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Essay / Research Paper Abstract
This 3 page paper looks at a case provided by the student. The company is making a component in-house, there is a potential to outsource the manufacture of the same part. The paper looks at the way that the overall and marginal costs should be assessed to determine which the best option is. All calculations are shown.
Page Count:
3 pages (~225 words per page)
File: TS14_TEBMCcost.rtf
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Unformatted sample text from the term paper:
by Far East Enterprises Ltd is lower at $395 each for the 8,000 units per month subject to the signing of a two year contract. At first glance this may
appear to be an advantageous offer as the outsourcing costs appear to be lower. However, to consider this the way that the costs have been out together need to be
considered. The costing for the in house production has used absorption costing, this is where the costs are not only made up of the direct material costs, but there
are the allocations of overheads1. Some of these overheads are linked directly to the production of the GPNS, so may be eliminated, however there are also some costs which will
not disappear if the firm does not produce their own GPNS. For this reason, when comparing the cost of producing the units in house and outsourcing the comparison needs to
use adjusted figures so that it is the marginal cost of producing the GPNS units in house, (that is the additional costs that are incurred by the production) which are
compared with the cost from Far East Enterprises Ltd. The first stage is to look at the current costing; this is made up as follows. Costs Materials
165 Labor 168 Total direct costs 333 Floor space 5 Supervisory labor 7 General Overhead 80 Total costs 425 Using this and the information in the case study this needs
to be adjusted to exclude costs that will remain in place regardless of the decision and assess only the marginal costs. The direct material costs are a cost, as are
the direct labor costs, so these need to stay in the calculation. The floor space can be adjusted. This is an overhead, and will remain a cost whatever decision is
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