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Higher sales OR lower cost - Target Company

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I think the answer is $67,200. Is that answer correct?

Target Company has decided to reward employees for their innovative ideas that would result in higher sales or lower costs. the reward is the equivalent of 10% of the annual savings. Arman Khodadoost introduced an idea where requisitioning in and out of the warehouse would be eliminated. Workers would go to the warehouse and grab what the production needs. Instead, the managers would conduct a weekly inventory count to determine what was used. this suggestion reduces unproductive by 3%. The company has 80 employees with a cost of $1200 per employee per month. In addition, two warehouse employees with a total pay of $56,500 would be eliminated. However the weekly count would require 10 employees for four hours at a cost of $15 per hour. The potential net savings of this project amounts to:

a) $31,200
b) $34,560
c) $54,860
d) $59,860
e) None of the above.

This is my computation:
cost of employees = 96,000 (80 employees X 1200/month)
less 2 employees total of $56, 500
PLUS (10 employees X 10 hours X 15 = 600/week X 52 weeks) = 28,800 = 67,200.

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Solution Summary

The solution determines the higher sales or lower cost in the Target company.

Solution Preview

Current Annual Costs = 80x12,000x12 + 56,500 = $1,208,500

New Annual Costs = 80x1200 x 12x97% ...

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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