MAPUA UNIVERSITY

Intramuros, Manila

Case Study #5 : Tropico Fruit Company

Presented to
Graduate School of Industrial Engineering-Engineering Management

Submitted By:

Adrian A. Amador
MSEM- Student No. 2018190147

Submitted To:

Prof. Marvin Norona, MBA, PIE

EMG 213-D01
Productions and Operations Management
 Tropico Fruit Company

I. Problem Definition
The Salesman who had installed the controlled storage system, urged Tropico Fruit
Company to purchase automatic pitting and packaging machines. These ingenious
machines would do all work done before by the 22 women labors. The president would
like to know the break even situation of the company as well as if the machines are
employed.

II. Brief Background

The Tropico Fruit Company process and sell packaged fresh dates to a national
market through grocery wholesalers. For many years, the company operated on a highly
seasonal basis. Dates were purchased from growers during and immediately after
their harvest. Packaging was done quickly to preserve the freshness of the
unprocessed dates. This practice required the employment of as many as ninety
women to soften, pit, and package the fruit during a three-month period. Work
was carried on under very crowded conditions and frequently on an overtime basis.

About two years ago, the company installed a controlled storage system which
permitted the storage of fresh dates for as long as eighteen months. The advantages
of implementing the said controlled storage system are as follows:
 The storage equipment was inexpensive to operate.
 The quality of fruit was improved.
 The company was able to increase its yearly sales to nearly
1,500,000 packages.
 The company was able to eliminate the many problems of seasonal and
short-term employment.
 Supervision was facilitated.
 The efficiency of the plant improved.
 The sales volume increased ten percent.
  The company was able to save on direct labor cost since from ninety women
workers the company now employs only twenty-two women packers and no
overtime work had been necessary

III. Analysis
The following are the data on the current year’s operation:
$300,000 – gross sales
$60,500 – fixed expenses, including interest, property taxes, executive salaries,
depreciation, insurances etc.
$201,500 – variable expenses, including unprocessed fruit, direct labor, packing
materials, freight and expenses, salesman commission an etc.
$185,000 sales – break-even point

Operational data
750 packages per hour – average production output of the 22 women team

When machines are employed, the following are the given data:
$61,000 – 52 weeks saving in direct labor cost
$6,470 – yearly fixed expense for each machine, including interest (since company would
borrow the money) , depreciation, repair and replacement of parts, taxes, power and
insurance
 Initial Condition

Net Amount
(in thousands)
Gross Sale $300.00
Fixed Expense $60.50
Variable Expense $201.50

If Machiines are employed

Gross Sale $300.00
Fixed Expense 60500 $5.97
Annual Expense
for the machine 6470
Savings in direct
labor cost 61000
Variable Expense $201.50
Table 1 : Summary of data

Figure 1 : Break even chart

Based on the above figure, the breakeven points are as below:

$185,000 – current operation set-up

$18,182.75 – break-even point when machines are employed

IV. Recommendation
Since the break-even point when machines are employed are lower than 90.2 %,
employing machines is very good investment to the company.