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ACCA Strategic Professional · Strategic Business Leader · Financial analysis and decision-making techniques

Marlow Pharma's board is reviewing a proposed project to outsource a quality-testing process to a low-cost overseas supplier. The cost savings are clear. Which of the following is the most important non-financial consideration to include in evaluating the proposal?

The key non-financial consideration is the effect on quality control, regulatory compliance and reputation if the supplier fails standards. In pharmaceuticals these risks could be severe and are not captured by cost savings, whereas depreciation, tax and discount rates are financial inputs rather than qualitative factors.

  1. AThe effect on product quality control, regulatory compliance and company reputation if the supplier fails standardsCorrect
  2. BThe depreciation method used for the existing testing equipment
  3. CThe tax rate applied to the savings in the appraisal
  4. DThe discount rate used for the cash flow forecast

Explanation

Outsourcing quality testing in pharmaceuticals creates risks to quality, compliance and reputation that are non-financial and could be severe. The other options are financial or accounting inputs to the appraisal, not qualitative factors.

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