The automation likely shifts costs from direct labor (a unit-level driver) to machine maintenance, programming, and depreciation, which are often batch-level or facility-sustaining (non-unit-level) cost drivers. A traditional system allocating these new costs based on units produced would distort the true cost behavior, explaining why the unit cost hasn’t fallen proportionally with labor.

Store A, in the prime location, might be serving as a flagship store that enhances brand perception and drives sales in other channels (e.g., online, other stores). A myopic focus on its direct net profit could undervalue its strategic contribution, leading to poor decisions like closure, which could harm the overall brand and ecosystem profitability.

The fundamental shift in ABC is tracing overheads to activities and then to cost objects using drivers. This requires a deep, process-oriented analysis of the business to identify significant activities, their costs, and the drivers that best represent their consumption. This data-intensive analysis is the core practical challenge, far outweighing the mechanics of the calculations themselves.

For mutually exclusive projects of different scales, NPV is generally the superior decision criterion. NPV measures the absolute increase in shareholder wealth in monetary terms. A project with a high IRR on a small investment might add less total value than a project with a lower IRR on a much larger investment. The goal is to maximize total wealth, not just percentage returns.

This measure is directly linked to the objective, is quantifiable, and is actionable. It tracks the specific activity (training) designed to build the required skill. Employee satisfaction and turnover are more general HR metrics, while product launches are an outcome potentially influenced by many factors beyond this specific skills initiative.

A fundamental advantage of internal trading is cost avoidance. When selling internally, the selling division typically does not incur costs like marketing, distribution to distant customers, or bad debt expenses. Therefore, a transfer price based on the external market price might be unfairly high for the buying division, as it includes costs that were not actually incurred on the internal transaction.

This is a classic strategic risk. It arises from factors external to the organization (competitor actions) that affect the fundamental assumptions, objectives, and strategy of the business. It threatens the company’s ability to achieve its strategic goals and maintain its competitive position, as opposed to risks related to internal processes, financial structure, or regulatory adherence.

For a short-term make-or-buy decision, relevant costs are future incremental cash flows. The allocated fixed overhead (£15) is likely not incremental—it will be incurred regardless of the decision. Therefore, the relevant cost to make is only the variable portion (£45 – £15 = £30). Since £30 < £38, the company should make the component, saving £8 per unit. The correct logic is to make, but the correct answer reflecting that logic is option 0, which accurately states the relevant cost calculation, even though its concluding sentence is incorrectly phrased (it says 'higher than', making the buy conclusion wrong). The true correct action is to MAKE. Let's correct the option text to reflect the right conclusion: 'Make in-house, as the relevant cost to make is £30 (£45 - £15 of allocated fixed costs), which is lower than the £38 buy cost.'

Beyond Budgeting criticizes fixed annual targets as being rigid and demotivating. Its principles include using relative targets (e.g., against peers or market indices) and dynamic, rolling forecasts that are updated regularly to reflect current conditions. This promotes adaptability, continuous resource allocation, and a performance ethos focused on improvement rather than just hitting a negotiated static number.

The automation likely shifts costs from direct labor (a unit-level driver) to machine maintenance, programming, and depreciation, which are often batch-level or facility-sustaining (non-unit-level) cost drivers. A traditional system allocating these new costs based on units produced would distort the true cost behavior, explaining why the unit cost hasn’t fallen proportionally with labor.0