LOG501 MOD 5 case Assn Productivy/Infrastructure - Essay Example

The options that are available for consideration are: partial automation of the unloading process; and expansion of the dock and delivery area. Although one option will have a higher fixed cost, the variable costs may be prohibitive. Therefore, it is important to look at the costs and benefits of increasing productivity. 1.1 Assumptions In order to provide an assessment a number of assumptions are required. They include: (i) A 300 day year (ii) Deliveries arrive within the same time frame and so there are no breaks in the unloading process. (iii) No Dock hand is required for the automation option 2.

0 Evaluation of alternatives Break-even analysis will be used in evaluating the two alternatives. This technique is used for non-routine decisions. The break-even point occurs at the point where total revenue is equal to total costs (Heisinger and Hoyle 2012; Eldenburg and Wolcott 2005). This is the point where profit is zero. Break even analysis is used to determine how the business is performing as well as to plan for profits (Alhabeeb 2012). In fact, Horngren et al (2000) indicate that managers are normally concerned about the break-even point because it provides information about the level of sales that must be generated to avoid a loss.

Risk induced questions such as: what will happen if a project does not run at capacity levels assumed, and will the project recover cost at the very least are motivations for calculating the break-even point (Singh and Deshpande 1982). The equation method will be used to determine which method will be beneficial to the company over the long term. The equation is: Revenues – Variable costs – Fixed costs = Operating income i.e. R - VC - FC = Operating income. The company breaks even when operating income is zero.

At this point R = VC + FC. Variable costs are costs that vary with the level of production while fixed costs are costs that remain the same over a relevant range of production/operation (Gutierrez and Dalsted 2012; Kinney and Raiborn 2011; Proctor 2012; Weetman 2010). The higher the fixed costs the higher the level of production required to cover these costs. However, fixed costs are costs that will remain whether or not the company remains in operation. EBBD is in the business of unloading tucks.

The faster the company can do that the better it will be as it will reduce the need for overtime work because deliveries and loading cannot take place within the regular work day in an efficient and effective manner. Two scenarios have been used to determine the best option. Scenario 1 considers a situation where there is no increase in deliveries and sales from vendors are flat. Scenario 2 on the other hand considers a growth rate of 3% per annum in deliveries. They will be considered under their respective headings. 2.1 Scenario 1 – No increase in Deliveries and Flat Sales This scenario considers a situation in which there is no increase in deliveries and the sales from vendors are flat.

The table in Appendix 1 indicates that after expending sums for either option the annual savings in relation to the total annual costs is $26,890 for the automaton option and $12,500 for the expansion option. This means that greater savings can be reaped from the automation option if the current situation remains. 2.2 Scenario 2 – Annual Growth Rate of 3% This scenario considers a situation where there is an annual growth in business of 3% per annum. The table in App