Decision Sheet

Date: 2016

Topic: Growth Opportunities, Marginal Analysis, Entrepreneurship, CVP Analysis, Cost

Allocation, Cost Drivers, Unregulated results.

Title: Black River Farms.

Dilemma: What are the cost drivers and are they variable to every producer or are they a
fixed cost? If changed, what are the most beneficial alternatives and opportunity cost?

Key Decision Makers: Donna and Jim Green (Owners)

Problem Statement: What is the most effective way to replenish the herd while minimizing
financial risks and short-term losses?

Challenges:
1. Accumulating losses consecutively.
2. Diminishing prices and cyclical patterns in a perfectly competitive market like cow-calf
breeding.
3. More expenses and less revenue generated per cow-cattle.
4. Conservative practice, unidentified cost drivers and ideal cow herd size.
5. Increase in the direct and indirect costs.

Criteria: Cost to be invested, Future Benefits, Attracting potential buyers , Market

Competition, Forecasting Market Share and benefitting yields, Marketing and Pricing
Strategies, Time taken to implement it.

Solutions: An existence of a perfect competition in the market poses a threat to breeders

like the Greens as easy entry and exit allows people to come in whenever the profits are high
but drop out when they are low.
Research and Development are required comprehensively to figure out the long term
benefits. They should consider what costs are necessary and only undertake them to reach a
break-even point before aiming for profits. Greens could get economies of scale if Donna’s
hypothesis after testing turns out to be true, giving them the first mover advantage and an
access to greater shares of profits with minimal costing involved. They could only have the
cows that takes in less input but provides a higher level of output with lesser consumption of
dry materials, as mentioned in the case.

Alternate Solution: The action plan can be to carry out the following activities in order to
properly implement the strategy by: (i) Examine the present target buying group as well as the
marketplace segment that is not included in the company's circle, (ii) Examine existing financial
data to decide how much money should be spent on recovering losses and then on, R&D and
collaborations. Other alternatives should involve working with organization that has potential
expertise. Focus on establishing a foundation in the minds of consumers regarding Black River
Farms' beliefs and vision and to avoid the risk of sunk costs.

Summary: In 2016, the owner of a cow-calf farm must determine the proper weight for the
cows in their herd. For decades, the national tendency has been for cow weights to rise
because larger calves are produced, but data suggests that cow weights may have reached a
threshold where the expense of keeping a larger cow outweighs the benefit from producing a
larger calf because of the increase in the direct costs (A direct cost is a price that can be directly
tied to the production of specific goods and can be traced to the cost object, which can be a
service, product, or department).

Submitted To:
Ms. Subhashree Banerjee

Submitted By:

Nishtha Gupta

2228343

1MBA-R