Question 1
Freshly Baked, a local bakery, is concerned with rising costs, particularly with labour and energy costs. Labour costs are expected to increase due to the government’s intention to increase the foreign workers’ levy and also to limit the number of foreign workers. Sally, the owner, wants to know the impact of these increased costs on her business. With the assistance from Spring Singapore, Sally invested $10,000 in modifications to the baking ovens to reduce the impact of energy costs. The capital cost of the ovens last year was $30,000.
Last year, the bakery produced 25,000 units. Labour-hours were 3,500 while the energy consumed was 30,000 KWhr.
This year the same number of units is produced with 3,200 hours, with an energy consumption of 27,500 KWhr.
Using the previous year’s data, Sally has asked you to check if there was energy savings of at least 15% with the modifications. Labour productivity would also have been impacted by this investment.
Examine the productivity changes at Freshly Baked and answer the following questions.
(a) What was the percentage change in labour productivity? (5 marks)
(b) Did the investment meet the expected energy savings of 15%?
(5 marks)
(c) While taking the prior two factors into consideration, should Sally have proceeded
with the additional investment in modifying the ovens?
Question 2
(10 marks)
Sam Chen and Paul Yen plan to set up a company (SP Packaged Vegetables) to provide fresh vegetables to restaurants, hospitals and airline caterers. Paul has many years of running operations and has experience in the commercial food supplies industry. Sam is experienced in marketing, having built relationships with major players in the hospitality and F & B industry. The process of preparing the packaging and supply of fresh vegetables involve opening up crates and boxes when delivered, sorting, washing, slicing (where needed), preserving and the final packaging. Working closely with suppliers and customers, Sam and Paul feel that they are able to estimate demand, fixed costs, sales revenue and variable costs for a 2kg bag of vegetable. They estimated that a manual process would have a monthly fixed cost of $57,500 and variable cost of $$2.75 per 2kg bag. The automated process will have a monthly cost of $85,000 per month with variable costs of $2.25 per 2kg bag. The expected price for a 2kg bag of vegetable is $4.50.
(a) Quality plays an important part in operations. Explain and examine three (3) reasons, with relevant examples, that quality is important to SP Packaged Vegetables.
(8 marks)