Question

All Reece Herbal Supplements purchases, in bulk, a variety of dietary supplements that the company bottles packages, and ships to health-food stores and drugstores around the country. The company has a good reputation, and its products are in high demand. Last year the company purchased mechanical packaging equipment for $300,000 and reduced its shipping department by two people, eliminating an annual salary expense of $1 20,000.When it works, the equipment packages product 20 percent faster than the previous manual system. Unfortunately, the equipment has broken down on many occasions for up to four hours. Normally (when the packaging equipment is working), the company packages 2,500 bottles per hour, and the average contribution margin per bottle is $0.60.The general manager of operations has suggested that the company rehire the two packaging workers as backup for the new packaging system. The company president doesn’t think this is a good idea, since the workers will be “sitting around doing nothing for 30 hours per week!”

Required
Comment on the general manager’s suggestion and the president’s reaction. Support your answer with an estimate of the financial impact of rehiring the two workers.



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  • CreatedSeptember 23, 2013
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