Year 10 Accounting and Economics

 The government has imposed new health and safety laws. The cost of safety training will be $30,000. You hope this will reduce stoppages and increase output by 5%  Do you 1. Introduce the training 2. Do nothing and risk a fine

1. Option one  Total costs increase $30,000 (staff training)  Increase output by 500 units 2. Option two  An inspector arrives and fines you $40,000  Add $30,000 to total costs  Increase output by 500 units

 Your production manager wants to break up the task of making the skis into several smaller jobs and retrain the staff. Training costs will be $45,000 but output should increase by 20% and raw materials cost increases by $20,000  Do you 1. Introduce the change 2. Do nothing

1. Option one  Increase output by 2000 units  Increase total costs by $45,000 (training)  Increase total costs by $20,000 (raw materials) 2. Option two  No changes

 You are considering installing sprinklers and improving fire safety. This will cost $12,000. You estimate the risk of fire is <2%  Do you 1. Install sprinklers 2. Do nothing

1. Option one  Add $12,000 to total costs 2. Option two  There is no fire but your insurance company is not happy and increases your insurance premium so total costs increase by $10,000

 Due to the removal of import barriers the local market is flooded by cheap skis from overseas. You consider increasing advertising which will cost $60,000  Do you 1. Advertise 2. Not advertise

1. Option one  Increase total costs by $60,000 (advertising) 2. Option two  The flood of cheap imports forces you to cut your output by 2,000 units

 Your factory staff are demanding a 10% pay rise or they will strike. If they do strike your annual output will fall by 10% from last year.  Do you 1. Accept the pay rise 2. Ignore the threat

1. Option one  Increase total costs by $15,000 (wages) 2. Option two  The strike does not work and they return to work. However output falls by 1000 units

 Your molding machine is getting old and causing an estimated % reduction in output. A new machine will increase output by 1000 units but will cost $50,000 a year to lease. It will also effect the cost of raw materials  Do you 1. Lease the machine 2. Keep using the old machine

1. Option one  Increase output by 1000 units  Increase total costs by $50,000 (lease costs)  Increase total costs by $4,000 (raw materials) 2. Option two  Reduce output by 500  It keeps breaking down so increase total costs by $5,000

 You want to buy the warehouse next door so you can reduce your rental costs of your current warehouse. You will need to borrow $500,000 at 8% interest but it will save you $45,000 in rent.  Do you 1. Buy the warehouse 2. Not buy the warehouse

1. Option one  Interest costs up by $40,000 but rent down by $45,000 so total costs down by $5, Option two  No change

 You want to expand your business by taking over a rival ski maker. This will increase wages costs by $100,000, rent $20,000, freight by $10,000, machinery by $10,000, raw materials by $120,000, power by $2,000, staff training by $5,000 but will also increase output by 10,000 and help you compete with the increasing imports of skis from overseas.  Do you 1. Expand 2. Not expand

1. Option one  Increase total costs by $277,000  Output up 10, Option two  Increase overseas supply means you have to sack some of your workers resulting in a output drop of 1,000.