- 3 Marks
Question
b) Bee Ltd could outsource the production of Ohenewa to an overseas manufacturer. The Accountant has presented figures to show that the NPV of the project based on outsourcing the production is GH¢0.5 million higher than the positive NPV of in-house production.
Required:
Explain THREE (3) non-financial factors that Bee Ltd would need to consider before making the decision either to outsource or produce in-house. (3 marks)
Answer
Non-financial factors that Bee Ltd should consider before deciding to outsource production:
- Quality:
Can the outsourcing company produce the same product quality as Bee Ltd’s other models? Bee Ltd has a reputation for high-quality products. This reputation could be at risk if the outsourcing company cannot maintain the required quality standards. (1 mark) - Reliability:
Can the outsourcing company reliably deliver the products on time as required by Bee Ltd’s customers? The distance and international logistics involved could introduce delays, which could disrupt Bee Ltd’s supply chain and customer satisfaction. (1 mark) - Management Control:
The company would need to manage the relationship with the outsourcing company effectively. Since the outsourcing company is based overseas, managing this relationship may be more challenging and could involve additional costs that have not been factored into the NPV calculations. (1 mark)
- Tags: Decision Making, Non-Financial Factors, Outsourcing, Quality, Reliability
- Level: Level 2
- Topic: Discounted cash flow
- Series: NOV 2021
- Uploader: Dotse