PROBLEM 7-16. (Appendix) Managing Constraints 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 $260,000 and reduced it's shipping department by two people, eliminating an annual salary expense of $100,000. When it works, the equipment packages product 10 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 2,000 bottles per hour and the average contribution margin per bottle is $0.50. The general manager of operations has suggested that the company rehire the two packaging workers as back up 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.