdocuments.site/reader033/viewer/2022061601/56649d175503460f949ed187/html5/thumbnails/22.jpg)
Any Questions?
• about where to start with the 4P’s in week #0 of the simulation game.