Conflict between the Management and the Employees of Riverside Hotel - Case Study Example

Conflict between the Management and the Employees of Riverside Hotel Fixed costs are costs incurred in production which do not change as a result of the level of operations in the firm. Their direct relationship with the level of operations is small as they are always constant. For the riverside hotel they may include: Employee wages Loan interests Advertising costs Cable TV subscriptions Maintenance fees for equipment servicing Governmental taxes concerning the land Service fees for activities outsourced to other organizations for example security Subscription costs for magazines, fixed internet bundles Variable costs are costs incurred by the hotel depending on the number of customers and the volume of business the hotel gets. Their increase corresponds with an increase in business volume. These include: Supplies like food and beverages as well as house keeping Entertainment costs Electricity, water and telephone bills Guest room amenities Transportation Taxes on profits Flowers and decorations Laundry operations Office stationery used in management operations Sunk costs are the finances spent in the development of operations which cannot be recovered. This makes the costs an irrelevant part of the decision making process. They include: Employee training costs Market research costs Advertising costs Specialized equipment purchase costs Consultant fees Rental fees Suppose the Riverside hotel has twenty kitchen workers. If on a good day the hotel gets about a hundred guests, the kitchen workers will have their hands full with the ratio of an employee to a customer being 1:5. However, on off-peak days if the hotel receives only 20 guests, the employees will not be performing work on the value level required. This means that the fixed cost incurred through paying wages is a loss for the hotel. The reduced meal cost for the employees also reduces the profit margin. As such, an opportunity costs presents itself in the form of making the cost of wages variable. This means using the reservations size to determine the number of customers who will available and creating a roster that will see a rotation of extra employees staying at home on days with low volumes of business. The source of conflict between the management and the employees of Riverside Hotel is the costs the employees incur as a result of their taking dinner at the hotel on the late shift (Jiambalvo Case study 1). The hotel’s labor agreements allow the employees to have free meals during their shifts, provided the meal did not exceed $12. This means that any cost in addition to the $12 would be deducted from their wages. The conflict arose when those taking the late shift found that they had been deducted $10 from their wages for every meal. This meant that the meal cost $22 (Jiambalvo Case study 1). To the employees, the management is just ripping them off because they know the price of the supplies and according to them it should not cost them such a figure for one meal. For example, a prime rib dinner includes supplies of a $7 piece of meat and a $1 salad. This adds up to $8 hence the basis for the employee arguments that the meal should not cost even $12. However, the argument of the employees is both right and wrong. It is right because charging them $22 for a meal that they have helped to put together from $8 supplies does not augur well with any business management practice. The fact that the labor agreements dictates that they receive the meal means that the meal is not free at all. It makes it appear to be a scheme with the hotel treating them as customers. The fault of the argument comes in when you view the hotel as a business and not a charity. Although the management wants to provide free meals as a mode of improving efficiency as the workers do not have to go far for their dinner breaks, it cannot do so at a loss. Even if the implements cost $8, factoring in the production costs of wage, implements and dishwashing as well as the profit for the hotel brings the value of the meal to $32. This means that even at $22, the hotel is not utilizing the full benefits. Therefore I recommend the free meal clause in the agreement to be edited so that it allows the employees to have the option of not taking the meal. An increase of the wage by $12 would be necessary with the subsidized meal being offered at $22 for those who want it. Jiambalvo Case 1-2 Incremental analysis analyzes financial information concerned with the decision making process of choosing different alternatives by identifying the different financial implications of each alternative with the aim of selecting the best approach. In Nick’s case of 3000 D45s, suppose the cost of a D45 is $500 with the material cost being $250, direct labor costs being $50 and overhead labor cost making up $20. The selling expenses of the valve make up for $15, with the valve having administrative costs of $10. This means that the total production cost is $345 resulting in an operating income of $155 per valve. This is at a production level of 90% of the company’s capacity. Cancelling the transaction would mean that the company losses a $465000 potential revenue while saving a $1035000 investment. Increasing the production would not result in changes to administrative costs with all other cost increasing. The current sales would not be affected as the company continues to operate with its capacity. The valve would still sell at $500 with the production cost of the additional 100 units being $335. This means that there would be a $165000 increase in operating revenue with the company having $335000 in additional costs. This means that the executive needs to consider all expenses accrued in producing the valve as well as the selling price of the valve if she wants to drop its production. However, if she considers an increase in production by 100 units, administrative expenses are not necessary with the operating capacity being needed. Ethics case study: Brixton surgical devices Brixton surgical devices is a public company that produces surgical equipment such as clamps, screws, saws and stents with volumes of sales exceeding $900,000. The company’s chief operating officer and chief financial officer Ed Walters and Robin Smith respectively receive bonuses when the company makes aggressive earnings annually that meet the board of directors’ goals. Ed and Robin realized that the company sales would not meet thye annual target of earnings late into the third quarter. This meant they would not receive bonuses. As such they devised a plan to boost the sales. First the company would offer 25 % discount on October-November orders that were to be delivered in December. Then the company would produce more units that would see reduced overhead costs resulting in cheaper production costs and higher earnings. Although these strategies appear selfish, the company’s best interests are at the centre of their creation. True the two executives intend to get bonuses but the implementation of the strategies will see the volumes of sales increase due to the discount with the production costs reduced. This obviously means an increase in earnings for the company. Although some of the sales of the 2015 first quarter will be transferred into the last 2014 quarter, it does not mean that the sales will not also increase in the former. The increased earnings in the latter will mean that the company will have more money to expand its operations. Therefore the selfish acts of the two executives are ethical. The effect of this on the shareholder value is an increase as a result of the earnings of the company. The increased sales and earnings will boost the confidence of the shareholders meaning that the value of the stocks will rise as they view that the company is growing. Precision Worldwide case study Precision Worldwide, Inc. (PWI) is a multinational corporation that manufactures industrial machines and equipment. The company is headquartered in Toledo, Ohio, USA but has plants outside America, which were allowed to administer their business affairs in a manner that can be described as free. One such plant is based in Frankfurt, Germany. It has over a thousand employees and prices its machines in the $18900-$28900 range having a different sales organization selling them (Bruns 1). However, a substantial part of the company’s sales consisted of repairs and replacement parts including steel rings that could be used on competitors’ machinery. These steel rings are the focus of the case study. With a life of around two months the rings were facing stiff competition from plastic rings introduced by French competitor Henri Poulenc. The plastics were cheaper to manufacture meaning they had a longer life and would generate higher profit margins (Bruns 2). This would mean that the German firm should shift to the production of the plastic rings to maximize on profit. However, the plant’s general manager, Hans Thorborg is facing a problem. First PWI has a large quantity of steel rings already produced. Second, the company had already purchased a sizeable amount of special steel for the production of the rings with the inventory exceeding $390000 (Bruns 1). This means that a shift in production towards the plastic rings would see a significant loss in operating costs as a survey showed that the special steel could not be sold even as scrap metal. This means that Thorborg has two options, continue producing the steel rings until the inventory is finished, then start producing plastic rings or cease the production of steel rings and start production of plastic rings. The first option means that the more efficient plastic rings will not be produced and the plant will finish the inventory of specialized steel. The implication of this is that the French market where plastic rings have been introduced and which consists of only 10% of the plant’s total market will be affected with the volumes of sales falling. Provided other competitors do not get wind of the new product the plant will be safe. However, if the other competitors start the production of the new product, the company will experience significant losses. The effect of the strategy in the French market will also be devastating as the competitor will have, strongly established itself as the lead supplier by the time the plant starts production making the loss of customers a possibility. Hence this is not a viable alternative. Thorborg should choose option two. This will see the company start the production of the rings as soon as it has the structures in place. The implication is that the inventory will not have a purpose once the new product starts production. Therefore, this plan needs a little editing. Since the plastic ring is not available in the other markets, the company should endeavor to produce both products at the same time. However, the volume of production of the plastic ring should target to meet the demands of the French market to make it a strong competitor. The steel rings sale in other markets should continue which will help the plant in clearing its special steel inventory. The risks associated with this strategy are that consumers in the other markets will find out about the new product and loose faith in the company or that the competitors in other markets will start producing the plastic rings. The first risk depends on the relaying of the new information about the plastic ring. Therefore, the possibility of its occurrence is minimal. However, if the competitors in the markets start producing the plastic rings, the company can adjust and start full scale production of the plastic rings. This is the best option because the inventory will have reduced with plant remaining a strong competitor in all markets. The reduced size of the specialized steel inventory will make disposing it through sales and other means easier. Work cited Bruns, William J. 'Precision Worldwide, Inc.'. Havard Business School , 2004, Print. Jiambalvo Case study. Ethics case study: Brixton surgical devices. Read More