Case Study #06] Qua!Support Corporation QualSupport Corporation manufactures sea

Question

Case Study #06] Qua!Support Corporation QualSupport Corporation manufactures seats for automobiles, vans, trucks, and various recreational vehicles. The company has a number of plants around the world, including the Denver Cover Plant, which makes seat covers. Ted Vosilo is the plant manager of the Denver Cover Plant but also serves as the regional production manager for the company. His budget as the regional manager is charged to the Denver Cover Plant. Vosilo has just heard that QualSupport has received a bid from an outside vendor to supply the equivalent of the entire annual output of the Denver Cover Plant for $35 million. Vosilo was astonished at the low outside bid because the budget for the Denver Cover Plant's operating costs for the upcoming year was set at $52 million. If this bid is accepted, the Denver Cover Plant will be closed down. The budget for Denver Cover's operating costs for the coming year is presented below. Additional facts regarding the plant's operations are as follows: Due to Denver Cover's commitment to use high-quality fabrics in all of its products, the Purchasing Department was instructed to place blanket purchase orders with major suppliers to ensure the receipt of sufficient materials for the coming year. If these orders are canceled as a consequence of the plant closing, termination charges would amount to 20% of the cost of direct materials. a. b. Approximately 400 plant employees will lose their jobs if the plant is closed. This includes all of the direct laborers and supervisors as well as the plumbers, electricians, and other skilled workers classified as indirect plant workers. Some would be able to find new jobs while many others would have difficulty. Al employees would have difficulty matching Denver Cover's base pay of $18.80 per hour, which is the highest in the area. A clause in Denver Cover's contract with the union may help some employees; the company must provide employment assistance to its former employees for 12 months after a plant closing. The estimated cost to administer this service would be $1.5 million for the year Some employees would probably choose early retirement because QualSupport has an excellent pension plan. In fact, $3 million of the annual pension expense would continue whether Denver Cover is open or not. Vosilo and his staff would not be affected by the closing of Denver Cover. They would still be responsible for administering three other area plants. c. d. e. If the Denver Cover Plant were closed, the company would realize about $3.2 million salvage value for the equipment and building. If the plant remains open, there are

Explanation / Answer

1. Without regard to cost, following advantage to Qualsupport can be reaped:

a. Cost of 1.5 m can be avoided which otherwise will be incurred in assiting/administering existing 400 employee of the plant.

b. 3 m of annual pension expense can be avoided if they chose to reitre for plant closure.

Should the plant be closed

Plant should not be closed, working given below:

4. Cost which is not considered: Few examples:

Tax implications

Price in future of the vendor who is supplying current at 35 million

Quality of products

Employees impact who are losing job.

2 (A) Annual Budget cost that are relvant Material 14000000 Direct Labor 13100000 Direct Supervision 900000 Indirect Plant 4000000 18000000 Differential Pension (5-3) 2000000 Total Relevant Cost 34000000 2 (B) Annual Budget cost that are NOT relvant Remarks Depreciation Equipment 3200000 Considering it as Sunk Cost Depreciation Building 7000000 Considering it as Sunk Cost Pension (5-2) 3000000 Annual Pension will continue whether plant operational or closed Plant Manager & Staff Ovh 800000 As they would continue to work and supervise other plants Corporate Exp 4000000 Fixed cost, not of plant, just allocated 18000000 2 (C) Non Recurring cost due to closure Order Termination Charges 2800000 20% of 14000000 Employment assistance 1500000 1.5 million Total Non Recurring Cost 4300000

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.