The costs associated with direct materials would decrease by $34.4 millions by decreasing the direct material costs from $69.5 million in 1990 to $35.1 million in 1991. Similarly the savings made on direct labor would amount to $6.3 million by decreasing the direct labor cost from $14.1 million to $7.8 million in 1991.
The overheads on the production lines would depict savings of $36.1 million by reducing the overheads from $79.3 million in 1990 to $43.2 million in 1991. This clearly presents that by employing outsourcing strategy for the manifold production line, the company can experience significant savings in terms of costs and overheads.
Additionally the outsourcing of the manifold production line can also enable the company to decrease the overhead burden on the active production lines by a percentage of 256%. This is a significant reduction from the overhead burden rate of 563% in 1990 to 307% in 1991.