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Essay Details:
Essay text:
LCC uses high quality containers for packaging of its products. A separate department is designated for this purpose, which deals with manufacturing and maintenance of containers.
Mr. Walsh, the general manager of LCC, wishes to outsource both manufacturing and maintenance of containers to Packages Ltd. he wants to have a close look at the tradeoff associated with all the option available to him.
Mr. Walsh is pondering over following options:
Option A: Status quo
Option B: manufacturing outsourced, maintenance in-house
Option C: both manufacturing and maintenance outsourced
Option D: manufacturing in-house, maintenance outsourced
Assumption: GHL not to be stored for more than four years
OPTION A COMPARED TO OPTION C
Manufacturing Maintenance
Option A ? ?
Option C ? ?
? : In-house
? : Outsourced
Incremental annual cost of Option A compared to Option C (Pounds Sterling)
Period< 4 years Period > 4 Years
Materials 6600 7400
Labor 4700 4700
Manager’s salary 800 800
Rent of warehouse 850 850
Depreciation (opportunity cost) of Machine 500 1500
Maintenance of machine 360 360
Other expenses 1575 1575
Total 15385 17185
Payment to Packages Ltd...
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