extract 1
- Created by: geogt002
- Created on: 05-06-16 17:16
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- extract 1
- possible reasons for loss in 2015
- increase in interest rates. interest loans is a cost to the business therefore if banks increase the rate of interest businesses have to pay more for the money they have borrowed. the case study suggests that the pay 10,000 pounds in interest each year. not sole reason.
- fall in selling prices. over the last 5 years the price of furniture has fallen by 100 pounds ( 100/600 x 100= 16.7 percent). this could be down to competition and other firms putting their prices up so af had to too. firms being able to manufacture cheaper so they are passing the cost reduction onto the customer in order to gain more of the market.
- high manafacturing costs. as previously mentioned af prodcue some made to measure produts. this would employ job production which is time consuming, labour intensive and costly. this would only be worthwhile if they can sell their bespoke orders at a much higher price. however given the fall in selling price it appears that their bespoke ranges are adding value to very high production costs.
- arguments for keeping some production in the uk.
- some customers like the 'made in britan' sighn. therfore if af remove this seal it might mean some retailers choose a different suppilier.
- normally the 'made in britain sign' allows a higher selling price. this is because customers are willing to pay more for products that are directly supporting economy. in addition some are seen to be of higher quality. however the selling price is 500 pounds wherever so it is not the case for af.
- they have been operating since 1980 with the factory opening in 1984 so they may have to make highly dedicated and skilled staff redundant. this may cause phillip ethical problems as well a negative publicity too which could reduce product demand.
- made in britain is a brand that will help af compete against foreign firms-especially eu that import into the uk and can quite often offer cheaper prices that the uk based manafcurres.
- they are a supplier and manufacturer of goods. secondary sector.
- arguments for importing all prodcuts
- cheaper costs. closing the factory will lower the costs as they will have to make redundancies. this will mean that they will not have to pay for rent, bills, wages and other costs associated with the factory.
- sweden is in the eu. this means no ad cost for importation. this helps to keep costs low. however this depends on whether britain stays in the eu.
- the cost of mafactruing is chaepr. each wardrobe is 70 pounds cheaper to manafactur in swende. this allows a 10 percent profit margin per wardrobe. wheras in the uk costs per wadrobe are 520 pounds so that is 20 more than the selling price which results in a loss for the wardrobes.
- capacity issues in the uk. this limits the amount of goods that can be produced in the uk fsctory and could mean that af may not be able to meet demand.
- falling price in timber. the case study suggests that the cost of timber ( that makes furniture-raw material) is falling. if this is in sweden than it could further reduce costs making the imported products more profitable. if the falling cost of timber is in the uk then it might be a reason to keep the factory open.
- how the exchange rate implements the decision.
- the rate of exchange between the pound and the krona is an important factor. if the pound strengthens against the krona then importing will be cheaper. this would reduce the cost of importing, making the profitability on imported products higher. however exchange rates fluctuate- there is no guarantee the pound will remain strong.
- final judgement- af should close the bowton factory as it would seem the most profitable decision. especially as the company made a loss last year. however this is only the data on one product line. the deion must depend on the profitability of the belmont and ladybridge product line as well. if they are not making a loss then it might be best to only import for egerton and keep the uk factory for the belmont and ladybridge in the short term. it might be cost efficient to import all of their product line but this decision will depend on the swedish supplier to have the expertise to manufacture all product line and to a particular quality.
- possible reasons for loss in 2015
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