mahima_khandelwal_a_wac2_1.docx.pdf

8/9/2019 Mahima_Khandelwal_A_WAC2_1.docx.pdf

1/12

0

WRITTEN ANALYSIS AND COMMUNICATION 2

ASSIGNMENT 1: CASE ANALYSIS

AWC Inc.: The Ventilation Dilemma

A Report Submitted to:

Prof. Vidya Jindal

SUBMITTED BY:

Mahima Khandelwal

PGP-1

Date: 05-10-2014


2/12

1

Letter of Transmittal

Date: 01-Aug-1991

To:

Mr. Alex Macdonald

President

AWC Inc.

Ontario, Canada

From:

Mahima Khandelwal

Associate Consultant

ABC Company Limited

Vaughan, Canada

Subject: Recommendation on the future course of action for AWC Inc.

Dear Sir,

Please find attached the recommendation and action plan for AWC Inc.

The report contains complete analysis of the current situation and recommends the action plan

that best suits the interest of the firm.

Thanks and Regards,

Mahima Khandelwal

Associate Consultant


3/12

2

Executive Summary:

AWC Inc. is a Southwestern Ontario based aluminum fabrication plant that specializes in the

manufacture of commercial doors, windows, curtain wall products and store fronts. Since its

foundation it is well known for its quality, product design as well as competitive prices. Because

of increased competition in the market AWC has come up with a superior door design forgeneral use that led to significant increase in its sales. AWC is now facing the dilemma of

whether to install emission control system in its plant to be in compliance with the government

regulations or should it continue in the way it had been operating since it was founded in 1950.

Problem Statement:

What steps should be taken by AWC Inc. about the emission control system in its plant?

Options:

AWC should accept the existing situation and avoid purchase of any ventilationequipment.

AWC should install an exhaust system.

AWC should install a recirculating filtration system.

Evaluation Criteria:

Profit and Financial Sustainability

Legal Issues

Organization Culture and Social Responsibility

Evaluation:

The firm should install the exhaust system as it is the most viable in terms of financial

stability as well as legal compliance. Also it is in-line with the organization culture.

Recommendation:

It is recommended that AWC should install the exhaust system in its plant to release the fumes

into the atmosphere after taking approval from the Ministry of Environment.

Action Plan:

AWC should install the exhaust system and then reduce the salaries of its employees which

would further increase its profits compared to the previous year. They could then increase the

salaries the year after, so that the employees are also not dissatisfied.


4/12

3

Situational Analysis:

AWC Inc. is a small aluminum fabrication plant based in Southwestern Ontario. It was founded

in 1950 by Jim MacDonald. Currently it is run by Jims son Alex MacDonald, who is the current

owner and President of AWC Inc. Since its foundation, the company is well known for the

quality, design as well as the competitive price of its products. It specializes in the production of

commercial doors, windows, storefronts and curtain wall products. AWC is more than a

workplace for its employees as it was kind of a family. As a result the employees were very

much motivated and performance of the firm was boosted.

The aluminum fabrication industry had low entry barriers and also aluminum was suitable was a

variety of applications. AWC purchased various alloys of aluminum and then machined and

assembled them to form different products. Because of the easy entry, there were several

competitors and AWC had 37 competitors in southwestern Ontario. The competitive bidding

process ensured that contracts were awarded through bidding process. To ensure that products

were at par with the requirements of the customer, the engineers worked closely with the

customers.

The company had a total of 100 employees which together constituted the production workers

and the office staff. The office staff consisted of 25 engineers who worked right from the

proposal stage to the final installation. AWCs competent engineers along with committed and

skilled production workers ensured that its products were best in terms of performance in the

market. Also, because of the increased number of competitors and the recession in the

construction industry, the profits on contracts were cut down to 3% from the earlier 5-7%. Also,

the custom contracts which were more time consuming as compared to standard contracts

ensured up to 20% profits.

The recent shake out in the aluminum fabrication industry has led AWC to cut down its profits,

prices and at the same time improving its efficiency. This had led to around 33% of AWCs

competitors going out of business and also others who have merged together to spread the costs

over a larger volume. Apart from this, the Canada-U.S Free Trade Agreement further increased

the competition in the aluminum fabrication industry by offering products at lower prices

because of lower cost structures.


5/12

4

AWC has recently introduced a superior door design which boosted companys sales of

aluminum doors thereby increasing the need for more production. This new door provided

superior performance and had an upper edge over others in terms of price and ease of assembly

and required stronger welding and hence more time in the production process (on welding line).

This in turn generated the need for welding line to be either used full time or on a dual shift

basis. If used on a dual shift basis, it would incur more cost and also the difficulty to find a new

supervisor. On the other hand, if a second welding line was introduced we could save on some of

the expenses like shift premium, but at the same time the equipment would cost around $75000.

There were certain emission control systems that had to be followed as per government

regulations failing which would attract penalties. There were two kinds of emission control

systems available:

1. Exhaust system - This would let the fumes outside the plant and was the cheaper of the

two options. This would cost Alex approximately $240,000.This method led to the

release of by products outside the plant into the atmosphere and hence required

Certificate of Approval from the Ministry of Environment.

2. Recirculating Filtration system- This was a little more expensive and would incur a fixed

cost of approximately $450000. It would run the air from the welding station through

electrostatic filters and then release it back to the plant. This required an approval from

the Ministry of Labour, Department of Occupational Health and Safety. Also, the filters

that were used had to be cleaned regularly for effective functioning and required trained

employees. This process generated some toxic material that had to be properly disposed

following the waste disposal regulations.

Problem Statement:

What steps should be taken by AWC Inc. about the emission control system in its plant?

Options:

1. AWC should accept the existing situation and avoid purchase of any ventilation

equipment.

2. AWC should install an exhaust system.

3. AWC should install a recirculating filtration system.


6/12


7/12

6

Environment which were concerned with external emissions of by-products which

included a studied the impact on air quality for AWCs neighbours.


Since AWC has been into operation from past 41 years, and had been providing honest

work to local community hence it is nicely following its social responsibility.

Option 3: AWC should install a recirculating filtration system

Profit and Financial Sustainability

The purchase of air circulation system would lead to very high losses for the company

and hence is not a viable option as even if we try and reduce the salaries of the

employees, we will not be able to come to a break-even point for the firm to operate.

Also, removal of the sludge produced will lead to additional increase in the costs for the

company. (Refer Exhibit 3)

Legal Issues

This would lead the company to produce hazardous sludge which requires safety

precautions and could not be legally stored at its site. To comply with this requirement he

would have to invest an additional $500 for its disposal and $ 200 on its testing as well.


Since the company is investing huge amount of money to follow all the government

regulations concerning emissions hence it is fulfilling its social responsibility.

Recommendation:

It is recommended that AWC should install the exhaust system in its plant after taking approval

from the Ministry of Environment as it fulfills all the evaluation criteria.

Action Plan:

AWC should install the exhaust system and then reduce the salaries of its employees by

approximately 7% and Alexs salary should be reduced by around 12% (Refer Exhibit 2) as this


8/12

7

would increase its profits compared to the previous year. They should convince the employees

regarding the decrease in salaries and ensure that it would be brought back to normal as the

company recovers. Since the employees are emotionally attached to AWC and consider it as a

family, they would surely agree to the request made by Alex and would lead to future growth.


9/12

8

Exhibit 1:

Projected Income Statement

(Purchase of $240,000 exhaust equipment)

Actual Exhaust system

1990 1991 1992 1993

Amount ($) Amount ($) Amount ($) Amount ($)

Sales 3,535,118.00 3,623,496.00 3,732,201.00 3,844,167.00

Cost of Goods Sold 2,386,205.00 2,445,860.00 2,556,558.00 2,633,254.00

Gross Profit 1,148,913.00 1,177,636.00 1,175,643.00 1,210,913.00

Wages and

Benefits 768,000.00 791,040.00 675,840.00 714,240.00

Advertising 40,000.00 42,860.00 42,860.00 42,860.00

Utilities 46,700.00 48,500.00 49,015.00 49,100.00

Insurance 10,000.00 10,000.00 10,000.00 10,000.00

Depreciation 28,945.00 28,945.00 58,945.00 58,945.00

Travel 77,000.00 80,000.00 82,700.00 83,400.00

Trade Shows 25,000.00 27,000.00 27,000.00 27,000.00

Executive Salary 100,000.00 100,000.00 88,000.00 88,000.00

Interest Expense 46,200.00 42,540.00 76,140.00 74,403.00

Total Expenses 1,141,845.00 1,170,885.00 1,110,500.00 1,147,948.00

Earnings Before

Tax 7,068.00 6,751.00 65,143.00 62,965.00

Taxes 2,333.00 2,228.36 21,502.35 20,783.44

Net Income 4,735.00 4,522.64 43,640.65 42,181.56


10/12

9

Assumptions:

1. Number of employees remains constant at 100.

2. Salaries of employees are reduced by 7% in 1992.

3.

Alex MacDonald salary is reduced by 12% in 1992.

4. Equipment has been purchased on loan and hence interest expense is applicable.

5. Salaries are again increased by 7% in 1993.

Exhibit 2:

No. of employees 100

Average Salary 7,680.00

Reduction 7%

New Average Salary 7142.40

New total wages 714240


11/12

10

Exhibit 3:

Projected Income Statement

(Purchase of $400,000 air recirculation equipment)

Actual Recirculation System

1990 1991 1992 1993

Amount ($) Amount ($) Amount ($) Amount ($)

Sales 3,535,118.00 3,623,496.00 3,732,201.00 3,844,167.00

Cost of Goods Sold 2,386,205.00 2,445,860.00 2,556,558.00 2,633,254.00

Gross Profit 1,148,913.00 1,177,636.00 1,175,643.00 1,210,913.00

Wages and Benefits 768,000.00 791,040.00 691,200.00 729,600.00

Advertising 40,000.00 42,860.00 42,860.00 42,860.00

Utilities 46,700.00 48,500.00 49,015.00 49,100.00

Insurance 10,000.00 10,000.00 10,000.00 10,000.00

Depreciation 28,945.00 28,945.00 78,945.00 78,945.00

Travel 77,000.00 80,000.00 82,700.00 83,400.00

Trade Shows 25,000.00 27,000.00 27,000.00 27,000.00

Executive Salary 100,000.00 100,000.00 88,000.00 88,000.00

Waste Disposal - - 8,400.00 8,400.00

Interest Expense 46,200.00 42,540.00 76,140.00 74,403.00

Total Expenses 1,141,845.00 1,170,885.00 1,154,260.00 1,191,708.00

Earnings Before

Tax 7,068.00 6,751.00 21,383.00 19,205.00

Taxes 2,333.00 2,228.36 7,058.08 6,339.17

Net Income 4,735.00 4,522.64 14,324.92 12,865.83


12/12

11

Assumptions:

1. Number of employees remains constant at 100.

2. Salaries of employees are reduced by 7% in 1992.

3.

Alex MacDonald salary is reduced by 12% in 1992.4. Equipment has been purchased on loan and hence interest expense is applicable.

5. Salaries are again increased by 7% in 1993.

mahima_khandelwal_a_wac2_1.docx.pdf

Documents