Efficiency and Cost of Production

Sam Bush is the new production manager at AutoEdge and has asked me to help him with a presentation he is preparing for the board members in two weeks. The production report he wants to discuss is after reviewing the recent production reports, it shows we are producing an engine part in South Korea for $110 and the cost to produce this part in the United States costs $320 per unit. If we were to return manufacturing back to the United States, what types of short and long term variables and fixed costs should be considered? What costs should we expect if we are to stay in South Korea? Are there any financial risks that the company and stakeholders will be exposed to?

To better understand this situation we will discuss the fixed and variable costs and what they are. Fixed costs are expenses that remain the same or unchanged and do not change through the volume of products that are produced and sold. Fixed items include machinery, tools, building and management overheard and properties. Also included in fixed costs are salaries of most everyone within the company like the vice president down to security guards, accountants, shipping and receiving. If the company were to not produce any products their fixed costs would always need to be paid because they are obligated to do so. Variable costs are those expenses that do change when the volume of product rates and sales change. For example, variable costs are materials, salaries, utilities, and transportation cost of materials. If the production of sales and products increase so will the variable costs and the same with the decrease of production of sales the variable costs will decrease. With variable costs going up and down this makes it hard for companies in the United States to compete with overseas manufacturers.
Short and Long-term variables are important in economics, so I will explain the difference between the two. The short and long term differs depending on the terms in use (microeconomics,...