Answer to Question #208706 in Economics for Pooh

Question

D. Describe some measures that can be used to evaluate supplier delivery performance and the quality of the supplier relationship. (5 marks)

B. Differentiate between Sunk cost, Opportunity cost, incremental analysis and outsourcing with examples? (10 Marks)

Answer 1

For each criterion, an indicator group is selected. So, to assess the financial reliability can be used indicators such as profitability, liquidity ratio, the ratio of the availability of own circulating assets, the equity ratio (the share of equity capital in the property), the ratio of the real value of the property. Such indicators can be calculated on the basis of data obtained as a result of the analysis of the profit and loss statement, vertical analysis of the balance sheet (analysis of the structure of assets and liabilities), analysis of the financial stability of the organization, analysis of its solvency and liquidity, analysis of performance indicators and profitability, analysis of turnover resources. To assess the history of the relationship with the supplier, indicators of quality and service level are used, for example, delivery cycle time, order processing time (availability of an automated order processing system), warranty policy (level of technical support, response time to a request).

The opportunity cost of a good is determined by the amount of another good that has to be abandoned in order to acquire, to receive an additional unit of the given one. This is the price of a discarded, missed alternative that had to be replaced with a more preferable one, i.e. the price of a loss, a missed opportunity.

The costs due to the abandonment of one product in favor of another are called alternative (imputed) costs. They mean lost profits when the choice of one action excludes the emergence of another action. Opportunity costs arise when resources are limited. Unless resources are limited, the opportunity cost is zero.

Some costs, from a decision-making point of view, cannot be accounted for in the normal accounting system. The costs accounted for by such a system are based on past payments or commitments to pay at a specified time in the future. These are the so-called actual costs, i.e. those costs that are recorded by the accounting system. For example, if we produced a product and spent a certain amount of material on it, then the accounting system will fix the consumption of material on demand-invoice for goods issue from the warehouse to production and will write down the amount of the material used to the production account.