Three years ago, your company (a carpet manufacturer) modernized its Georgia plant in anticipation of increasing demand for carpets. Because of the depressed housing market, the increase in demand for new carpets has been slow to materialize. As a result, the company has excess capacity at its Georgia and California plants. On the basis of your research, you have recommended that the company close the California plant. The company president, J. P. Lawrence, has asked you to prepare a justification report to support your recommendation. Here are the facts you gathered by interviewing the respective plant managers:
Operational Statistics
• Georgia plant: This plant has newer equipment, productivity is higher, it employs 100 nonunion production workers, and it ships $12 million in carpets a year. The hourly base wage is $16.
• California plant: California plant employs 80 union production workers and ships $8 million in carpets a year. The hourly base wage is $20.
Financial Implications
• Savings by closing California plant. (1) Increase productivity by 17%; (2) reduce labor costs by 20% (total labor savings would be $1 million per year; see assumptions); (3) annual local tax savings of $120,000 (Georgia has a more favorable tax climate).
• Sale of Pomona, California, land: Purchased in 1952 for $200,000. Current market value $2.5 million. Net profit (after capital gains tax) over $1 million.
• Sale of plant and equipment: Fully depreciated. Any proceeds a windfall.
• Costs of closing California plant: One-time deductible charge of $250,000 (relocation costs of $100,000 and severance payments totaling $150,000).
Assumptions
• Transfer 5 workers from California to Georgia.
• Hire 45 new workers in Georgia.
• Lay off 75 workers in California.
• Georgia plant would require a total of 150 workers to produce the combined volume of both plants.
a. Which approach (focus on conclusions, recommendations, or logical arguments) will you use to structure your report to the president? Why?
b. Suppose this report were to be circulated to plant managers and supervisors instead. What changes, if any, might you make in your approach?
c. List some conclusions that you might draw from the above information to use in your report.
d. Using the structure you selected for your report to the president, draft a final report outline with first -and second-level informative headings.