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Essay / Research Paper Abstract
This 4 page paper considers a case supplied by the student where a company has t decide if they want to outsource production of goods or carry on making them internally. Outsourcing is cheaper initially but will also incur other costs. The paper performs the calculations.
Page Count:
4 pages (~225 words per page)
File: TS14_TEoutsourc1.rtf
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Unformatted sample text from the term paper:
involved to allow the company to outsource the production. If we look at comparing thee two option we need to consider not only the cost per un it, but the
additional costs and calculate the savings on the direct costs to see if outsourcing still creates a net profit. To look at this we need to consider which costs
are relevant and which are not. A product will have variable costs and fixed costs. Variable costs are uncured when the product is made, fixed costs are present all the
time and need to be paid even if goods are not made. If production is moved any fixed costs will still need to be paid. We are told these will
be moved to alterative departments, but as there is no additional production this will mean an increase in overhead allocation, so these are costs which will not be saved. There
are also costs such as the penalty to the union. The fixed costs may be seen as the allocated overhead charged, the overhead labour charges and the factory floor space
charges. These are costs which are not going to be mitigated. This will mean there the equivalent of the following costs per unit will still need to be borne.
Per unit cost Factory Floor Space Charges 8 Supervisory labour 7 General company overhead 40 Total 55 Therefore, we have a total cost of 295 per unit,
so I we add this to the overheads there does appear to be an increased profit with the total cost being 350 per unit as opposed to 355 per unit
supplied by the company internally. However we have not factored in the additional costs. If we look at the costs that would be incurred this may increase the cost per
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