Your Company Is Considering Two Different Methods of Producing Its

question 153

Multiple Choice

Your company is considering two different methods of producing its product: purchase production equipment, or contract with a supplier to build the product for them. The methods have differing lives and cash flow streams. You should:

• A) Choose the method that will least affect the statement of financial position of the company.
• B) Choose the method that maximizes future cash inflows.
• C) Choose the method that will result in the highest net income.
• D) Choose the method that minimizes initial cash outflows.
• E) Choose the method that maximizes firm value.

Understand the concept of using binary variables in optimization for decision making such as plant location decisions.

Understand the composition and importance of quick assets in financial analysis.

Grasp the concept and calculation of the cost of goods sold and its impact on a company's gross profit.

Learn about the inventory management processes including the calculation of merchandise available for sale.

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Definitions:

Procurement Costs

Expenses associated with acquiring goods and services needed for business operations.

Number Of Suppliers

This refers to the total count of individual suppliers that a business sources its materials, goods, or services from.

Landed Costs

The total price of a product once it has arrived at a buyer's doorstep, including the purchase price, transportation fees, customs, duties, and other taxes.

Sales/FOB Terms

Terms used in international trade to define when and where the responsibility and ownership of goods are transferred from the seller to the buyer; "FOB" stands for Free On Board.