On May 31, 2007, Dell, Inc. announced it was making several changes to the way it did business in order ". . . to restore competitiveness to the core business, re-ignite growth, and build solutions critical to customer needs." As one of the changes the company initiated a comprehensive review of costs across all processes and organizations from product development and procurement through service and support delivery with the goal to simplify structure, eliminate redundancies and better align operating expenses with the current business environment and strategic growth opportunities. As a part of this overall effort, Dell will reduce headcount by approximately 10 percent over the next 12 months. The reductions will vary across geographic regions, customer segments, and functions, and will reflect business considerations as well as local legal requirements.

Required

a. Other than the obvious reduction in salary and wages expenses, identify some costs savings

Dell might realize by reducing its workforce by 10 percent.

b. Assume some of the workers being terminated are assembly employees and that they are being replaced by new robotic assembly machines. Explain how this might affect Dell's unit-level, batch-level, and/or facility-level costs.

c. Consider the additional information presented below, which is hypothetical. All dollar amounts are in thousands, unit amounts are not. Assume that Dell decides to eliminate one product line, Delta, for one of its segments that currently produces three products. As a result the following are expected to occur.

(1) The number of units sold for the segment is expected to drop by only 40,000 because of the elimination of Delta, since most customers are expected to purchase an Alpha or Beta product instead. The shift of sales from Delta to Alpha and Beta is expected to be evenly split. In other words, the sales of Alpha and Beta will each increase by 80,000 units.

(2) Rent is paid for the entire production facility, and the space used by Delta cannot be sublet.

(3) Utilities costs are expected to be reduced by $18,000.

(4) The supervisors for Delta will all be terminated. No new supervisors will be hired for Alpha or Beta.

(5) The equipment being used to produce Delta is also used to produce the other two products. The company believes that as a result of eliminating Delta it can eliminate some equipment that has a remaining useful life of five years and a projected salvage value of $20,000. Its current market value is $30,000.

(6) Facility-level costs will continue to be allocated between the product lines based on the number of units produced.

Prepare revised product-line earnings statements based on the elimination of Delta. It will be necessary to calculate some per-unit data to accomplishthis.

Product-line Earnings Statements Annual Costs of Operating Each Product Line Sales in units Sales in dollars Unit-level costs: Alpha Beta Delta Total 00.000-400,000 200,000 000,000 $400,000 400 00 00000 $100.0 Cost of production Sales commissions Shipping and handling Miscellaneous Total unit-level costs 40,000 40,000 22,000 102,000 5,000 5,0002000 12000 9,000 8,000 4000 21,000 3000000 2000 57,00055,000 0,000 142,000 Product-level costs: Supervisors' salaries 40003000 1000 8,000 Facility-level costs 40,000 40.000 20,000 100,000 50,000 50,000 25,000 25,000 160,000 60,000 80.000 400,000 Depreciation on equipment Allocated companywide expenses Total facility-level costs 10,00010,0005,000 260,000 260,000 130000 Total product cost Profit on products Dollar amounts are in thousands) 321,000 318,000 161,000 800,000 $ 19,000 82,000 39,000 200,000