Could CNL be a viable business? If so, under what conditions and what level of production (and, since production is directly related to production workers, employees)? All information provided for this question is attached.
Comfort Now LA (CNL) was a small business that manufactured bleacher seat pads that sports fans or picnickers could use to make wooden outdoor seating (or even convenient rocks) a bit warmer and more comfortable. The primary markets for CNL's product were college bookstores (to be sold to students and alumni) and specialty advertising firms (for use as corporate give-a-ways). The firm was organized in the second half of 2001 and began selling products in 2002. CNL had a policy of providing an annual "cost of living" increase for its assembly workers to maintain a constant annual cost of $25,000 per worker (1984 dollars). The production process requires one worker for every sixteen tons manufactured. As of January 2005, up to ten of the assembly workers were provided by a local Sheltered Workshop facility (a facility that provided and supervised disabled workers for product assembly and piece-work). This facility also rented the necessary manufacturing space to CNL. Nationwide Horizon Enterprises, a local manufacturing conglomerate with some excess capacity, provided the remaining workers and production space when more than ten disabled workers were required. Nationwide Horizon was also paid $25,000 (inflation-adjusted) apiece for its workers plus an additional fee for the rental of equipment and space. In addition to manufacturing labor, CNL employed a clerical worker and a general manager but no sales staff. Through December 2005, sales were generated primarily by manufacturer's representatives whoreceived a standard 5% of sales as their commission. In January 2005, Nationwide Horizon Enterprises purchased CNL. Nationwide Horizon's managementteam immediately began supplementing sales efforts by adding the CNL products to their own manufacturer's representatives lines. Otherwise, they operated CNL without significant changes. The Nationwide Horizon Enterprises managers soon found that while sales were growing, profits were shrinking. The management responded for the second half of 2005 by increasing the commission to theirmanufacturer's representatives from 5% to 6%. The salesforce responded quickly and sales boomed. By July 2006, Nationwide Horizon's board of directors expressed some concern to management. Eventhough sales were up, the deal was not proving to be profitable. At the end of July 2006, the board of directors was informed that Nationwide Horizon's management team had decided to reduce CNL'sproduction staff by letting go of those employees provided by the Sheltered Work Facility. It is now in autumn 2007. Nationwide Horizon has been sued by a noted civil rights attorney claiming that closing down the Sheltered Work Facility manufacturing operation was a wrongful termination of the workers in the Sheltered Work Facility. Her court filings say that there was no valid business reason for selecting the disabled workers for layoff rather than the nondisabled workers; in part, the court filings claim that the layoff was wrongful because there was no economic justification for dismissing these workers who had been at least as productive, and profitable, as their non-disabled counterparts for so many years. The attorney claimed that this was obvious discrimination against the disabled and because of the discrimination, her ten clients will be unemployed for an average of 20 years each. The attorney is asking the court for a verdict of $20,000,000 as an appropriate award to her ten clients if she prevails in her action. She estimated this figure by computing 20 years x 10 clients x $25,000 = $5,000,000, doubling it to account for her fees, then doubling that to account for future inflation Required You have been hired by Nationwide Horizon's board of directors to help their attorney (and them evaluate the claims in the lawsuit and determine whether the management team made the right decision. You have been asked to consider the following specific questions in preparing a report: (Use the guidelines for preparing a report on the course website.) You remember from your Business School days the following concepts that you think might be useful here: TABLE 1 1 2001 2h 2002 1h 2002 2h 2003 1h 2003 2h 2004 1h 2004 2h 2005 1 2005 2h 2006 1h Average Real Sales Price/Ton (Tons) ($000) 0 0 75 2.004 100 1.997 150 2.004 175 2.004 185 2.004 200 2.006 225 2.001) 275 2.0021 285 2.003 Nominal Nominal Mfg. Rep's Earnings Price Revenue Commission Total Cost before Tax ($000) (5000) Rate ($000) ($000) 0 0 5% 129.840 -129.840 3.253 243.975 5% 251.454 -7.479 3.269 326.903 5% 309.175 17.728 3.315 497.280 5% 425.488 71.792 . nes 3.364 588.618 5% 492.402 96.216 Wise 3.423 633.271 541.866 91.405 3.482 696.312 ories 5% 605,633 90.680 3.535 795.292 5% 727.298) 67.994 3.554 977.303 6% 988.973 -11.670 3.5831 1021.067 6% 1042.133 -21.065 5% Comfort Now LA (CNL) was a small business that manufactured bleacher seat pads that sports fans or picnickers could use to make wooden outdoor seating (or even convenient rocks) a bit warmer and more comfortable. The primary markets for CNL's product were college bookstores (to be sold to students and alumni) and specialty advertising firms (for use as corporate give-a-ways). The firm was organized in the second half of 2001 and began selling products in 2002. CNL had a policy of providing an annual "cost of living" increase for its assembly workers to maintain a constant annual cost of $25,000 per worker (1984 dollars). The production process requires one worker for every sixteen tons manufactured. As of January 2005, up to ten of the assembly workers were provided by a local Sheltered Workshop facility (a facility that provided and supervised disabled workers for product assembly and piece-work). This facility also rented the necessary manufacturing space to CNL. Nationwide Horizon Enterprises, a local manufacturing conglomerate with some excess capacity, provided the remaining workers and production space when more than ten disabled workers were required. Nationwide Horizon was also paid $25,000 (inflation-adjusted) apiece for its workers plus an additional fee for the rental of equipment and space. In addition to manufacturing labor, CNL employed a clerical worker and a general manager but no sales staff. Through December 2005, sales were generated primarily by manufacturer's representatives whoreceived a standard 5% of sales as their commission. In January 2005, Nationwide Horizon Enterprises purchased CNL. Nationwide Horizon's managementteam immediately began supplementing sales efforts by adding the CNL products to their own manufacturer's representatives lines. Otherwise, they operated CNL without significant changes. The Nationwide Horizon Enterprises managers soon found that while sales were growing, profits were shrinking. The management responded for the second half of 2005 by increasing the commission to theirmanufacturer's representatives from 5% to 6%. The salesforce responded quickly and sales boomed. By July 2006, Nationwide Horizon's board of directors expressed some concern to management. Eventhough sales were up, the deal was not proving to be profitable. At the end of July 2006, the board of directors was informed that Nationwide Horizon's management team had decided to reduce CNL'sproduction staff by letting go of those employees provided by the Sheltered Work Facility. It is now in autumn 2007. Nationwide Horizon has been sued by a noted civil rights attorney claiming that closing down the Sheltered Work Facility manufacturing operation was a wrongful termination of the workers in the Sheltered Work Facility. Her court filings say that there was no valid business reason for selecting the disabled workers for layoff rather than the nondisabled workers; in part, the court filings claim that the layoff was wrongful because there was no economic justification for dismissing these workers who had been at least as productive, and profitable, as their non-disabled counterparts for so many years. The attorney claimed that this was obvious discrimination against the disabled and because of the discrimination, her ten clients will be unemployed for an average of 20 years each. The attorney is asking the court for a verdict of $20,000,000 as an appropriate award to her ten clients if she prevails in her action. She estimated this figure by computing 20 years x 10 clients x $25,000 = $5,000,000, doubling it to account for her fees, then doubling that to account for future inflation Required You have been hired by Nationwide Horizon's board of directors to help their attorney (and them evaluate the claims in the lawsuit and determine whether the management team made the right decision. You have been asked to consider the following specific questions in preparing a report: (Use the guidelines for preparing a report on the course website.) You remember from your Business School days the following concepts that you think might be useful here: TABLE 1 1 2001 2h 2002 1h 2002 2h 2003 1h 2003 2h 2004 1h 2004 2h 2005 1 2005 2h 2006 1h Average Real Sales Price/Ton (Tons) ($000) 0 0 75 2.004 100 1.997 150 2.004 175 2.004 185 2.004 200 2.006 225 2.001) 275 2.0021 285 2.003 Nominal Nominal Mfg. Rep's Earnings Price Revenue Commission Total Cost before Tax ($000) (5000) Rate ($000) ($000) 0 0 5% 129.840 -129.840 3.253 243.975 5% 251.454 -7.479 3.269 326.903 5% 309.175 17.728 3.315 497.280 5% 425.488 71.792 . nes 3.364 588.618 5% 492.402 96.216 Wise 3.423 633.271 541.866 91.405 3.482 696.312 ories 5% 605,633 90.680 3.535 795.292 5% 727.298) 67.994 3.554 977.303 6% 988.973 -11.670 3.5831 1021.067 6% 1042.133 -21.065 5%
