Question

Adam Smith, the owner of Button Pty Ltd, has explored the possibility of finding a cheaper supplier for the raw material required for the production of the Serta and the Tempu beds. He has an offer from a supplier which will reduce his raw material cost significantly and therefore lead to higher profits. There have been some reports that the material under consideration is of a poorer quality and has led to some minor accidents when sleeping the beds. The supplier has pointed out that these accidents have been fairly minor and the cost of refunding the clients and giving them some compensation for their injuries will still be cheaper overall for Adam and therefore result in higher profitability for Button Pty Ltd. Advise Adam on what decision he should take with regards to the supplier and raw material. Support your answer with any cases or guidelines you consider relevant.

Answer 1