Fred Sports manufactures trucks and four-wheel drive vehicles (4WDs). The company announced that it planned to eliminate 1000 jobs (25 per cent of its work force) over the next three years. Fred Sports plans to achieve these job cuts through normal attrition, a freeze on hiring and an early-retirement program. The business had experienced years of losses but predicted it would earn a profit as early as the following year.

Required:

a What effect would you expect the decision to have on Fred Sports break-even point? On the number of trucks and 4WDs Fred Sports would have to sell to earn a desired profit?

b What non-financial issues do you think Fred Sports owners had to resolve in order to make this decision?

c What questions do you think the owners had to answer in order to resolve these issues?