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¶ … fictitious business that you created for this assignment.
Light Up the Sky, Inc. is a company that manufactures luminescent kites. This company has been in business for the past 10 years and during this time has established itself as a high quality manufacturer of these kites. Even though this company appeals to a small fraction of the entire kite industry, they had been able to maintain a 20% profit margin. Due to the lagging economy, their profit margin dropped below the breakeven point and they are now considering shutting down production.
Assess the current environmental scan factors. Determine the factors that will have the greatest impact on plant operations and management's decision to continue or discontinue operations.
When considering whether or not to continue operations, there are several factors to consider. First is to perform a market analysis to determine whether or not continuing operations is really feasible. For example, luminescent kites may have been a fad whose time has come and gone. Determining whether or not there is still a market for this product is the first step. Next would be to evaluate how manufacturing costs could be cut without sacrificing the quality of the product....
Other factors to consider are:
* Can the company still be profitable by cutting production back to 400 units per month?
* Could less skilled workers be employed in order to decrease the cost of labor?
* What fixed or variable costs could be reduced?
* How feasible would it be to move productions to another area of the country or world in order to reduce production costs?
3. Evaluate the financial performance of the company using the information provided in the scenario. Consider all the key drivers of performance, such as company profit or loss for both the short-term and long-term. Be sure to show the calculations that helped you reach your conclusions.
The following calculations assisted in illustrating decision to "Continue Operations":
Employee Wages: 100 workers x $70/day = $7,000/day x 20 days/month = $140,000/month spent on employee wages.
Variable input cost: $2,000/day x 20 days/month = $40,000/month in variable costs.
Taking into account that the marginal cost of the last unit is $30: 6000 units/month are produced; 6000 (total units) x $30 per unit = $180,000 per month spent on production.
Total operating…
References
1. Planning Resource Center. What is an Environmental Scan? Retrieved from http://work911.com/planningmaster/faq/scan.htm.
2. Minnesota Management and Budget. Internal and external environmental scanning factors. Retrieved from http://www.mmb.state.mn.us/keyinfo3/1708-internal-and-external-environmental-scanning-factors.
3. North Carolina State University, North Carolina Cooperative Extension Service. Management Tools for Increasing Profitability. Retrieved from http://www.ces.ncsu.edu/resources/economics/ag418/
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