Analyzing the Options of Overtime and Second Production Shift - Essay Example

You asked me to consider the opinions of the employees at the plant and what they feel about working overtime. We have completed the report that you asked for and this report presents the cost differentials of the two alternatives to increase production and manufacturing. Moreover, the report analyzes both alternatives in detail and also provides recommendations after considering the cost differential as well as the responses of the employees.  

I have analyzed the cost per unit of overtime and if the production of additional 150 units per day is increased through overtime then it would cost $388.54 or $2.59/unit. On the other hand, the cost of production for the second shift with additional 150 units per day would be $421.08 or $2.81/unit. Therefore, it shows that the cost of production with overtime is lower if the production is 150 units and Wilderness Toys would be able to save $0.22 per unit or $32.32 for 150 additional units. However, it has been found that most of the employees are not willing to work in the long term but only for the short term. Therefore because of this reason, I would prefer Wilderness Toys to start a second shift rather than asking employees for overtime.

As the demand for new lighted hiking hats has been increasing, therefore there is a need to increase the demand for the product. In order to increase production and meet the increasing demand, the management of the company has two different alternatives; to start a new production shift or to require its employees to work overtime. The report presents the cost differentials with the two alternatives in producing the new lighted hiking hat.

Table 1 shows the per unit cost of production of the two alternatives available. Table 1 also shows the differences between the two alternatives and it can be seen that per unit cost difference initially is negative as per unit overtime cost is less than per unit second shift production cost. Therefore it reveals that if the management plans to produce fewer units then it is preferable that they can encourage employees for overtime rather than starting a second shift.

Table 1: Per Unit Cost

Units         

OT unit cost               

2nd shift unit cost 

Differences

75

2.59

3.49

-0.9

150

2.59

2.81

-0.22

225

2.59

2.58

0.01

300

2.59

2.46

0.13

375

2.59

2.46

0.13

450

2.59

2.46

0.13

525

2.59

2.46

0.13

600

2.59

2.46

0.13

Figure 1 graphically shows the cost per unit of the alternatives and it can be seen that the cost per unit of the second shift at 75 units is very high in comparison to the per-unit cost of overtime. However, the per-unit cost of the second shift has been decreasing as the production is increasing and it is visible.  As the production increase, the per-unit cost of the second shift would decrease whereas the cost per unit of overtime would remain the same irrespective of the production.

Figure 2 shows the cost differential between the two alternatives and it can be identified from Figure 2 that the difference is negative initially thus, showing that the per-unit cost of overtime is less than the per-unit cost of the second shift. However, as the production increases the difference is positive and it shows that the per-unit cost of overtime is higher than the per-unit cost of the second shift. Moreover, the point where the cost differential is 0 is the point where there is no difference in the per-unit cost of overtime and per-unit cost of the second shift and it can be said as the break-even point. The Break-even point is just below 225 units where the cost differential is 0.

Figure 2: Cost differential

The overall analysis reveals that as the production increases, per unit cost will decrease with the second shift however the per-unit cost with overtime would remain constant irrespective of the production. By analyzing the situation, I would recommend the management to start the second production shift rather than asking employees for overtime. One of the main reasons for this recommendation is that employees are not ready to work overtime for an extended period rather they would like to earn more money in the short term. However, if the management feels that the demand for newly introduced lighted hiking hats has increased for only the short term then they should go for overtime.