Decomposing Two Factor Models Cups per Hour Ted Mitchell.

Slides:



Advertisements
Similar presentations
Chapter 4 Revenue Producing Machine Ted Mitchell.
Advertisements

Total Cost, Total Revenue, and Profit Change as You Sell More Shoes.
Remember the Markup on Price. Mp aka Gross Profit Margin aka Return on a Dollar of Sales aka P-V Ratio Ted Mitchell.
Constructing A Meta-Marketing Machine For Pricing Ted Mitchell.
Three Elements of the Marketing Process as a Two-Factor Machine Ted Mitchell.
Using Impact Analysis to Calculate Arc Elasticity of Price Ted Mitchell.
#3 The Tabular Format for Presentation Ted Mitchell.
Relative Market Share in Biz Cafe Ted Mitchell. Market Share Calculation Your Firm Firm BBFirm CCTotal Market Your share of total Market Revenue, R$8666$9113$9696$27, %
The 4 P’s of Marketing Management in Biz-Cafe
Cost, revenue, profit Marginals for linear functions Break Even points Supply and Demand Equilibrium Applications with Linear Functions.
Biz-Café Weekly Performance Statement With Pastry
Chapter 15 Fundamentals of Variance Analysis Learning Objectives 4.Prepare and use a profit variance analysis. 2.Develop and use flexible budgets.
Confusion in the words Markup on price, Markup on cost, Mark-on Ted Mitchell.
Expanding Two Factor Models DuPont Decomposition Example Ted Mitchell.
THEORY OF PRODUCTION AND COST Class 3. Theory of Production and Cost  Short and Long run production functions  Behavior of Costs  Law of Diminishing.
Forecasting From a Single Observed Performance with a Positive Relationship between Input and Output Ted Mitchell.
Forecasting From a Single Performance of a Marketing Machine Having an Inverse Relationship between Input and Output Ted Mitchell.
Elasticity of the Return on Advertising and ROME Ted Mitchell.
Fixed Costs in the Weekly Decision Period Biz Cafe
Both Accrual and Cash Systems Used in Accounting are Inadequate for a Weekly Report on Marketing Performance Ted Mitchell.
What should a plan include? Ted Mitchell. Choose a Target Market Recognize what they are buying 1) High end, place to relax, meet, ruminate, study, 2)
Making Your first Decision With Sample of Biz-Café Decisions for The First Week Ted Mitchell.
Cost of A Cup of ‘Quality’ Coffee Ted Mitchell. Sources of Cost Information General Information in the student manual Coffee Calculator in game Materials.
Weekly Marketing Inputs for the Biz-Cafe Machine Ted Mitchell.
Intro to Decomposition: Creating a Three Factor Model (Cups/Server) (Servers/Hour) (Hours) Ted Mitchell.
Intro to Decomposition: Creating a Three-Factor Model (Cups/Server) (Servers/Hour) (Hours) Ted Mitchell.
First of Two Types of Percent: Relative Percentage Conversion or Efficiency Rates, %i Ted Mitchell.
Review and Examples of Percentages and Percentage Changes Ted Mitchell.
Price For Maximizing Profit by Ted Mitchell. Learning Goal Finding the Price that Maximizes the Profit is not necessarily the same as finding the Price.
Optimum Distribution Formula What is the probability of selling the next copy distributed? How much did it cost to distribute/produce that copy?
Learning to Drive A Marketing Machine Ted Mitchell.
Two Perspectives on Revenue, Price and Quantity: The Accounting Machine and The Marketing Machine Ted Mitchell.
SIX Ways to Conceptualize and Present Marketing As a Machine Ted Mitchell.
Presenting Two-Factor Machine in a Cartesian System Ted Mitchell.
Typology of Conversion Rates Ted Mitchell. A conversion rate is the ratio of the Output to the Input Conversion rate, r = (Output, O)/(Input, I) Inputs.
Marketing Return as an Identity Decomposing MROS into ROME, EOR, and Markup or How to allocate additional budget? Ted Mitchell.
Sample Quantitative Questions Chapter 4 Ted Mitchell.
Markup as the Conversion Factor in a Two Factor Marketing Machine Ted Mitchell.
Using Rates as Stand Alone Measures of Performance! Ted Mitchell.
Weekly Marketing Outputs as Inputs for the Biz-Cafe Machine
Biz-Café Calculating the Cost of making a Cup of Coffee
Conceptualizing The Marketing Process as a Machine Converting Marketing Effort into Marketing Goals and Outcomes Ted Mitchell.
Reviewing the Definitional Issues of ROMI Ted Mitchell.
Traditional Mathematical Elements of Percent Ted Mitchell.
Putting the Mathematics of Percentage Rates, and Percentage Rates of Change, into the Context of a Marketing Machine Ted Mitchell.
Explaining the Different Costs, and Profits on The Dashboard of The Marketing Machine Ted Mitchell.
Aggregating Unlike Inputs By Converting Inputs into Dollars of Marketing Expense to Simplify The Analysis of Marketing Performance Ted Mitchell.
Remembering Return on Marketing Investment ROME Ted Mitchell.
7 Questions on Numeracy 316 Advanced Discussion Ted Mitchell.
SUPPLY Dr. T. D. Mitchell Bonneville High School Idaho Falls, Idaho Economics: concepts and choices, Holt McDougal.
Forecasting The Size of A Change A Sample Question Ted Mitchell.
The Confusion Between A Direct Relationship and A Linear Relationship Ted Mitchell.
Sample Quantitative Questions Chapter 3 Ted Mitchell.
Production and Cost Functions Anderson: Government Production and Pricing of Public Goods.
Review of Simple Forecast Using Slope-Origin O = r x I Ted Mitchell.
Theory of Production and cost Week 4. Theory of Production and Cost  Short and Long run production functions  Behavior of Costs  Law of Diminishing.
Increasing, Diminishing, and Negative Marginal Returns Labor (number of workers) Marginal Product of labor (beanbags per hour) –1 –2.
BREAK EVEN ANALYSIS Key Terminology. COSTS The money that firms spend to make their products, or to run their business.
Lesson Objectives: By the end of this lesson you will be able to: *Explain how firms decide how much labor to hire in order to produce a certain level.
Ratios. Current Ratio This shows how easily the business can pay its current liabilities out of its current assets. Current ratio = current assets Current.
EXCERCISES ON BES. Compute the Break-even sales in pesos and units 1.A product line is sold at a unit selling price of P9.00. Variable cost is estimated.
PROFIT MAXIMIZATION. Profit Maximization  Profit =  Total Cost = Fixed Cost + Variable Cost  Fixed vs. Variable… examples?  Fixed – rent, loan payments,
Break-Even Analysis.
The Basic Operating Statement MKT 210
Price Elasticity Using Coffee Example
A what level of production does the business start to make a profit?
Chapter 18 Break-even Analysis
ECONOMICS : CHAPTER 5-- SUPPLY
Examples of Income statements
Bread Zeppelin.
Presentation transcript:

Decomposing Two Factor Models Cups per Hour Ted Mitchell

Two Factor Model of Hours as an input in Biz Cafe If you keep Biz-Café open longer hours you sell more cups of coffee Output = Conversion Rate x Input Cups Sold, Q = Cups per Hour x Hours open, H Q = Qph x H You have other related models Revenue, R = Revenue per hour x Hours open, H R = Rph x H Gross Profit = Gross return per hour x Hours open, H G = Gph x H

The hours are an important determinant of the gross profit Gross Profit = Gross return per hour x Hours open, H G = Gph x H Sample Problem The gross profit, G was higher this week than the week before. Can we identify and explain how much of the change in gross profit was due to a change in the hours open, H, or a change in the Gph

Comparing the change in gross profit from week to week Week 13Week 14What is causing the difference in the two outputs? Input: Hours Open112 hr.95 hr-17 hour Conversion Rate Gross Profit per Hour $86.43 per hr$95.05 per hr+ $8.62 per hr Output: Gross Profit$9,680$9,030∆G = -$650

The hours are an important determinant of the gross profit Gross Profit = Gross return per hour x Hours open, H G = Gph x H G = (G/H) x H But we would like to have other important variables to be included in the explanation of changes in gross profit, ∆G A variable such as Sales Revenue, R A variable such as number of cups sold, Q

To include Revenue, R and Quantity sold We use a process called expand, aggregate and decompose. Sometimes just called the Decomposition Process To Decompose the Two-Factor Model into a richer Four-Factor Model that includes Revenue, R, and Quantity Sold, Q.

To include Revenue, R and Quantity sold, Q G = (G/H) x H The expansion of G = (G/H) x 1 x 1 x H Changes nothing the fact that 1 = R/R and 1 = Q/Q G = (G/H) x (R/R) x (Q/Q) x H Changes nothing Combine The conversion ratios into an Aggregated Conversion Factor G = (G x R x Q)/(R x Q x H) x H Decompose the Aggregated Conversion Factor G = (G/R) x (R/Q) x (Q/H) x H Interpret the three new conversion factors G = Gross Return on Sales x Selling Price x Cups per hour x Hours Gross Profit = GROS x P x cph x Hours

Now explain the change in Gross profit Gross Profit = GROS x P x cph x Hours Any change in the Gross Profit = any change in the gross return on sales x any change in selling price x any change the selling rate of cph any change in the number of hours

Decomposition process allows The decomposition of simple 2-factor marketing models into richer explanations with more factors being made explicit Revenue and Price are always at work in the conversion of Hours into Gross Profits But the Expansion, Aggregation and Decomposition made them explicit!

Decomposition process allows A move From Gross Profit = Gross profit per Hour x Hours To a 4-Factor Explanation Gross profit = GROS x Price x cph x Hours

In Future Lectures Show how to measure how much of the change in Gross Profit, ∆G, was due to 1) the changes in gross return on sales, I∆GROS 2) the changes in the selling price, I∆P 3) the changes in the sales rate per hour, I∆cph 4) the change in the hours of operation I∆H ∆G = I∆GROS + I∆P + I∆cph + I∆H

Any Questions