Non-financial factors that must be considered in reaching the decision
(i) The workforce. If the recommended course of action is undertaken, the workforce will produce enough units of X in the next 13 weeks to satisfy sales demand over the next year (with 18 weeks' supply of existing finished goods inventories and a further 35 weeks' supply obtainable from direct materials inventories). When production of Y begins, the direct labour content of production will fall to $2.85 per kg – less than 40% of the current effort per kg produced – but sales demand will not rise. The changeover will therefore mean a big drop in labour requirements in production. Redundancies seem inevitable, and might be costly. By switching to producing Y as soon as possible, the redundancies might be less immediate, and could be justified more easily to employees and their union representatives than a decision to produce enough X in the next three months to eliminate further production needs for about nine months.
(ii) Customers' interests. Product Y is a superior and 'more effective' compound than X. It would be in customers' interests to provide them with this improved product as soon as possible, instead of delaying its introduction until existing inventories of direct materials for X have been used up.
(iii) Competition. CD is expected to start selling Y overseas, and quite possibly in direct competition with AB. CD has the advantage of having developed Y itself, and appears to use it in the preliminary stage of an alternative technical process. The competitive threat to AB is twofold:
(1) CD might take away some of the replacement demand for Y from AB so that AB's sales of X or Y would fall.
(2) CD might compete with AB to install its total technical process into customers' factories, and so the competition would be wider than the market for compound Y.
