Advanced Agribusiness Mgt

What is price?

It is the most significant determinant of purchasing decisions.

What is total sales revenue of a firm a direct reflection of?

Price and Sale Volume (TR=PxQ)

Pricing indirectly affects sales quantity how?

Setting a price too high for the value being offered may result in lower quantities sold, reducing total revenue.

In short run, price must be sufficient to cover what?

Variable cost

What is added to variable cost for business longevity?

A margin of profit. (FC+VC

What happens to variable cost when the quantity sold changes?

It increases as the quantity of products sold increases.

What do fixed costs remain at different levels of quantity sold?

Constant

What is average pricing?

An approach in which the total cost for a given period is divided by the quantity sold in that period to set a minimum price.

Calculate the average cost assuming we sell 25,000 units at $8 per unit. Sales revenue (25,000 @ $8); Cost of Goods sold ($2 per unit); Gross Profits; Operating Expenses; Operating Profit

Average cost = 50,000 + 75,000 / 25,000 = $5 dollars

What is a drawback that average pricing overlooks?

The reality of higher average costs at lower sales levels.

Calculate average cost assuming we sell 10,000 units at $8/unit. Sales Revenue (10,000 @ $8); Cost of Goods Sold ($2 per unit); Gross Profits; Operating Expenses; Operating Profit

Average cost = 20,000 + 75,000/10,000 = $9.50/unit

What is contribution margin approach?

A pricing approach based on how much each unit contributes to cover fixed costs and generating profit, are variable costs are paid.W

How is contribution per unit figured?

Constribution per unit = selling price per unit - variable costs per unit

Calculate contribution per unit. Variable costs of $75 per bag of seed. Each bag sells for $125

$125 - 75 = $50/bag

How is contribution margin figured?

Contribution margin = contribution per unit / selling price

Calculate the contribution margin based on variable costs of $75 per bag of seed. Each bag sells for $125

50 / 125 = .4 = 40%

How is selling price of new product figured?

Selling price of new product = Average variable cost / (1-cm)

Given the previous example CM of 40%, What should the be the price for a new seed variety that has a variable cost of $120 per bag?

P=120/1-.4 = 200

In order to properly evaluate a pricing system, a small business owner must understand what?

Potential costs, revenue, and product demand for the venture.

What is break even?

Analysis that require the examination of cost-revenue relationships and the incorporation of sales forecasts.

Break even analysis allow the entrepreneur to do what?

To compare alternative cost and revenue estimates in order to determine the acceptability of each price.

What is break even point?

Sales volume at which total sales revenue equals total costs and expenses.

What is the break even point formula?

BEP=Total Fixed Cost / (Price - Average Variable Cost)

The higher the total fixed costs, the more units the firm must sell to what?

Break even

The greater the difference between the unit selling price and the unit (blank) costs, the fewer units the firm must sell to break even.

Variable costs

Determine the price to set for consulting services. They currently have $100,000 in fixed costs, and incurs a variable cost of $500 for each consulting service. They are considering pricing appointments at $600, $750 and $1,000. How many appointments would they need to hold each year to break even at each selling point.

BEP = 100,000 / 600 - 500 = 1,000 appointments; BEP = 100,000 / 750 - 500 = 400 appointments; BEP = 100,000 / 1,000 - 500 = 200 appointments.

Average pricing is an appropriate pricing approach for small businesses because the method takes into consideration fixed and variable costs. True or False?

False

A seed company has performed an analysis and determined one of its products has materials cost of $40 per bag and direct labor costs of $15 per bag. Furthermore, each bag is sold for $70. What is the contribution margin?

70 - 55 = 15 15 / 70 = .21 = 21%

What is elasticity of demand?

The degree to which a change in Price affects the quantity demanded.

What is an example of an elastic demand?

Electronic products

Elastic demand is demand that changes (blank) when there is a change in the price of a product or service?

A lot

What is inelastic demand?

Demand that Does NOT change significantly when there is a change in the price of a product or service. 

What is an example of Inelastic demand?

Cigarettes and Gas

The concept of elasticity of demand is important because of the degree of elasticity sets (blank) on or provides opportunities for (blank) pricing.

Limit on and higher pricing

What does average pricing and the contribution margin approach give owners?

An idea of how much they need to sell to cover their costs.

What should owners consider when determining price?

Market characteristics

What pricing strategies reflect market considerations?

Penetration pricing; price skimming and follow the leader pricing.

What is price skimming strategy?

A technique that sets very High prices for a limited period before reducing them to more competitive levels.

Assumes certain customers will pay a higher price because they view their product as what?

Superior

Use of skimming price is most practical when?

There is little threat of short-term Competition or when startup costs must be recovered rapidly

What is Penetration pricing strategy?

A technique that sets Lower than normal prices to hasten market acceptance of a product or service or to increase market share.

What can discourage new competitors from entering a market?

If they think the penetration price is a Long Run Market Price.

What is sacrificed if a firm uses penetration pricing to achieve market penetration?

Sacrifice some profit margin.

What is follow the leader pricing strategy?

A technique that uses a particular Competitor as a model in setting prices.

A small business in competition with larger firms is seldom in a position to consider itself what?

The price leader.

A business that has a gaming console intended to compete directly with Sony’s Play Station gaming console would like use what pricing strategy?

Follow the leader.

What is the first task of a small business owner?

To create and communicate a vision for the company.

A small business owner must create what?

Buy in.

What is the Visionary(authoritative) leadership style?

They motivate the team with a clear and compelling vision.

A visionary drives change and develops a sense of purpose for teams members what are their strengths?

Strengths: empowers team members within the context of vision. Encourages independence while maintaining alignment with overarching goals.

What are weaknesses of the visionary leader?

Weaknesses: In highly skilled teams or when autonomy is needed, the visionary style can be seen as overly directive.

Who is an example of a visionary leader?

Napoleon Boneparte

How would you describe the coach(coaching) leadership style?

The Coach prioritizes individual development, helping team members build skills.

What is the strength of the coach(coaching) style?

Strength: trust and loyalty through investing in people, individualized treatment of team members, long term success

What is a weakness of coaching style?

Weaknesses: big time commitment and slow progress at times.W

Who is an example of the coaching style of leadership?

Mr. Miyagi (The Karate Kid)

What does the Team Builder (Affiliative) leader focus on?

The team builder focuses on building harmony and emotional connection in their team.

What are the strengths of the team builder leadership style?

Strengths: emotional wellbeing, positive atmosphere and encourages collaboration

What are the weaknesses of the Team Builder style?

Excessive harmony can lead to avoiding conflicts and undermining performance. Without clear goals, the team may struggle to meet expectations.

Who is an example of the Team Builder style?

Ted Lasso and Mother Teresa

What is the Populist(Democratic) style of leadership?

The populist actively involve their team in decision-making and promote collaboration.

What is the strength of the Populist style of leadership?

Strengths: builds trust, creativity, and higher employee engagement. Very good when diverse input is critical.

What is a weakness of the Populist style of leadership?

Weaknesses: Slows down decision making, may not be conducive in high-pressure rapid action situations.

Who are an example of the Populist (Democratic) leadership style?

Leslie Knope (Parks & Rec) and Abraham Lincoln

What is the Paragon (Pacesetting) leadership style?

The paragon leader sets high standards and leads by example, striving for excellence in everything they do.

What are the strengths of the Paragon style?

Strengths: clear expectations, self-driven teams achieve ambitious goals.

What are the weaknesses of the Paragon style?

Weaknesses: stress, burnout (if not balanced with appropriate recognition, morale can diminish.

Who are examples of the Paragon (Pace setting) style of leadership?

Elon Musk and Alexander the Great

What is the General (Coercive) style of leadership?

The general emphasizes control and demands immediate compliance.

When is the General style used?

It is often used in high pressure situations when quick action is needed, such as a crises.

What are the strengths of the General style?

Strengths: excels under urgent scenarios, providing clarity and decisive direction. Can stabilize chaotic situations.

What are the weaknesses of the General style?

Weaknesses: Over-reliance can demotivate employees, suppress creativity, and erode trust over time.

Who are examples of the General (Coercive) leadership style?

Darth Vader and Joseph Stalin

What does a Visionary leader do?

Drives change and develops a sense of purpose for team members.

What does the Coach style do?

Coaches offer personalized feedback and focus on long-term improvement.

What does the Team Builder do?

They create a supportive environment where individuals feel valued, boosting morale.

What does the Populist do?

They create an inclusive environment where everyone contributes to shaping outcomes.

What does the Paragon do?

They push their team to their best by demonstrating the level of commitment they expect.

Which leadership style focuses on building consensus through participation?

Populist

High standards and expectations of an employees excellence is what type of leader?

Paragon

What is the challenge for small firm leaders?

To develop a professional approach, while still retaining the entrepreneurial spirit of the enterprise.

Why is it difficult for a founder to become a manager?

This can be especially difficult because founders of new businesses are not always good organization members.

A founder’s less-sophisticated management style can do what?

It can adversely affect business growth, and many find it difficult to adopt more effective models.

What are the Organizational Stages of Small Business Growth?

Stage 1: One-Person Operation

Stage 2: Player-Coach Operation

Stage 3: Intermediate Supervisor

Stage 4: Formal Organization

What is the One-Person Operation?

The startup at this point is simply a one-person operation.

What is the Player-Coach operation?

Eventually, the entrepreneur becomes a player-coach, which implies continuing active participation in business operations. In addition to performing the basic work - whether making product, selling it, writing checks, keeping records, or other activities - the entrepreneur must also coordinate the efforts of others.

What is Immediate Supervision?

The entrepreneur must rise above direct, hands-on management and work through an intervening layer of management.

What is a formal organization?

Conversion to formalized management requires that the company begin to:

Adopt written policies

Prepare plans and budgets

Standardize personnel practices

Computerize records

Put together organizational charts and job descriptions'

Set up control procedures

What happens from stage 1 to stage 4 of business growth?

Layers of management are added.

The formality of operations are increased.

The pattern of entrepreneurial activities changes.

How is growth in a small business limited?

Small firms that hesitate to move through the various organizational stages and acquire the necessary professional management often limit their rate of growth.

What are the managerial responsibilities of an entrepreneur?

Planning activities.

Creating an organizational structure.

Directing operations.

Controlling adjustments.

What is a long-range plan (strategic plan)?

A firm’s overall plan for the future. Examples are identifying niche markets and establishing differentiating features.

What are short-range plans (tactical)?

A plan that governs a firm’s operations for one year or less. Examples are preparing budgets, setting work schedules.

What is task allocation?

Identify who is responsible for doing what.

What is chain of command?

Who reports to who(whom).

What is span of control?

Who is in charge of workers

What is directing operations?

Actually implementing the plan - through the organization. Monitor results through good data collection.W

What is controlling adjustments?

When deviations from the goal are identified, we must:

Identify the root cause

Correct the root cause

Monitor if this leads to improvement

What is the maximum number of employees who can be supervised effectively by a manager?

Four

James is talking to another supervisor about the number of employees that he supervises. What is he talking about?

His span of control organization.