Question

Question2

Critically evaluate the financial and non-financial (qualitative) issues that may arise when an organization is considering the following decision making situations:

1. Special selling price decisions (involving one-time only orders)

25marks

2. Product mix decisions when capacity constraints exist (limiting factors) 25marks,

Answer 1

a.

1.The details of Cost of material, labour and overhead for all job may not be available to control since work is done along with other main works.

2.Profitability of each job may not be derived as planned due to hided costs.

3.Budgetary control and Standard Costing can be applied in job costing which may introduce conflicts.

4.Spoilage and detective cannot be identified since the work is carried out along with main stream of production.

5.Special selling price decisions is costly and laborious method.

6.As lot of clerical process is involved the chances of error is more.

7.This method is not suitable in inflationary condition.

8.Previous records of costs will be meaningless if there is any change in market condition.

9.No cost experience could be derived.

b.

1.Identifying key resources requires effort in large organisations.

2.Identification of maximum possible yield earning product mix is costly as it requires clerical works.

3.Dividing key resources among products correctly is a hectic job required to be performed with utmost care,failure of which will lead to serious business impacts.

4.High rate of inspection charges may be incurred because zero wastage to be ensured due to less resources.

5.Over focus on resource utilization for optimum product mix may lead to quality problems.

6.Even a small problem in the resource utilisation may lead to crumbling of plans.

7.Working on edges may lead to loss of morale of employees as a fault is highly penalised.

8.If the product optimization is successful through product mix,the producer may tend to stick on to the same level of resources leading to inherent disadvantage.

9.The entity may not be able to capture new opportunities in it's environment due to resources constrains.

10.Product mix can be implemented for a short term and cannot be used for long term purposes.