Question

Ron's been buried in sales agents' meetings and dialog with some US regional managers for three straight days and it seems they have the opportunity to buy a new bottling plant that could significantly decrease their cost of production for drinks. He arrives in your office for your weekly meeting and proudly says "After all is said and done buying this bottling plant makes good sense - It will cost less than the one we bought last year."

Why is the rationale for the decision not necessarily an appropriate one? What else needs to be considered? (8 marks)

Provide constructive feedback to at least two other students' postings. (2 marks)

Answer 1

The rationale for the decision of buying a new bottling plant is Not necessarily an appropriate one because we do not know if it will be an advantageous or not in terms of profit. Ron is just going by the fact that it is cheaper than the one they boight last year and this simply isnt enough.

It is also impprtant that not only the avoidable costs but also the apportunity cost need to be considered for Ron's situation. Both avoidable and opportunity costs should be considered as they are important incremental costs involved in the incremental analysis that is needed for a business to make an appropriate business decision among alternative options.

Therefore decision made by Ron is not necessarily an appropriate one.