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Ace Limited is considering whether or not to cease production of leather-bound diaries.
Which of the following items are valid factors to consider in this decision?
1. “The budget for next year shows a loss.” This statement should not be considered when considering the decision. Could you explain why?
– A budget is a plan for the future. Therefore if we make a decision, we should consider the future consequence and if we forecast a loss, then it is a factor to take into account.
2. Could you please locate where I am getting things wrong in the reason I have provided?
Thanks.
I would need to see the whole question (given that you headed up your post “make or buy” there is obviously more in the question then you have typed.
If it is from a past exam question, or one of our questions on this website, or is a question from the BPP Revision Kit, then tell me which question and I will check.
Otherwise I am not able to help you (you cannot type out the whole question here because of copyright).
Actually that all in the question. There is no further information given. There are several statements where I have to choose. And among all the statement, the one above is one of them.
Sorry I have actually made an error for the post name.
Actually it’s a question in the KAPLAN kit where this question falls under the heading “make or buy”.Sorry again for the confusion
You would not make a decision based just on the fact that next year was budgeted to make a loss.
It would depend on whether you expected profits or losses in the longer term.
It would depend on what costs were used in calculating next years loss (if fixed costs had been apportioned to this product, then would they disappear or still remain even if this product was stopped?)
It would depend on whether or not we could change things for next year (such as increasing the selling price) in order to avoid making a loss.
It would depend on what the other products are and whether stopping the diaries would affect sales of other products which might be making profits.
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