Questions and Answers
Which country has the lowest hourly wage rate for manufacturing workers?
What is the output per worker in Thailand?
Which location has the highest fixed overhead cost?
If Storm wishes to reduce costs while maintaining high output, which facility should it consider consolidating to?
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What is the average output per worker across all three countries?
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Evaluate whether Storm is allocating its production resources optimally given the wage rates and output per worker in each country. What factors contribute to inefficiency?
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If Storm consolidates manufacturing into one facility, which location should it choose based on overhead costs and productivity? Provide a rationale.
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Consider the implications of labor costs and output on the decision-making process for Storm. How might these factors influence future investments?
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Discuss the importance of output per worker in determining the overall efficiency of Storm's operation in each country.
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Analyze how fixed overhead costs influence Storm's choice of facility for manufacturing consolidation. Which factors might be overlooked in this decision?
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Study Notes
Current Manufacturing Analysis
- Storm operates manufacturing facilities in Brazil, Thailand, and Canada.
- Hourly wage rates:
- Brazil: $3.00
- Thailand: $6.00
- Canada: $12.00
- Output per worker:
- Brazil: 20 units
- Thailand: 36 units
- Canada: 40 units
- Fixed overhead costs:
- Brazil: $150,000
- Thailand: $90,000
- Canada: $110,000
Production Resource Allocation
- Brazil has the lowest wage but also the lowest output per worker, making it less efficient despite low labor costs.
- Thailand offers a balance with a moderate wage and higher output per worker than Brazil.
- Canada has the highest wages but also the highest output per worker, indicating strong productivity.
- Storm may not be allocating resources optimally due to Brazil's low productivity which affects overall efficiency.
Recommendations for Production Optimization
- To improve resource allocation, it is recommended to reduce or cease production in Brazil, concentrating on Thailand and Canada where output is higher.
- A thorough cost-benefit analysis will further determine the most efficient operational structure.
Facility Consolidation Consideration
- When planning to consolidate manufacturing into one facility, Thailand emerges as a strong candidate:
- Combines moderate wage rates with higher output per worker compared to Brazil.
- Fixed overhead is lower than Canada, making Thailand a cost-effective choice.
- Consolidation in Thailand can minimize costs while maximizing production efficiency.
Current Manufacturing Analysis
- Storm operates manufacturing facilities in Brazil, Thailand, and Canada.
- Hourly wage rates:
- Brazil: $3.00
- Thailand: $6.00
- Canada: $12.00
- Output per worker:
- Brazil: 20 units
- Thailand: 36 units
- Canada: 40 units
- Fixed overhead costs:
- Brazil: $150,000
- Thailand: $90,000
- Canada: $110,000
Production Resource Allocation
- Brazil has the lowest wage but also the lowest output per worker, making it less efficient despite low labor costs.
- Thailand offers a balance with a moderate wage and higher output per worker than Brazil.
- Canada has the highest wages but also the highest output per worker, indicating strong productivity.
- Storm may not be allocating resources optimally due to Brazil's low productivity which affects overall efficiency.
Recommendations for Production Optimization
- To improve resource allocation, it is recommended to reduce or cease production in Brazil, concentrating on Thailand and Canada where output is higher.
- A thorough cost-benefit analysis will further determine the most efficient operational structure.
Facility Consolidation Consideration
- When planning to consolidate manufacturing into one facility, Thailand emerges as a strong candidate:
- Combines moderate wage rates with higher output per worker compared to Brazil.
- Fixed overhead is lower than Canada, making Thailand a cost-effective choice.
- Consolidation in Thailand can minimize costs while maximizing production efficiency.
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Description
This quiz evaluates the production allocation for Storm, an American consumer electronics company, based on wage rates, output, and overhead costs in Brazil, Thailand, and Canada. Analyze the figures to determine which location presents the most efficient production scenario. Strengthen your understanding of production economics and cost management.
