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Finance & Accounting
Pages 10 (2510 words)
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.
(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. ...
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