Reasoned Economic Analysis – Shayna Soda Company
Discuss Reasoned Economic
Introduction
Economic Reasoning refers to economic deductions that stem from self-evident principles,
models and concepts that are base on empirical evidence and observations. It structures all
pertinent questions in the form of cost and benefit framework. Economic Reasoning emphasizes
more on the marginal benefits that would be derived from a particular situation against the
marginal costs that would be incurred on the same. If marginal costs are more than the marginal
benefits then the venture should not be encouraged ass it would be unprofitable. ( Sullivan , 2003)
The opportunity cost is also considered when making a reasoned economic decision. Opportunity
cost refers to the benefit that would have been gained if the second best option would have been
preferred or chosen. Economic reality is mostly controlled, directed and greatly influenced by
economic, social and political forces. The price mechanism under certain conditions in the
market allocates the scarce resources efficiently. (Gordon, 2000)
Aluminum Products is a company which according to Adam Michael is still new in the market
and it’s in the process of marketing its products and services. It’s located in New Jersey, that’s
about 400 miles away from Shayna Soda Company. It’s offering its products at a cost that’s
lower by 30% from their current supplier that’s Kayla Containers. They are also offering more
Reasoned Economic Analysis – Shayna Soda Company 2
discounts to companies that will integrate their systems directly to their own in order to benefit
from direct electronic purchases.
Terry Roberts, the product availability manager at Shayna Soda has to make a decision on which
on whether to discontinue the current contract with Kayla Containers and deal with Aluminum
products or to maintain the Kayla Containers contract. The production costs must be minimized
in order to maximize the profits of the firm in the long or short run cost output production
relationship. The variable inputs and the maximum optimal output production level has to be
achieved.
Aluminum products have other extra charges that need to be analyzed before the final decision
can be taken. The Shayna Soda label will attract a onetime payment that is required to set up the
design specifications and also the extra coloring required for the Shayna Soda brand will increase
the base rate by 10%.
The delivery system for the products from Aluminum products is a little complicated. Since the
products are transported from a distance of over 400 miles it would require a larger storage
facility given that their normal delivery lead time is five days. Special delivery is charged at an
extra cost per mile.
To summarize the Aluminum charges, the special cans were 30% cheaper. To cater for the
Shayna Soda label and its colours, it would require another 10% meaning the benefit would
reduce to 20%. The artwork would also require a onetime payment which would decrease all the
benefit by a further 2%. The delivery system of Aluminum would present a challenge to Shayna
Soda because of the distance involved. Delivering products from such a distance would require
other logics like labour hours and storage charges as it would be uneconomical to order
Reasoned Economic Analysis – Shayna Soda Company 3
frequently as it would attract more costs. Terry calculated the extra costs involved during
delivery and concluded that the actual base rate per can for the Aluminum products were actually
higher by 8% than those of Kayla Containers. The free upgrade and the discount system offered
by Aluminum products for the companies that integrated to their digital purchase system are the
opportunity costs that Shayna Soda has to forego though they were may have been a ploy to
attract new business by offering promotional items to attract new customers.
On the other hand, Kayla Containers is located just about 20 miles away from Shayna Soda
production plant. Kayla colours and does the artwork for Shayna Soda free of charge and its
annual delivery charges together with its base rates are lower than those of Aluminum products.
The quality standards of Aluminum products are much higher than those of Kayla containers but
still Kayla’s products are acceptable. (Vance, 2003)
To conclude, the products from Aluminum products are of superior quality than those of Kayla
Containers. Aluminum products would have been more profitable in the long run. The
introduction of the digital purchase order would have been useful to Shayna Soda if the delivery
costs were much lower or if Aluminum products would have been located nearer to the Shayna
soda production facility. Also the superior cans belonging to Aluminum products would certainly
have attracted more sales in the long run. But Kayla Containers are more advantageous in the
short run. Their trade agreement has been profitable for both parties for many years though there
has been a need to adopt modern supply management techniques. Their delivery system is cost
efficient and convenient due to the location of its premises and the short delivery distance. It
would be profitable to continue with the Kayla Containers contract as it offers better terms than
Aluminum products. The quality of the Aluminum products and the digital purchase system
cannot translate to affordable costs that Kayla containers have offered.
Reasoned Economic Analysis – Shayna Soda Company 4
References
Gordon, D. (2000). An Introduction to Economic Reasoning. Auburn, Alabama: Ludwig Von
Mises institute.
Vance, D. (2003) Financial analysis and decision making: tools and techniques to solve
financial problems and make effective business decisions. New York: McGraw-Hill.
Sullivan , S. (2003). Economics: Principles in action. Upper Saddle River, New Jersey Pearson
Prentice Hall.
