To begin with, I would advise Behemoth Motors Corporation not to agree to the terms of Far East Enterprises in producing the Global Positioning System Navigator. Consider this; the cost of producing one gadget at BMC will be $425 per unit, which is $30 higher compared with $395 per unit of the Far East Enterprises. However, the conditions attached if they decide to get the gadgets from FEE are by far much expensive in terms of finances and reputation. If the workers are laid off, it will mean that BMC will have to pay $320,000 in the next five years and this will have a great effect on the company's marginal profit. In the same breadth, it is advisable to note that the FEE Company has only been in the existence for the last three years, although their progress is not bad. It is therefore wrong to make long-term investment decisions with such a young company that has faced little or no challenges at all.
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On the same note, considering the cost of the floor, if BMC stops renting the storage floor it will mean the $48,000 yearly will not be incurred. This is not possible and given that if the product when outsourced will mean the overhead will be reassigned to other operating divisions and the corporate overhead incurred will remain unchanged. The current arrangement by BMC is the only beneficial way since it does not affect its management and the employees at large. It would be advisable for BMC to make arrangements and construct their own storage facility, as this will reduce the cost in the end. Additionally, if BMC continues manufacturing the gadgets at their Detroit facility, they will add on their reputation and the customer's trust will remain. Going by that, it means then that the likely hood of them increasing on their sales national wide and worldwide are on the higher side.
Therefore, Waly Wizard as the manager of BMC should consider manufacturing their own GPSN though it may appear costly at $425 per unit, than to collaborate with FEE. This is because their cost per unit may be cheap ($395), but many other costs are going to be incurred making the whole partnership too costly.
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