SOLUTIONS TO CASE STUDIES 459
The breakeven price for 100 passengers is:
12 , 500
100 (P−25)
P=£150
Using Swift’s business model average price of £175, the breakeven number of
passengers is:
12 , 500
( 175 − 25 )n
n= 83 .3 or 84 passengers
Using a range of volume/price scenarios, the route manager should be able to
present a report to head office asking for additional time to reduce the losses,
emphasizing the small size of the loss, the positive contribution to head office costs
being made, and how flexibility in pricing and capacity utilization could overcome
the current problem.
Case study 3: Holly Road Farm Produce Ltd
The high cost of redundancy and retraining of skilled employees erode the cost
savings. Given the salary differential between agricultural specialists and unskilled
labourers (£15,000 compared to £9,000), it would make more sense to make the
unskilled labourers redundant and to use the agricultural specialists to do all the
work necessary to convert the farm to organic crops. As unskilled labourers have
lower salaries the redundancy payments would be less, and as all the agricultural
specialists are retained there would be no retraining costs.
Table A4.2 shows the potential cost savings if this strategy were adopted. This
would of course require the agricultural specialists to undertake labouring work,
Table A4.2 Holly Road Farm Produce
Redundancy Cost savings
37 employees
Continuing costs
63 employees
Agricultural specialists 60 @ £15,000 p.a. 900,000
Unskilled labourers 100% of 35 @ £9,000 p.a.= 35 315,000 0
Clerical staff 40% of 5 @ £7,000 p.a.= 2 14,000 21,000
Total salaries 329,000 921,000
Oncosts 10% 32,900 92,100
Salary and related costs 550,000 825,000
Less: Redundancy costs Three months’ pay 329/4 −82,250
Less: Retraining costs None 0
Actual cost savings 467,500