The Future Manufacturing Company employed a new Operations Manager

The previous manager did not keep accurate records and the new manager does not have an accurate account of the departmental historical data in 2012 because the employees received a wage increase. The managerial accountant provided the new operations manager the following historical data:

Historical Cost Data
Manufacturing hourly wage rate, per hour $17.00
Wage increase per employee, per hour 1.75
Total number of hours per worker, per year 2,250
Number of workers 25
?
The Executive Director asked the new manager how much the department would save if they considered a reorganization of the manufacturing operations. The specifically asked if a reduction in staff, from 25 full-time employees, to 20 full-time workers is cost effective because the new computer system can absorb the job duties of those 5 employees. The employees heard rumors about a potential layoff in the department and the employee morale is low.

Next, the new manager wants to predict the amount of manufacturing hours based on a reduction in staff.

Predicted Cost Data
Number of workers 20
Total number of hours per worker per year $18.75
Manufacturing hourly wage rate, per worker per year 2,250
Cost of reorganization ?

Required:
Compute the historical cost data, the predicted cost data, and discuss the amount of savings to the department if they reorganize and eliminate 5 workers. Next, compute the new cost data if the manager provides each employee a 10% salary increase. Will an increase in salary increase employee morale? Why or why not?
What will be an ideal response?

The historical cost is $1,054,687.50 and the predicted cost is $843,750. The total savings is $210,937.50. The new manager can improve the employee morale if the employees receive a raise. The new predicted cost data after each employee receives a 10% raise is $928,125, with a new total savings of $126,562.50. Managerial Decision to enhance employee moral: This will vary depending on the student response.
Explanation: Historical data:
[($18.75 wage with salary increase × 2,250 total hours × 25 total employees)] = $1,054,687.50
Predicted data:
[($18.75 × 2,250 × 20)] = $843,750
Savings:
[($1,054,687.50 - $843,750)] = $210,937.50
New predicted data with a 10% salary increase.
[($18.75 × 2,250 × 20 × 10%)] = $84,375
[($84,375 + $843,750)] = $928,125
[($1,054,687.50 - $928,125)] = $126,562.50 new total savings with employee wage increase.

It would be nice to give the existing employees a raise since the new manager saves the department $210,937.50, and $126,562.50 total savings after new wage increase to enhance employee morale.