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manufacturing processes

by ranell » Mon Jun 08, 2009 1:29 pm
Companies considering new cost-cutting manufacturing processes often compare the projected results of making the investment against the alternative of not making the investment with costs, selling prices, and share of market remaining constant.

Which of the following, assuming that each is a realistic possibility, constitutes the most serious disadvantage for companies of using the method above for evaluating the financial benefit of new manufacturing processes?

A. The costs of materials required by the new process might not be known with certainty.
B. In several years interest rates might go down, reducing the interest costs of borrowing money to pay for the investment.
C. Some cost-cutting processes might require such expensive investments that there would be no net gain for many years, until the investment was paid for by savings in the manufacturing process.
D. Competitors that do invest in a new process might reduce their selling prices and thus take market share away from companies that do not.
E. The period of year chosen for averaging out the cost of the investment might be somewhat longer or shorter, thus affecting the result.
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by SanjeevK » Mon Jun 08, 2009 1:55 pm
IMO[spoiler] C:[/spoiler]
C clearly points out that even though we consider the costs, selling prices, and share of market constant and evaluate the result of making investment vs not making investment, the results might not give the clear picture. For example, the results might show that there is a net gain with the cost-cutting process whereas it might take many years to actually realize the gain.
We are assuming the costs, selling prices, and share of market to be constant. Eliminate A and D.
Interest rate and period of year is not a factor here. Eliminate B and E.
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by ranell » Mon Jun 08, 2009 2:24 pm
I also would go with C on the real test, but the A is D. Please explain me the reason.
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by lily164 » Mon Jun 08, 2009 6:11 pm
The text says the comparison [the project results of new processes with those of the alternatives] really works if the alternatives are assumed to remain the constant share of market. So this method seems disadvantage if there are factors that make the alternatives' share of market change. (D) states the investors in new processes might cause the share of market of alternatives to decrease. I go for D.


Other explanations please if I am wrong!
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by SanjeevK » Tue Jun 09, 2009 8:26 am
Thanks Lily. You are right. Option D attacks the very assumption of constant share of market.
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by yogami » Tue Jun 09, 2009 12:54 pm
Yup, agree with lily. D is it. The question asks what would weaken the company's methodology. Not what would weaken the company's plan in investing for the new processes. And the methodology clearly depends upon the market share, etc etc. If those parameters change then how are they going to compare the two costs? And D clearly tells us that those parameters can change thus weakening the company's methodology.
200 or 800. It don't matter no more.
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by mehravikas » Tue Jun 09, 2009 4:36 pm
IMO - D
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by turbo jet » Wed Jun 10, 2009 3:00 am
Again a very good qs ranell

IMO: D


A: Contradicts the conclusion (cost is constant in stimulus)Eliminate


B: Talks of reduction in
borrowing costs. Contradicts the conclusion (cost is constant in stimulus) Eliminate


C:Some cost cutting process does not imply the cost cutting manufacturing process that is being talked about in the stimulus. We can never infer some info from a given particular info. Eliminate

D: The author's logic says that X (new mfg process)should lead to Y (evaluation of financial benefit)
However this answer choice undermines the possibility of
X(new mfg process) leading to Y (evaluation of financial benefit).
How does it undermine? When we are changing SP, X method gets changed to some other method. And when we say that there is more than 1 method for reaching the conclusion ( Here it is Y) , then we are weakening the author's claim that only X can lead to Y.

Hence correct

E: Out of scope. Not related. Eliminate


Hope this helps!!
Cheers!!
Turbo Jet


:) :) :) :) [/spoiler]
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Re: manufacturing processes

by amazonviper » Wed Jun 10, 2009 11:05 am
ranell wrote:Companies considering new cost-cutting manufacturing processes often compare the projected results of making the investment against the alternative of not making the investment with costs, selling prices, and share of market remaining constant.

Which of the following, assuming that each is a realistic possibility, constitutes the most serious disadvantage for companies of using the method above for evaluating the financial benefit of new manufacturing processes?

A. The costs of materials required by the new process might not be known with certainty.
B. In several years interest rates might go down, reducing the interest costs of borrowing money to pay for the investment.
C. Some cost-cutting processes might require such expensive investments that there would be no net gain for many years, until the investment was paid for by savings in the manufacturing process.
D. Competitors that do invest in a new process might reduce their selling prices and thus take market share away from companies that do not.
E. The period of year chosen for averaging out the cost of the investment might be somewhat longer or shorter, thus affecting the result.
IMO D as well. I initially was about to choose C but as soon as I read D and the questions again (realistic possibility) I was confident that D was the answer.
I am pretty sure that C will be analyzed since this is a necessary assumption to be made.
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by Brad.C » Sun May 15, 2016 1:58 pm
D. Competitors that do invest in a new process might reduce their selling prices and thus take market share away from companies that do not.
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