Professional Documents
Culture Documents
GROUP ASSIGNMENT
SUBJECT: PRINCIPLES OF MICROECONOMICS
Class: IP17
By: Bui Nhat Mi
Truong Nguyen Huyen Linh
Dang Nguyen Khanh Trang
Trinh Thi Thuy Linh
Ly Minh Chau
Lecturer: Tran Nguyen Ngoc Anh Thu
2
TABLE OF CONTENT
References................................................................................................................................... 16
Work assigments ......................................................................................................................... 16
3
CHAPTER I: INTRODUCTION
1.1Introduction
Saigon Beer is the leading brand name in Vietnam beer industry with about 140 years of
development. Saigon Beer is recognized as National Brand and also honored to be the 351st
member in Berlin Beer Academy. We chose this company because the Saigon beer company was
owned by the Ministry of Industry and Trade and the Government wanted to payback by
auctioning its shares. We hope this research about the costs of Saigon beer company will explain
why the government couldn’t payback and needed to sell its shares. Furthermore, we want to
take advantage of the knowledge that we have already studied in Microeconomics to come into
practice. Researching and interacting with real companies definitely benefits us a lot.
1.2Research’s objectives
In this assignment, we study the company’s costs of production and find the method of reducing
their expenses in order to increase more profit as much as possible.
To understand the reality of Vietnam’s company.
To hold an overview of the market.
1.3Research methodology
We use secondary data because every figure is taken from the balance sheet of Saigon Beer
Company
CHAPTER II: ANALYZING THE COST
2.1 Theory of the cost
2.1.1 Definition of cost
In production, research, retail, and accounting, a cost is the value of money that has been
used up to produce something or deliver a service, and hence is not available for use
anymore. In business, the cost may be one of acquisition, in which case the amount of
money expended to acquire it is counted as cost. In this case, money is the input that is
gone in order to acquire the thing. This acquisition cost may be the sum of the cost of
production as incurred by the original producer, and further costs of transaction as incurred
by the acquirer over and above the price paid to the producer. Usually, the price also
includes a mark-up for profit over the cost of production.
More generalized in the field of economics, cost is a metric that is totaling up as a result of
a process or as a differential for the result of a decision. Hence cost is the metric used in
the standard modeling paradigm applied to economic processes.
5
the relevant period. For example, a retailer must pay rent and utility bills irrespective of
sales.
Fixed costs are not permanently fixed; they will change over time, but are fixed in relation
to the quantity of production for the relevant period. For example, a company may have
unexpected and unpredictable expenses unrelated to production; and warehouse costs and
the like are fixed only over the time period of the lease.
(d) Variable costs
A corporate expense that varies with production output. Variable costs are those costs that
vary depending on a company's production volume; they rise as production increases and
fall as production decreases. It differs from fixed costs such as rent, advertising, insurance
and office supplies, which tend to remain the same regardless of production output. They
can also be considered normal costs. Fixed costs and variable costs comprise total cost.
Variable costs can include direct material costs or direct labor costs necessary to complete
a certain project. For example, a company may have variable costs associated with the
packaging of one of its products. As the company moves more of this product, the costs for
packaging will increase. Conversely, when fewer of these products are sold the costs for
packaging will consequently decrease
(e) Total cost
Total cost refers to the total expense incurred in reaching a particular level of
output; if such total cost is divided by the quantity produced, average or unit cost is
obtained. A portion of the total cost known as fixed cost — e.g: the costs of a
building lease.
Involve the sum of TFC and TVC.
It can be calculated as follows:
Total Cost = TFC + TVC
TC also changes with the changes in the level of output as there is a change in
TVC.
Total cost in economics includes the total opportunity cost of each factor of
production as part of its fixed or variable costs
(f) Marginal cost
The increase or decrease in the total cost of a production run for making one
additional unit of an item. It is computed in situations where the breakeven point has
been reached: the fixed costs have already been absorbed by the
already produced items and only the direct (variable) costs have to be accounted for.
For example, if producing additional vehicles requires building a new factory, the
marginal cost of the extra vehicles includes the cost of the new factory. In practice,
this analysis is segregated into short and long-run cases, so that, over the longest
run, all costs become marginal. At each level of production and time period being
considered, marginal costs include all costs that vary with the level of production,
whereas other costs that do not vary with production are considered fixed.
6
Marginal costs are variable cost consisting of labor and material cost, plus an
estimate portion of fixed cost (such as administration overhead and selling
expenses). In companies where average costs are fairly constant, marginal cost is
usually equal to total average cost.
It is calculated as: MC = ∆TC/∆Output
(g) Average fixed cost
AFC is the fixed costs of production (FC) divided by the quantity (Q) of output
produced. Fixed costs are those costs that must be incurred in fixed quantity
regardless of the level of output produced. Average fixed cost is a per-unit-of-output
measure of fixed costs. Average fixed cost is a per-unit-of-output measure of fixed
costs. As the total number of units of the good produced increases, the average fixed
cost decreases because the same amount of fixed costs is being spread over a larger
number of units of output.
It is calculated as:
AFC = TFC/Output
(h) Average variable cost
AVC is a firm's variable costs (labor, electricity, etc.) divided by the quantity of output
produced. Variable costs are those costs which vary with output.
It is calculated as:
AVC = TVC/ Output
Initially, AVC decreases as output increases. After a certain point of time, AVC
increases with respect to increase in output.
(i) Average total cost
Average total cost is a cost accounting term that is sometimes referred to as
unit cost or weighted average cost. Average cost can refer to either average cost of
inventory or the average cost of units produced. These two categories are similar in
nature. Average total cost and/or unit cost is equal to total cost divided by the
number of goods produced (the output quantity, Q). It is also equal to the sum
of average variable costs (total variable costs divided by Q)
plus average fixed costs (total fixed costs divided by Q). Average cost is distinct
from the price, and depends on the interaction with demand through elasticity of
demand and an average cost due to marginal cost pricing.
ATC=AFC+AVC
2.1.3 Cost in the long run
(a) Long run total cost
Long run total cost refers to the minimum cost of production. It is the least cost of
producing a given level of output. Thus, it can be less than or equal to the short run
average costs at different levels of output but never greater.
7
(b) Long run average cost
Long run average cost (LAC) can be defined as the average of the cost per unit of output
in the long run. It can be calculated by the division of LTC by the quantity of output.
(c) Long run marginal cost
Long run marginal cost is defined at the additional cost of producing an extra unit of
the output in the long-run i.e. when all inputs are variable.
2.1.4 Profit maximization
When running a business, the firm’s objective is to maximize profit. To do this, it
must satisfy two rules:
MC =MR
MC curve cuts the MR curve from below
The profit maximization condition of the firm can be expressed as:
Maximize π (Q)
Where π (Q) is profit, R (Q) is revenue, C (Q) are costs, and Q are the units of
output sold.
The two marginal rules and the profit maximization condition stated above are
applicable both to a perfectly competitive firm and to a monopoly firm.
Under perfect competition, the firm is one among a large number of producers. It
cannot influence the market price of the product. It is the price-taker and quantity-
adjuster. It can only decide about the output to be sold at the market price. Therefore,
under conditions of perfect competition, the MR curve of a firm coincides with its
AR curve.
The MR curve is horizontal to the X-axis because the price is set by the market and
the firm sells its output at that price. The firm is thus in equilibrium when MC=
MR= AR (Price). The equilibrium of the profit maximization firm under perfect
competition is shown in Figure 1 where the MC curve cuts the MR curve first at
point A.
8
It satisfies the condition of MC = MR, but it is not a point of maximum profits
because after point A, the MC curve is below the MR curve. It does not pay the firm
to produce the minimum output when it can earn larger profits by producing beyond
OM.
It will, however, stop further production when it reaches the OM level of output
where the firm satisfies both conditions of equilibrium. If it has any plans to produce
more than OM1it will be including losses, for the marginal cost exceeds the marginal
revenue after the equilibrium point B. Thus the firm maximizes its profits at M 1 B
price at the output level OM1.
There being one seller of the product under monopoly, the monopoly firm is the
industry itself. Therefore, the demand curve for its product is downward sloping to
the right, given the tastes and incomes of its customers. It is a price-maker which
can set the price to its maximum advantage. But it does not mean that the firm can
set both price and output. It can do either of the two things.
If the firm selects its output level, its price is determined by the market demand for
its product. Or, if it sets the price for its product, its output is determined by what
the consumers will take at that price. In any situation, the ultimate aim of the
monopoly firm is to maximize its profits.
9
2.1.5 Break -even point
The break-even point (BEP) or break-even level represents the sales amount—in
either unit (quantity) or revenue (sales) terms—that is required to cover total costs,
consisting of both fixed and variable costs to the company. Total profit at the break-
even point is zero. It is only possible for a firm to pass the break-even point if the
dollar value of sales is higher than the variable cost per unit. This means that the
selling price of the good must be higher than what the company paid for the good
or its components for them to cover the initial price they paid (variable costs). Once
they surpass the break-even price, the company can start making a profit.
The break-even point is one of the most commonly used concepts of financial
analysis, and is not only limited to economic use, but can also be used by
entrepreneurs, accountants, financial planners, managers and even marketers.
Break-even points can be useful to all avenues of a business, as it allows employees
to identify required outputs and work towards meeting these.
The break-even value is not a generic value and will vary dependent on the
individual business. Some businesses may have a higher or lower break-even point.
However, it is important that each business develop a break-even point calculation,
as this will enable them to see the number of units they need to sell to cover their
variable costs. Each sale will also make a contribution to the payment of fixed costs
as well.
2.2 Analyzing the cost
1 EXPLICIT COST
a UTILITIES / TELEPHONE
17,336,240
b DELIVERY COST
88,435,946
c MATERIAL COST
1,385,321,709
d OFFICE EQUIPMENT
15,412,909
e ADMINISTRATION COST
193,655,401
2 IMPLICIT COST
FIXED EUQIPMENT
DEPRECIATION 145,273,674
10
BRAND VALUE
333,333,333
3 FIXED COST
………
5 AVERAGE COST
11
LONG RUN DISTRIBUTION COST FOR COSTLY
MACHINES 3,323,594,937
ESTIMATE GAIN IN
No DETAILS PLAN IN 2018 PERCENTAGE COMPARISION
D IN 2018 2017
QUANTITY OF
1 227,501,660 228,734,641 218,266,709 101% 105%
BEER SOLD
4,289,077,954 4,143,486,1
2 TOTAL REVENUE 4,497,686,259,776 95% 104%
,683 73,267
509,474,428,0 254,035,737
+ BEER Lager 355 297,861,971,831 171% 201%
96 ,549
1,546,715,860 1,642,587,7
+ BEER Export 355 1,850,331,903,666 84% 94%
,310 80,592
12
487,529,588,0 657,197,539
+ BEER Special 869,088,570,853 56% 74%
00 ,285
+ BEER 333
- 5,461,000 566,674,000 1%
Premium
1,022,285,353 763,908,957
+ BEER Lager 330 475,897,092,424 215% 134%
,460 ,955
99,758,849,25 163,134,379
+ BEER Special 290,256,575,758 34% 61%
0 ,811
135,006,200,0 225,574,469
+ BEER 333 Expoxt 287,121,212,121 47% 60%
00 ,071
(11,086,890,
Silver - - 0%
778)
OTHER BEER - -
OTHER
- -
PRODUCTS
+ Wine - - -
+ Alcohol - - -
+ Energy drinks - - -
+ Lables/ can - - -
+ Other products - - -
98,956,143,23 97,973,082,
Others Revenue 96,546,651,710 102% 101%
8 693
4,331,060,9
Financial Revenue 1,260,000,000 1,524,788,899 121% 35%
54
4,331,060,95
+Credit 60,000,000 135,561,896 226% 3%
4
4,175,485,405 4,005,703,6
3 TOTAL COST 4,386,518,886,409 95% 104%
,262 24,575
3,917,967,703 3,768,201,1
SG Beer Cost 4,091,918,277,135 96% 104%
,028 62,654
358,763,359,2 320,815,203
+ BEER Lager 450 280,489,478,726 128% 112%
25 ,120
13
473,763,499,5 236,253,235
+ BEER Lager 355 277,011,633,803 171% 201%
02 ,921
1,444,086,883 1,527,469,9
+ BEER Export 355 1,720,825,254,498 84% 95%
,841 88,750
457,638,227,8 611,201,029
+ BEER Special 808,262,048,940 57% 75%
63 ,993
+ BEER 333
- 5,078,730 527,006,820 1%
Premium
952,155,392,7 710,435,330
+ BEER Lager 330 442,587,012,121 215% 134%
50 ,898
101,885,121,1 151,715,110
+ BEER Special 269,939,878,788 38% 67%
77 ,916
127,529,412,0 209,784,256
+ BEER 333 Expoxt 267,022,727,273 48% 61%
00 ,236
- GV Bia khác - - -
+ BEER Sagota
- - -
không cồn
1,377,954,9
- Other products - 1,183,038,887 86%
48
+ Wine - - -
+ Alcohol - - -
+ Energy drinks - - -
+ Labels - - -
1,183,038,8
+ Other products - 1,183,038,887 100%
87
Delivery cost - -
233,724,873,6 208,054,420
Selling Cost 270,791,143,538 86% 112%
94 ,885
14
21,669,024,71 25,866,098,
Management Cost 23,689,465,736 91% 84%
9 172
1,022,000,8
Other Costs - 940,764,934 92%
45
1,181,987,0
Financial Cost 120,000,000 - 0% 0%
71
+ Credit interest 120,000,000 - 44,463,834 0% 0%
15
References
- Economics discussion: http://www.economicsdiscussion.net –
- Total cost: https://study.com/academy/lesson/total-cost-in-economics-definition-
formula.html
- The balance small business: https://www.thebalancesmb.com
- Break even point: https://en.wikipedia.org/wiki/Break-even_(economics)
- Theory from textbook: Principles of Economics
- Data from the General journal from SAIGON BEER TRADING COMPANY LIMITED
Work assigments
16