DECISION SUPPORT

Decision Support



Decision Support

Introduction

This paper will be discussing and providing recommendations to decision analysis for the Shuzworld Company. As the operations consultant for Shuzworld, I will provide recommendations after analyzing the problems given in the task prompts, applying the appropriate decision analysis tool.

Task 3

Part A:

In this task I will be recommending which method (i.e., using reconditioned equipment, purchasing new equipment in its Shanghai plant, or outsourcing to another manufacturing operation) Shuzworld should use for the manufacturing of its sneakers. For this task I will be using Cost Volume Analysis. We are applying this tool because Cost-volume-profit (CVP), in managerial economics is a form of cost accounting. It is a simplified model, useful for elementary instruction and for short-run decisions. CVP analysis expands the use of information provided by breakeven analysis. A critical part of CVP analysis is the point where total revenues equal total costs (both fixed and variable costs). At this break-even point, a company will experience no income or loss. This break-even point can be an initial examination that precedes more detailed CVP analysis. CVP analysis employs the same basic assumptions as in breakeven analysis. The assumptions underlying CVP analysis are:

The behavior of both costs and revenues is linear throughout the relevant range of activity. (This assumption precludes the concept of volume discounts on either purchased materials or sales.)

Costs can be classified accurately as either fixed or variable.

Changes in activity are the only factors that affect costs.

All units produced are sold (there is no ending finished goods inventory).

When a company sells more than one type of product, the sales mix (the ratio of each product to total sales) will remain constant.

Table for the Cost Volume Analysis

Cost Type

Recondition existing Equipment

New Equipment

Outsource to Other Company

Cost 1

Fixed

50000

200000

0

Cost 2

Variable

1000

500

3000

BREAKEVEN POINTS

Units

Dollars

Recondition existing Equipment

300

350000

Recondition existing Equipment

25

75000

new equipment vs. Outsource production

80

240000



Volume analysis @

1000

Total Fixed Costs

50000

200000

0

Total Variable Costs

1000000

500000

3000000

Total Costs

1050000

700000

3000000

The above table states that it will cost company $ 1,050,000 if they will produce their sneakers shoes with reconditioned existing equipment. It will cost them $ 3,000,000. Lastly it will cost them $ 700,000 if they use a new production machine. The table is also stating break even points with the comparison to other options that were available to the company. From above table it is clear that the company should use new equipment for their production. This approach will be beneficial for the Shuzworld.

Graph of Cost Volume Analysis

This graph states all the three possible options analysis. This analysis is done on the basis of cost volume analysis. Shuzworld for their sneakers product should

Recommendation

Analyzing the position of the company in all the three cases I will recommend Shuzworld to buy the new machine for the production of their new Sneakers product. It is because after analyzing the position it can be clearly stated that the by using new machine the company can produce its product in $ 700,000. This is the lowest cost for the production. By looking at the operation department at Shuzworld manufacturers, a recommendation would be ...