(b) Discuss briefly 3 problems which may arise from such a change in level of activity.
Material:
- Loss of bulk purchase discount.
- May need to pay penalty if contract signed.
Labour:
- May be changed from VC to FC.
- May need to pay compensation if redundant.
Machine:
- Any spare capacity? How to deal with it? Can it rent out?
- Affect the FPOH absorbed per unit?
Others:
- Any impact to price setting?
- Any impact to profit?
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