Noarly $40 billion of sofas and sofa sets are sold each year in the United States Making a sofa is a complex multi-step process. Making one by hand can tale between 200-10-300 hours; however, a modern factory can make a sota every 10-40-15 minutes. These reduced tmes are the result of automation and optimized factory layout and line balancing. Below are basic diagrams of how sofas are constructed. Figure-1: Frame and Foundation Figure-2: Padding and Covering According to Konuca, Kaker, Chahbi-Gamoura and Utsik (2018y2lna modem woll-run factory dedicated to manufacturing solas, there are 32 workstations with an average cycle (Takt) time of 6013 seconds. Assume that each workstation has one worker. The average American factory worker makes $15.00/31 per hour, including fringes, benefits and payroll taxes total hourly cost is $20.10 per hour in China the average factory workers salary is 8,000 Yuan per month which comes to $1,200 per month, or an hourly rate of $6.92. Including 20% for employers' social security contribution (health insurance, maternity Insurance, work related injury insurance and unemployment Insurance) the hourly cost of a Chinese factory worker is 58.31 per hour. The average cost to ship a container from China to the Port of Los Angles is given in the table below. Depending upon the size of the sotathere are anywhere from 8-6-18 sofas per shipping container Standard Container Shipping Cost from China to USA Charge LOW High Factory to port Clearance 300 Shipping Shenzhen, China to LA CA USA 2.230 2.480 Insurance (0.2%) Port charges 450 Customs bond 100 200 Local Charges 450 $ 50 $ 430 100 8 18 100 100 A typical US furniture manufacturer sels 11,580 sofas annually. It spends $175 on raw materials per sota and sells sotas to furniture stores at an average Wholesale price of $450. This company is considering outsourcing the sofas to a Chinese manufacturer. If the company decides to outsource, it will purchase the solas at an average price of $289 FOB. Approximately 3% of the sofas manufactured in the USA are damaged in transit while 4% of the sotas made in China are damaged in transit 98% of customers backorder a damaged sofa. The rehandling fees for damaged sotas are $250 each. It would be able to sell its production equipment for $1.2 million and get rid of its factory for $1.6 million as well as the overhead and expenses associate with the factory Outsourcing eliminates direct labor cost. Outsourcing will also add $27,500 of other income as the result of investing some of the money from the sale of plant equipment and real estate; however, the bulk of the funds (82.190.000) would go to stock (equity) buy-back, as well as, decreasing indirect labor and other operating cost by $1.805,000 and $748.500 respectfully. However, outsourcing increases cost of goods sold from $2,023,000 to $347,000; along with increasing transportation cost by $3,118.000. Concerning the balance sheet outsourcing increases current Liabilities by $871,000, decreases long term liabilities by $100,000 Increases inventory by $525.000-this is mainly due to transit and more safety stock, increases cash by $850.000, and decreases fixed assets by $2,800,000. The interest rate is 5%, the tax rate is 33%, and the Inventory carrying rate is 25%. Income Statement of Manufacturing in the USA Sales 59,800,000 Cost of goods sold $2,023,000 Gross Margin $7,777,000 Transportation $550.000 Warehousing $225,000 inventory carrying cost $57,000 Direct Labor $1,709,000 Indirect Labor $2,835,000 Other operating cost $1.036.000 Total Operating cost $6,412,000 EBIT $1,365,000 Interest $43,950 Taxes $435,947 Not Income $885,104 Balance Sheet Assets Liabilities Current Cash $50,000 liabilities $279.000 Account recolvables $817,000 Long-term debe $600.000 Inventory 5228,000 Total abilities $879.000 Total current Liabilities & assets $1.095.000 Equity Not food Stockholder assets $3,050,000 guity $3.266.000 Total liabilities Total Assets S4 145,000 & equity S4 145.000 From the information above, determine (1) the labor cost to build a sota in each USA and China; (2) the labor cost difference between building a sota in the USA and China, and, (3) using an average of 12 sofas per shipping container, calculate the average cost of shipping a sota (4) Assuming all other cost are equal determine the lower labor costs outweigh the shipping cost (5) Construct an income statement and balance sheet for outsourcing to China, and (6) calculate all necessary financial anos to assess whether the fimm should keep manufacturing in the USA or outsource to China Noarly $40 billion of sofas and sofa sets are sold each year in the United States Making a sofa is a complex multi-step process. Making one by hand can tale between 200-10-300 hours; however, a modern factory can make a sota every 10-40-15 minutes. These reduced tmes are the result of automation and optimized factory layout and line balancing. Below are basic diagrams of how sofas are constructed. Figure-1: Frame and Foundation Figure-2: Padding and Covering According to Konuca, Kaker, Chahbi-Gamoura and Utsik (2018y2lna modem woll-run factory dedicated to manufacturing solas, there are 32 workstations with an average cycle (Takt) time of 6013 seconds. Assume that each workstation has one worker. The average American factory worker makes $15.00/31 per hour, including fringes, benefits and payroll taxes total hourly cost is $20.10 per hour in China the average factory workers salary is 8,000 Yuan per month which comes to $1,200 per month, or an hourly rate of $6.92. Including 20% for employers' social security contribution (health insurance, maternity Insurance, work related injury insurance and unemployment Insurance) the hourly cost of a Chinese factory worker is 58.31 per hour. The average cost to ship a container from China to the Port of Los Angles is given in the table below. Depending upon the size of the sotathere are anywhere from 8-6-18 sofas per shipping container Standard Container Shipping Cost from China to USA Charge LOW High Factory to port Clearance 300 Shipping Shenzhen, China to LA CA USA 2.230 2.480 Insurance (0.2%) Port charges 450 Customs bond 100 200 Local Charges 450 $ 50 $ 430 100 8 18 100 100 A typical US furniture manufacturer sels 11,580 sofas annually. It spends $175 on raw materials per sota and sells sotas to furniture stores at an average Wholesale price of $450. This company is considering outsourcing the sofas to a Chinese manufacturer. If the company decides to outsource, it will purchase the solas at an average price of $289 FOB. Approximately 3% of the sofas manufactured in the USA are damaged in transit while 4% of the sotas made in China are damaged in transit 98% of customers backorder a damaged sofa. The rehandling fees for damaged sotas are $250 each. It would be able to sell its production equipment for $1.2 million and get rid of its factory for $1.6 million as well as the overhead and expenses associate with the factory Outsourcing eliminates direct labor cost. Outsourcing will also add $27,500 of other income as the result of investing some of the money from the sale of plant equipment and real estate; however, the bulk of the funds (82.190.000) would go to stock (equity) buy-back, as well as, decreasing indirect labor and other operating cost by $1.805,000 and $748.500 respectfully. However, outsourcing increases cost of goods sold from $2,023,000 to $347,000; along with increasing transportation cost by $3,118.000. Concerning the balance sheet outsourcing increases current Liabilities by $871,000, decreases long term liabilities by $100,000 Increases inventory by $525.000-this is mainly due to transit and more safety stock, increases cash by $850.000, and decreases fixed assets by $2,800,000. The interest rate is 5%, the tax rate is 33%, and the Inventory carrying rate is 25%. Income Statement of Manufacturing in the USA Sales 59,800,000 Cost of goods sold $2,023,000 Gross Margin $7,777,000 Transportation $550.000 Warehousing $225,000 inventory carrying cost $57,000 Direct Labor $1,709,000 Indirect Labor $2,835,000 Other operating cost $1.036.000 Total Operating cost $6,412,000 EBIT $1,365,000 Interest $43,950 Taxes $435,947 Not Income $885,104 Balance Sheet Assets Liabilities Current Cash $50,000 liabilities $279.000 Account recolvables $817,000 Long-term debe $600.000 Inventory 5228,000 Total abilities $879.000 Total current Liabilities & assets $1.095.000 Equity Not food Stockholder assets $3,050,000 guity $3.266.000 Total liabilities Total Assets S4 145,000 & equity S4 145.000 From the information above, determine (1) the labor cost to build a sota in each USA and China; (2) the labor cost difference between building a sota in the USA and China, and, (3) using an average of 12 sofas per shipping container, calculate the average cost of shipping a sota (4) Assuming all other cost are equal determine the lower labor costs outweigh the shipping cost (5) Construct an income statement and balance sheet for outsourcing to China, and (6) calculate all necessary financial anos to assess whether the fimm should keep manufacturing in the USA or outsource to China