TO: Richard Sullivan
FROM:
SUBJECT: Wriston Manufacturing Corporation
DATE: June 9, 2011
Wriston Manufacturing Corporation (WMC) is faced with a Detroit plant that is no longer viable because of underinvestment, labour issues, and product-process mismatch. This has lead to low sales figures, low return, and high burden rates (as calculated by the company). The issues at the Detroit plant will be reviewed and options will be presented. A recommendation to address the Detroit plant will be be made based on this review.
Issues: Investment in the Detroit plant has lagged significantly from other plants in the corporation. As a result, the infrastructure and machinery is outdated, haphazard, and inefficient.…show more content…
Of the three, Group 3 has the lowest burden rate, and thus decreases the overall burden rate of the products produced in Detroit. Elimination of this product line, beyond alienating customers that depend on that group of products, will inflate the overall Detroit burden rate. Further, transfer of these high burden rate product lines to other plants, will likely increase the overall burden rate of those plants. This will negatively impact the ROA of the plants to which Group 1 and 2 are transferred. Construction of the new plant will also address labour and union concerns related the company’s future in Detroit. A greater focus on flexible skills training, better work environment, and a decreased transfer of profitable product lines out of the new Detroit plant, should increase worker engagement and motivation. A particular focus on the younger workers, as well as potential retirement packages for older workers, may help reverse worrying rates of absenteeism and turnover.
Accounting Practices: WMC’s accounting practices incorrectly attribute fixed manufacturing costs to the three Detroit groups in a proportional manner, leading to Group 3’s lack of profitability. Discontinuation of Group 3 pushes a greater percentage of the fixed costs to the other groups impacting their ability to be profitable. Additionally, WMC does not consider the degree to which production at the Detroit plant contributes to the operations and
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