Environmental And Social Concerns And Potential Objectives For The A2 Milk Company

Porter Five Forces Analysis

As highlighted above, the primary purpose of this report is to identify and summarize the key environmental and social concerns that relate to the operations of The A2 Milk Company. This discussion has considered a range of various environmental and social issues from across the value chain f the firm. Furthermore, as part of this report, suggestions on three potential environmental and social objectives that the firm could to achieve are given. Additionally, at least two measures of measuring the progress of each of the firm’s objectives have been suggested.

Greenhouse gases is one of the major environmental concerns relating to the operations of The A2 Milk Company. The A2 Milk Company is engaged in rearing of dairy cattle for production of its various milk products. These gases are produced by cows by doing what comes to them naturally and enters the atmosphere (Brockett & Rezaee, 2013). This causes possible harm of global warming in the near future. In addition to this, there is a supposedly a looming threat or harm resulting from the synthetic milk produced by the company. The synthetic milk and the greenhouse gas effects are big environmental concerns which must be dealt with accordingly by the firm and the regulating agencies (Lasserre, 2012).

Furthermore, The A2 Milk Company has partnered with farmers across Australia, who are mainly focused on rearing cattle. The company buys from these farmers in order to supplement their supply, for purposes of dairy product production. However, there are a number of environmental issues and concerns which are related to the farming activities of these farmers, with regard to cattle rearing. For instance, this is believed to cause soil erosion and reduced biodiversity (Khalili, 2011).

In addition to this, there is a social concern facing The A2 Milk Company with regard to the health safety of some of its dairy products. For instance, most customers have complained that consumption of the company’s milk has caused them health problems such as bloating, stomach ache and swollen tongue. A research conducted by scientists has indicated that there are genetic mutations which took place in North European cows and the A1 protein consequentially started showing up in milk products that were then containing only the A2 protein. It has been discussed that A1 is involved in basically forming a fragment that has the ability of triggering inflammation in the body when digested (Hitchcock & Willard, 2015). This has the potential impact of causing ailments such as irritable bowel syndrome, autism, eczema and schizophrenia. However, in response to this, The A2 Milk Company has considered championing a research into the deleterious impacts purported to A1 protein. It has emphasized on the idea that individuals who drink the milk of the company experience a good feeling. It is acknowledged that 25% of consumers in the western countries have reported some kind of health problems and discomforts after consumption of the company’s milk products. Therefore, this is a great social concern for The A2 Milk Company Limited (Hussey, 2012).

Additionally, there is a social concern that The A2 Milk Company Limited is potentially threatened by the fact that it fails to get on with the long process which is required for converting and producing A2 milk which is free from A1 beta casein. Although most of the large farmers supplying raw materials to the company have adopted this conversion process, there are small farmers who have poor sources of information and are therefore at a great risk of getting blindsided. This is potentially extended to the consumers of the dairy products, such as the milk produced by the company (Bamford & West, 2010).

Measures to Evaluate the Success of Focus Cost Strategy

Potential Environmental and Social Objectives That the Firm Could Strive To Achieve

There are a number of potential environmental and social objectives which the firm could strive to achieve and measures which could be used in measuring the objectives (Hitchcock & Willard, 2015). These have been summarized in the table below.

Environmental Objectives

Social Objectives

A social objective of a firm is a statement detailing the specific desired outcomes of its business or project, which is related to interaction of people, institutions or groups. Social objectives are mainly purposed for improving the human well-being of various stakeholders (Hitchcock & Willard, 2015).

Question 2: Transfer Pricing

1. Minimum Transfer Pricing that could be Accepted

The minimum transfer price that would be likely accepted by the mixing department manager is $1.60, as calculated below. This is because the mixing department has to recover at minimum the opportunity cost of mixing the ice cream (Brockett & Rezaee, 2013).

1. Minimum Transfer Pricing

The maximum transfer price that the freezing department manager will be willing to pay is $2.00. This is because the freezing department would only want to pay the maximum amount which is equal to the lowest price that could be paid to external suppliers (Epstein & Lee, 2012).

Cost plus pricing would not be appropriate for transfer of prices in this situation. This is because the company is only selling the unprocessed ice cream to its internal departments, and would not therefore add a mark up to the unit cost of ice cream (David, 2011).

1. Transfer Price Based on Cost Plus Pricing

The transfer price for sales between the mixing and the freezing department, based on absorption cost with a 40% mark-up is calculated as follows.

The following would be the contribution margin per unit for the ice cream department if this transfer price is used.

The transfer price for sales between the mixing and the freezing departments if cost-plus pricing, based on variable cost with a 50% markup is calculated below.

The contribution margin per unit for the ice cream department if this transfer price is used is determined as follows.

The transfer prices determined above are likely to be acceptable to ice cream mixing department since the minimum unit price is sufficient for meeting the costs of producing a unit ice cream (Bamford & West, 2010).

1. Application of the General Transfer Price in This Situation

The general transfer price is applied in this situation since the ice cream mixing department applies or transfers some costs and overheads to the freezing department within the A2 Milk Company Limited. The ice cream mixing department has some spare capacity since it has the ability of producing more ice cream than it is currently producing, thus being able to transfer the costs to the freezing department at the minimum acceptable transfer price (Epstein & Lee, 2012).

Question 3: Capital Investment Analysis

Calculations are provided in the excel file attached.

1. Key Environmental Factors That the Firm Should Consider In Evaluating the Proposal

There are various environmental factors which must be considered by The A2 Milk Company Limited in evaluating this proposal. For instance, the company must ensure that the ice cream production plant expansion would not adversely affect the environment within which the firm operates. It must be also ensured that there are no significant emissions of chemicals and other factory wastes that would otherwise pollute the environment (Epstein & Lee, 2012).

Based on assessment of the financial considerations and other factors, the firm should go ahead with the proposal. This is because the proposal has very short payback period of three years, which means that it is financially viable and it is able to generate enough cash flows to recover the initial cost of investment within its initial years. Additionally, the proposal has a positive net present value, which indicates that it is a viable and productive investment. Furthermore, the internal rate or return (IRR) and Accounting Rate of Return (ARR) of the proposal are all attractive (Epstein & Lee, 2012).

In conclusion, the proposal of expanding the ice cream production plant of A2 Milk Company Limited is productive and should be therefore adopted by the company’s management.

References

Bamford, C. E., & West, G. P. (2010). Strategic management: Value creation, sustainability, and performance. Australia: South-Western Cengage Learning.

Brockett, A., & Rezaee, Z. (2013). Corporate sustainability: Integrating performance and reporting. Hoboken, NJ: Wiley.

David, F. R. (2011). Strategic management: Concepts and cases. Upper Saddle River, NJ: Prentice Hall.

Epstein, M. J., & Lee, J. Y. (2012). Advances in management accounting: Volume 20. Bingley: Emerald.

Hitchcock, D. E., & Willard, M. L. (2015). The business guide to sustainability: Practical strategies and tools for organizations. New York: Routledge.

Hussey, D. E. (2012). Strategic Management. Hoboken: Taylor & Francis.

Khalili, N. R. (2011). Practical sustainability: From grounded theory to emerging strategies. New York: Palgrave Macmillan.

Lasserre, P. (2012). Global strategic management. Houndmills, Basingstoke: Palgrave Macmillan.

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