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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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. This could lead a minimal amount in profit for the business to use on inventories, thereby lowering the volume of stock sold and prohibiting the business in maximizing on their monthly profit. Such problems could only result in reduced cash flow, making the business look unattractive to potential minority stakeholders.

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Another external factor that could determine whether Goodprice achieve its 5% indirect costs reduction are social factors. Seeing as the company is looking to rent out town centre stores, indirect costs such as the cost of security may have to be increased due to a higher possibility of theft. 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 ...

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