ECO 550 Assignment 2 – Operations Decision

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Assignment 2: Operations Decision

ECO 550

Introduction

In an organization, when the operations are started up then, it becomes necessary for it to ensure that, better quality results are available to them. Here, in the present situation, there is a case that, the organization shall incur certain kinds of costs and it shall also earn some revenue by way of sales of its products. There are certain environmental factors required to be considered by an organization. All the above mentioned things shall be taken into consideration in the present situation.

Fictitious Business Selected

The organization selected for the current situation is engaged in the business of manufacturing of jars, mugs and other kinds of containers. The containers made by the organization are manufactured by making use of plastic (Bragg, 2012). The organization makes use of raw plastic and gives it proper shape in order to produce the products which are useful for the people. The containers and jars prepared by the organization are useful for household use as well as for use in hotels and restaurants.

Environmental Scan Factors

There are various environmental factors which should be considered by the organization regarding the current situation. The environmental factors include political factors, social factors, technological factors and economic factors. All these factors are important in some or the other manner for the organization. In the present situation, the most important factors for the organization include social factors and governmental factors. Regarding the social factors, it is said that, organization needs to produce the products which meet the requirements of people living in society.

The products should be of the quality as desired by the customers. Different customers have different tastes and preferences. Therefore, it becomes incumbent on the organization to manufacture products as per the requirements of customers. Customer satisfaction should be the most important thing for an organization as it sets up the level of profitability an organization would be able to achieve.

Second most important factor for an organization is a political factor. The political factors are regarding the policies, rules and regulations framed by the government of the country in which the organization exists (Slack & Lewis, 2003). For example, the government could impose extra duties on the import or export of plastics from one country to another. If this shall be the case then, the costs of organization will increase in the import of the material for getting the products in future. Based on the above discussion, it can both the above mentioned environmental scan factors are the most important factors. It is incumbent on the organization to consider the same in the future to produce high quality results for it without any kind of problem or trouble.

The organizational decision to continue or discontinue the operations will depend upon the factors mentioned above. For example, if the organization is unable to produce the products according to the needs of customers then, there is the likelihood that, profitability of an organization will reduce to a certain extent. If the profitability will reduce then, the organization might have to stop the working of a particular operation in the organization. This shows that, above mentioned environmental factors do help organization to figure out whether, to continue with the operations or not.

Financial Performance of Organization

An organization should continue its operations if, it is certain about the fact that, it is earning a higher level of profits or the profitability will continue to increase to a higher level in future. Here, the organization uses 1000 workers for producing 6000 units of the output per month. The workers work for a period of 20 days per month. Therefore, total cost of workers per month will be 1000*20*70 = $1400000. The organization also incurs variable inputs which are at the level of $2000 per day. This shows that, during a period of one month, the variable costs incurred by the organization will be $2000*32 = $64000. In this way, the total costs incurred by the organization shall be $1464000.

The organization will be selling 6000 units per month. The price of the products produced by the organization shall be $32. This shows that, total revenue generated by the organization will enhance to the level of 6000*$32 = $192000. This shows that, the organization is not able to cover up the costs incurred by it during a particular month. In this way, the operations in present situation should not be continued by it and it is also important for organizations to look forward to either reduce its costs or enhance its production and sales to a higher level in future.

Improvement in Profitability

The area for concern for the organization is very high level of labor costs and lower level of production. Therefore, an organization has to implement a plan which would help it in making sure that, high quality results are available with it. Currently, the organization is manufacturing plastic bottles with the help of labor intensive methods. It is necessary for it to change the same (Stokes, 2008). The methodology should be more based on technology now. The organization should arrange for loans from financial institutions and then, ensure that, it purchases machinery to produce the plastic containers. By use of machinery, less cost will be incurred and organization will have enhanced production also.

Circumstances to Discontinue Operations

If the organization finds out that, the profitability does not increase even with the installation of machinery then, it should discontinue the operations. This particular thing will create problems for the organization and it shall continue to incur loses. It is not appropriate for an organization to continue incurring the losses. Therefore, it should continue the operations.

Conclusion

An organization should figure out whether, it is earning appropriate level of profits or not. It is also important for it to consider the environmental factors. The present organization is not having proper benefits available with it. In addition to this, the profitability of the organization is not good at the present point of time. It should include technology in its operations which could work in its favor and produce better quality results.

References

Bragg, M. S. (2012). Financial Analysis: A Controller’s Guide. (2nd ed.). John Wiley & Sons.

Slack, N. & Lewis, M. (2003). Operations Management: Critical Perspectives on Business and Management. Routledge.

Stokes, D. (2008). Principles and Practice of Variable Pressure/Environmental Scanning Electron Microscopy. John Wiley and Sons.




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