Case Study - the Eagle Machine Company

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The Eagle Machine Company has fallen on bad times. Eagle, a maker of specialty restaurant equipment, has sales totaling Rs.72 million. But sales are declining while costs continue to increase. If things continue in this direction, Eagle may soon have to close its doors. At a special management meeting, the president lays it on the line! He demands that the firm break even in the remaining quarter of the year. For next year, he calls for 5 percent profits, a 20 percent increase in sales, and deeper cuts in labor, material and overhead. Later in the day, the president calls Mr.Manoharan, V.P. - Finance & Accounts, in for a discussion. “Manoharan, I want you, Finance & Accounts people to carry the ball at the start of this game. We can’t get sales moving for six months. But you can improve your housekeeping- and Eagles profit-right away. Just think what you can do to that chart! Every penny you save is profit! So take a close look at what we buy & what we sell. I don’t care how you make your savings –by negotiations inventories, imports, anything. But put the screws on tight-right away. “Start with inventories, they‘re Sky high. So get together with manufacturing on a 10 percent cut! We have got Rs.12 million worth of materials stashed away around here, and a percent cut would save at least Rs. 300,000 a year in carrying charges. At the same time. Get your payroll and operating expenses down 10 percent .That’s in line with our company wide cut back. I know this hurts, Manoharan, because we have got some mighty fine people here in purchasing, but we can’t be sentimental these days. Our over head has got to come down or we’re dead! “I’ m having an executive committee meeting in one week. Have your plans ready by that time! We’re betting on you, Manoharan. You have got to get us out of the hole. I know you can do it. Please interact and develop a harmonious proposal” Mr. Manoharan starts a review along with other depts. The purchases total only Rs. 43.2 million per...
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