In business decisions are made based on the analysis of the different factors that affect the business elements due to the nature of the business. The availability of data is the key case for providing accurate analysis on which decisions will be based. On the light of the above mentioned, this paper will provide a description for the differential analysis in dropping /keeping customers, product line offerings, and making or buying decisions. Also, discussion in this paper is going to involve the role qualitative information may have in differential analysis as well as sunk and opportunity cost and explaining why managers must consider those issues. In the first stage I will focus the light on what differential analysis means. Demonstrating …show more content…
That is also called (outsourcing). These two factors are the cornerstones that must be considered quantitative and qualitative analysis. Companies go for taking such decisions in case of reducing the capacity, having problems or difficulties with suppliers (Martin, (January 25, 2015)). Also, lack of expertise, small quantity requirement, the company's strategy of having multiple sources, lack of developed technology and so many other reasons could be behind Make-or-Buy decisions. When the company goes for in-house producing, the products must incur all the costs and expenses that are related to the products. On the other hand, if the company decided to go for the outsourcing the purchased product must include all the expenses up till the purchased products are received and stored. Multiple opinions are need to compare either the qualitative analysis, but the quantities aspect is …show more content…
Later on, the share price of company A rose to $1,200, whereas the share price of company B rose to $1,500. The different in the net profit of the two companies $500,000- $200,000= $300,000 is the opportunity cost if my company has chosen the company A to buy from. Managers should no relay on the sunk cost when making future decisions; therefore, they should not be taken into consideration as they can't be reserved. However, the opportunity cost should be taken into consideration by managers when they take decisions because it is an effective tool of making the best use of the company's money. Therefore, the differential analysis in dropping /keeping customers, product line offerings, and making or buying decisions and opportunity cost are so important financial analysis tools that should be used by finance manager for making the best investment and use of the company's money. Also, the qualitative information has have an important role in Make-or-buy decisions by analyzing the control over quality of the component, reliability of suppliers, impact of the decision on suppliers and customers. References Differential Analysis to Make Decisions. (n.d.). Retrieved from
In order to find out what are some of the key drivers’ of the analysis I will further run different sensitivity analysis. I think some of the key drivers of our assumptions could be sales growth, production costs as a percentage of sales, inventories as a percentage of cost of goods sold etc.
Calculating the right price for a product can be difficult, mostly because it will affect Calibrated’s bottom line. Increasing the price of a product to maximize profit can induce several risks to a company. For example, making a change to the fixed or variable costs, the number of units sold will have an impact on the company’s profitability. Increasing the unit cost of a product and decreasing the number of units sold will have a negative impact on the
Even though a myriad of tools and techniques learnt in the Strategic Cost Management and Strategic Business Analysis courses are not fully exploited in this essay, it is generally recognised that those techniques are useful for a corporate to formulate strategy, do strategic planning, control costing and quality, as well as eventually elevate its values, regardless the nature and size of organizations.
Having taken a calculus class two years ago, I was introduced to topics which I either enjoyed or developed a deep hatred towards. From integration by parts to related rates, the one topic that I caught on to the be...
...pital resources like distribution vehicles and storage warehouses should be outsourced to help reduce the high cost of operation which in turn can lead to reduction of its products price. The company should concentrate on product development and evolution and delegate distribution roles to outsourced firms. Such initiatives have worked well in the new Indian market and should be implemented in other areas.
The way that companies are keen to respond to changes in market conditions has to be carefully analysed, whereas the company must consider if the resource inputs are readily available, the mobility of workers, availability of stock room, if the production is at its full capacity as well as the production cycle.
The four techniques used for analyzing the costs and benefits of a proposed system is break-even analysis, payback analysis, cash-flow analysis, and present value analysis. Break-even analysis is a supply-side analysis. Only the costs of the sales is analyze with break-even. It does not analyze how demand may be affected at different price levels. A strength of break-even analysis it’s relatively simple concept and the formula can be easily understood and used by most people. Another strength is that it provides vital information when making a decision. Weaknesses of break-even analysis is it assumes that all output will be sold. It is difficult to apply break-even analysis when a company sells more than one product. Break-even cannot show what will definitely happen. The payback analysis method is the simplest analysis method to use when looking at one or more major project options. It tells you how long it will takes to earn back the money you will spend on the project. Payback analysis helps you decide you whether or not you should undertake the project. The biggest strength of the payback method is that it is simple. The payback analysis method is used to make quick evaluations of projects. Weaknesses of the payback method is that the method ignores the time value of money. The payback analysis method does not consider cash inflows from a project that may occur after the initial investment has been recovered. A cash flow analysis is a listing of the flows of cash into and out of the project. This is like your checking account at your bank. Deposits are the cash inflows and withdrawals are the cash outflows. The balance in your checking account is your net cash flow at a specific point in time...
Other process costs include the expenses incurred on outsourced companies that help in transforming raw materials to final products. An example is payments to malting companies that prepare malt ready for brewing purposes in large brewing companies. The payments to sub-contracted company are based on quantity of malt supplies and level of production. The expenses form part of direct costs that could be clearly attributed to processing activities (Haller, Raffournier, & Walton, 2003, p.16). The services of the subcontractor do not help in the direct processes, for instance, subcontractors offering food and restaurant services to direct process workers.
Outsourcing labor and materials in a global market can significantly stretch the supply chain structure. This can have both positive and negative effects. Looking to different countries provides the opportunity to access different markets and find the lowest possible manufacturing costs. Many companies also embraced the Toyota Motor Corp. model of just-in-time inventory and other lean manufacturing techniques that emphasized speed and cost reduction (Bosman, 2006...
Some decisions prove to be vital and any miscalculation that may be involved may prove dire for the individual or the organization. In identifying the criterion to use while evaluating different decisions, many factors pertaining the structure should be considered. The pros and cons of every decision made should be evaluated to ensure that the option chosen has the most positive effect on the individual and the organization. Some of the activities that may require keen decision making include project development, finance and operations. With the knowledge attained it will be easier to cope with tough decisions that may come up in my career. Decision making models may be generated to give an in depth view to the problem and also provide critical analysis ability. It is also vital noting that for those in managerial positions, they face a bigger task in decision making. A good understanding of the business function and structure will provide an in depth knowhow to those that have studied the
Making business decisions involves choosing between alternative courses of action. Many factors affect business decisions, yet analysis typically focuses on finding the alternative that offers the highest return on investment or the greatest reduction in costs. Some decisions are based on little more than an intuitive understanding of the situation because available information is too limited to allow a more systematic analysis. In other cases, intangible factors such as convenience, prestige, and environmental considerations are more important than strictly quantitative factors. In all situations, managers can reach a sounder decision if they identify the consequences of alternative choices in financial terms. This unit
Bourne, M. "Applications of Differentiation." Interactive Mathematics. N.p., 25 02 2011. Web. 14 Apr 2011. .
With the rise of the economy, consumers have become more and more knowledgeable on selecting their favourable product as a result the organization cannot focus on what it sells but on the side focus on what the customer wants to buy.
This Case has been prepared by Prof. Surya Mishra, KIIT School of Management, KIIT University from publicly available data. This is intended as a basis for discussion by students in the classroom and not to demonstrate right or wrong business approaches. Nothing written hereunder can be construed as an endorsement or commentary on business practices. This case has not been prepared with any inside information or primary research and is not authorized or sponsored by any of the business entities mentioned hereunder.
Managerial economics deals with the use of economics’ principles, techniques and concepts to managerial problems of business and industrial enterprises. Managerial economics helps firms in formulating logical tools and techniques for managerial policy and decisions making. Furthermore, it helps in narrowing the gap that exists between economics in theory and in practice and guides managers in making decisions that are related to customers, competitors, suppliers and internal functioning of a firm. It also encourages the use of statistical and analytical tools in solving practical business problems by