After being tasked with providing a recommendation as to the purchase of new equipment, using reconditioned equipment, outsourcing manufacturing operations I propose my recommendation of purchasing new equipment. Through the analysis, comparison of all three options were considered. During the analysis phase, cost analysis was also conducted on cost types. These types analyzed were fixed costs and variable costs. Creating a benchmark for the shoes has been set at 1,000 pairs of sneakers, and based on the recommendations of Alistair Wu and Angela Down.
Based upon the analysis conducted it is recommended that the company purchase new equipment. The purchase of new equipment is recommended as the best option for the company. Reaching this conclusion was a relatively simple one; this option allows the lowest cost in relation to volume needed for producing the product. Based upon a fixed cost of $200,000 and a variable cost of $500 for every 1,000 sneakers, the purchase of new equipment is the most reasonable decision. The provided information allows for fixed costs of reconditioning of $50,000 with $1,000,000 going toward variable costs with a potential expense of $1,500,000.
Costs associated with reconditioning the equipment would have a variable cost of $1,000 for every 1,000 sneakers produced. Fixed costs associated with reconditioning the equipment would be $50,000.
While costs associated with outsourcing have no associated fixed costs, the variable costs would be $3,000 for every 1,000 sneakers produced.
For the scenario provided, there were 2 costs; fixed and variable, options to reconstructing old equipment, purchasing new equipment, and outsourcing. This decision analysis tool permitted us to assemble a crossover chart that shows the points at which the costs of the options demonstrated an advantage or disadvantage compared to each of the other options. When looking at the point of breakeven, the breakeven in reconstructing vs...