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MCS Group
Assignment
BharatPolyplex
Company
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8/13/2019 MCS Group Assignment_Group 4
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Alternatives
Options
No
Change
Total
Outsource
Outsourcing
only
manufacturing
Outsourcing
only
maintenance
Material 70000 7000 63000
Labor 50000 3000 10000 40000
Manager
salary
8000 5000 8000
Rent 4500 0 4500 4500
Depreciation 15000 5000
Maintenance 3600 3600
Other
Expenses
15750 6500 9250
Admin
Overhead
22500 22500 22500 22500
Contract Fee 125000 125000
Contract for
Repairs
37500 37500
Total 189350 188000 184100 189750
% Saving 0.71 2.77 -0.21
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Analyzing the Alternatives
1. Total Outsourcing Cost saving: 189350-188000 = Rs 1350/- No
change in Admin overhead High layoffs and pension costs
2. Outsource only Manufacturing
Materialo About 10 % of the materials used are used for
maintenance and hence the
amount comes to Rs 7000(10/100 of 70000) which includes all
costs
including that of GHL.
Labor:o Only 1/5thof the labor would be requiredo Cost is (1/5
of Rs 50000)=Rs.10000/-
Managers Salary:o The supervision would be transferred to a
foreman and hence the salary
would be decreased by Rs 3000
o Salary: Rs 5000/- Rent:No change Depreciation:Nil Other
expenses: Rs 6500/- Savings:Rs 5250/- (189350-184100)
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3. Outsource only Maintenance Material:
o It is mentioned that about 10 % of the materials used are used
formaintenance and hence the amount comes to Rs 63000(90/100
of70000) which includes all costs including that of GHL.
Labor:o Cost: Rs 40000(4/5 of Rs 50000).
Managers Salary: The managers salary would remain constant
Rent:The rent would not change Depreciation: No change would be
observed and hence the depreciation would
come to Rs 5000/-
Other expenseswould decrease to Rs 9250/-(Given that Rs 6500 is
incurred for maintenance work which would not be
incurred in case of outsourcing).
No other change would be observed in all the other heads of
expenses.It is also assumed in the solution that if the company
only outsources maintenance they
would be saving on the costs that would be incurred under
alternative 3 and hence the
reduction in material and labor costs.
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Conclusion
Amongst the alternatives available, outsourcing only
manufacturing seems most viable.
It has the maximum savings amongst all the other options. But
still the machines would notbe totally utilized and there would be
some layoffs. It should be chosen as the long term
implications of this alternative are better than the other ones
which may seem good in the
near future. The break-even can be achieved in about 3-5 years
leading to higher cost
savings in the future.
