Reference no: EM132221227

Spring Valley Beef Company (SVBC) found itself in a marketer’s dream. Beef prices had been stable during the past three years and the high unemployment rate in the area provided an ample supply of workers willing to work at lower than average wage. SVBC did not think they needed to expand the facilities or processing equipment because they were only operating at 75% capacity. They did decide that their operation could take advantage of the current economic situation and this would be the ideal time to add additional employees.

SVBC ran a 24/7 operation with three shifts per day: 7 am to 3 pm, 3pm to 11 pm, and 11 pm to 7 am. After the current employees were offered shift changes, the new employees filled out the remaining shift positions.

When company executives decided to hire new workers, they thought extra profit would be easy because they did not need to purchase new equipment or buildings. They extrapolated the cost and revenues per unit to the higher production levels and the resulting increase in profit. However, when they reviewed the end of month numbers they found their profits had actually fallen even though overall production increased.

Why did SVBC see a decrease in profits? What should they do to maximize total profits of the operation?