Question

To support its just- in- time production system, Jarvis Sport Cycles (JSC) measures the percentage of employees who are cross- trained to perform a wide variety of production tasks. The internal business process measures are inventory turns and on- time delivery. JSC also measures customer satisfaction. JSC estimates that if it can increase the percentage of cross- trained employees by 5%, the resulting increase in labor productivity will reduce inventory- related costs by $ 200,000 per year and shorten delivery times by 10%. The 10% reduction in delivery times, in turn, is expected to increase customer satisfaction by 5%, and each 1% increase in customer satisfaction is expected to increase revenues by 2% due to higher prices.

Required
1. Assume that budgeted revenues in the coming year are $ 10,000,000. Ignoring the costs of training, what is the expected increase in operating income in the coming year if the number of cross- trained employees is increased by 5%?
2. What amount is the most JSC would be willing to pay to increase the percentage of cross- trained employees if it is only interested in maximizing operating income in the coming year?
3. What factors other than short- term profits should JSC consider when assessing the benefits from employee cross- training?



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  • CreatedJanuary 15, 2015
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