A/S DANSK MINOX ANALYSIS Submitted By Aksha Anand, PGDM-A, O6 The company A/S Dansk Minox is in the business

of selling vacuum packed food products. This segment has been witnessing a growth in the market where Dansk Minox due to many working mothers and growing demand for convenient products. One of the products in the Dansk s product lines which is sliced pork in gravy is served along with red-cabbage salad made at home, as observed by market research analysts. Certain competitors of this company are selling the red cabbage salad in either frozen or canned form. In the year 1966, the company has decided to sell the two together in attractive packaging weighing 1 kg and marketing it as a complete meal. The issue is regarding the pricing of this new product. Price Quote from Finance Department Price Quote from Marketing Department 8.20 6.85 The difference between the two prices is primarily due to the component production fixed expenses. The finance department had allocated costs depending on volume. @8.20 5.72*30,000 3.49*30,000 .30*85,000 41,400 @6.85 4.78*30,000 3.49*30,000 .30*85,000 90,950

Incremental Revenue Incremental Costs Advertising Expenses Impact on Profit

From the above analysis, it s more profitable for the company to be selling at 6.85 as the impact on the profit is more. This analysis, discounts the effect of fixed expenses. The dilemma is whether to sell or not to sell the complete meal. If we sell, then the dilemma is over the price. Clearly, the price of 8.20 even though in the long run is more profitable yet at such high price there are few takers for the product. Selling at 8.20, the sales were less than 50% of the budgeted sales i.e. only 30 out of 85 tons expected. A rational consumer will rather buy just the sliced pork for 4.85 and buy red cabbage to make salad on his own at home. The value attached to the meal for the added convenience is not beyond 6.85. Long Term Profitability production fixed production fixed production fixed expenses @ selling @6.85 expenses @.54 expenses @ 1.20 1.07(Calculated using Direct Labour Cost as base) .14 (.52) (.39) If we look at selling at the price of 6.85, under the different estimates of production fixed expense, there are no profits at selling the complete meal @6.85 unless we calculate production fixed expense as .54. Recommendations for the company: y Regarding the costing of the product, 1. The production fixed expense should be taken at 1.07. Direct Labour expense is a better base and not volumes as taken by finance department. The cabbage in the meal is the relatively cheaper component even though its volume in the meal is more to that of pork. 2. Try controlling the expenses for the product. Also, with the possibility of higher sales the costs will be reduced. y Discarding the product from its product line after its introduction and being in market for a year will impact the sales of pork which we are already selling. The pork with gravy product accounts for 15% of our sales, a major component in sales revenue. y Also, there is going to be growth in demand. This product is clearly can be differentiated from those of competitors creating more sales for the company.