For the current fiscal year that starts on January 1, 2015, Buffalo Best Company projects its financial performance as shown in Tables 7.23 and 7.24.

In fiscal year 2015, the products of the company are priced at $10,000 each. The company president predicts that, because of the generally anticipated recovery of the U.S. economy, there will be a 4% per year increase in each of the next four years (i.e., 2016 to 2019) in

(a) price of the company’s products and

(b) number of products sold. However, the company’s administrative and selling expenses, as well as the product cost per unit, are projected to increase by 7% per year.

Other expenses, such as R&D, interests, depreciation, and corporate tax rate, will remain unchanged. The anticipated increase in product cost is primarily due to an increase in materials costs and a decrease in labor productivity because of high turnover rate, poor employee supervision, inadequate workforce compensation policy, cumbersome production processes, and inferior employee training.

If nothing is done, the company expects its net income to decrease by as much as 50% around 2018–2019.

At a management meeting on February 12, 2015, the vice president of engineering proposed to hire a consulting firm in the second half of 2015 to develop a customized program for improving labor productivity. She noted that three options are currently available at different investment prices and projected CGS reduction levels:

Program Investment CGS Reduction Percentage A $700,000 1.0 B $1,100,000 2.0 C $1,200,000 3.0 The investment for any one of these options will be a one-time lump sum that can be expensed as an increase in overhead in 2015. The benefits of the consultation program will be realized in a projected reduction of product cost per unit (i.e., the originally anticipated product cost before the management consultation program) by a percentage (1%, 2%, or 3%, respectively) per year for the next four years (i.e., 2016–2019).

The company president welcomes the idea of management consultation as a possible way to enhance workforce productivity. Assuming that the company’s cost of money is 10%, he wants to know which management consultation program he should approve.