Efficiency & Cost of Production

1200-2000 words

Production Manager at AutoEdge, Sam Busch, is new to the company. He asks to meet with you to discuss some questions he has.

“Thanks for meeting with me on such short notice,” he says. “I’m still getting familiar with the situation here, and I could use your help.”

“Certainly,” you say. “And congratulations on your new position with AutoEdge.”

“Thanks,” he says. “I am preparing for a presentation to the board in 2 weeks. I’ve reviewed the most recent production reports, and I see that we are currently producing an engine part, for example, in South Korea for $110. This cost is much lower compared to the cost of producing the same part in the United States, which is $320 per unit. The disparity might be attributed to the cost of labor, unions, overhead, and operating costs.”

“That makes sense,” you say.

“If we return the manufacturing operations to the United States,” he says, “what types of short-term and long-term variable and fixed costs should we consider? What costs should we expect if we stay in South Korea? What financial risks are the company and the stakeholders exposed to?”

“Those are all good questions,” you say. “Can I give this some thought and get back to you?”

“Sure,” he says. “I’ll be working on my presentation next week. I’d like to get your opinion about these questions and the supporting research so I can include it.”

“That works for me,” you say. “Glad I can help.”