2. Discuss the implications of closing a plant.

Andrew-Carter, Inc. (A-C), is a major Canadian producer and distributor of outdoor lighting fixtures. Its products are distributed throughout South and North America and have been in high demand for several years. The company operates three plants to manufacture fixtures and distribute them to five distribution centers (warehouses).

During the present global slowdown, A-C has seen a major drop in demand for its products, largely because the housing market has declined. Based on the forecast of interest rates, the head of operations feels that demand for housing and thus for A-C’s products will remain depressed for the foreseeable future. A-C is considering closing one of its plants, as it is now operating with a forecasted excess capacity of 34,000 units per week. The forecasted demands (left table) and capacities (right table), in units per week, for the coming year are as follows:

If A-C shuts down any plants, its weekly costs will change because fixed costs will be lower for a nonoperating plant. Table 13.9 shows production costs at each plant, both variable at regular time and overtime, and fixed when operating and shut down.
Table 13.10 shows distribution costs from each plant to each distribution center.

Transcribed Image Text:

TABLE 13.9 Andrew-Carter, Inc., Variable Costs and Fixed Production Costs per Week FIXED COST PER WEEK VARIABLE COST NOT PLANT (PER UNIT) OPERATING OPERATING 1, regular time $2.80 $14,000 $6,000 1, overtime 3.52 2, regular time 2.78 12,000 5,000 2, overtime 3.48 3, regular time 2.72 15,000 7,500 3, overtime 3.42 Andrew-Carter, Inc., Distribution Costs TABLE 13.10 per Unit TO DISTRIBUTION CENTERS FROM PLANTS W1 W2 W3 W4 W5 1 $.50 $.44 $.49 $.46 $.56 2 .40 .52 .50 .56 .57 3 .56 .53 .51 .54 .35 Source: Reprinted by permission of Professor Michael Ballot, University of the Pacific, Stockton, CA. Copyright by Michael Ballot.