Productivity and Financial Impact of TIVO-10K Process Improvement We seek an evaluative report on a new process improvement for our TIVO-10K dehydrator fittings, introduced by a junior manager, aimed at increasing output and reducing material costs. The board of directors requires a detailed assessment of the productivity gains and financial implications to determine the viability of this new process. The process improvement in question is designed to increase the production rate of fittings by 25%, decrease material costs, but necessitates an additional employee.
Existing Process Metrics: Workforce: 5 employees Output Rate: 60 fittings per hour Labor Cost: $24 per hour, per employee Material Cost per Fitting: $32 Overhead: 1. 6 times direct labor cost Sale Price per Fitting: $61 New Process Metrics: Increased Workforce: 1 additional employee (total of 6) Expected Output Increase: 25% (from existing rate) Reduced Material Cost per Fitting: $20 (All other costs and sale price are unchanged) Required Analysis: 1) Determine the percentage increase in productivity. Please calculate this in terms of output per labor hour before and after the improvement. 2) Analyze the financial implications by conducting a cost-benefit analysis that encompasses: The additional labor cost incurred by hiring one more employee. The savings on material costs per fitting with the new process. The impact of the output increase on overhead costs and total revenue. A summary of the overall financial impact, including all the above considerations. Board's Concerns: The board expresses apprehension regarding the operational changes and their potential financial risks. They have stressed the need for a detailed examination of the cost structure and the return on investment from the new process, with a particular interest in understanding the break-even point and the profitability of the additional output. Deliverables: Please report on the following: Productivity changes and a financial analysis, comparing the old and new processes. An executive summary addressing the board's concerns, including your professional recommendation on whether the new process should be sustained.