Project management - Assignment Example

However, these kegs would be used in the years to come. Currently the problem is that manufacturing kegs would require cost and the company is not ready to make high investment and therefore it is evaluating whether it should manufacture kegs or not and if they should then in how much quantity. The management feels that so much cost would be tied up in kegs and they would only be able to use it for a month. If the company invests this amount then it can earn 10% interest income on the amount.

Considerations for the management while making decision According to the accountant, cost of one keg is ?40 and if the company plans to have 8,000 kegs then a total of ?320,000 would be tied up in kegs unnecessarily. Therefore the opportunity cost of the company for making this investment is ?32,000 as the interest rate is 10%. There are three alternatives that the company currently has and these alternatives are: 1. They need to produce 8,000 kegs 2. They need to produce 4,000 kegs 3. They do not need more kegs These are the three alternatives that the company has currently however the management predicts that the demand of these products could increase by the following rates: There are 60% chances that the demand would increase by at least 10% in August.

There are 30% chances that the demand would increase by at most 10% in August. . ion and decisions that the company can make A Decision Mode If demand increases by 10% If demand does not increases by 10% If demand does not increase If demand increases by 10% If demand does not increases by 10% If demand does not increase If demand increases by 10% If demand does not increases by 10% If demand does not increase Decision The decision to order kegs would not only help Applegold to meet the increasing demands in August but at the same time it would impact the customer satisfaction level as well as this decision would be helpful in increasing the customer base.

In addition to this, Applegold needs to think about the long term and by investing today in the kegs the company not only would be able to increase its sales for the current year but these kegs could be useful for the years to come. The current market share of Applegold in the cider is approximately 30% and this can be increased which would be helpful for the company in the long run. This decision could also impact the customer satisfaction level and as when products are not available then customers can become dissatisfied and they might switch to competitors’ product.

And once a customer has switched it is difficult to regain him therefore lost of one customer could decrease the revenues that the company might earn in the years to come. In addition to this, a lost customer might also take others with him and it could become a chain for the company and they might start losing customers. Therefore it is important that the company makes an investment as it will be beneficial in the long run. The total revenue of the company was ?60 million along with a pre-tax profit of ?

6 million and with this investment the sales of the company would improve further and thus it would also improve the