Bridgeton Case

Topics: Costs, Variable cost, Cost Pages: 3 (963 words) Published: May 2, 2013
1. The objective of the strategic analysis was to identify which products were world-class in terms of “competitive position and potential,” products which could become world-class, and products which have no hope of becoming world-class. a. Do you think the strategic analysis, as described in the case, achieved its objective? Explain. Answer: The strategic analysis, as described in the case did achieve its objective of identifying and classifying the products in terms of competitive position and potential. Although the data used for this analysis - specifically the overhead cost data, seems to be based on incorrect cost allocation method and might have led to wrong classification of the products. b. What are the potential benefits of outsourcing products which have no hope of becoming world-class in terms of competitive position and potential? Answer: Potential benefits of outsourcing products are include: * Lower operational and labor costs

* Allows focusing on core business processes while delegating non-core processes to external agencies. * Enables the company to leverage outside resources having access to world class capabilities. * Better utilization of available resources and capability by freeing up internal resources that could be put in to effective use for other purposes * Outsourcing also enables companies to realize the benefits of re-engineering.

2. Bridgeton has already outsourced muffler-exhaust systems and oil pans. c. How much overhead cost would have been saved by outsourcing of muffler-exhaust systems and oil pans if i. Overhead costs were entirely fixed costs (regardless of the level of production or the number of product lines)? Answer: If the overhead costs were entirely fixed, then there would be no savings in overhead costs by outsourcing of muffler-exhaust systems and oil pans. ii. Overhead costs were entirely variable costs (varying linearly with direct labor dollars)?...
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