The Under ArmourCompany began in 1996 by Kevin Plank, who played football with the University of Maryland College. The Under Armour performance apparel consist of footwear, accessories gear, made to keep athletes players cool, dry, and light throughout the course of a game, practice and workout.
There are several factors that affect business such as adjusting people choices or demoting the need for workout gear and other items. As people make more money, they can purchase items that he or she always wanted, such as special material or electronics devices. These are regular product that a normal family needs, but there is other inferior product which rated below a usual line of normal product. A person whose income has risen tends to stop riding the bus to work because he or she can afford to buy a car and rent a parking space (McGraw-Hill, 2002, p. 86-87).
The buyers choose to purchase if the cost on similar items is at a reasonable price; businesses is a challenge by the prices of other goods. Suppose the price of Under Armour shirt rises from $25 to $35, but the price of Nike’s shirt remains at $25. The next time you need shirts, you probably will buy Nike as a replacement items instead of Under Armour. When the cost of a replacement items increases the need for the items whose price has remained the same will increase. Equilibrium is when the upward pressure on prices matches the downward pressure of prices in the supply and demand (McGraw-Hill, 2002, p. 86-95).
Changes in styles can cause a problem with the needs of items without an adjustment in cost. As you become older, you may find that your style for Under Armour product has changed to a style for Nike product. Expectations will also affect demand. If you expect your income to increase in the future, you will start spending some of it today. If you expect the price of under Armour Product to fall soon, you may put off buying one until later. Taxes will affect demand. Subsidies to consumers have the opposite effect. When states host tax-free weeks during Augusts’ back-to-school shopping season, consumers load up on products to avoid sales taxes (McGraw-Hill, 2002, p. 87).
During the year of 1996, an equipment manager from Atlanta Falcon saw the Under Armour shirt in a Florida State locker room and liked them. In that same year, Kevin Plank delivered shirts to players on Atlanta Falcon team which expand the business tremendously. Kevin Plank begins to call equipment managers more often than just calling players. Plank had to make everyone believe it does not matter that the price of$25 per T-shirt is expensive; because it is a much better quality and will last longer than the regular cotton T-shirt. Just selling team gear to schools Kevin Plank business received 6% of revenue from abroad. However, the Nike business received over 60% for their team gears from abroad. This is the challenged that Kevin Plank had to overcome in order to increase his profits.
In 2006 Kevin Plank design Under Armour footwear and the company made up to 12% more in revenue. However, only increase 1% shares of the $14 billion United States athletic footwear family. The Nike’s company increases 42% shares of the $14 billion United States athletic footwear family. The making of Kevin Plank shoes was not as compelling as his clothes that sold on the market. In Madison square garden during a boy’s basketball game, two teams wore the new footwear made by Under Armour. Kevin saw that when the players enter the locker room everyone took off the Under Armour and put on Jordan's footwear. Matt Powell, the expert for sport wear believed in Kevin Plank new line of shoes. He said that he finally like Under Armour who has a voice and a point of view. He also said that the under Armour shoe sales were up over the past year by 27%.
Every business wants to be profitable. That is why the relationship between the amount of labor and capital used must be carefully balanced. For example, when developing a new product line, a business must consider how much labor requires making the product; and how much capital needed to fund the production. If labor and capital are not in balance, this will have a direct effect on long-term profitability and in turn, compatibleness in the business. The law of diminishing marginal productivity refers to what happens to output when some inputs increased, but the others held constant” (Colander, 2010, p. 607). Understanding diminishing marginal productivity allows a business to find the exact point where output per worker versus number of workers is at its peak.
The cost structure must be considered when developing a new product. In this case, the cost structure would include any expenses in research and development of the new product. The cost structure also includes fixed costs, labor and overhead, variable costs, materials and supplies. It is vital to have a well-defined cost structure when developing a new product because of increased competition in the marketplace.
“Variable costs defined as costs that change as output changes” (Colander, 2010, p. 284). This is common for increases and decreases in productivity. The creation of a new product line will directly affect the variable costs by the need to hire more employees and purchase more supplies to create the new product. A major factor that should be considered is the cost of the final product to the consumer. Typically this cost determined by competition along with supply and demand. If Under ArmourCompanyintroduces a new product to the market, they become the controller until a competitor introduces a similar product.
Factors Affecting Fixed Costs
Fixed costs are expenses that tend to remain unchanged despite changes in outputs and sales returns. Although, fixed expenses can vary over time; the changes are due to factors external from the business activities. Example of fixed costs includes insurance, rent, loan repayment, salaries, and equipment lease. Nevertheless, expenses like advertising are considered optional fixed costs:they only exist when there are losses or there is a reduction in turnover. Variations in fixed costs tend to affect the financial arrangement of the company. It also affects profit margins and pricing of goods and services. Thus, fixed costs can be affected when costs are distributed across individual units rather than unit volumes.
Changes in the management or decisions of the company may affect fixed costs. For example, opting for advertising and promotional activities, research and development, and equipment maintenance is occasional decisions that are made by the company’s management. In this case, the costs incurred become discretionary fixed costs. As noted, total fixed costs are constant however, the average fixed cost reduces as the production volume increases. This is because a constant amount (fixed cost) is distributed to a larger base (produced goods).
Changes in the organization of business can cause changes that affect fixed costs. Technological changes that apply directly to the business operations of the company and, auction of the equipments used in production process can also affect fixed expenses. Increased demand for products and services may lead to a high demand for employees who may work extra hours to meet the demand. This may in turn lead to increase wages, salaries, equipment lease among other fixed costs.
Cost of production and expenses also has an effect on fixed cost. Costs change only in relation to specific business activities. Thus, fixed costs vary inversely with the units and volumes of production. That is, the more volumes and units are produced the lesser the cost per unit. However, fixed costs are spread over many units and volumes.
Fixed costs can also be affected by changes in interests, insurance, and tax rates. Changes in rates of interests, insurance, or taxes may have a direct effect on the value/magnitude of fixed costs. Thus, the company may experience unanticipated or sudden expenses that are not directly associated with production. In this case, such unexpected costs have implications on fixed costs.
Understanding the concepts of variable expenses and fixed costs is fundamental to a company that wishes to expand its production and sales or introduce a new product in the market. This knowledge helps in determining the best pricing strategy to gain a competitive advantage.
Under Armour is a company that specializes in production of sports clothing and accessories. As a company, many factors have affected its business activities and hence its market shares in the industry. Some of them include competition, changes in tastes and preferences of customers, technological changes, changes in the cost of materials and market prices among others. Such factors have influenced the chain of supply and demand. However, Under Armour Company has continued to maintain a significant market share by diversifying and developing new products that meet the customers’ demands. In addition, the company has identified and analyzed factors that can affect the fixed costs including, annual organizational decisions, changes in technology, and changes in the cost of production among others.
Colander. "On the treatment of fixed and sunk costs in the principles textbooks." The Journal of Economic Education (2004): 360-364.
Colander, D. Economics. New York: McGraw Hill, 2010.
Gazely, A and L Michael. Management Accounting. London: SAGE Publications, 2006.