To support its just-in-time production system, Jarvis Sport Cycles (Upper JSC) measures the percentage of employees who are cross-trained to perform a wide variety of production tasks. The internal business process measures are inventory turns and on-time delivery. Upper JSC also measures customer satisfaction. Upper JSC estimates that if it can increase the percentage of cross-trained employees by 5 %, the resulting increase in labor productivity will reduce inventory-related costs by $ 200 comma 000 per year and shorten delivery times by 10 %. The 10 % reduction in delivery times, in turn, is expected to increase customer satisfaction by 5 %, and each 1 % increase in customer satisfaction is expected to increase revenues by 2 % due to higher prices.

Requirements

1.Assume that budgeted revenues in the coming year are $ 10 comma 000 comma 000. Ignoring the costs of training, what is the expected increase in operating income in the coming year if the number of cross-trained employees is increased by 5 %? 2.What amount is the most Upper JSC would be willing to pay to increase the percentage of cross-trained employees if it is only interested in maximizing operating income in the coming year? 3.What factors other than short-term profits should Upper JSC consider when assessing the benefits from employee cross-training?