Question

In the long-term, the primary objectives of for profit and non-profit entities include:

1.minimize costs and maximize profit (or services)

2.minimize cost and maximize compliance (or services)

3.minimize costs and maximize sale (or services)

4.minimize costs and maximize variable/fixed costs (or services)

What factors are relevant to a company when evaluating "what if"scenarios to examine the impact options on a company's financial statement?

		change in product's sale price
		advertising expenses that will not change
		increases in products variable manufacturing costs
		the quantity of product that is expected to sell

Answer 1

1^st question:

Answer: 3^rd option

In the long-run all factors of production become variable; there should not be a pressure of recovering lump-sum fixed costs since these are already recovered in the short-run. A firm can concentrate on minimizing cost (such as availing huge discount on bulk material purchase). The firm can also concentrate on increasing sale; since the firm has short-run impact in the market, the increasing sale may not be so difficult.

2^nd question:   

1^st option: sale price may be change but the company has to examine whether such change can increase revenue or not. Revenue should not be reduced by this change.

2^nd option: there may not be any change in advertising but is it still helpful for revenue? This is to be evaluated – the factor to be watched is that whether the revenue is declining or not.

3^rd option: it affects directly on gross profit (GP). This is to be examined whether GP is declining or not.

4^th option: this is sale forecasting. The company has to examine the availability of requirements (like working capital necessity, labor hours, infrastructural facilities, etc.) before such estimation.