ASSIGNMENT 2: OPERATIONS DECISION
This document will briefly describe the details of a fictitious business (X-QUIZIT INC). It will show an assessment of the current environmental scan factors that are relevant to the business decision making process and the factor that will have the greatest impact on the business operations and management’s decision to continue or discontinue its operation. It will also show an evaluation of the financial performance of the company using the information provided in the scenario, with consideration given to all the key drivers of performance such as company profit or loss for both short and long term and how each factor influences ...view middle of the document...
The marginal cost of the last unit is $30.
Assessments of the Current Environmental Scan Factors That are Relevant to the Decision Making Process.
Environment must be scanned to determine development and forecast factors the will influence business success. This refers to possession and utilization of information about occasions, patterns, trends and relationship within an organization’s internal and external environment. While, scanning involves a variety of sampling, the most impactful information on the business operations and management decision’s to continue the business would be derived internally. Company’s financial records including its balance sheet, profit and loss and cash flow statement are significant internal factors in management’s decision making to continue the operations of its business. The Balance Sheet, for example is a useful internal tool to any business in assessing the company’s retained earnings. The allows management to make useful decision in allocating resources throughout the company, budgeting, and making prudent decision in taking on additional risk of capital to potentially grow the company.
Other factors, such as labor cost and marketing strategies are external scanning factors that are useful for the business success. Information relevant to minimizing labor cost leads to maximizing profits. In addition, marketing aims to analyze and determine consumer demands in the future, then advertising and selling its product and services.
Evaluate the Financial Performance of the Company Using Information Provided While Considering All the Key Drivers of Performance
The evaluation of X-QUIZIT INC financial performance determined that the business is seriously at risk. The data given were used in the evaluation are shown as follow:
(a) 100 employees produce 6,000 units in a month (working 20 days per month)
(b) Price of firm’s output is $32
Total revenue per day = 6,000*$32 =$192,000
(c) Daily wage per employee = $70
Total wage in one month = 20 days * 100 employees * $70 = $140,000
Total Variable cost (TVC) = variable inputs + total wage in one month = $2,000* 20days +$140,000 = $180,000 per month.
Average variable cost (AVC) = Total Cost (TC) / Quantity (Q) = $180,000/6,000 = $30 per unit.
Net Income = Total Revenue (TR) – Total Variable Cost (TVC) = $192,000 - $180,000 = $12,000.
Based upon the analysis of data used, X-QUIZIT INC could continue to operate on a short term basis because the $32 (price of the firm’s output) is more that its AVC of $30 which brings a total revenue of $12,000. The company’s management should however consider closing its
operations completely in the long term as the fixed...