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To what extent will the achievement of the 5% target reduction in Goodprice Supermarkets Ltds indirect costs be dependent upon external factors?

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Introduction

To what extent will the achievement of the 5% target reduction in Goodprice Supermarkets Ltd?s indirect costs be dependent upon external factors? External factor are any factors stemming from outside the business that can affect decisions over, or success in achieving market objectives. For example, changes in economic circumstances or competitor activities. Indirect costs are defined by expenses that are built up by using a service or making a product such as rent or depreciation. One external factor which could determine whether Goodprice achieves its 5% target reduction of indirect costs is economic activities. If the market is suffering from inflation, then the business is more likely going to have to pay higher rates of indirect costs such as rent to compensate for sudden increase in market prices. ...read more.

Middle

This could mean that the business may have to invest in additional CCTV facilities or security guards for the store which would limit chances of achieving a reduction of 5%, because provisions would have to be made for monthly wages of security guards and the maintenance of CCTV. However, it is not just external factors which would affect the achievement of the businesses financial objective of reducing their indirect costs. The size of the business would also influence the company?s liabilities concerning their indirect costs. The fact that Goodprice want to increase their number of stores by 25% over ten years means that they may suffer from diseconomies of scale. For example, the cost of rent for numerous stores opening would increase in price, along with electricity and refrigerator rental; basic services which are vital if the store wishes to continue retaining their customer base. ...read more.

Conclusion

On the whole, Goodprice Supermarket will have to review the businesses corporate objectives if they are serious about lowering their indirect costs by 5%. Conversely, they may need to lower the amount of new stores in which they wish to open in the next ten years as this will mean they have to pay for facilities such as rent, security and additional wages for new workers such as sales assistants and security. However, despite the fact that they can take these precautions, factors such as the current economic climate and may still increase the businesses running costs due to inflation. Social factors such as the location of the business, in the case, a busy town centre, could also prevent them from reaching their target, if they fail to organize finances properly. ...read more.

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