JGT Task 3
JGT Task 3
MEMORANDUM
To: Alistair Wu, Plant Operating Director
Cynthia Crowninshield VP
From: Holly Lindsay
Date: 10/26/2014
A.
In this task, we were asked to decide which method Shuzworld should consider for the manufacturing of its sneakers at all possible volumes of output. The possible methods to be considered are:
Reconditioning the plant equipment
Purchasing new equipment
Outsourcing to other manufacturing operations
The figures for fixed and variable costs for each section were derived from company records. I has been decided that at 1,000 units the variable costs could be determined and that it would also be a good point to set our volume at for analysis. Here is a breakdown of the costs for each option:
1. Reconditioning the plant equipment
a. Fixed - $50,000
b. Variable - $1,000,000
c. Total - $1,050,000
2. Purchasing new equipment
a. Fixed - $200,000
b. Variable - $500,000
c. Total - $700,000
3. Outsourcing to other manufacturing operations
a. Fixed - 0
b. Variable - $3,000,000
c. Total - $3,000,000
The breakeven points for the available options are:
Reconditioned vs. New Equipment 300 units $350,000
Reconditioned vs. Outsource 25 units $75,000
New Equipment vs. Outsource 80 units $240,000
Observing the chart you can see that if the volume is under 25 units the best choice is outsourcing. Above that 25 unit line, the least costly method is reconditioning the current machines. This stays true until the units reach 300. Purchasing new equipment has the lowest cost according to the graph for quantities over 300. Because we are interested in volumes of 1,000 to compare out variable costs at, according to the graph, this would be our best option.
From this information, it is obvious that the best, or least expensive option, would be to purchase new equipment for the company. While the initial fixed costs may be more, the overall costs are much less than any of the available options.
A1.
A1a.
I decided that the appropriate analysis tool would be
MEMORANDUM
To: Alistair Wu, Plant Operating Director
Cynthia Crowninshield VP
From: Holly Lindsay
Date: 10/26/2014
A.
In this task, we were asked to decide which method Shuzworld should consider for the manufacturing of its sneakers at all possible volumes of output. The possible methods to be considered are:
Reconditioning the plant equipment
Purchasing new equipment
Outsourcing to other manufacturing operations
The figures for fixed and variable costs for each section were derived from company records. I has been decided that at 1,000 units the variable costs could be determined and that it would also be a good point to set our volume at for analysis. Here is a breakdown of the costs for each option:
1. Reconditioning the plant equipment
a. Fixed - $50,000
b. Variable - $1,000,000
c. Total - $1,050,000
2. Purchasing new equipment
a. Fixed - $200,000
b. Variable - $500,000
c. Total - $700,000
3. Outsourcing to other manufacturing operations
a. Fixed - 0
b. Variable - $3,000,000
c. Total - $3,000,000
The breakeven points for the available options are:
Reconditioned vs. New Equipment 300 units $350,000
Reconditioned vs. Outsource 25 units $75,000
New Equipment vs. Outsource 80 units $240,000
Observing the chart you can see that if the volume is under 25 units the best choice is outsourcing. Above that 25 unit line, the least costly method is reconditioning the current machines. This stays true until the units reach 300. Purchasing new equipment has the lowest cost according to the graph for quantities over 300. Because we are interested in volumes of 1,000 to compare out variable costs at, according to the graph, this would be our best option.
From this information, it is obvious that the best, or least expensive option, would be to purchase new equipment for the company. While the initial fixed costs may be more, the overall costs are much less than any of the available options.
A1.
A1a.
I decided that the appropriate analysis tool would be