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# Companies considering new cost-cutting manufacturing

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CEO
Joined: 20 Nov 2005
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Schools: Completed at SAID BUSINESS SCHOOL, OXFORD - Class of 2008
Companies considering new cost-cutting manufacturing [#permalink]

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21 Nov 2005, 22:49
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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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SAID BUSINESS SCHOOL, OXFORD - MBA CLASS OF 2008

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GMAT Club Legend
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21 Nov 2005, 22:59
I go with D. If competitors take away the market share, then the company is in danger of not being able to profit from the new measures.

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Manager
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21 Nov 2005, 23:03
I go with D as well. If this be the case, then the method of comparison fails since the market share and price both will change for the company not making investment in new technology.

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SVP
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21 Nov 2005, 23:28
I go for 'D'.

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SVP
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22 Nov 2005, 04:23
it is a clear D.
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hey ya......

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VP
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22 Nov 2005, 04:53
No doubt, D it is .....

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CEO
Joined: 20 Nov 2005
Posts: 2892

Kudos [?]: 337 [0], given: 0

Schools: Completed at SAID BUSINESS SCHOOL, OXFORD - Class of 2008

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22 Nov 2005, 13:03
OA is D
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SAID BUSINESS SCHOOL, OXFORD - MBA CLASS OF 2008

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Senior Manager
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23 Nov 2005, 02:32
I vote for 'D'

A - Cost of materials are factored in.
B - This is an advantage
C - This is a known thing.
D - You cannot predict this, may happen otherwise also.
E - Does not matter.

Hence D.

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23 Nov 2005, 02:32
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# Companies considering new cost-cutting manufacturing

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