Accounting Myob Assignment - Economics Essay Example

1 - Accounting Myob Assignment introduction. Executive Summary This report has used the economics views analyzed the McDonald’s Beldon Store. The purpose of the report is to shows the understandings of the economics value, value creation, demand and supply and the market structure. By using the research and theory knowledge, discover and improve the current condition of the store.

In the first part of the report, it gives the basic background of McDonalds and the key information of store which the report is going to analyze such as the size, the location and competitors etc. The second part of is the main analysis of the Beldon MacDonald’s and the common features and any McDonald’s have. It defined the monopolistic competition market structure and supply-demand factors which will shock the whole McDonald’s or the individual store. Finally, there is short conclusion of the whole report and gives out the recommendations to solve the problems that the store is facing which is based on the finding and research.


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2. Introduction As we know, McDonald’s Corporations the largest and most successful chain of fast food restaurants in the world, serving around 68 million customers in 33500 restaurants in 119 countries daily. Over 1. 7million employees are working for McDonalds Corporation at the moment. However, such a big corporate is confronting with different challenges from the internal and external problems such as service problems, new products and promotions etc. Especially in each store; managers are facing their own issues such as how to lower the cost from the wages, products and wastes etc.

Thus, this report, fully focuses on the single firm, is going to analyze these couple of questions in economics methods and also will concentrate on the economics value and economics analysis instead of the management issues or policy issues. At the meantime, this report is not only find the questions in the firm, but also defining the market structure and business strategies; critically translate practical problems into the different theories. At the same time, the report analyze this store by using the economics concept such as how do they create their value, what are their cost drives, what are their business strategies etc.

They are few comparisons to prove the current economics condition of the store which base on the research. There is an important thing should be mentioned at this point. McDonald’s is globe chain store and they have totally same managing and operating system. As a context firm, some of the analysis is based on the common features. Some of the special and specific things will be pointed out to the Beldon store. 3. Background McDonald’s Beldon is located in Cnr Ocean Reef Road and Eddystone Avenue, WA. This store has been run for 14 years in Belridge city.

It currently hiring 120 employees and being organized by a new management group with 9 people. It is typical store with WIFI, playground and drive through and they open 24 hours every day. (Mcdonalds, 2012) There are eight schools are very close to the store and it is surround by the residential area; it is the main route for people drive down freeway ,served thousands of people every day and experienced morning rush and school rush. They are several competitors around McDonald’s Beldon; examples like KFC, Sizzler and Subway are drawing customer’s attentions. McDonald’s Joondalup and Whitford city are three friend alliances.

They help each other when they are facing urgent and serious stocks shortage or crews allocation. 4. Analysis 4. 1 Why McDonalds Beldon in business? Simply, people like Mac’s and willing to buy theirs products. So McDonalds Beldon make money for the owner which means it created value and that is the reason why it is in business. Broadly, when it comes up to this question, value, it should be considered from the two macro sides- suppliers and customers. 4. 1. 1 Customers and price As it mentioned above, people like McDonald’s and it can be concluded in these key words: taste good, familiar and cheap.

However, these three characteristics stand for three important economics concepts. Taste good—Product differentiation McDonald’s serving one hundred countries in the world. Each country has its own food structure and taste and there will be have different prefers even in the same country. But they are still having a good selling in each country in each year. Why? Because they are not only sell their core product and side dishes, but also differentiated them. For example, McDonald’s sell meals with drinks coke Fanta or any other flavor but can you believe that they sell wine as well?

” An Argentinean outpost of McDonald’s in the wine capital of Mendoza serves a 187mL bottle of wine on a “Sabores Mendocino’s” menu. The menu includes a double-patty burger of Angus beef, two meat empanadas, and a glass bottle of a local malbec for a whopping $10. 80. ”(Jauted, Feb 21,2012) They pursue offering the most of people in the world and suit people’s tastes and they succeed. Familiar—Brand A brand is a design, sigh or name given to a product or services in order to differentiate it from its competitors. In economics, brands can be considered as the capitalised values of advertising expenditures on products.

Nowadays, McDonald’s is a brand of fast food as well as the tool of a “Mum”. People cannot believe how powerful it is! If you tired of work and being lazy to cook, your Mum can offer you a McDonalds’ dinner box. If your kids are crying, McDonald’s is the way to stop them from crying all the day. They are satisfied with the products that Mac’s offered them even they consume in any other store. Consumers will get the same services and products then they have the experiences about the brand, they like it compare with other fast food.

People like to go back the place they are familiar with as they are saving their cost unconsciously and it is called: transaction cost. Cheap—opportunity cost Price is a crucial determination in the food industry competition. McDonald’s use their activities to prove that cheap make more sales. People like McDonalds’ food as the price they set up can be accepted by everyone. Customers will justify the balance the price and quality which means people are making decisions about the opportunity cost. 4. 1. 2 Suppliers and cost Operating Cost

Operating cost is a non-economic factor which includes food stock, wages, rental and utility bills etc. In this sector, manager always considered about how to use the least money to buy the most stock and pay the least salaries to get the most efficient crews. It also includes how to reducing the waste cost and avoiding sunk cost. Location—Market There are several schools and residential areas near Beldon store which means there is a great number of a potential customer in this area. Meanwhile, Ocean reef road is the main road for travel around where the basic place that cars and buses passing through.

They save the part of advertisement fees straight away. Finally, there comes up with a snowballing effect, values created little by little from different groups of people and achieved the win-win condition between suppliers and consumers which means supply and demand equilibrium. 4. 2 Demand and Supply in Beldon and world. 4. 2. 1 Demand—consumers In fact, people is considering to create more values with the time goes on. There are several factors restrict the value delivering. To develop what the factors are limiting to McDonald’s we start from analyze the elasticity of McDonald’s products.

“Economists use a Price elasticity of demand formula to measure the degree of consumers’ responsiveness, or sensitivity, to a change in price” (Layton, Robinson, & B. Tucker, 2005) The target of Beldon McDonalds’ is to serve school students and low level class people in that area. At same time, there are few competitors around the store. Then we can define that products in McDonald’s are quite elastic. Because people are more sensitive to the changes in price and there are substitutes restaurant in that area. Incidentally, there is a common understanding that McDonald’s productions are inelastic for high income customers.

For all the information above, we can conclude the factors in these sectors: the condition of current economics, services and competitors. The condition of current economics First of all, macroeconomic has the priority to determine the direction of whole market. There is one interesting news that shows “Global sales across its more than 33,000 locations were flat during the month. ”(Blackden, 2012) The graph follow shows the annual sales in these years. (Ernst & LLP, 2012) Obviously, the sales increasing flatly in last couple of years and the net income had a extremely decreasing in 2007 because of the GFC.

People are not willing to pay on fast food and they can say money from McDonald’s as companies were facing bankrupt issues and unemployment rate increased. The purchasing power of customers downgrades as they reduced the unnecessary expense. It affects the equilibrium of demand and supply curve that the demand reduces. Graph shows below. S D1 D2 Price Product Services Services are based on customers’ needs. Firstly, the customer groups must be defined and organized as the company needs to know. There are few types of possible customers are served in Beldon: Parents with children, business customer and teenagers.

Parents can bring their children to store as they looking for the playground for their kids and children like the fun place and McDonald’s offering the happy meal with toys as well. In McDonald’s, people have options to buy the products in store as well as drive through. The business customer who is in rush hour will happy with achieving their food in a short period. In order to make convenience for customers, McDonald’s serve drinks and food at same time and this is the main reason that for people who has a busy working schedule.

Young teenagers like hanging on after school Then McDonald’s is their first choice where they gather together and a seats, food and internet all available for free. Competitors The last factor is about the competitor which is an external and unexpected factor. McDonald’s Beldon is in Belridge city . There is several restaurants close to the store and several new competitors comes up and change customer prefers and tastes. It reflects the sales straight away. McDonald’s is a fast food restaurant and buckled up with a name junk food. People are willing to choose the health food if the price and quality are same.

The store in Beldon cannot change the condition around it and need a macro-control by the top office. 4. 2. 2 Supply—producers Non-economic factors Supply side is more considering about the producers. McDonald’s can be believed as a combination platform that different suppliers and retailers sell their production in McDonald’s. Then we can see that French Fries, Coke cola and other small or big brands are mixed together. However, Beldon store, as a branch of McDonald’s in WA, there are some non-economic factors in this individual store.

Such as low quality of food, bad services, low efficient crews and waste. “Ordered 10 Nugget meal. They forgot my Chips, and my sauce, and refused to give me more as they were “sure they put them in the bag”. ” (Anonymity, 2012) There are some messages by different anonymities leave in the Google map but they are all explain one thing the service and food are bad. From the cost side, McDonald’s tried save the cost from hiring young people but they make a mistake that young people are not strong so that makes daily team inefficiently.

Wasting has two parts; one is from nature waste such as meat burned or old after stocking for hours, the other is made by crews that they took away the food without any payments. Economics factors —Cost Drives Economics of scale and economics of scope are the typical characteristics and successful reason to McDonald’s. They broadly and maximized use Economics of scale and economics of scope on both the individual store and the whole company no matter domestic market or international market. McDonalds sell breakfast and lunch meals, happy meals and dinner boxes etc. instead of selling the single burger or drink.

They save the transaction costs from producing, delivering, packing and servicing the various products separately. Thus, economics of scope works. In Beldon store, under the systematically and regularly control, people are benefiting from the economics of scale. The report shows above has mentioned that there are three more stores nearby. All in all, there are two basic factors, internal or external economic and non-economic factors, making barriers to the Beldon store. By using the most efficient methods and solving restriction factors is the current target for running the store.

4. 3 Market structure Many small sellers The existence of few numbers of fast food firms such as KFC, Hungry Jack’s and red roosters means that there is no single firm can influence the market outcome. Under this market structure products are quite similar; however, firms differentiate their styles, brand names, locations and pricing strategies to domain a group of customers. Product differentiation McDonald’s differentiates its products in burgers, wraps, drinks, and sundae shake or cafe stuffs. At same time, its competitors also differentiated their products.

As we know from the quality demand curve, if the price of good goes up, the quality demand will decrease. At this stage, products have many substitutes and some customers will have different choice and won’t be loyal to single one taste. So it can be defined that price elasticity is relative high in monopolistic competition but not perfectly elastic because of product differentiations from other competitors. Entry and exit McDonald’s use enter deterrence strategies to deter the entry as the barriers are low. In monopolistically competitive market structure firms struggled with establishing their products as monopolistically competitive firms

differentiated their products. Then it can be defined the as deterred entry because of the low structural entry barrier and the high strategic entry barrier. Then it can be defined that monopolistic competition. 5. Conclusion The purpose of a firm is to maximize the shareholders wealth, in other word, value. There are three generic business strategies to achieve the goals. But it has to judge by the condition of McDonalds Beldon. Product differentiation is not suable at this stage. In monopolistic competition market, there are a great number of restaurant and heaps of substitutes.

Beldon McDonald’s don’t have the right to differentiate their products. Market segmentation can be used as the strategy. It works on every store in the world but the main trend and direction have to be defined by the top office. The last one is the cost leader which should be considering and being used as the first strategy for the store. 6. Recommendations 1. Managers need to pay more attention the efficient of the daily working team. Reducing the labour cost after making sure that crews in the store are strong enough. 2. Waste problem cannot be stopped as mistakes and machine problems cannot be avoided.

However, the artificial waste can totally forbid in the store. Managers should make warning and notice to those groups of people who get free meals from the store. 3. By carrying out the economics of scale strategy, manager needs to guide the store to be the cost leader. Manager can share the bills for the stock delivering with the stores nearby-Joodalup, Whitford and Currambine etc. in the north of Perth. 4. Managers can contact to the stores nearby that order the seasoning vegetables such as tomatoes and cucumbers from the same farm or company which led to a lower cost.

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