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Transcription of this question: 2.FabiaFabia is a premium dress manufacturer in Australia. Fabia produces dresses for the Australianmarket and exports to a few Asian markets. The main target segment is women with high incomeswho prefer high quality, luxurious dresses, for which they are willing to pay premium prices.However, these customers are income elastic. Total quality management (TQM) is used inthe production Of the dresses. FabiaS unique selling point (USP) is based on high quality andunique design, as well as its ethical business behaviour.The global economic recession in 2009—2010 resulted in a severe fall in demand for Fabia dressesand consequently profit. Despite some optimism about economic recovery, Fabia’s financialmanager is considering outsourcing production to the Vietnamese manufacturing company Patellato reduce costs. Patella is a reliable mass-market* company that takes advantage Of the lack Ofregulations in Vietnam with regard to employment and the environment. Patella also has accessto cheap raw materials. Fabia would retain the design and marketing departments in Australia.The dresses would continue to be sold under the Fabia brand.Table 1: selected current data for Fabia in 2010Number Of units soldFull capacityFixed costsVariable cost per dressPrice er dress200 000 units er annum400 000 units per annumUSS7 millionUSS80USS150If Fabia outsources the production Of the dresses to Patella, the closure Of the manufacturing facilityin Australia will save USS5 million on fixed costs, but 65% Of the workforce will face redundancy.Patella could produce up to 2 million dresses per year, charging Fabia USS85 per dress, includingtransportTable 2: selected financial data for Fabia in December 2010 (all figures in USS)Closin balance for November 2010: 1 500000 Fixed assets: 9000000Payment for raw materials: 1 600 000Capital and reserve: 15000000Electricity payments: 20000Salaries and marketin : 175000Cash sales revenue: 2000000Depreciation allowance: 7000Short-term borrowing: 3 000 000Interest a ment: 1 1 000mass-market: wide ranging demand from undifferentiated consumer segments(Question 2 continued)(a)(b)(c)Define the following terms:(i)(ii)(i)(ii)(iii)total quality management (TQM)redundancy.Explain why “the global economic recession in 2009—2010 resulted in asevere fall in demand for Fabia dresses” and what the likely consequencesOf the economic recovery are for Fabia_Using Table 1 and any Other relevant information, calculate whetheroutsourcing the production Of dresses to Patella would be profitable forFabia at 200 000 dresses per annum (show all your working).Using data from Table 2, prepare a cash-flow forecast for December 2010for Fabia (show all your working).Analyse the proposal to outsource the production Of dresses to Patella.[2 marks/[2 marks/[5 marks][6 marks][4 marks][6 marks]

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