Answer Happy

QUESTION
TWO
(20 MARKS)
In October 2015, the top management of Homers Vehicle Company of
Madina, Greater Accra announced its plans to relocate its
manufacturing and assembly operations to a new plant in Suame,
Ashanti Region. The firm, a major producer of pickup campers and
camper trailers, had experienced 5 consecutive years of declining
profits as a result of spiraling production costs. The costs of
labor and raw materials had increased alarmingly, utility costs had
gone up sharply, and taxes and transportation expenses had steadily
climbed upward. Despite increased sales, the company suffered its
first net loss since operations were begun in 1982.
When management initially considered relocation, it closely
scrutinized several geographic areas. Of primary importance to the
relocation decision were the availability of adequate
transportation facilities, state and municipal tax structures, an
adequate labor supply, positive community attitudes, reasonable
site costs, and financial inducements.
Although several communities offered essentially the same
incentives, the management of Homers Vehicle Company was favorably
impressed by the efforts of the Kumasi Power and Light Company to
attract “clean, labor-intensive” industry and the enthusiasm
exhibited by regional and local officials, who actively sought to
bolster the regions’s economy by enticing manufacturing firms to
locate within its boundaries.
Two weeks prior to the announcement, management of Homers
Vehicle Company finalized its relocation plans. An existing
building in Rotary industrial park was selected (the physical
facility had previously housed a mobile home manufacturer that had
gone bankrupt due to inadequate financing and poor management);
initial recruiting was begun through the regions employment office;
and efforts to lease or sell the Madina property were initiated.
Among the inducements offered Homers Vehicle Company to locate in
Suame were:
1. Exemption from regional and municipal taxes
for 5 years
2. Free water and sewage services
3. Construction of a second loading dock—free
of cost—at the industrial site
4. An agreement to issue GH¢500,000 in
industrial bonds for future expansion
5. Public-financed training of workers in a
local industrial trade school
In addition to these inducements, other factors weighed heavily
in the decision to locate in the Suame town. Labor costs would be
significantly less than those incurred in Madina; organized labor
was not expected to be as powerful; and utility costs and taxes
would be moderate. All in all, the management of Homers Vehicle
Company felt that its decision was sound. On October 15, the
following announcement was attached to each employee’s
paycheck:
To: Employees of Homers Vehicle Company
From: James Mensah, President
The Management of Homers Vehicle Company regretfully announces
its plans to cease all manufacturing operations in Madina on
December 31. Because of increased operating
costs and the unreasonable demands forced upon the company by
the union, it has become impossible to operate profitably. I
sincerely appreciate the fine service that each of you has rendered
to the company during the past years. If I can be of assistance in
helping you find suitable employment with another firm, please let
me know. Thank you again for your cooperation and past service.
Required:
How can the principles of human capacity in capacity planning be
applied when a decision to cease operations is made? What legal and
ethical responsibilities does a firm have to its employees when a
decision to cease operations is
made?
(6 marks)