ShortTerm Decision-Making: Relevant Costs and Analysis

Many equipment replacement or outsourcing decisions have relevant qualitative considerations which may impact the acceptance of a quantitative evaluation, regardless of the calculated outcome. For instance, Steve Smith has completed an analysis of budgeted volumes for the US division of Swiss Chocolate Company for the coming year, and noted that the firm’s direct labor cost of production is significantly less per unit than its Swiss affiliate plant, but is higher than its Mexican affiliate plant. The Swiss corporate office has indicated that if its costs are not competitive with the Mexican plant, closure of the US plant is imminent.

Rick White has proposed a plan for automation of some of the processes which are now completed by hand at the US division. Although the expected results are attractive, five of ten or half of the production staff would be terminated.

Consider the ethical implications of such a decision. Would the replacement of the equipment be optimal? What might the impacts be to the workforce? Would there be potential impacts on financial results which extend beyond the immediate savings proposed in the equipment replacement?

 
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