Efficiency and Cost of Production
The management team of AutoEdge is trying to weigh the advantages and disadvantages of leaving South Korea and reentering the United States. Sam Busch, the production manager of AutoEdge would the fixed and variable cost that AutoEdge will experience in South Korea and the United States, if the company chooses to conduct in either company. Sam Busch would also like the short run and the long run expenses of conducting business in the United States. After all the expenses, Sam Busch would to gain knowledge on the financial risks that AutoEdge faces if the production process, is relocated to the United States.
Fixed Costs and Variable cost Fixed costs are expenses that remain unchanged over the short run and do not vary or change, in the volume of products produced or sold (Tracy, 2013). Fixed costs are equipment, properties, building and managerial overhead. The Fixed Cost also include the salaries of the Vice President, safety inspectors, security guards, accountants and shipping and receiving employees. Fixed costs are expenses that a company is obligated to pay even if the company produces zero products. Variable cost are expenses or costs that are sensitive to the change in volume of a products production rate and sales. Variable costs include materials, utilities, taxes, hourly salaries and transportation costs. Variable costs will decrease if the production or sales of products decrease and will increase when the production rate or sales increases (Tracy, 2013). Variable costs are expenses paid in variance of the products produced or sold. Unlike fixed costs, a company is not obligated to pay the expenses if they are not conducting business. Variable cost allow a company to enter or exit the market easily.
Short Run and Long Run In economics, time- frames appear arbitrary at times. The time- frame helps provides a framework that analyses the behavior of business in different industries and different markets. The length of the time- frame establishes the short run or fixed cost clearly. Short run is a period of time where one factor is fixed and at least one factor is variable. Short run technically does not provide how long the period actually is. Short run could be few days, weeks or even years (Beggs, 2013). The fixed cost in the short run are considered sunk costs because the expenses are already paid and the company cannot receive a refund for the expenses. In the short run, a company can stop production or shut down but they cannot fully exit the market. An example of why a company, cannot fully exit the market is when a company has a lease on a building. If the company has a lease on a property or building, they are still obligated to pay the lease until the contract is over. The number of companies in the market are fixed, in the short run. The number is fixed because companies cannot easily enter or exit the market due to the fixed costs. Companies continue to produce products and output as long as the price, demand and sales cover the variable costs. In the short run, profits can either be positive, negative or zero.
Long run is the opposite of short run because all parts of the production process are variable after a specific period. The fixed costs of plants, equipment, property taxes and salaries become variable, when the production process, reaches a growth that requires the expenses to be reevaluate and expanded. In the long run all costs are variable (Beggs, 2013). The cost of salaries become variable when an employee receives a pay increase. The rent on a building can change when the contract is renewed.
South Korea AutoEdge manufacturing plant is currently in South Korea. Sam Busch the production manager of AutoEdge would like to understand the long and short run expenses AutoEdge would experience, if they stayed in South Korea. The first short run expense, AutoEdge would face is the lease or rent on their current building. A lease on the building is a contract that has a specific time- period. AutoEdge can relocate or move out of the building but they are obligated to pay rent until the contract ends. The second short run expense, AutoEdge may experience is property taxes. If AutoEdge is still renting the building, they are required to pay the taxes. If AutoEdge has contracts with salaried employees, they are still obligated to pay the employees their wages until the contract expires. Equipment is another short run expenses that AutoEdge has if they leave South Korea. If the equipment is leased, they must complete the contract. If AutoEdge owns the equipment, the equipment is a fixed expense until the equipment is sold. In the long -run, AutoEdge can adjust all fixed and variable costs. In the long- run, all costs are considered variable and all costs and expenses help exit the current market. The expenses South Korea will face in the long- run is building, labor and materials. The variable long run expenses are not obligated and can help AutoEdge exit the market. To help make the decision on either leaving or continuing to conduct business in South Korea, a sale forecast will need to be conducted. A sales forecast is a prediction on the businesses future sales. The prediction is based on previous sales performance and the current market conditions. Forecasting the sales of the manufacturing location in South Korea will help identify problems within the manufacturing process (Woehr, 2013).
United States Entering the United States can be costly for AutoEdge. In the short run, AutoEdge will inquire the expenses of leasing or buying a building. Leasing or buying a building can require upfront costs such as a down payment, possible property taxes and the upfront cost of utilities. AutoEdge will also have the fixed cost of hiring salaried employees. The variable long run expenses AutoEdge will encounter are utilities, labor, raw materials and transportation expenses. Entering the United States is financial risk for AutoEdge. The current product is produced in South Korea for 110 dollars. In the United States, the same product will cost 320 dollars. The increase in price can cause a problem for consumers because the price will have to increase. AutoEdge will need to raise the price to cover expenses. The increase in the expenses required to the price of the product to increase. The demand will experience a decrease among consumers and cause diseconomies of scales. Diseconomies of scale is the concept, which the production expenses will increase as the output decreases. Economies of scales is the opposite of diseconomies of scale. Economies of scale are cost advantages that arise with an increase of product output. Economies of scales is the concept that cost and expenses will be decreases as the output or production of a product increases. The average unit cost will decrease. Economies of scale can arise from internal or external factors (Williams, 2013).
Diseconomies of scale is undesirable and the management team of AutoEdge needs to forecast sales and expenses to avoid diseconomies of scale. Forecasting the sales will allow the management team to understand if they will lose, customers and it help find ways to decrease cost and increase sales (Williams, 2013). The financial risks of AutoEdge entering the United States will be an increase in labor, materials, new equipment and unions. Sales forecasting can help predict if the profits outweigh the expenses.
Conclusion
AutoEdge must make a decision on whether to leave South Korea and reenter the United States. In order to make a positive decision, the management team of AutoEdge needs to evaluate the long and short run expenses. If AutoEdge has fixed costs in South Korea, they will not be able to exit the market. The financial risks of entering the United States are less profits and the chance of losing customers. The expenses of relocating involve salaries, equipment, taxes and property. In order for the management team of AutoEdge to make, a decision they will need to forecast the sales and supply and demand.

References
Beggs, J. (2013). The short run versus the long run. Retrieved October 28, 2013, from http://economics.about.com/od/perfect-competition/a/The-Short-Run-Versus-The-Long-Run.htm
Tracy, J. (2013). Accounting for dummies (5th ed.). Indianapolis, IN: Jom wiley.
Williams, E. (2013). What is the purpose of sales forcasting? Retrieved October 27, 2013, from http://www.ehow.com/about_6628629_purpose-sales-forecasting_.html
Woehr, M. (2013). Optimization tools for sales forcasting. Retrieved October 27, 2013, from http://www.ehow.com/info_7851481_optimization-tools-sales-forecasting.html