Sof-T, Inc

question 210

Essay

Sof-T, Inc.manufactures foam products for upholstery companies.It has two workstations, mixing/heating and cutting/assembly.The mixing/heating station is limited by the capacity of the equipment.Cutting/assembly is limited by the speed of the cutting machine workers.Cutting/assembly normally lags behind mixing/heating.Because the demand has increased in recent months, management is considering adding another person to cutting/assembly.This would increase the department's costs by $4,000 a month.If the person is moved from mixing/heating, that department's cost would decline by $3,000.By keeping mixing/heating labourers the same, the department can increase production on-call by 10 percent.Current idle time in mixing/heating averages one-half person a day for a net cost of $1,400 a month.Required:
a.What is the net effect of moving the employee from mixing/heating to cutting/assembly?
b.What is the net effect if a new employee is hired for cutting/assembly?

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Definitions:

Industry

A category of economic activity related to the production of goods, provision of services, or extraction of resources.

Cutthroat Competition

A market situation characterized by aggressive competition, where companies compete intensely, often at the expense of profit margins.

Covert Collusion

An agreement among competitors to limit competition and fix prices or output levels, done secretly to avoid detection by regulatory authorities.

Competitive Spectrum

The range of competition within a market, from monopolies to perfectly competitive markets, affecting pricing, innovation, and consumer choice.