Following is some information about ACME Inc. three plants: Facility A, B, and C
ID: 2371909 • Letter: F
Question
Following is some information about ACME Inc. three plants: Facility A, B, and C.
Facility A: Units produced per month: 60,000; workers: 8; salary per worker: $20, machine hours: 500, and cost of materials: $20,000.
Facility B: Units produced per month: 55,000; workers: 7; salary per worker: $15; machine hours: 800, and cost of materials: $22,000.
Facility C: Units produced per month: 50,000; workers: 6; salary per worker: $10; machine hours: 700, and cost of materials: $19,000.
* Machine Cost per hour is $3 for all three plants.
Which plant should be closed and which one should be expanded based on their productivities? Please show your work. Thank you!
Explanation / Answer
First lets observe what is the expenditure incurred in each facility and what is the revenue generated in each company .how many units produced by each worker is important .
Facility-A
units produced - 60000
no. of workers - 8@$20/hr =160$
no. of machine hrs = 500 hrs@$3/hr = $1500
Cost of material = $20000
no. of units produced by each worker = 60000/8 = 7500
no. of units produced by each machine in an hour = 120
Total cost incurred for producing 60000 units= 21660(160+1500+20000)
Facility B
units produced = 55000
no. of workers = 7@$15/hour = $105
no. of Machine hours = 800hrs @ $3/hour = $2400
Cost of material = 22000
no of units produced by each worker in a month = $55000/7 = 7857.14
no. of units produced by machine in each hour = 55000/800 = 68.75
total cost incurred to produce 55000 units = $22505(105+2400+22000)
Facility C
units produced = 50000
no. of workers = 6@$10/hour = $60
no. of Machine hours = 700hrs @ $3/hour = $2100
Cost of material = 19000
no of units produced by each worker in a month = $50000/6 = 8333.33
no. of units produced by machine in each hour = 50000/700 = 71.42
total cost incurred to produce 50000 units = $21160(60+2100+19000)
Conclusion:
Facility B should be closed as it is incurring highest expenditure i.e. 22505 to produce 55000 units which is costlier than Facility A and the efficiency of the labour is also poor when compared to Facility C because each labour is producing 7857 units and even the machine hour capacity is 68.56 per hour.Hence it is not profitable to run the facility B because there were no skilled labour nor productivity of machinery is low.
Facility C should be expanded because the efficiency of labour is 8333 per month. there are highly skilled labours even though they are paid less compared to the Facility A and Facility B. If there is a slight increase in salary they even work more efficiently and production can be more with less financial burden on the company because investing on machinery would be costlier when compared to investment on labour and we can also increase no. of labour hrs. per month to get more production which is cheaper.So better to expand C