Jay White works for Nelson Design Paperworks Limited, as a marketing manager for a division that produces a variety of paper products. He is considering the divisional manager’s request for a sales forecast for a new line of paper napkins. The divisional manager has been gathering data so that he can choose between two different production processes. The first process would have a variable cost of $10 per case produced and total fixed cost of $100,000. The second process would have a variable cost of $6 per case and total fixed cost of $200,000. The selling price would be $30 per case. Ron had just completed a marketing analysis that projects annual sales of 30,000 cases. Jay is reluctant to report the 30,000 forecasts to the divisional manager. He knows that the first process would be labor intensive, whereas the second would be largely automated with little labor and no requirement for an additional production supervisor. If the first process is chosen, Ken, a good friend, will be appointed as the line supervisor. If the second process is chosen, Ken and an entire line of laborers will be laid off. After some consideration, Jay revises the projected sales downward to 22,000 cases. He believes that the revision downward is justified. Since it will lead the divisional manager to choose the manual system, it shows a sensitivity to the needs of current employees—a sensitivity that he is afraid his divisional manager does not possess. He is too focused on quantitative factors in his decision making and usually ignores the qualitative aspects. Identify the range of sales for which the manual process and the automated process is more profitable. Why does the divisional manager want the sales forecast?
Jay White works for Nelson Design Paperworks Limited, as a marketing manager for a division that produces a variety of paper products. He is considering the divisional manager’s request for a sales
Jay is reluctant to report the 30,000 forecasts to the divisional manager. He knows that the first process would be labor intensive, whereas the second would be largely automated with little labor and no requirement for an additional production
supervisor. If the first process is chosen, Ken, a good friend, will be appointed as the line supervisor. If the second process is chosen, Ken and an entire line of laborers will be laid off.
After some consideration, Jay revises the projected sales downward to 22,000 cases.
He believes that the revision downward is justified. Since it will lead the divisional manager to choose the manual system, it shows a sensitivity to the needs of current employees—a sensitivity that he is afraid his divisional manager does not possess. He is too focused on quantitative factors in his decision making and usually ignores the qualitative aspects.
Identify the range of sales for which the manual process and the automated process is more profitable. Why does the divisional manager want the sales forecast?
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