Chapter 17, Problem 32P

Paladin Company manufactures plain-paper fax machines in a small factory in Minnesota. Sales have increased by 50 percent in each of the past three years, as Paladin has expanded its market from the United States to Canada and Mexico. As a result, the Minnesota factory is at capacity. Beryl Adams, president of Paladin, has examined the situation and developed the following alternatives.

1. 1. Add a permanent second shift at the plant. However, the semiskilled workers who assemble the fax machines are in short supply, and the wage rate of $15 per hour would probably have to be increased across the board to $18 per hour in order to attract sufficient workers from out of town. The total wage increase (including fringe benefits) would amount to $125,000. The heavier use of plant facilities would lead to increased plant maintenance and small tool cost.
2. 2. Open a new plant and locate it in Mexico. Wages (including fringe benefits) would average $3.50 per hour. Investment in plant and equipment would amount to $300,000.
3. 3. Open a new plant and locate it in a foreign trade zone, possibly in Dallas. Wages would be somewhat lower than in Minnesota, but higher than in Mexico. The advantages of postponing tariff payments on parts imported from Asia could amount to $50,000 per year.

Required:

Advise Beryl of the advantages and disadvantages of each of her alternatives.