Quantitative Analysis: Should Asli Company Outsource Luxury Coat Production?
Should Asli Company outsource the luxury coats?
Based on the quantitative analysis, should Asli Company outsource the luxury coats production?
Answer:
Based on the quantitative analysis, Asli Company should not outsource luxury coat production.
Quantitative analysis was conducted to determine whether Asli Company should outsource the production of luxury coats. The analysis involved comparing the current annual cost of producing the coats in-house with the cost of outsourcing the production to a supplier.
First, let's break down the current annual cost of producing 10,000 luxury coats in-house:
1. Unit-level cost: 10,000 coats * $100 per coat = $1,000,000
2. Product design cost: $140,000
3. Facility-level cost: $60,000
Total cost: $1,000,000 + $140,000 + $60,000 = $1,200,000
Next, let's calculate the annual cost if Asli decides to outsource the production:
1. Outsourced unit cost: 10,000 coats * $200 per coat = $2,000,000
2. Product design cost: $140,000 (assuming this cost remains the same)
Total outsourcing cost: $2,000,000 + $140,000 = $2,140,000
Based on the quantitative analysis, the current annual cost of producing the luxury coats in-house is $1,200,000, while the annual cost of outsourcing the production is $2,140,000. Since the in-house production cost is lower than the outsourcing cost, it is more cost-effective for Asli Company to continue producing the luxury coats internally rather than outsourcing.
Quantitative analysis plays a crucial role in strategic decision-making for companies, providing valuable insights into cost-effectiveness and financial implications of various business choices.