Operations Decision

Operations Decision

Overview of the Business

MacLean Furniture specializes in manufacturing wooden cabinets for commercial markets, resorts, and residential usage. The firm came into existence to compete with the established business of Finebilt Cabinet Solutions and to expand business operations across the US. Finebilt Cabinet Solutions is an old and pre-established player of the cabinet and construction industry (Finebilt Cabinet Solutions, 2013). Unlike wide knowledge and vast product line of Finebilt Cabinet, MacLean focuses on manufacturing and offering customized cabinet products to the targeted set of customers. During initial years, the firm posted sales turnover lower than expectations due to slower performance trends in the construction industry. Hence, recent management meeting with consultants has been scheduled in order to assist the firm with the decision to continue or discontinue business operations from both short term and long term perspectives.

Environmental Assessment

In the US construction and cabinet industry, there are various environmental scan factors that can directly or indirectly affect a firm's decision to continue or discontinue business operations (Babatunde & Adebisi, 2012). These factors can include price levels, business opportunities in the construction and cabinet industry, economic growth, marginal utility, income and demand-supply equilibrium is among the factors that can affect business operations of the firm. Environmental analysis shows improvement in the demand for customer cabinet products and services with increase market size for residential homes (Morrison, 2005).

In the face of existing competition, customer trend towards superior quality products offers opportunities for business expansion and marginal utility (Hong et. al., 2008). In addition to this, assessment of environmental scan factors identifies slow growth in the US economy. It means that short run profits and business operations will take time to meet expectations. However, the firm can utilize this time to cover up business cost to set a future sense of direction for the business. Hence, the firm will need to explore internal competencies and potential to continue business operations. Subsequently, the firm should identify other business opportunities and re-evaluate feasibility of business operations in order to make sound business decisions.

Evaluation of Financial Performance

In the present scenario, the firm is overburdened with operations and production costs. According to analysis, the firm is posting monthly production cost of $ 360, 000, which is far above business revenue of $ 192, 000. Input costs well exceed business revenue; hence, resulting in poor financial performance and cost controls.

 

 

$

Monthly Input Costs

LC+OVC+MC

360,000

Labor Costs (LC)

70*100*20

140,000

Other variable cost (OVC)

2000*20

40,000

Marginal Costs (MC)

30*6000

180,000

 

 

Monthly Revenue

32*6000

192,000

Table 1: Cost vs. Revenue

Cost vs. revenue analysis recognized business loss of $ 168, 000 for the given FY. This poor financial performance was mainly affected by inability of the firm to put constraints and control over operating costs (Ismaila, 2011). The firm incurred cost, which is almost twice of unit price offered by the firm. In the given scenario, the firm is unable to cover up business costs, which resulted in negative profit to revenue value of 88%.

MacLean Furniture

Income Statement

For the Period Ended Dec, 31

Revenue

192,000

Cost

360,000

...