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Profitability improvement

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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.

This assignment allows you to 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

Contains recommendations to improve the profitability of the company.

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We will select an auto component manufacturing company for this assignment. The company is an OEM for various automobile brands and produces auto components for these automobile manufacturers.

The automobile industry is going through tough times due to recession, increased input or raw material costs and declining demand and the situation has worsened due to heavy competition in all the segments. One of the factors that will have the greatest impact on plant's operations and management's decision to continue the plant operations is overall demand scenario in the industry. If the demand continues to decline, the company will not be able to sell its products. Another important factor will be operating costs. If ...

Solution provided by:
Sheetal Jain, PGDM
Education
  • BComm, University of Delhi
  • Post Graduate Diploma in Management (Equivalent to MBA), All India Management Association
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