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PMM

(d) If John would have produced dressings in house, the net loss would have been less as compared to outsourcing. He would have incurred a net loss of ?25,600 rather than ?30,000 leading to an eventual profit of ?74,000 (the working for this is shown in table 2 below). In house production would have not damaged the costs like it did with outsourcing and the prime reason for this could be the quality control. Above this whether the product was being made in house or was outsourced, it is a product, either way, that is lowering the adversely affecting the profits of the company. Question 2 "Discuss the decision situation regarding the American enquiry. Your discussion should be supported by financial information which Mary would be likely to produce, and also briefly consider strategic issues." The company is currently incurring a loss from dressings and above this, the quality of the mirrors has been deteriorating over the 6 months since the outsourcing. The company has been saving ?20,000 after outsourcing of mirrors. However, the in house production, although the cost is higher than the outsourcing, leads to a net loss of ?25,600 while the outsourcing leads to a loss of ?30,000. In this situation the American enquiry demands 50 chests at a 70% price of the normal price. It would be easier to analysis if the discussion is on micro level. The normal price per piece is $1500 and the demanded price is at 1050 a difference of $450. This difference could not be covered by the way company is operating right now. Not to forget the delivery charges to the docks is $18 on each chest, which adds to the existing loss. The final price of the chest stands at $1148 which is $98 more than the demanded price. As stated in the case there is a over load of work in the company already, so handling this project would be very tough for everyone. Then comes in the travel issue, the distance between the countries will give rise to the probability of the project being damaged. The only way the company can achieve breakeven on this enquiry is to change the place they buy the raw material from or their labor costs, or any of their expenses.   Chest per piece American enquiry/piece    (?000) (?000) (?000) Sales revenue $300 1.5 1.05 Direct materials 90 0.45 0.45 Direct labor 53 0.265 0.265 Variable workshop over head 15 0.075 0.075 Apportioned fixed workshop overheads 68 0.34 0.34 total manufacturing cost 226 1.13 1.13 Gross profit (loss) 74 0.37 -0.08 Selling & distribution costs 7 0.035 0.018 Net profits 67 0.335 -0.098 Question 3 Mary has suggested to John that the company would benefit from a management information system to aid him in planning and controlling the activities of the business and to assist in organisational decision making. Join is not sure what Mary means. (a) Illustrate the types of planning and controlling activities that are likely to take place at High Street Reproduction Furniture Ltd. High Street Reproduction Furniture Ltd needs plan its activities along with the production and expected sales of the company. With the over burdening of the employees, important data is being ignored like in the case of dressings. The company should also check its product at each and every production stage. This product quality check will allow John to anticipate issues in quality before its effects are felt in the net profit. Above this, ...Show more

Summary

Question 1 (a) (b) If dressing are eliminated, the company will make a profit of ?94,000 rather than ? 64,000. (c) Other issues that John should consider before making the decision include the deteriorating quality of furniture product. It should be kept in mind before the decision of stop producing is made that the quality is not being maintained when the product is being bought from an outside contractor…
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PMM Coursework essay example
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