To: President of Modern Chair

From: Accountant of Modern Chair

Date: March 22, 2021
Re: Profit Maximization

Overview:

Modern Chair is known for its use of new and automated production of different classes
of chairs. Its operation comes with computer-assisted design and offers personal design based on
demands of its customer. The company is said to have two departments, which are assembling
and finishing. In addition, even though there are several types of chairs being produced by
Modern Chair, they are classified into two types, upholstered and straight back.

Issue identification:

 Shortage in capacity – evident because of the economy’s current situation which is in a

temporary boom. With this circumstance, Modern Chair might not be able to meet the
excess demand of its current or upcoming customers. Having also in mind that Modern
Chair’s production of chairs only has two types and also their production department only
has two division, which it makes the production quite hard to keep up with the demands.

 Decisions are all majority made by the President of Modern Chair – in contrast there
should be other levels of company positions that should be helping with the decision
making and other responsibilities on the company’s operation, which will allow the
President to have capabilities on looking over other areas in the company.

Analysis and Identification of Alternatives:

 Shortage in capacity – when determining the working hours in Modern Chair’s

production, simple regression is used. It is also used as an approach to know the cost
incurred for each product category in each department. Given the average prices of the
upholstered and straight back chairs, $147 and $76 respectively, it can be seen that the
selling price of the products are acceptable if it is then compared to their costs. Although
the costs can be acceptable, Modern Chair might still have some problems with these
costs being expensed, mainly concern would be the fixed cost, which covers all the non-
manufacturing costs. Looking at the variable cost, it is then only expensed on the sales
commission they pay (5%) on the sales price of each chair. Assembly department has
enough capacity for production while finishing does not. So, the costs of each
departments are not connected to their respective revenue being earned. That being said,
as mentioned, linear programming can be used as an approach. So, to undergo, time of
production and department hour of each product must be gathered. So, by having all the
required data when using this approach there could be a benchmark for each department
to meet and work on in a daily basis. So having this benchmark, it can lead to
improvements on the efficiency of operation of each department and could also meet the
current excess demand that Modern Chair will be getting from its customers.
  Decisions are all majority made by the President of Modern Chair – to find an alternative
in this issue, I would suggest that the President should look for qualified people who can
join him or work with him in the decision making in the company. So, by having a
greater number of people operating the company, it can help with the monitoring of each
department and overall production of the company. With the focused monitoring,
assuming that all the people recruited are excellent in their jobs, it can lead to making
better and effective decisions in the future Modern Company.

 Conclusion: efficient operation and recruit qualified workers to have an effective

hierarchy that can improve the company’s daily operation and decision making

Recommendations:

1. Departments should make changes in its operations, more especially finishing department
on how to keep up with the rush production to meet the excess demand of the customers.
2. Modern Company can look at the overall costs and try to reduce some of the fixed costs,
which is majority of the costs. By reducing unnecessary costs, profit margin of the
company will then increase.
3. With the new hierarchy being implemented in the company, operating managers should
be required to report on higher positions, who will then be reporting to the President
overall regarding the efficiency and daily productivity of the company.

Implementation:

Short term: Enforce the operation changes in finishing department immediately for changes or
improvement along with the new hierarchy being given the opportunity to provide effective
decisions and monitoring.

Long term: Examine after one year the effects of changes on the finishing assembly and the
performance of the hierarchy. If all of those implementations did not work out or only did minor
improvements, Modern Chair should start looking at other strategy for guaranteed improvements
of the company’s operation and profit maximization.