1) The strategic consulting firm classified products in three categories, world class, competitive position and potential. There were considered using 4 criteria: 1) quality, 2) Customer Service, 3) Technical capability, and 4) competitive cost position. Using these criteria all the products were classified into three categories. Class I fuel tanks, Class II Manifolds, front and rear doors, and Class III Muffler exhaust system and oil pans. Class I were having costs equal to or lower than competitors. Class II were products that had the potential of becoming world class (costs 5%-15% higher than competitors) and the no hopes were Class III. I don’t believe that this was a great way to classify the products into categories, there may be some products that were priced at a premium because other factors contributed to the buyers willing to pay a higher price for these products. I conclude that these classifications were based on numbers, they mentioned the presence of interviews to help them, but in the end I feel like these all were number related classifications.
2) A) i) if overhead costs were entirely fixed, they would save about two thousand dollars and ii) if they were entirely variable they would save about four thousand dollars. Volume of activity at Bridgeton Industries is measured by dollars. They’re not measured by just counting units because this is the way it’s been put in place. I would assume that because their costs are spread out among the products to figure out profitability they don’t want to measure volume just by counting. B) I think that the Bridgeton and the consultants believe that they would save a lot on overhead by outsourcing muffler exhaust systems and oil pans, approximately fifty thousand dollars. c) thirty thousand dollars were actually saved. D)it looks like the individual overhead accounts are a mix. Looks like some are variable and some are fixed and some are a mix of variable and fixed.
3) Assuming no profit was made on the outsourced products then I would say that the decision to outsource was a good short term decision. In the long run if they can capatilize on the labor that was freed up as well as fully make sure their production lines are at capacity then it might be a good decision. Also, if they’re able to turn a profit on some of the outsourced materials then it might be a good decision.
4) The calculated costs of the reming products went’ up because the variable costs were spread over the remaining. I don’t think it would be a good decision to outsource the manifold even though they’ve been downgraded to a class III.
5) I think the efforts of the workers to reduce costs were so effective because they were fighting for their jobs. They knew they had to reduce costs or be unemployed, which seemed to work out well. I’m not a fan of managing and driving change by fear but this seems to be a situation where it worked. The efforts were effective, but in the scheme of things they were uneffective because the top management made decisions that were not agreed upon by the labor force.