Payback period is the length of time it takes to recover the initial cost of an investment. However, this method does not consider the cash inflows beyond the payback year and it does not consider the time value for money.
The accounting rate of return (ARR) is equal to the average after-tax income from a project divided by the average investment in the project. However; it also does not consider the time value for money.
In this case, the company would be better off using the NPV or IRR since they consider the time factor in which the company is seeking to increase its revenues.
Question 4
In order to achieve operational efficiency, Durango Manufacturing Company must incorporate costing techniques in its various departments. Costing helps
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Outsourcing is beneficial in terms of lower labor costs, fewer regulations in foreign countries, lower real estate and plant costs, increased sales due to lower selling price and increased operating capital (Edmonds et al, 2006). I would not recommend outsourcing for Durango Manufacturing Company at the beginning of its operations. This is a start-up middle sized company specializing in custom cabinets and when it outsources its manufacturing operations, it should have the ability to oversee and regulate the production process taking place in the foreign country. This would mean that the company will have to pay an employee to be presents at all times during working shifts to supervise, examine and control the quality of the end-products. Quality is important to the company and its high-end target market as stated in its mission. In the event that the outsourcer makes an inferior product, the customer will be inconvenienced as the mistake will be discovered late (due to the amount of time it takes to ship).There is also the issue of bad publicity that ensues from outsourcing. Customers may not take it kindly that the company is taking jobs from their communities and giving them to foreign countries. For these reasons, the company should focus on delivering their mission statement and achieving its objectives within the five years in order to build a customer
Star Appliance is looking to expand their product line and is considering three different projects: dishwashers, garbage disposals, and trash compactors. We want to determine which project would be worth doing by determining if they will add value to Star. Thus, the project(s) that will add the most value to Star Appliance will be worth pursuing. The current hurdle rate of 10% should be re-evaluated by finding the weighted average cost of capital (WACC). Then by forecasting the cash flows of each project and discounting them by the WACC to find the net present value, or by solving for the internal rate of return, we should be able to see which projects Star should undertake.
Outsourcing simply means acquiring services from an external organization instead of using internal resources (Butler, 2000). By using outsourced resources, organizations can gain a competitive advantage by utilizing contingent staff to accomplish strategic goals without incurring the fixed overhead. By focusing on the leading edge and highly specialized skill sets, outsourcing providers can often offer higher quality services, or at a lower price than the client organization. Typical reasons for outsourcing go beyond simple contingent staffing. Outsourcing providers are able to maintain economies of scale with regard to specialization (...
...eting tool that show the differences between the present value of revenues and the present value of expenses. The project can be profitable when the net present value is positive. In other words, the present value of revenues is greater than the present value of expenses. Profitability index is another tool for evaluating investment projects, which is the ratio of the PV of benefits on the PV of costs. A project can be beneficial if the profitability index is greater than 1. Also, it has the same idea as NPV that In other words, the present value of benefits is greater than the present value of costs. However, these two methods (NPV and Profitability Index) have been used to evaluate the proposal of implementing EHR.
John Deere Component Works (JDCW), subdivision of John Deere and Co. was in charged specifically of the manufacturing of tractor component parts. The demand for JDCW’s products had problems due to the collapse of farmland value and commodity prices. Numerous and constant failures in JDCW’s competition for bids, alerted top management to start questioning their current costing methods. As an outcome, the analysis has to be guided to research on the current costing methods with the intention of establishing legitimacy and to help the company in adopting a more appropriate costing system.
When you're in construction, you know that big or small, most every job requires some heavy haul trucking. You also know that you need a trucking a company that is trusted, reliable, and affordable. Rojac Trucking Inc. of Wailuku is all three! They are a family-owned and operated trucking company and have been helping build up Wailuku since 1978 by aiding construction projects all across the island . Their team of professionals have decades of experience behind them and they are an accredited member of the Better Business Bureau. No other trucking company would make a better partner on your next project. Whatever needs moving, they can move it.
Outsourcing provides products we may lack the resources to produce in America. We could buy technology that hasn 't been developed yet, or services our nation does not offer. But in excess outsourcing will cause more problems than benefits. In Michael Dennis Scott 's book Scott on Outsourcing: Law and Practice Dennis evaluates the trouble it takes to have a successful outsourcing contract. He points out that “the parties must continually work to ensure that the relationship continues in a mutually satisfactory manner” to be successful in the long term. For outsourcing to work both parties must be very flexible as unexpected circumstances are likely to emerge. When outsourcer relationships go wrong a huge number of problems could occur. One major risk is that there is a risk of losing confidential data to partner, this could hurt the business greatly and cause safety concerns for the company. Also the products may take much longer than anticipated to be produced and arrive since many outsourcers may have several partners. There also may be hidden legal problems and costs if the partnership contract isn 't reviewed in depth and conditions are left undefined. There is also the major risk of the other business going bankrupt, if this happens the financial loss to American companies could be out of
Outsourcing occurs when products or services are obtained by an outside supplier (Vonderembse & White, 2013). Companies may decide to outsource if it can be obtained less expensively due to specialization or the other company may have proprietary technology that gives them a competitive advantage (Vonderembse & White, 2013). This paper will analyze trade-offs for productivity improvements, discuss both the advantages and disadvantages of global sourcing versus producing in the United States, recommend a low labor cost country based on inputs, trade-offs and global advantages and give an example of a product of the specific country.
Outsourcing in the long-run might negatively impact employees. Timbuk2 may decide to move the company as a whole to China is order to reduce their operational cost. This can be a possibility as a result of technology change and the ever increasing cost of living. Another important area Timbuk2 must pay attention to is their sales and customer base. If their sales decrease, is it due to customer dissatisfaction due to price, quality or diminished interest in the product. Timbuk2 can control the quality of the product by regularly doing product and process
Discounted cash flow is a valuation technique that discounts projected cash inflows and outflows to evaluate the potential value of an investment. There are three discounted cash flow methods: Net Present Value (NPV), Profitability Index (PI) and Internal Rate of Return (IRR). The net present value discounts all cash inflows and outflows at a minimum rate of return, which is usually the cost of capital. The profitability index refers to the ratio of the present value of cash inflow to the present value of cash outflows. The internal rate of return refers to the interest rate that discounts cash inflow projections to the present to ensure that the present value of cash inflows is equivalent to the present value of cash outflows (Brown, 1992).
When developing a valuation for Richards Building Supply Co, there is key aspects of the prevailing practices and procedures used by financial theorists and valuation consultants to the assessment of cost of capital in order to apply it as a present value discount rate in a traditional present value model. The main structure of business valuation is cost of capital. Key statement states “Value today always equals future cash flow discounted at the opportunity cost of capital (google.com)”. When defining Cost of capital “refers to the opportunity cost of making a specific investment. It is the rate of return that could have been earned by putting the same money into a different investment
Outsourcing has been around for many years. In this paper, I will discuss some of the history of outsourcing, the good things about outsourcing, and the bad things about outsourcing. Outsourcing is important because many companies rely on it in order to get many different products and services to their facility on time and in good shape. Outsourcing is a huge part of the business industry today. Any business can be affected by outsourcing.
Usually the firms to which the activities are outsourced are specialized in their area of work and so the parent firm gets the advantage of getting the work done through competent employees. Therefore, outsourcing gives competitive advantage to the companies which can be easily sustained by them without much effort.
The overall purpose of cost accounting is to advise top administration and the management team on the most suitable and cost effective methods and actions to employ based on cost, capability and efficiencies of a given product or service. It can be defined as the method where all the expenditures used during execution of business activities are gathered, categorized, examined and noted down (Horngren & Srikant, 2000). Once these numbers are gathered and recorded the information is used to determine a selling price and/or to identify possible investment opportunities. Although the principal aim or function of cost accounting is to help the business administration with their decision making and business planning process, the cost accounting data
Outsourcing is a technique for companies to reassign specific responsibilities to external entities. There are several motivations for outsourcing including organizational, improvement, cost, and revenue advantages (Ghodeswar & Vaidyanathan, 2008).
Hansen, D., Mowen, M., & Guan, L., Cost Management: Accounting & Control 6th ed., Mason, Ohio: South-Western