Operations Decision

Operations Decision

Introduction

There are some factors which are involved in successful business. This factor involve business concept, have a good understanding of market, knowledge of industry trends and wealth, good focus on business and strategies, management capabilities, ability of attracting customers in all aspects, financial control, responsiveness to change and value of the company and reliability (Abrams, 2003).

Discussion

Business details

There are some factors which are involved in successful business. This factor involve business concept, have a good understanding of market, knowledge of industry trends and wealth, good focus on business and strategies, management capabilities, ability of attracting customers in all aspects, financial control, responsiveness to change and value of the company and reliability (Abrams, 2003).

Business stated their business in 2001, their area of business is production electric kettle. Their expertise was to produce high quality kettle. Their business grew up rapidly during 2006, but with the arrival of global competitors created competition in price and quality. During this price war, Business lost its position and competitors from geographical areas with cheap labor, took market share of business. They reduced their labor to 100 producing 6000 units. With a leader in quality of product, their demand is reduced to quality conscious customers. Price of their kettle was $32. As Business believes in craftsmanship, therefore they hired skilled labor, which in result incurred with high cost of labor. Before competition, Business was the market leader and working on a large scale. After reduction, the machines were not reduced and results in high daily variable costs (Analoui & Karami, 2003).

Company analysis

There are different components influencing business; it includes internal and external factors that affect business productivity. In this scenario, the business is facing threats of new entrants from the global market. Also with a decrease in sales, company is having a problem in external factors such as economical factor (Analoui & Karami, 2003). Company is facing high cost in labor as labor cost is high; also company is facing high operational cost due to large quantity of technology employed. These are the factors that can have an impact on the operation of plant and have an impact on decision of management for continuing or discontinuing operations.

Company performance

In given condition business is generating revenue of $192,000 (6000 units X $32 = $192,000) with labor cost of $140,000 (100 Labors X 20 Days X $70 per day wage = $140,000) and other variable costs of $40,000 ($2,000 X 20 days = $40,000) per month. Company is generating profit of $12,000 per month which is not sufficient, and on these criteria decision for operation has to be taken. In short-run company is earning some profit but in the long term where fixed cost is incurred, company is not getting profit (Tucker, 2008). In the short run, based on variable cost company is earning a profit of $12,000. But in the long business is not getting profit when fixed cost is associated with a total cost function.

Recommendation

There are different components influencing business; it includes ...