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Allentown Manufacturing Company is a family owned business that manufactures cardboard boxes. Currently, the company has a manpower rate of 100 workers that work 20 out of a month. The company has been able to last through some of the toughest economic times, but recently the AMC’s fixed cost is “high enough”, and their total costs are exceeding their total revenue. Assess the current environmental scan factors that are relevant to the decision making process. Determine the factors that will have the greatest impact on plant operations and management’s decision to continue or discontinue operations.
Provide a rationale for your determination. Some environmental scan factors that are affecting the decision making process are social, economic and technological circumstances. When it comes to the social factors, the lack of properly trained and skilled laborers are affecting the amount of production being put out on a daily basis. The company needs to develop a better recruitment process and training program to employ the best and most profitable employees. In addition, the language barrier creates a problem for our managers. The majority of our workforce is Hispanic and speaks minimal English; this creates problems when trying to delegate job duties among the employees. The economic factors are that the country as a whole is trying to go green; therefore recycling old cardboard boxes is more environmentally friendly than using new ones.
This causes a decrease in the amount of orders coming in, therefore affecting the amount being shipped out. The technological factors are the lack of computer skills by some of the labor force. If the machines that produce the product are not being run properly in order to produce the maximum output rate, then this will cause a decrease in profits. Management should focus the economic and social factors when coming to the decision whether or not to continue operations. If the company focused on what will either hold the company back or push it forward, and then issues will begin to reveal themselves.
Evaluate the financial performance of the company using the information provided in the scenario. Consider all the key drivers of performance, such as company profit or loss for both the short term and long term and how each factor influences managerial decisions. Be sure to show the calculations that helped you reach your conclusions. The total revenue is the output multiplied by the number of units produced per month: TR=$32*6,000 TR= $192,000
The monthly wages for the worker are the number of workers multiplied by the daily wage multiplied by the number of days worked in each month: 100*$70*20= $140,000 The total variable cost is daily variable input multiplied by the number of days worked in a month: TVC=$2000*20 TVC= $40,000 Recommend how the company can improve its profitability to deliver more value to its stakeholders. Then, develop a brief plan to implement the recommendations. Allentown Manufacturing Company can improve its profitability in a variety of ways, such as expanding into new markets sectors, or developing new products or services.
Some major changes that can take place to improve profitability can be to reduce manpower or scale back on working hours, reducing costs, and increasing productivity and efficiency. I think AMC should work with their top management to create a partnership with another company to begin manufacturing a new product to potentially increase profits. Another plan can be to reduce the manpower either by hours or by personnel. This will allow the company to save money on wages, employment taxes, and employment insurance such as workman’s compensation and unemployment insurance. Increasing productivity is a solid way to increase profitability. If the plant is able to acquire larger orders of boxes, this will in turn cause them manufacture a larger amount of boxes.
Management would also have to decide the best way to train the workforce to work in a more efficient manner, decide whether or not it is feasible to purchase additional machines to increase the production and develop a proper training program to develop the workers’ skillset. Assess the circumstances in which the company should discontinue operations and how management should react when confronted with these circumstances. Provide a rationale with your response.
The circumstances in which Allentown Manufacturing Company should discontinue their operations, is when their total costs surpass their total revenue. The company will not be able to maintain production or meet their cost demands such as salaries, materials, maintenance, etc. if they are constantly spending more money than they are making. Management should react in a manner that is in the best interest of the company and not themselves. If the manager or managers are not able to develop a solid plan to match or pass the total costs that company is hitting each month, than the most feasible thing to do would be to shut the plant down. By continuing to manufacture the cardboard boxes, they are constantly increasing their costs from the electricity being used, and the workers needing to get their salaries.