Module 2: Exercise #3 – Happyland Construction
Happyland Construction Inc. is an engineering firm involved in design and construction of oil shale plants. With their growing operations, Happyland needs to invest on a new crane (GargantuLift 6000) to be used on site. After financially analyzing their options, Happyland is left with a decision whether to outsource with a supplier or produce in-house. Below are the analysis done to compare both options:
Internal Time & Effort - $500,000
Travel and Related Cost in Assessing Cranes and Make Recommendation - $150,000
Initial Training for 2 Crane Operators - $20,000 ...view middle of the document...
However, I feel the best choice would be for Happyland to buy the crane from Digger’s construction. The total price with Digger is $17,000,000 (including salaries and benefits of the operators) in 10 years, which is a difference of $2,000,000 more than producing it. Even though there’s a cost difference, Happyland doesn’t need to be involved in the entire product production. Considering that Happyland is a small company with only 100 employees, being involved in the “make” process will invests in the company’s time and resource. Is Happyland willing to take on the full responsibility and ownership? Do they have they have the proper experience team they need to produce the crane in-house? Will this investment benefit them at the end of the 10 years, considering the product will depreciate over time? The only vital process that Happyland should be involved would be the actual transaction with Digger Construction. The advantage of buying with a supplier would be that they have...