Case: Andrew-Carter, Inc.
Case: Andrew-Carter, Inc.
Andrew-Carter, Inc. (A-C) is a major Canadian producer and distributor of outdoor lighting fixtures. Its fixture is distributed throughout North America and has been in high demand for several years. The company operates three plants that manufacture the fixture and distribute it to five distribution centre (warehouse).
During the present recession, A-C has seen a major drop in demand for its fixture as the housing market has declined. Based on the forecast of interest rates, the head of operations feels that demand for housing and thus for its products will remain depressed for the foreseeable future. A-C is considering closing one of its plants, as it is now operating with a forecasted excess capacity of 34,000 units per week. The forecasted weekly demands for the coming year are:
Warehouse 1 9,000 units
Warehouse 2 13,000 units
Warehouse 3 11,000 units
Warehouse 4 15,000 units
Warehouse 5 8,000 units
The plant capacities, in units per week, are
Plant 1, regular time 27,000 units
Plant 1, on overtime 7,000 units
Plant 2, regular time 20,000 units
Plant 2, on overtime 5,000 units
Plant 3, regular time 25,000 units
Plant 3, on overtime 6,000 units
If A-C shuts down any plant, its weekly costs will change, as fixed costs are lower for a non-operating plant. Table 1 shows production costs at each plant, both variable at regular time and overtime, and fixed when operating and shut down. Table 2 shows distribution costs from each plant to each warehouse (distribution centre).
Table 1: Andrew-carter, Inc. Variable costs and fixed production costs/ week.
Plant
Variable Cost
Fixed cost per week
Operating
Not Operating
No. 1, regular time
$2.8 / unit
$ 14,000
$ 6, 000
No. 1, overtime
3.52
No. 2, regular time
2.78
12, 000
5, 000
No. 2, overtime
3.48
No. 3, regular time
2.72
15, 000
7, 500
No. 3, overtime
3.42
Table 2: Andrew-carter, Inc. distribution costs per
Andrew-Carter, Inc. (A-C) is a major Canadian producer and distributor of outdoor lighting fixtures. Its fixture is distributed throughout North America and has been in high demand for several years. The company operates three plants that manufacture the fixture and distribute it to five distribution centre (warehouse).
During the present recession, A-C has seen a major drop in demand for its fixture as the housing market has declined. Based on the forecast of interest rates, the head of operations feels that demand for housing and thus for its products will remain depressed for the foreseeable future. A-C is considering closing one of its plants, as it is now operating with a forecasted excess capacity of 34,000 units per week. The forecasted weekly demands for the coming year are:
Warehouse 1 9,000 units
Warehouse 2 13,000 units
Warehouse 3 11,000 units
Warehouse 4 15,000 units
Warehouse 5 8,000 units
The plant capacities, in units per week, are
Plant 1, regular time 27,000 units
Plant 1, on overtime 7,000 units
Plant 2, regular time 20,000 units
Plant 2, on overtime 5,000 units
Plant 3, regular time 25,000 units
Plant 3, on overtime 6,000 units
If A-C shuts down any plant, its weekly costs will change, as fixed costs are lower for a non-operating plant. Table 1 shows production costs at each plant, both variable at regular time and overtime, and fixed when operating and shut down. Table 2 shows distribution costs from each plant to each warehouse (distribution centre).
Table 1: Andrew-carter, Inc. Variable costs and fixed production costs/ week.
Plant
Variable Cost
Fixed cost per week
Operating
Not Operating
No. 1, regular time
$2.8 / unit
$ 14,000
$ 6, 000
No. 1, overtime
3.52
No. 2, regular time
2.78
12, 000
5, 000
No. 2, overtime
3.48
No. 3, regular time
2.72
15, 000
7, 500
No. 3, overtime
3.42
Table 2: Andrew-carter, Inc. distribution costs per