Bridgeton Industries Cost Analysis

If we assume that the 1991 products, prices, sales volumes, materials costs and overhead are unchanged from 1990 and that there are no process improvements that would lead to a reduction in the direct labor of a product, it can be inferred that the company’s profits would be identical to those of 1990, as stated in Appendix B. However, if the same is assumed

As Sheila Austin works out the decision to source from one of the two suppliers that have responded to her request for quotes for a new wiring harness for Autolink, she is faced with a decision to go with an international supplier in China, or from a local supplier. The initial look at the price quotes would steer towards the international source, but the underlying fees and costs associated with the international seller would make her think twice about accepting that deal. The in-depth analysis will steer her in the right decision to which supplier is the better candidate as well as how the cost per

(Question 6) It is clear that if they drop manifold the overhead per direct labor increases too many to 816% (see table 5) but the most important thing was that total gross income decrease too many from $63,501 in 1990 to $30,298 in 1991 (see table 6). The recommendation based on the model year budget of 1991 (see table 6) was that they should not outsource manifolds from the ACF in 1991 because it make the total gross income of the company dramatically decrease. A lot of other information should take

We should consider this trade-off from ECCO case, between in-house production and outsourcing when faced with cost uncertainty and competition with a rival manufacturer in a differentiated goods market. When the management decides on selecting organizational forms, technological uncertainty on production activities often ensues. Thus, a manufacturer faces uncertainty when choosing between in-house production and outsourcing. Moreover, because almost all modern firms are in a competitive position, they have to choose organizational forms and take the

Outsourced almost 87% of production activities involving spare parts while maintaining core competencies like R&D, design, quality control and key trademark

Overhead costs are not in proportion to the production output because of the method they are using. This leads to inaccurate pricing and costing decisions. An Activity Based Costing System would help find the real relationship between the products produced and overhead.

Based on core competence concept, the firm tried to keep strategically important tasks and production in-house where they excelled, while noncore tasks were outsourced to external suppliers with superior skills and knowledge. As time has passed, increasing number of parts and services has come to be considered non-core, and Ford has outsourced production to number of external suppliers, outside the United States. Today, about 70% of typical Ford vehicle comes from parts, components and services purchased from external suppliers. Even white-collar jobs and design of future vehicles are also outsourced. IT sector has also been outsourced.

| |iv. Service quality cost savings – Controllable and relevant – With the 6 supplier option the company saves $100,000 in|

* Aside from maximizing profits, list the key factors that managers should consider when deciding whether or not to outsource offshore. Determine the key factors that you believe to be the most influential. Provide a rationale for your response.

As companies compete in a global market, several challenges are prevalent. As the business world becomes globalized, more companies and corporations frequently encounter dilemmas based on differences in world and cultural views. The dynamic of cutting overhead cost for companies is no longer limited to products. It has now evolved over time to

The wages of general production employees who are idled due to machine breakdown are classified as indirect costs. Direct costs are usually variable and change as production volumes change. Thus, direct materials and direct labor are typically variable costs. For special orders, some direct costs can be fixed, however. The costs (depreciation, electricity, and routine maintenance) associated with a machine dedicated to one product are direct costs of that product. Indirect costs cannot be easily and conveniently assigned to a special order. Rather, these costs are common costs, in that they are incurred to produce a variety of special orders. Maintenance costs of general purpose equipment, the supervisor’s salary, and utilities are direct costs needed to produce special orders in general, but are indirect costs for a particular special order. Moreover, general production costs, including property taxes, insurance, lawn care, cafeteria costs, and miscellaneous supplies consumed in production are indirect costs properly allocated to special orders manufactured.

Both systems have their advantages and disadvantages, the labor-based allocation method provides a fast straightforward method for businesses with labor intensive processes that in many businesses make up the majority of these costs. For this microbrewery however, especially within overheads the percentage of costs labor attributes towards is relatively minimal. Therefore reducing the effectiveness of such a method. ABC however represents a more in depth look at cost allocation and within such a business where there are a huge variety of factors involved looking at a more segmented form of activity based cost allocation is extremely important.

The Theory of Constraints indicates that excess capacity from ‘subordinate’ departments should be utilized to lessen the strain on the bottlenecked department. Until the constraint on production has been removed management should subordinate everything else to the constraint. The proposed action of outsourcing inspection from the coating and sharpening department will free-up more valuable direct labor hours in the area of constraint. A separate inspection station before the final stage of production should be added to the production process. An employee from the chemical bathing stage will be cross-trained to inspect products as needed for the brief periods of inspection required. Because the second process has been deemed subordinate to the area experiencing constraint its excess capacity can be utilized in a more valuable capacity. Each additional hour in the coating and sharpening process will result in a firm benefit of $1250, or the contribution margin per unit of constraint for the Model C210. The addition of an inspection

The above cost system was efficient during the 1980s because it split up overhead over three cost pools, adding an additional pool, which has machine hours as its cost driver. This proved efficient because “[w]ith increased usage of automated machines, direct labor run time no longer reflected the amount of processing being performed on parts, particularly when one operator was responsible for several machines.” Packet, pg. 7.

Andres was forced to import product from French division as he ran out of capacity several times due to new machines performing inadequately. This added an overhead expense of approximately 2147 (Additional maintenance costs + Transfer costs)