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Assignment 3 - Report Writing
Assignment 3 - Report Writing
Report to be based on situation of the carpet company given below. You may give the
company any name of your choice.
Read the situation through, right till the bullet points under "Additional Information", and
create the report.
Three years ago, your company (a carpet manufacturer) modernized its Georgia plant in
anticipation of an increasing demand for carpets. Because of the depressed housing market,
the increase in demand for new carpets has been slow to materialize. As a result, the
company has excess capacity at both its Georgia and California plants. You, Anita Simson,
are the CFO of the company. On the basis of your research, you have recommended that the
company close the California plant.
J.P. Lawrence, the company president, has asked you to prepare a justification report to
support your recommendation.
Given below are the facts you gathered by interviewing the respective plant managers.
Operational Statistics
Georgia plant: This plant has newer equipment, has higher productivity, employs 100
nonunion production workers and ships $12 million in carpets a year; hourly base
wage is $16.
California plant: This plant employs 80 union production workers and ships $8 million
in carpets a year; hourly base wage is $20.
Financial Implications
Savings by closing California plant: (1) increase productivity by 17% (2) reduce
labor costs by 20% (total labor savings would be $1 million per year ; see additional
information below); (3) save annual local tax of $120,000 (Georgia has a more
favorable tax climate)
Sale of Pomona, California, land: Purchased in 1952 for $200,000. Current market
value $2.5 million. Net profit (after capital gains tax) over $1 million.
Sale of plant and equipment: Fully depreciated; any proceeds a windfall.
Costs of closing California plant: One-time deductible charge of $250,000 (relocation
costs of $100,000 and severance payments totaling $150,000)
Additional Information
- You may
Transfer five workers from California to Georgia
Hire 45 new workers in Georgia
Lay off 75 workers in California
- Georgia plant would require a total of 150 workers to produce the combined volume
of both plants.