Market Forces Discussion

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SNHU-FIN320-ECO30144-Market Forces and Price - For the Upcoming Calendar Year - INCOME STATEMENT Note: Please use FIN302-ECO30144-DemandElasticity.xlsx for the Price/Volume modeling. 1ST QUARTER Jan Feb 2ND QUARTER Apr May Mar Yellow cells are INPUTS. 3RD QUARTER Jul Aug Jun 4TH QUARTER Oct Nov Sep Full Year Dec AT LOW PRICES Volume: # of Meals Avg Price of Meals REVENUE AT MEDIUM PRICES Volume: # of Meals Avg Price of Meals REVENUE AT HIGH PRICES $ 5,000 15.00 75,000 $ 5,000 15.00 75,000 $ 5,000 15.00 75,000 $ 5,000 15.00 75,000 $ 5,000 15.00 75,000 $ 5,000 15.00 75,000 $ 5,000 15.00 75,000 $ 5,000 15.00 75,000 $ 5,000 15.00 75,000 $ 5,000 15.00 75,000 $ 5,000 15.00 75,000 $ 5,000 15.00 75,000 $ 60,000 180.00 900,000 $ 4,000 20.00 80,000 $ 4,000 20.00 80,000 $ 4,000 20.00 80,000 $ 4,000 20.00 80,000 $ 4,000 20.00 80,000 $ 4,000 20.00 80,000 $ 4,000 20.00 80,000 $ 4,000 20.00 80,000 $ 4,000 20.00 80,000 $ 4,000 20.00 80,000 $ 4,000 20.00 80,000 $ 4,000 20.00 80,000 $ 48,000 240.00 960,000 $ 3,000 25.00 75,000 $ 3,000 25.00 75,000 $ 3,000 25.00 75,000 $ 3,000 25.00 75,000 $ 3,000 25.00 75,000 $ 3,000 25.00 75,000 $ 3,000 25.00 75,000 $ 3,000 25.00 75,000 $ 3,000 25.00 75,000 $ 3,000 25.00 75,000 $ 36,000 300.00 900,000 Volume: # of Meals 3,000 3,000 Avg Price of Meals $ 25.00 $ 25.00 REVENUE 75,000 75,000 VARIABLE (I. E., MARGINAL) COSTS PER AVERAGE MEAL Avg Labor Rate/Hour $ 10.00 $ 10.00 Avg Labor Minutes / Meal 30 30 $ 10.00 30 $ 10.00 30 $ 10.00 30 $ 10.00 30 $ 10.00 30 $ 10.00 30 $ 10.00 30 $ 10.00 30 $ 10.00 30 $ 10.00 30 Total Labor Costs / Meal $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00 $ 5.00 Ingredients Energy Other $ $ $ 7.50 1.00 1.00 $ $ $ 7.50 1.00 1.00 $ $ $ 7.50 1.00 1.00 $ $ $ 7.50 1.00 1.00 $ $ $ 7.50 1.00 1.00 $ $ $ 7.50 1.00 1.00 $ $ $ 7.50 1.00 1.00 $ $ $ 7.50 1.00 1.00 $ $ $ 7.50 1.00 1.00 $ $ $ 7.50 1.00 1.00 $ $ $ 7.50 1.00 1.00 $ $ $ 7.50 1.00 1.00 Total Variable Costs / Meal $ 14.50 GROSS $ MARGIN PER AVERAGE MEAL At Low Prices $ 0.50 At Medium Prices $ 5.50 At High Prices $ 10.50 TOTAL VARIABLE COSTS AT: Low Prices $ 72,500 Medium Prices $ 58,000 High Prices $ 43,500 FIXED COSTS Facility Rent $ 6,000 M&E + F&F 1,500 Utilities 500 Mgmt+Admin, incl Ads 500 Other - $ 14.50 $ 14.50 $ 14.50 $ 14.50 $ 14.50 $ 14.50 $ 14.50 $ 14.50 $ 14.50 $ 14.50 $ 14.50 $ $ $ 0.50 5.50 10.50 $ $ $ 0.50 5.50 10.50 $ $ $ 0.50 5.50 10.50 $ $ $ 0.50 5.50 10.50 $ $ $ 0.50 5.50 10.50 $ $ $ 0.50 5.50 10.50 $ $ $ 0.50 5.50 10.50 $ $ $ 0.50 5.50 10.50 $ $ $ 0.50 5.50 10.50 $ $ $ 0.50 5.50 10.50 $ $ $ 0.50 5.50 10.50 $ $ $ 72,500 58,000 43,500 $ $ $ 72,500 58,000 43,500 $ $ $ 72,500 58,000 43,500 $ $ $ 72,500 58,000 43,500 $ $ $ 72,500 58,000 43,500 $ $ $ 72,500 58,000 43,500 $ $ $ 72,500 58,000 43,500 $ $ $ 72,500 58,000 43,500 $ $ $ 72,500 58,000 43,500 $ $ $ 72,500 58,000 43,500 $ $ $ 72,500 58,000 43,500 $ $ $ 870,000 696,000 522,000 $ 6,000 1,500 500 500 - $ 6,000 1,500 500 500 - $ 6,000 1,500 500 500 - $ 6,000 1,500 500 500 - $ 6,000 1,500 500 500 - $ 6,000 1,500 500 500 - $ 6,000 1,500 500 500 - $ 6,000 1,500 500 500 - $ 6,000 1,500 500 500 - $ 6,000 1,500 500 500 - $ 6,000 1,500 500 500 - $ 72,000 18,000 6,000 6,000 - TOTAL FIXED COSTS $ 8,500 TOTAL OPERATING COSTS Low Prices $ 81,000 Medium Prices $ 66,500 High Prices $ 52,000 OPERATING INCOME Low Prices $ (6,000) Medium Prices $ 13,500 High Prices $ 23,000 GROSS OR CONTRIBUTION MARGIN % Low Prices 3% Medium Prices 28 % High Prices 42 % OPERATING MARGIN % Low Prices (8)% Medium Prices 17 % High Prices 31 % $ 8,500 $ 8,500 $ 8,500 $ 8,500 $ 8,500 $ 8,500 $ 8,500 $ 8,500 $ 8,500 $ 8,500 $ 8,500 $ 102,000 $ $ $ 81,000 66,500 52,000 $ $ $ 81,000 66,500 52,000 $ $ $ 81,000 66,500 52,000 $ $ $ 81,000 66,500 52,000 $ $ $ 81,000 66,500 52,000 $ $ $ 81,000 66,500 52,000 $ $ $ 81,000 66,500 52,000 $ $ $ 81,000 66,500 52,000 $ $ $ 81,000 66,500 52,000 $ $ $ 81,000 66,500 52,000 $ $ $ 81,000 66,500 52,000 $ $ $ 972,000 798,000 624,000 $ $ $ (6,000) $ 13,500 $ 23,000 $ (6,000) $ 13,500 $ 23,000 $ (6,000) $ 13,500 $ 23,000 $ (6,000) $ 13,500 $ 23,000 $ (6,000) $ 13,500 $ 23,000 $ (6,000) $ 13,500 $ 23,000 $ (6,000) $ 13,500 $ 23,000 $ (6,000) $ 13,500 $ 23,000 $ (6,000) $ 13,500 $ 23,000 $ (6,000) $ 13,500 $ 23,000 $ (6,000) $ 13,500 $ 23,000 $ 3% 28 % 42 % 3% 28 % 42 % 3% 28 % 42 % 3% 28 % 42 % 3% 28 % 42 % 3% 28 % 42 % 3% 28 % 42 % 3% 28 % 42 % 3% 28 % 42 % 3% 28 % 42 % 3% 28 % 42 % 3% 28 % 42 % (8)% 17 % 31 % (8)% 17 % 31 % (8)% 17 % 31 % (8)% 17 % 31 % (8)% 17 % 31 % (8)% 17 % 31 % (8)% 17 % 31 % (8)% 17 % 31 % (8)% 17 % 31 % (8)% 17 % 31 % (8)% 17 % 31 % (8)% 17 % 31 % SNHU File: 20211026034037fin302_eco30144_incomestmt Printed 10/26/2021 (72,000) 162,000 276,000 Page 1 of 1 Competency In this project, you will demonstrate your mastery of the following competency: • Describe how market forces impact prices and decision-making Scenario You have been hired as a financial manager for N&D’s Pizzeria. In your role, you support the owners with budgeting and financial information and help them understand the impact of market forces on their business. The pizzeria owners, Nicole and Danielle, have asked you to provide some financial insight to inform their pricing strategies and other decisions. Company Overview N&D’s Pizzeria operates six pizzerias in the county of Sheffield. They provide the following products and services: • • • Traditional pizzeria offerings: pizzas with a variety of toppings, breadsticks, and salads Take-out option plus delivery within 10 miles Dining-in option (each pizzeria has a small dining room with 10 to 15 tables) N&D’s currently employs a total of 60 permanent staff as managers, cooks, servers, cashiers, bussers, dishwashers, and cleaners. It hires additional parttime and seasonal staff during peak periods. N&D’s also contracts with a local bookkeeper and another company to maintain its mechanical and IT equipment. It leases its restaurant spaces, ovens and other equipment, furniture and fixtures, and delivery vehicles. You can assume that the company will have a single menu for all locations, a single set of prices, and probably the same hours of operation, and it will make capital and advertising decisions for operation as a whole. When discussing the impact of market forces and pricing decisions, consider the six locations collectively. Local Market Environment • Other pizza restaurants are opening downtown, potentially impacting Nicole and Danielle’s business. N&D’s Pizzeria also faces competition from other fast-casual restaurants and from local supermarkets that offer frozen pizzas and fresh alternatives. • A significant portion of N&D’s revenue comes from downtown businesses and catering company lunches. There is currently an initiative underway to revitalize the downtown area: It is expected to make gradual progress during the next year, adding around 50 more office spaces to accommodate approximately 1,000 employees. The project could bring more potential customers but also more potential competitors. Current Economic Environment • In relation to the business cycle, the local economy is generally healthy. Local banks and business associations expect it to remain so for the foreseeable future. • Local interest rates for unsecured small business loans range from 7.25% to 7.75% per annum. Small businesses often use these loans to fund their operations during seasonal dips in demand. (Secured loans, used for capital investments such as the purchase of equipment, have lower interest rates.) • The regional unemployment rate is a seasonally adjusted average of about 3.5%. • Inflation rate: The regional Consumer Price Index (CPI) should continue at an annual rate of about 2.2% or slightly higher. This means minimum upward pressure on labor, materials, and fixed costs. Relevant Market Forces N&D’s Pizzeria is working with Success Marketing, a market research firm that helps businesses by providing data to inform management operations and decisions. Success Marketing developed the following competition analysis for the pizzeria, which contains key information about the economic environment: N&D Pizzeria Competition Analysis Competitors Community Demographics Number of nearby eateries (with and without liquor licenses) Approximately 2,000 With liquor students Aug–Dec and licenses: 2 Jan–May Without liquor Population of 10,000 all licenses: 5 year, not including students Average price Area for a takeout businesses meal from nearby eateries Competing Pizzeria 1 $20 Nearby university Competitors Community Demographics Number of nearby eateries (with and without liquor licenses) Average price Area for a takeout businesses meal from nearby eateries Competing Pizzeria 2 With liquor licenses: 3 $30 Nearby arena $25 Nearby university $25 Nearby office buildings $20 Nearby university $30 Nearby office buildings Competing Pizzeria 3 Competing Pizzeria 4 Population of 25,000 3,000 students Aug– Dec and Jan–May 12,000 all year, not including students Population of 45,000 Without liquor licenses: 4 With liquor licenses: 3 Without liquor licenses: 6 With liquor licenses: 2 Without liquor licenses: 6 Competing Pizzeria 5 Competing Pizzeria 6 Approximately 4,000 With liquor students Aug–Dec and licenses: 4 Jan–May Without liquor 20,000 all year, not licenses: 4 including students Population of 47,000 With liquor licenses: 2 Without liquor licenses: 3 Possible Operating-Hour Extension N&D’s Pizzeria locations currently close at 10 p.m. and stop deliveries at 9 p.m. The local universities are expanding their populations of on-campus students. The pizzeria owners believe that staying open until 12 a.m. will increase business and help them stand out from competition. They will need 2–3 employees to work during that time (2 on Sunday through Thursday and 3 on Friday and Saturday nights). Employees are typically paid $9–$10 per hour, on average, including benefits. Economic Policies and Trends • N&D’s Pizzeria uses cheeses, tomato sauces, and olive oil imported from Italy, which they purchase from a U.S.-based wholesale company. The government is likely to impose an import tariff, which would raise the cost of N&D's ingredients by about 20%. Current Pricing Information The owners have indicated that they are willing to increase prices to address potential wage increases and increases in price for three of their main ingredients. They are concerned that if they raise prices too dramatically, they will drive their customers away. Based on their market research data, Nicole and Danielle know that, for all locations, their pizzeria is an average-priced option in terms of other similar restaurants. They generally receive high ratings for quality and service and average ratings for restaurant atmosphere. N&D’s marketing consultants, Success Marketing, created a Demand Elasticity Spreadsheet, which shows the estimated number of meals that N&D’s pizzerias would sell at various prices. Higher prices would mean lower volume, of course. There is an average meal price that would maximize total revenue. Nicole and Danielle can use the spreadsheet to see the effect of various price levels. Directions Nicole and Danielle would like you to provide a financial recommendations memorandum that will inform their approach to pricing decisions. Based on the scenario, above, they would like specific guidance on the following: Should they raise, lower, or maintain average prices in response to the import tariff? With regard to expanding the pizzeria’s operating hours, should they move forward, knowing that it could raise revenue but also increase costs? They have asked that you support your recommendations with financial information from the spreadsheet and with evidence from the company scenario. • • Market Forces and Trends: Nicole and Danielle would like you to describe market forces that potentially impact their business decisions. o Describe the basic market forces that are relevant to pricing and decision-making for companies. Include the following: ▪ What information would you want to have in order to make sound pricing decisions? ▪ With financial information, there is often some level of uncertainty and estimation. How would you explain any risk or uncertainty about information to senior management? ▪ How would you suggest monitoring and responding to competitors’ pricing actions? o Discuss the overall economic ups and downs, such as business cycles, that inform financial strategies used at different times. Include the following in your response: ▪ What trends are important for business owners to consider, and what impacts do the different phases have on financial strategies? o Describe the impact of local economic trends, such as interest rates, on supply and demand, equilibrium prices, and business decisions. Include the following in your response: ▪ Describe how a major fluctuation in inflation and unemployment rates or the interest-rate outlook would affect businesses. Pricing Information: Based on the financial information and information in the scenario about potential increases due to a tariff, Nicole and Danielle would like you to describe factors that influence price for determining the best strategy given the company’s current financial situation. o Describe factors that influence price and inform pricing decisions. Include the following: ▪ ▪ What average price level would you recommend, and why? What is the revenue-maximizing price based on estimated demand for N&D Pizzeria’s products? How sensitive is demand to N&D’s pricing versus competitors’ prices? o Determine the price impacts of resulting revenues, costs, and operating income using information from the spreadsheet. Include the following: ▪ What would the resulting revenues, costs, and operating income be? ▪ Define opportunity costs, and explain how those, along with budget constraints, such as acquiring more staff or equipment, might affect pricing decisions. ▪ How do overhead and other fixed and sunk costs affect pricing decisions? o Explain how key takeaways from the competition analysis inform pricing strategies. For example, should N&D's strive to be the high-price, high-quality competitor or the low-priced but probably lower-quality competitor? Include the following in your response: ▪ Based on the information provided in the scenario, would you recommend expanding the hours of operation? Why or why not? What would be the estimated effect on revenues, costs, and profit? Provide examples from the company’s financial information to support your answer. ▪ What further analysis would you recommend based on the information presented? o The federal government is considering imposing a substantial import tariff on foods from Italy, including the sauces, cheeses, and olive oil that N&D’s Pizzeria buys from a U.S. importer. Discuss how such a tariff might affect pricing and costs—for N&D’s, as well as for competitors. Include the following in your response: ▪ Should N&D raise prices to offset some or all of the tariff? ▪ Should they try to lower costs of raw materials or labor, possibly affecting the quality of their products and service? ▪ Should N&D consider buying those raw materials domestically, even if the quality might suffer? Review the Income Statement spreadsheet in the Supporting Materials section. Looking at N&D’s projected income statement and margins, how much of a drop in profit and margins can the company afford. What to Submit Every project has a deliverable or deliverables, which are the files that must be submitted before your project can be assessed. For this project, you must submit the following: Financial Recommendations Business Memorandum Your business memorandum will discuss the elements, above, and should inform the company about how market forces impact prices and decisionmaking, including how it should prioritize strategic initiatives based on economic factors and trends. The memorandum should be 3–5 pages in length. Describes factors that influence price based on price elasticity; includes an average-price-level recommendation and revenue-maximizing price based on estimated demand, considering pricing versus competitors’ prices 1 point 0 points Score of Describes factors that influence price based on price elasticity; includes an averageprice-level recommendation and revenue-maximizing price based on estimated demand, considering pricing versus competitors’ prices,/ 1 Criterion Feedback 11/3/2021 Explain price elasticity to N&D. N&D needs to understand some of the basics of economics so they can better appreciate the variables at play in their own market. N&D is looking to you, the hired expert, to give them advice on pricing. Use the Demand Elasticity spreadsheet to see what the effects would be on total revenue at different price points for a meal. Give them some choices by providing examples of "if you do ___, then ____ will happen." Read the rubric item closely. It tells you what you need to provide in this section of the recommendation to N&D. Determines the resulting revenues, costs, and operating income; defines opportunity costs, budget constraints, overhead, and other fixed and sunk costs and explains how they relate to pricing decisions 1 point 0 points Score of Determines the resulting revenues, costs, and operating income; defines opportunity costs, budget constraints, overhead, and other fixed and sunk costs and explains how they relate to pricing decisions,/ 1 Criterion Feedback 11/3/2021 Please discuss the revenues, costs and income that would be derived from your pricing selection. This information can be found on the income statement that is provided in the resources. Your operating income will be located on the bottom right of the income statement.
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Explanation & Answer

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N$D Company Analysis

Student’s Name
Institutional Affiliation
Date

Marketing forces and trends
To make sound pricing decisions, one needs to be financially informed. Before you
initiate your pricing, work out the costs involved with running your business. Consider what
your clients require from your products and services. Are they motivated by the lower price
or by the value they obtain? What part does price play in their purchase decision? This is one
of the critical times you can allow yourself to conduct a little competitor snooping (Anderson
& Wittwer 2019). What are they crediting for various products and services? What
compositions and level of service are they offering for those prices? What consumers are they
attracting with their pricing? And how are they located in the marketplace?
The answers to these proposals give businesses an enterprise benchmark for their
pricing. One way to deal with uncertainty is to categorize minuscule risks. Risk and
uncertainty correspond in that both preclude knowledge of future states, and both may be
defined by probabilities. And in doing so, they need to overcome risk and uncertainty. They
should consider some remedies like benchmarking, financial hedging, operational hedging,
and flexibility. Lastly, to observe and counter competitor pricing actions effectively, the
company must be proactive in its approach. The company is obliged to keep an eye on the
prize set by contestants across channels. To respond effectively, the company must increase
its running efficiency and differentiate itself from its competitors. One other way could be to
set the products' price based on the competitors' price, so that price is no longer a crucial
factor during the purchase made by the customers.
Economics up and down
Business cycles can be defined as "ups and downs" in an economic venture or periods
of extension or recession. During expansions, the economy measured by pointers like jobs,
generation, and transactions, grows in real terms after omitting the effects of extension.

Recessions are periods when the economy is fading or contracting (Anderson & Wittwer
2019). They also have to consider some business trends like the rising population of young
individuals, their aging workforce, the rise of a more culturally diverse population, the rising
growth of virtual marketplaces, and last but not least, automating business activities. In the
business for each asset, supply and demand combine to resolve the price and rate of return.
Impacts of local economic trends.
In any market, demanders pay the value, and suppliers receive it. In financial markets,
those who provide financial assets through saving expect to gain a return rate. In
contradiction, those who demand financial capital by getting funds expect to pay that rate of
return. The relationship between unemployment and inflation has traditionally been the
opposite. When unemployment is great, the number of people searching for work exceeds the
number of available jobs.
Basically, the labor supply is higher than its demand. The rate of change in wages is a
substitute for inflation in the market. With so many workers free, there's little need for
management to "request" the services of workers by paying them higher wages. In times of
high lay-off, wages typically remain inactive, and wage inflation is non-existent. In moments
of low unemployment, the desire for labor by management surpasses the supply. In such a
steady labor market, wage inflation rises when employers typically have to pay extra wages
to reel in employees.
Pricing information
There are various factors determining pricing decisions through product line
pricing. A company increases its product line rather than reduce the price of its authentic
brand when an opponent originates a low-price brand that endangers to eat into its market
share. It begins a low-price fighter label to contend with low price competitor brands. The

other is explicability in that the company should be able to confirm the price it is crediting,
especially if it is on the higher side. Customer product organizations have to send suggestions
to the clients about the high quality and the supremacy of the product.
Price impact
The specifics will be diverse for every business in terms of pricing, but it stretches
down to one thing: value. If their clients can spot the value of purchasing their product or
service, they'll willingly pay the price. If they don't spot that purpose, it makes little
disagreement how low you set your price, and the client will look elsewhere for the noticed
value, even if "somewhere else" costs more than your commodity or service. Operating
income assists investors in separating the profits for the company's running performance by
omitting interest and taxes. Acquiring more staff or more equipment can affect pricing in that
they'll have to overprice the products they're selling, and thus consumers will have to result to
another friendlier provider. Sunk cost refers to expenses that have previously happened and
cannot be recovered in commerce and business decision-making (Sader 2017). Sunk costs are
eliminated from future rulings because the cost will be the same despite the outcome.
Competition analysis
Competition analysis is important as it provides customer prices which in turn inform
pricing strategy. It is also referred to as a competitor-based or competition-based strategy.
When a cost-plus approach becomes no longer relevant, the business gains its competitive
pricing strategy. 81% of purchasers, according to Forrester Consulting, search for the best
product by comparing the prices of several stores. Competitive analysis is a concept which
enables businesses to optimize their prices using competitor pricing data and analysis (Said &
Bartusiak 2018). Successful competition analysis can increase sales significantly, leading to a
better relationship with suppliers and increasing revenue.

I believe N$D should be a high price high-quality competitor to cover the increased
wages. But to do this, the company will have to improve their restaurant atmosphere and
make customers feel that their money is well spent. I would recommend not expanding hours
of operation despite many university students coming to life during the night. This is because
if the company increases the prices of their products, it would probably outprice the students.
This would keep the profits at maximum as extra hours will mean paying extra employees,
increasing the total revenue collected. Extending hours will cost the company an average of
$100 every week in employee wages. I would recommend to the company to add meals that
university students prefer and maintain the prices low, but at the same time increase the price
of meals that people with higher income prefer.
Import tariffs
Import tariffs on food ingredients impact restaurants as inventory costs rise. Import
tariffs lead to loss of revenue which is passed down to restaurants from food suppliers
through increased prices (Vanness & Ahn 2021). If N$D increases prices, it may lose
customers, and if it maintains the prices, its profit margins will suffer as it will pay more for
its food ingredients. I believe it should increase the prices as most competing companies will
probably do the same. N$D should consider buying raw materials locally as most locavore
restaurants will be rising, and there is also no harm in promoting local farmers. The company
affords a minimal drop in profits and margins as it has a negative gross margin and does not
afford extra costs.

References
Anderson, K., & Wittwer, G. (2019). How might US tariffs on imports of some EU wine and
whisky affect those countries and Australia?. Australian and New Zealand
Grapegrower and Winemaker, (671), 81-83.
Sader Roth, F. (2...


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