In this case, I will be providing a cost analysis of a replacement valve for Mr. Fingold, a supply management supervisor at Frich Turbo Engine Company, to determine if the prices being charged by the suppliers are fair and reasonable. First, I will exam the cost breakdown submitted by Bayfleet Machining and Union Stamping. I found the fact might have caused variance between Bayfleet Machining and Mr. Fingold’s estimation is subcontracting. It decreases the manufacturing overhead. Also, a low profit margin decreases the price they proposed. For Union Stamping, a low indirect cost of manufacturing, benefit from high company productivity and management efficiency might be the key factor of low price. In conclusion to my cost analysis, I will give a recommendation of which price to take would be fair and reasonable to both Frich Turbo and the supplier, with consideration of their pros and cons. Then, I will explain the steps of implementing and ways of monitoring.
Mr. Fingold, from Frich Turbo Engine Company was in the process of purchasing a replacement valve. He estimated that a $1.74 would be a reasonable price for the valves, while Bayfleet Machining quoted the unit price at $1.24 and Union Stamping at $1.49. He also found that both suppliers were large, well-established with good reputations for satisfactory performance on previous contracts. With both suppliers information provided for him, including the cost break down of the part, he then need to make a decision on which supplier to buy valves from, and negotiating a fair price for Frich Turbo Engine Company as well as the supplier.
ROOT CAUSE AND ENVIORMENTAL ANALYSIS
The cost breakdown for Bayfleet Machining shows how Bayfleet Machining and Union Stamping are able to offer such low unit prices. Bayfleet Machining subcontracts parts which help to decrease their cost for direct materials, direct labor, and tooling. Manufacturing overhead cost is an indirect product...