Appendix 4

Cost-Benefit Analysis
In-House Manufacturing vs. Subcontracting

Initial Cash Outlay

In-House No. of units Unit cost Total Cost Subcontracting Total Cost
Business permits P 5,000
Major renovations 395,000
Equipment:
Juki sewing machines 10 P 33,000 330,000
Ironing equipment 2 13,000 26,000
chairs & tables 50,000
Edging machines 5 42,000 210,000
Buttonhole machines 5 38,000 190,000
Total Equipment cost 806,000
TOTAL P 1,206,000 TOTAL None

Year 1
No. of
In-House units Unit cost Total Cost Subcontracting Total Cost
Direct Materials P 3,473,378* Direct Materials P 3,473,378*
Direct Labor (sewers) 12 P 8,000 96,000 Direct Labor 3,639,696*
plus 10% benefits 800 9,600
Indirect Materials 173,669
Total Variable Costs P 3,752,647
Factory Overhead:
Indirect Labor 10 P 7000 P 840,000
600,00
Plant Administrative costs 4 12,500 0
300,00
Factory Supplies 25,000 0
660,00
Plant Rental Fees 55,000 0
80,60
Depreciation of Equipment 0
25,00 300,00
Utilities 0 0
40,30 483,60
Repair & Maintenance 0 0
35,00 420,00
Transportation 0 0
20,00 240,00
Insurance 0 0
Total Fixed Costs P 3,924,200
TOTAL P 7,676,847 TOTAL P 7,113,074

Year 2
Unit
In-House No. of units cost Total Cost Subcontracting Total Cost
Direct Materials P 3,566,964* Direct Materials P 3,566,964*
Direct Labor (sewers) 12 P 8,000 96,000 Direct Labor 3,737,762*
plus 10% fringe benefits 12 800 9,600
Indirect Materials 178,348
Total Variable Costs P 3,850,912
Total Fixed Costs P 3,924,200
TOTAL P 7,775,112 TOTAL P 7,304,726
 Year 3
No. of Unit
In-House units cost Total Cost Subcontracting Total Cost
P
Additional machines 2 33,000 P 66,000 Direct Materials P 5,677,781*
P 66,000 Direct Labor 5,702,178*
Direct Materials 5,677,781*
Direct Labor (sewers) 14 P 8,000 112,000
plus 10% fringe benefits 14 800 11,200
Indirect Materials 283,889
Total Variable Costs P 6,084,870
Additional Depreciation 6,600
Repair & Maintenance 3,300
Fixed Costs 3,924,200
Total Fixed Costs P 3,934,100
TOTAL P 10,018,970 TOTAL P 11,379,959

Year 4
No. of Unit
In-House units cost Total Cost Subcontracting Total Cost
P P
Direct Materials 6,140,304* Direct Materials 6,140,304*
Direct Labor (sewers) 14 P 8,000 112,000 Direct Labor 6,412,744*
plus 10% fringe benefits 14 800 11,200
Indirect Materials 307,015
Total Variable Costs P 6,263,504
Additional Depreciation 6,600
Additional Repair & Maintenance 3,300
3,924,20
Fixed Costs 0
Total Fixed Costs P 3,934,100
P P
TOTAL 10,197,604 TOTAL 12,533,048

Year 5
No. of Unit
In-House units cost Total Cost Subcontracting Total Cost
Direct Materials P 6,358,072* Direct Materials P 6,358,072a
Direct Labor (sewers) 14 P 8,000 112,000 Direct Labor 6,647,083*
plus 10% fringe benefits 14 800 11,200
Indirect Materials 317,904
Total Variable Costs P 6,799,176
Additional Depreciation 6,600
Repair & Maintenance 3,300
Fixed Costs 3,924,200
Total Fixed Costs P 3,934,100
TOTAL P 10,733,276 TOTAL P 13,005,155