Tutor profile: Sagar S.
Consider an intertemporal choice model where a person lives for two periods. He works in the first period and consumes out of his savings in the second period. His income in period 1 is 1000 and 0 in the 2nd period. If the interest rate is given as 5% and he wishes to decide between how much to consume in the first period and how much to save, mention the budget constraint faced by him.
Since the person has no income in second period, he will be consuming what has been saved in first period along with the interest earned on those savings. So, Second Period Consumption = (First Period Income–First Period Consumption)*(1+Interest Rate) i.e. C2 = (Y1 – C1)*(1+r) C2 = (1000 – c1)*(1+0.05) C2 = 1050 – 1.05c1
Imagine I am working as a supply chain manager with a renowned firm whereby I need to take several crucial decisions. Discuss the decisions necessary for inventory i.e. working capital management.
As an Investor Supply Chain manager, we need to consider several important aspects regarding inventory or working capital management. First and foremost, we need to take care of warehousing as we need to have physical space to store the inventory before we move forward to buy any inventory for the business. Based on the frequency or movement of goods in and out of the inventory, the warehousing should be managed. If the sales are frequent and the frequent re-ordering is feasible, then comparatively smaller warehousing can work well. Another aspect to consider is the cost of inventory. Inventory costs include the rent of the storage for holding inventory, the interest foregone on the sum invested in buying inventory. So, the manager needs to check if the costs fit well in the budget, else modifications need to be made in inventory plans. Another decision regarding the inventory management is the re-ordering time i.e. the frequency at which reordering is required so that a smooth flow of inventory is maintained and without incurring too much inventory costs.
Suppose I wish to start my own company which would be related to developing a new mobile application. How would a cost-volume-profit analysis be applicable to study the feasibility of such kind of project?
In developing an app, there’s an investment required in terms of the cost of developing the app. The decision to build an app should depend on the potential customer base of the app and the money that the company expects to earn from them. We need to find the approximate money that the company can earn per user. We need to divide the total cost by per unit cost to find out the breakeven number of customers that would be required to meet the expense. Now if the number of customers required to breakeven is within an approachable limit, then the company should pursue the project as it will definitely cover its costs, and would earn a profit above it. However, if the breakeven point seems unrealistic, then we should rather opt for not pursuing the
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