b) Precision Sporting Goods manufactures golf clubs. It is faced wth a decision:

Question

b) Precision Sporting Goods manufactures golf clubs. It is faced wth a decision: to reorganize or not to reorganize. Reorganizatio manufacturing labor consists of 20 workers-15 workers operate machines, and 5 workers handle materials. The 5 materials-handling workers have been hired on contracts that permit layoffs without additional payments. Each worker works 2,000 hours annually. Reorganization is predicted to cost shs180,000,000 each year (mostly for n will eliminate all manual handling of materials. Current equipment leases). Production output of 25,000 units as well as the new selling price of shs.500,000, the direct material cost per unit of shs.100,000, manufacturing overhead of shs. 1,500,000,000, and marketing costs of shs.4,000,000,000 will be unaffected by the reorganization Labour cost was shs. 28,000 per hour, but it has been renegotiated to shs. 32,000 per hour Should Precision Sporting Goods reorganize? Show your calculations.

Explanation / Answer

Annual Costs for manual material-handling labor 5*2000*32000= 320000000 Annual Re-organisation costs(leases) 180000000 Re-organisation is going to eliminate manual material handling costs of 320000000 by incurring 180000000 thus saving 320000000-180000000= 140000000 All other details are common under both options. So, the DECISION is: Precision Sporting Goods should reorganise

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