Anonymous
Mar 19
Custom Graphic Works has been operating for just over a year, and sales are exceeding targets. Currently, two designers are working full-time, and the owner is considering increasing capacity to meet?
Custom Graphic Works has been operating for just over a year, and sales are exceeding targets. Currently, two designers are working full-time, and the owner is considering increasing capacity to meet demand. (This would involve leasing more space and hiring two new designers.)
He decides to complete a Cost-Benefit Analysis to explore his choices.
Assumptions
Currently, the owner of the company has more work than he can cope with, and he is outsourcing to other design firms at a cost of R50 an hour. The company outsources an average of 100 hours of work each month?
He estimates that revenue will increase by 50 percent with increased capacity.
Per-person production will increase by 10 percent with more working space.
The analysis horizon is one year: that is, he expects benefits to accrue within the year.
Costs
Cost in First Year
Lease
750 square feet available next door at R18 per square foot
R13,500
Leasehold improvements
Knock out walls and reconfigure office space
R15,000
Hire two more designers
Salary, including benefits
R75,000
Recruitment costs
R11,250
Orientation and training
R3,000
Two additional workstations
Furniture and hardware
R6,000
Software licenses
R1,000
Construction downtime
Two weeks at approximately R7,500 revenue per week
R15,000
Total
R139,750
Benefits
Benefit Within 12 Months
50 percent revenue increase
R195,000
Paying in-house designers R15 an hour, versus R50 an hour outsourcing (100 hours per month, on average: savings equals R3,500 a month)
R42,000
10 percent improved productivity per designer (R7,500 + R3,750 = R11,250 revenue per week with a 10 percent increase = R1,125/week)
R58,500
Improved customer service and retention as a result of 100 percent in-house design
R10,000
Total
R305,500
He calculates the payback time as shown below:
R139,750 / R305,500 = 0.46 of a year, or approximately 5.5 months.
From the above cost benefit analysis, which solution is best for the business i.e either to increase capacity and get more space & designers or to do nothing and keep the current arrangement? Give reasons to support your answer?
He decides to complete a Cost-Benefit Analysis to explore his choices.
Assumptions
Currently, the owner of the company has more work than he can cope with, and he is outsourcing to other design firms at a cost of R50 an hour. The company outsources an average of 100 hours of work each month?
He estimates that revenue will increase by 50 percent with increased capacity.
Per-person production will increase by 10 percent with more working space.
The analysis horizon is one year: that is, he expects benefits to accrue within the year.
Costs
Cost in First Year
Lease
750 square feet available next door at R18 per square foot
R13,500
Leasehold improvements
Knock out walls and reconfigure office space
R15,000
Hire two more designers
Salary, including benefits
R75,000
Recruitment costs
R11,250
Orientation and training
R3,000
Two additional workstations
Furniture and hardware
R6,000
Software licenses
R1,000
Construction downtime
Two weeks at approximately R7,500 revenue per week
R15,000
Total
R139,750
Benefits
Benefit Within 12 Months
50 percent revenue increase
R195,000
Paying in-house designers R15 an hour, versus R50 an hour outsourcing (100 hours per month, on average: savings equals R3,500 a month)
R42,000
10 percent improved productivity per designer (R7,500 + R3,750 = R11,250 revenue per week with a 10 percent increase = R1,125/week)
R58,500
Improved customer service and retention as a result of 100 percent in-house design
R10,000
Total
R305,500
He calculates the payback time as shown below:
R139,750 / R305,500 = 0.46 of a year, or approximately 5.5 months.
From the above cost benefit analysis, which solution is best for the business i.e either to increase capacity and get more space & designers or to do nothing and keep the current arrangement? Give reasons to support your answer?
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ChatGPT
Mar 19
growing demand. One option is to hire additional designers to help with the workload. Another option is to invest in new technology or software to streamline the design process and increase efficiency. The owner could also consider expanding the business to offer additional services, such as web design or branding, to attract more clients. Ultimately, the decision will depend on the owner's long-term goals and resources available to invest in the business.
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