The prime mantra of this paper is to exploit both the concept of cost and revenue models on the given companies whose nature of business are identical. There are two hypothetical based companies that have been selected for the execution of the same analysis. The underline companies are denoted by Company X and Company Y. They both have dissimilar pricing policies with one another. The entire assignment is divided into different headings that are mainly based on the Introduction, Analytical Framework, and the Conclusion.
Analytical Framework
Brand Y “lit” pricing/sales history
There are a number of tools and models that have a link with statistics and can be applied on any project such as Regression analysis tool, mean, variance and others. All of the tools are competitive enough to efficiently manage the analysis that primarily based on different facets of economics notions and may also be applied over singe raw data. The multiple regression technique is considered as an essential factor from the perspective of analytical review, and it will be exploited over in the analysis section. Therefore, we have taken an assumption of nearly 360 days for observation of two different items that are X and Y.
The Company Y is offering a product with an average value of $ 0.029, whereas the company X is showing $ 0.028 for the same products. The comparison of both pricing strategies divulges that the level of deviation is not much higher between Company X and Company Y. There is only a deviation of $0.01 that is identified and is supposed to be very low particularly. Moreover, the standard deviation method has also been applied for critical evaluation of pricing strategy of hypothetical based companies and observed that the divergence is certainly taking place between the pricing strategies of both companies. The results reveal that the margin of variation is comparatively lying to its minimum that poses optimistic indicator from the viewpoint of the company. The reason for its positivity impacts stated that the pricing strategy is competitive enough that has a strong an ultimate commitment to the company to retain the costs and maximize profits. The comparison of pricing strategy between two companies is mentioned under the following chart.
Analyzing the price of two companies which are operating in the same line of business would be extremely vital for an organization in particular and in this analysis, prices of two different products of companies have been analyzed. It shows that the Pricing of both Company X and Y is not as much changed as expected in this specific condition. The summary output of the regression statistics is discussed under the following table:
If the aforementioned summary output of regression statistics would be used over this notion, so it is revealed that the value of standard error contains under this particular method is 6420, and the adjusted R square stands at 0.76. The observations are based on the number of these objects can be crucial. However, the whole model of regression as well as the ANOVA analytical framework can be found below in the Appendix 1 section. This is shown in the model represents the 95% confidence level specified intervals; that are indicating that the result is 95% correct.
Basically, the cost is distributed into two categories such as fixed cost and variable cost. The fixed cost is such costs that cannot be modified even when the increase or decrease in the quantity of production while, the variable cost always changes with the change in products or services. Now, we are presuming the value of fixed cost and solely taken variable cost in the specific variable analytical framework. Therefore, the standard total variable cost (TVC) for the Product Y is likely to be 177.69$ while the overall consumption of Product Y is classified in appendix 2 which reveals the analysis for marginal cost for the report additionally. The graph for the same product is designed below:
The graph illustrates that the Total variable cost falls over and inferior to the tangent line of Y which indicates that there is a minor deviation founded between them. On the other hand, one more curve as well as a tangent line nearby to product X and the same curve is also stated below:
Both of the diagrams are identical to some extent, but the Total Variable Cost of X is divulging that the standard variable cost of the company is estimated to be 165.309 $. In addition, the summary of difference in variable cost between company X and Y are given below:
The table illustrates that the Average TVC for the company Y is 177.69 $, which is much superior to company X whose average TVC is 165.309$. Therefore, the difference is reported 12.381 $ which claims that the company X is running their operations with efficacy and in organized manner relatively to company Y.
Ample Capacity/ Ratio Analysis
In this particular section, which indicates a sufficient capacity to be analyzed simultaneously with the analysis of the same enterprise, the proportion of which is used by some of the analysis in a particular situation is essential. The values of price elasticity and the further crucial ratios along with their values of the given two companies are indicated beneath for better understanding the things
The table stated that the price elasticity of X is relatively higher as compared to company X which is an indicator for the company. Moreover, the company X also contains elevated values in different ratios like income elasticity, contribution margin and other revealing that the stance of company X is comparatively more lucrative than that of Company Y with respect to raising net income of the company as a whole. There are number of ratios which have been used for the analytical provision and among them, the name of Gross Profit Margin which usually known as Gross Margin is one of them. Gross Margin is the margin of ratio in which the cost should have been subtracted completely from the initial revenue. It is an important ratio which is used for the purpose of analysis and analysts would analyze the same from different angles. If the Gross margin of the company is high then it means that the company is effective in terms of generating gross revenue and maintaining its cost effectively. Companies which operate in the same line of jurisdiction would be more worthwhile for the companies in particular. From the above mentioned table, it is found that the Gross Margin of Company Y is lower than that of Company X, as it is showing that the Gross Margin ratio of Company Y is 0.57 and the Gross Margin of Company X is 0.6, showing that Company X is more effective in terms of minimizing its cost as compared to Company Y.
Optimal pricing in different scenarios
The term optimal pricing refers to such technique which is used to identify the extent that a company can generate revenue or earn profit in given conditions. It is vital to understand that the ratio of profitability with respect to income and net earnings are hugely dependant on the pricing that the company is charging. It can also be identified through the quantity of production and selling of a company. It is usually referred as to Optical Capacity while, the information of variables for the company X is given below:
The aforementioned summary of analysis illustrates that the total revenue generated by the company X is 244.35 $, as the optimum quantity is showing a value of 5661.44 onz. The company’s total cost is around 102.871. The total cost and profit of this company is 102.87 and 141.484, which have a proportion of 42% and 58% in total revenue respectively. The certain amount of profit is earned by the company on an optimal price of 0.0431$. In addition to the optimal price of company X, it has also been used to analyze the Y Company, as well as with the same information is revealed below:
The above analysis shows that the profit of company Y is relatively lower than company X which exhibits of value 132.64 $. The revenue figures are showing that the company Y has earned $ 209 79, while, the cost is stood at 77.15 $ showing a good cost structure. Therefore, it is found that the proportion of costs is 37% of the total revenue in total but, the profit has a proportion of over 62%. The table shows that the optical price and quantity of company Y is 0.0494 and 4246.080 onz respectively. It can also be viewed in the Graph 1 under Appendix section. Fixed cost is the type of cost which would be incurred by an organization in a given time period. This is the type of cost which cannot be mitigated from any of the strategies. The manufacturing cost that can be manipulated even when changes occur in quantity of goods produced. Total fixed and variable cost helps in measuring the total cost. Therefore, in any scenario, the fixed cost remains identical. It involves the cost that deems to be independent or having no relation with the production. In order to identify the fixed costs, the most feasible way is to generate zero yields. Fixed costs would be sustained whether any output generated. A cost that is measured by directly correlated to the total fixed cost is considered as average fixed cost. It is basically an opportunity cost that is integrated in short-term production and is not dependant when the quantity of output changes. It can also be integrated with inputs that remain fixed in short-run. The total fixed cost (TFC) arc graphically represented in the short term production of goods or services, and the number of production relations firm to generate TFC. Since, the TFC is fixed; the total fixed cost curve is a horizontal line. The total Fixed Cost (TFC) of the company is Zero, while the provision of Variable cost is there in the company, which is showing that the company is incurring some sort of cost. Average variable cost (AVC) is an economic model that can be computed through variable costs such as electricity, manual labor etc and divided them with the total production yield. Most specifically, variable costs are identified as such costs that can be fluctuated with the quantity produced. The sum of Average Variable and fixed cost compose total average cost. The nature of Average variable cost (AVC) indicates that when an organization set out for increment in production then the AVC would be curtailed down at initial stages and reaches towards the lowest level and then go beyond. The company is not in a position to make production with full capacity during the early phases of company, thus the numerous provisions that are incurred in manufacturing of products or goods will partially utilized. Therefore, the curve line that represents the average variable cost is mainly plotted in U-shape. The total average cost (TAC) of the company is 0.018 which is quite minimal and can be neglected.
Decreasing of Cost
High Cost would not be required by an organization and organizations always try to mitigate the cost of operations in order to increase their bottom line. In order to strengthen the operations of a company, minimizing the cost is essential and organizations always required decreasing their cost for their future consequences. In this particular part of the assignment, it is also required to decrease the cost of the companies through effective operations in particular and all of the things are essential for their future. The company Y has a better cost structure relatively of the company X, because the total costs related to Company Y is way higher than the X display revenue for the company's high-power compared to the other. The Y Company can augment their company's revenue towards higher level by a corresponding increase in the quantity as a whole. By increasing the volume, then it will ultimately reflect in the form of higher gross margin as well as net profit margin of the company, and the lower quantity subjects to reduce the company’s revenue which is clearly revealed in the case of company X. However, the company X has a slightly higher cost and revenue making operation, but it has an ability to compensate for a greater number of quantities produced.
Conclusion:
The main point of this task is to validate the concept of costs as well as a revenue model over two hypothetical companies who are engaged in identical nature of business. Both of the companies are hypothetical based by assigning the names of Company X and Company Y. They both are different in terms of their pricing strategy. From the entire analysis, it can be observed that the Company X is definitely in the position of maximizing the their profit margin than that of company Y, but the company Y's cost structure is comparatively in a better state in relation to Company X . These two companies must use their good behavior and should trade off their strategies with one another; such as the Company Y should boost their amount of quantity and the company X is recommended to curtail down its cost frequency so that they both will become in a state to compete with each for long intervals of time.
Appendix-1
Appendix
Data Table 1
Data Table 2
Data Table 3
Graph 1
Graph 2
Graph 3
Graph 4
Graph 5
Graph 6
Graph 7
Graph 8
Graph 9
Graph 10
Graph 11
Graph 12
Graph 13
Graph 14
Graph-1
