Idle time sitting cost for set up period: 5 business days * 8 hours * $ 42 per hour
= $ 1680 per employee
Further, 20 % capacity which can be utilized for extra 15 days after project completion is also saving. So cost of this time is also avoidable cost.
= (60 days – 45 days) * 8 hours * $ 42 per hour * 20%
= $ 1008 per employee
So, total cost which can be avoided = $ 1680 + $ 1008 = $ 2688 per employee
3. Breakeven point is the point where total project cost can be realized by saving in employee hiring cost. Actual total cost of project is $ 220000 which was earlier calculated as $ 226000.
Breakeven point for this project = Total Project Cost
Cost avoidance per new hire
= $ 220000
= 82 employees
As per current project details, entity has to hire 82 employees to recover its project cost.
4. As per given project cost, cost which can be avoided and planning to hire number of employee it is not feasible to go forward with this project, as project cost is higher than planned cost saving. After hiring 82 employees entity can recover its cost whereas entity is planning to hire only 40 employees. So project is not feasible.
5. There are some improvements has to be done in project so that it can achieve its target. Following improvements can be done:
1. Total project cost should be reduced.
2. Process of setting up infrastructure should be revisited and needs radical changes so that time of set up can be reduced.
3. There should be agreement with supplier of all infrastructure facilities provider so that within two business day all required item can be purchased.
4. Minimum period required to start working independently has to reduce or at least maximum capacity can be used for such period. So wastage of effective time has to reduce from 20%.
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