Operations Decision (Fictitious restaurant industry)
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Assume you have been hired as a managing consultant by a company to offer some advice that will help it make a decision as to whether it should shut down completely or continue its operations. It currently uses 100 workers to produce 6,000 units of output per month (working 20 days / month). The daily wage (per worker) is $70, and the price of the firm's output is $32. The cost of other variable inputs is $2,000 per day. You are told that the firm's fixed cost is "high enough" so that the firm's total costs exceed its total revenue. The marginal cost of the last unit is $30.
Determine the specific details about this fictitious company in order to conduct an environmental scan of this company.
- Briefly describe the details of the fictitious business that you created for this assignment.
- Assess the current environmental scan factors. Determine the factors that will have the greatest impact on plant operations and management's decision to continue or discontinue operations.
- 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. Be sure to show the calculations that helped you reach your conclusions.
- Recommend how the company can improve its profitability. Then, develop a brief plan to implement the recommendations.
- Assess the circumstances in which the company should discontinue operations. Provide a rationale with your response.
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Solution Summary
Discusses environmental scan factors, evaluates financial performance and recommends strategies for enhancing profitability for a restaurant industry related business.
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The organization chosen for this assignment is a restaurant that prepares packed meals for office goers, parties and other occasions. The company's products are mostly consumed in the local area and have been known for its quality and taste.
However, the current recession and the decline in spending by consumers on restaurant food has led to declining revenues and profitability for the restaurant organization. The company has reduced its output due to lack of demand and increasing competition.
One of the factors that will have the greatest impact on the plant operations and management's decision to continue or discontinue operations is the ability of the company to generate enough revenue or sales to meet its day to day operational costs. If the sales will continue to decline and the company will not be able to meet even its daily expenses, it will have to shut down operations. Secondly, the rising cost of inputs or food ingredients and labor costs may also force the company to shut its ...
Education
- BCom, SGTB Khalsa College, University of Delhi
- MBA, Rochester Institute of Technology
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