Wally Wizard GPSN
The recommendation that I would make to Wally Wizard would be as follows: I would recommend to not outsource the production of the Global Positioning System navigator (GPSN). I came to this by totaling up the total cost for Behemoth Motors Corp (BMC). The following table indicates the figures that I came up with; So it cost us here at BMC $3,400,000 to make the 8000 GPSN units a month needed to supply our Sport Utility Vehicles (SUVs). I then put together what expenses I thought were avoidable and unavoidable.
The following is a group of expenses that I found to be avoidable; Direct Material, Part of Direct Labor, and the lease for rented storage facilities that will be no longer be used with the freed up space from no longer storing the units monthly. The following expenses are unavoidable: Part of Direct Labor (penalty for layoffs), The Factory Floor Space being used for other storage, Supervisory Labor, and General Company Overhead. I then came up with a chart that looks like this, The way that I came up with the unavoidable expenses was first I took the cost of laying off the labor field.
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We would have to pay $66,000 a year for four years if we laid off the work force in union penalties. I multiplied the numbers together and came up with $264,000. I divided that number by 24 (term of contract with Far East Enterprises or FEE) and got $11,000 a month. I then decided that the floor space that we are using is going to be used regardless and is going to continue to cost us $40,000 a month. We will reassign our supervisors to another position within our organization so we all of their $56,000 salary a month is unavoidable.
Our general company overhead will be assigned to other areas so this income is also unavoidable. I then calculated the cost per month of the 8000 units if we outsourced. The cost was $3,200,000. So I then checked the numbers a couple of different ways to find out that we will spend $542,000 more a month if we outsourced the production of the GPSNs. Here is a chart of how I did the math. So I have concluded that if our company outsourced the production of the GPSNs for the SUVs we would have to spend $542,000 more a month then if we produced them ourselves.