Exam code: 7131
Which of the following actions is most likely to improve profits in the short-term?
Increasing capital expenditure
Increasing spending on marketing research
Increasing the price of a good which has price inelastic demand
Increasing training for employees in new production methods
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Glade Ltd
Mary is the Chief Executive of Glade Ltd, a company that manufactures tables. Glade Ltd currently produces 4000 tables each year. It hopes to increase sales by 50% over the next three years and even more in the long run.
Glade Ltd has a reputation for being ethical because:
Glade Ltd’s mission is to be the leader in its industry for using sustainable materials in its products. This means, for example, that it uses wood from companies that replant new trees to replace those cut down. Glade Ltd’s main competitors use about 40% of sustainable materials in their final products. Glade Ltd currently has 70% of sustainable materials and wants to continue improving this
it pays its suppliers within one month of delivery.
Glade Ltd makes relatively low profits but a bigger issue is its regular cashflow problems. The company’s bank manager has offered Mary a large overdraft facility and has told her that interest rates are likely to fall soon. Mary is not sure whether to take out an overdraft or not.
Glade Ltd sells all its tables to three big retailers. These retailers buy in large quantities. Glade Ltd typically gets paid between two and three months after it delivers the orders. Glade Ltd’s largest rival gets paid within six weeks by threatening to charge interest on money still owed after this time.
Glade Ltd has one main supplier for the materials it uses in its tables. Mary has recently appointed a new operations manager, who has suggested that Glade Ltd switches to a new supplier. The comparison of suppliers is given in Table 3. The price of materials and payment terms would be the same for both suppliers.
The operations manager also thinks that Glade Ltd should try to reduce the amount of warehousing space the company has and sell some of the land where it is based.
Table 3
Existing supplier | New supplier | |
Capacity for orders for Glade Ltd | 5700 a year | 9000 a year |
Lead time | 12 days | 8 days |
Percentage of materials supplied to customers that are from sustainable sources | 70% | 90% |
Mary is concerned about Glade Ltd’s cashflow problems. Do you think an overdraft is the best way to deal with the company’s long-term cashflow problems?
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Read the source in the Insert.
Parkside Theatre faces fluctuating demand for its cinema.
Analyse why this might make it difficult for Lorna to meet her cash flow objective.
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Read the source in the insert booklet.
Rana Fashion’s financial adviser has suggested two solutions to the company’s cash flow problems. Make a justified recommendation as to which solution Claudia should choose.
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