A few years ago, the ACME Manufacturing Company installed automated robots worth

Question

A few years ago, the ACME Manufacturing Company installed automated robots worth millions of dollars in its furniture assembly lines, believing that the robots would improve profitability and increase the efficiency of the manufacturing process. However, ACME lost many millions of dollars more despite the fact that it was able to make furniture faster using the robots. Why would this happen? What could have caused this situation? ACME then tried to increase profits (operating income) by making more products that could be sold in a period. Should this tactic be used to increase operating income? Would this happen in service companies or only manufacturing companies? Explain. Please help

Explanation / Answer

The ACME company lost many millions of dollars in investing in automated robots inspite the fact that robot assisted in making furniture faster , that is enhanced efficiency but failed to improve profitablity.

This would had happened due to multiple reasons like ,

1. Poor sales , the value of investment in robots was too much in compared of the derived profitablity

The output capacity was not fully utilized.

2. High maintaince cost of robots

3. Enhanced cost of training and electricity ( Other variable cost )

This situation had been result of poor planning and analysis of future benefit that is expected from investment in robots. This could also be result of failed research and development. Improper financial and Investment analysis and effect of external factor like poor market sales or low economies of scale production etc.

Yes , ACME can increase profits ( operating income ) by making more products taht could be sold in a period. This tactic must be used to increase operating income if there external enviroment for sales is favourable

This would happen to both service industry as well as manufacturing companies. As in service sector investment in computer ( just like robot ) is only viable if output of services are enhanced.

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