The Groundhog's New Clothes

Since the machinery is dated it requires skilled

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Unformatted text preview: purchased four years ago. Since the machinery is dated, it requires skilled laborers to operate. The Franklins have recently embraced lean manufacturing practices; consequently, they have crossed-trained their employees so that each person can basically run any machine in the factory. Computerized pattern creators and ultrasonic sewing machines have been introduced into the industry in recent years, but these machines are expensive and well out of reach for a small manufacturer. The Franklins have utilized subcontractors that own these computer-aided machines in the past when their backlog has been full. The quality of these subcontracted products is virtually indistinguishable from the apparel that Beauti-Phil produces in its own factory. The subcontractor charges Beauti-Phil $8.00 per t-shirt and $14.00 per golf shirt, and its service time is compatible with most of Beauti-Phil’s promised delivery dates. Before the loss of the Groundhog Day Festival account, Beauti-Phil’s factory was running at about 80% capacity, so until the Franklins are able to expand their customer base in other local markets, they expect that the current level of capital in the factory will be able to handle the level of demand. Table 2 provides the six-month forecast of demand for t-shirts and golf shirts along with the expected number of production days in each month. Table 2: Demand Forecast and Number of Production Days by Month October November December January February 2004 2004 2004 2005 2005 March 2005 T-Shirts 45,700 56,500 43,300 34,200 29,800 55,700 Golf Shirts 48,200 53,100 41,900 35,800 26,300 59,000 Prod. Days 21 20 21 20 19 23 In addition to the labor costs incurred with production, Beauti-Phil currently incurs a raw material cost of $2.00 per t-shirt and $3.50 per golf shirt. They also estimate an allocated overhead cost of $1.50 per t-shirt and $2.50 for each golf shirt, of which 20% is fixed overhead and 80% is variable overhead. Eileen recently received a proposal from a potential new raw material supplier named Threads of Dignity located in Morgantown, WV, that would decrease the raw material cost to $1.50 per tshirt and $3.25 per go...
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