(a) Assume that management would lay off the two individuals who make the ATM component in-house...

  

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(a) Assume that management would lay off the two individuals who make the ATM component in-house if an outside vendor is used. How, if at all, should the items in Exhibit 2 be adjusted to get the incremental savings of using a vendor? Be as specific as possible for each item. And keep in mind that you only want to consider those costs that will change if the part is purchased from a vendor. (b) Based on your answer to part (a) and other information in the case, would you recommend that a vendor be used? Explain. EXHIBIT 2 Estimated Monthly Cost of Producing the ATM Component In-House 1. Direct labor 2. Indirect labor 3. Pension + welfare 4. Payroll taxes 5. Utilities 6. Material costs 7. Repairs & maintenance 8. Space 9. General factory 10. Depreciation Unit Cost $4,000 600 552 460 700 400 700 400 800 2,100 $10,712 $53.56 10,712/200 Description of the above items: 1. Two workers at $2,000 per month. 2. 15 percent of Item 1. Mainly the component's share of supervisory salaries. 3. 12 percent of Items 1 plus 2. This includes the firm's contribution to the employee's pension fund, plus health and disability insurance. 4. 10 percent of Items 1 plus 2. This is mainly for social security and unemployment insurance. 5. The component's share of electricity, heat, water, etc. 6. Parts and supplies directly related to the production of the ATM component. 7. Maintenance and repair on the equipment used by the two workers. 8. The component's share of the factory space occupied by the two workers. 9. The component's share of items like property taxes, corporate fees, secretarial support, etc. 10. Based on historical cost of the equipment. (a) Assume that management would lay off the two individuals who make the ATM component in-house if an outside vendor is used. How, if at all, should the items in Exhibit 2 be adjusted to get the incremental savings of using a vendor? Be as specific as possible for each item. And keep in mind that you only want to consider those costs that will change if the part is purchased from a vendor. (b) Based on your answer to part (a) and other information in the case, would you recommend that a vendor be used? Explain. EXHIBIT 2 Estimated Monthly Cost of Producing the ATM Component In-House 1. Direct labor 2. Indirect labor 3. Pension + welfare 4. Payroll taxes 5. Utilities 6. Material costs 7. Repairs & maintenance 8. Space 9. General factory 10. Depreciation Unit Cost $4,000 600 552 460 700 400 700 400 800 2,100 $10,712 $53.56 10,712/200 Description of the above items: 1. Two workers at $2,000 per month. 2. 15 percent of Item 1. Mainly the component's share of supervisory salaries. 3. 12 percent of Items 1 plus 2. This includes the firm's contribution to the employee's pension fund, plus health and disability insurance. 4. 10 percent of Items 1 plus 2. This is mainly for social security and unemployment insurance. 5. The component's share of electricity, heat, water, etc. 6. Parts and supplies directly related to the production of the ATM component. 7. Maintenance and repair on the equipment used by the two workers. 8. The component's share of the factory space occupied by the two workers. 9. The component's share of items like property taxes, corporate fees, secretarial support, etc. 10. Based on historical cost of the equipment.

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A Computation of Savings if ATM component is purchased from a vendor instead of being produced in ho... View the full answer