Question

Answer the following essay questions:

1.Facing with the changes of economic environment due to the outbreak of coronavirus, the CEO of Samson Corporation, a famous machinery manufacturer, is thinking about costs cutting. You are the CFO of the corporation and are required to give suggestions. Please list five ways from different dimensions in cost cutting and explain in detail.

2.You are the CEO of a car manufacturer which is facing a declining demand of its products. A consultant suggests that the implementation of quality concepts will increase product demand. What do you think? If your answer is yes, discuss the relationship between quality and product demand; if your answer is no, give reasons to support your answer. What do you think the relationship between quality and production cost? Explain.

Answer 1

(I) Cost Cutting
Five ways in which Samson Corporation can cut down its cost are as follows;

1.) Decrease Supply costs-

• The Company should negotiate the price of materials and components purchased from vendors as the constituents used in manufacturing machinery make up for a large portion of the total cost of machinery.
• The company should also ask for discounts based on quantity purchased, so as to lower down its purchase expenses.

2.) Lower down financial expenses-

• Unnecessary debt should not be raised by the company as it comes with an obligation of fixed interest payment.
• Even if money is required, the most optimum source should be chosen that results in the lowest financial expenditure.

3.) Reduce the production cost-

• Through efficient utilisation of resources and a committed workforce, the production cost can be reduced significantly.
• Normal losses can be brought down, resulting in a decrease in the defective products and reduction of testing expenditure.

4.) Decrease Administration and Office costs-

• The company should identify unnecessary expenditure and eliminate it.
• Also, the travel costs and office expenses should be reduced.

5.) Use Free Online Marketing to the fullest-

• Instead of using costly methods of marketing, social media sites and free online marketing tools should be used effectively.
• This will make the product known to a larger audience, with a very low cost attached with it.

Thus, these are the five ways that can be used for cutting down costs.

(II) Yes, implementation of quality concepts will increase product demand.

Relationship between quality and product demand;

• In the current era when people are highly conscious about the quality of the product, the relationship between product quality and product demand is positive.
• That means, if the quality of the product is good and up to the mark, the quantity demanded will be more. This is because, the more quality a company offers, the more people will want to purchase its products.
• Similarly, if the quality is low or inferior, the demand will also be low.
• People are always wanting to increase their utility or satisfaction from their purchases, so if the products are above quality, people will want to buy them more often and will persuade others to buy those too, thereby increasing the overall demand.

Relationship between quality and production costs;

• The relationship between quality and production cost will generally be positive or direct.
• This implies, if the quality is more or superior, generally the associated production cost will also be high.
• Similarly, if the quality is low, the production cost will also be low.
• It happens because, for increasing the quality of a product, better quality material is purchased or highly paid employees are hired, resulting in a higher production cost.
• It is also to be noted that quality doesn’t always imply high costs of production because if resources are effectively and efficiently utilised, there can be cost reduction too, ensuring high quality at the same time.