Application Proplem

The systems analyst of the MIS department was contacted one morning by the production manager of the candy bar division.The problem was that the 3-ounce candy bar is sticking to the wrapper. A large percentage of the bars begin to stick to their wrappers after four or five weeks on the grocer's shelf. Consequently, customer complaints have forced a supermarket chain to switch to a competitor's brand.

After a two-week observation of the mixing and wrapping processes and inspection of the wrapper, it was found that the three-year-old mixing unit overheated after 6.5 hours of operation. This caused a sugar ingredient to react slowly to room temperature three to four weeks after production. The mixing machine has five more years of projected life. The alternatives are to modify the present machine at a cost of $79,000 and to replace it with a new (but more reliable) machine that has been successfully used by a competitor. The new machine costs $150,000 plus $14,000 installation charge. It has no salvage value at the end of the eight years.

The next step was to compute the operation costs of both systems. In a meeting with his supervisor, the analyst tried to show how the new system would increase sales of the 3-our second bar and produce reliable production that would easily offset the initial investment in the new machine. The supervisor did not seem impressed. After a lengthy discussion, the analyst was asked to redo the computations and the analysis. .

Assignment

  1. One problem that was pointed out was computing employee wages. What seems to be inaccurate about the salary section in both systems? How would you correct the problem?

   2. With respect to the types of costs incurred in operating either system, did the analyst include all relevant costs? Show where additional costs should be included. What other expenses should the rep0l1 emphasize (if any)?