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# Companies considering new cost-cutting manufacturing process

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Director
Joined: 13 Nov 2003
Posts: 789
Location: BULGARIA
Companies considering new cost-cutting manufacturing process [#permalink]

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18 May 2006, 05:15
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Companies considering new cost-cutting manufacturing process 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.

OA to follow
Director
Joined: 06 Feb 2006
Posts: 897

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18 May 2006, 05:30
I think D....
Director
Joined: 24 Oct 2005
Posts: 659
Location: London

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18 May 2006, 05:31
I am changing my answer to D. (Initially went for C)
Director
Joined: 06 Feb 2006
Posts: 897

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18 May 2006, 05:35
ignore....
Manager
Joined: 13 Aug 2005
Posts: 135

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18 May 2006, 06:05
D also.
Manager
Joined: 28 Mar 2006
Posts: 157

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18 May 2006, 08:54
will go with D..hwever cudnt understand the option C n E...
Intern
Joined: 04 May 2006
Posts: 15
Location: Indiana
Re: cost-cutting manufacturing process CR [#permalink]

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18 May 2006, 09:19
BG wrote:
Companies considering new cost-cutting manufacturing process 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.

OA to follow

Either Cost, Selling Price or Market share has to fluctuate in the projection period as opposed to remaining "constant". Only D poses such a threat.
Senior Manager
Joined: 07 Mar 2006
Posts: 352

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18 May 2006, 21:28
'D'....................but to some extent 'A' also seems to be fine!!
SVP
Joined: 30 Mar 2006
Posts: 1728

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18 May 2006, 23:00
Will go with E.......
Let me explain.
The question is "which of the following would cast the most serious disadvantage for companies of using the method above for evaluating the financial benefit of new manufacturing processes"
The author doesnot say whether the company is taking any decision to undertake the investment or not. It just refers to the method the company follows.
The most serious disadvantage to a company using such method would be if the method is flawed.
This is stated in E, as it says the period of year chosen may affect the result, hence the method is not foolproof.
VP
Joined: 21 Mar 2006
Posts: 1127
Location: Bangalore

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18 May 2006, 23:23
One more for D.
Manager
Joined: 03 May 2006
Posts: 51

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19 May 2006, 00:09
D

"constitutes the most SERIOUS disadvantage for companies of using the method "
Director
Joined: 13 Nov 2003
Posts: 789
Location: BULGARIA

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20 May 2006, 02:33
OA-D
20 May 2006, 02:33
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