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04-09-2018

Product code: Accounts-AW673

 

Background

You have recently been promoted to Senior Consultant for the professional service firm, BUSI 2083 LLP thanks in part to the hard work in leading the engagement for your client Guardian Angel. Your firm specializes in providing a wide variety of internal business solutions for different clients. After a weekend of celebrations from your promotion, a Senior Manager calls you into her office first thing Monday morning to help with a manufacturing client who is making a tough decision about closing a plant:

Low Rider (LR) manufactures seats for automobiles, vans, trucks, and boats. The company has a number of plants, including the Waterloo Cover Plant, which makes seat covers.

Bill Rice is the plant manager at the Waterloo Cover Plant but also serves as the regional production manager for the company. His budget as the regional manager is charged to the Waterloo plant.

Additional Information

Rice has just heard that LR has received a bid from an outside vendor to supply the equivalent of the entire annual output of the Waterloo Cover Plant for $42 million. Rice was astonished at the low outside bid because the budget for the plant’s operating costs for the coming year was set at $48.6 million. If this bid is accepted, the Waterloo operation will be closed down.

The budget for the Waterloo Cover Plant’s operating costs for the coming year is presented below. Materials

$16,000,000

Labor:

Direct

$13,400,000

Supervisor

800,000

Indirect plant

3,800,000

18,000,000

Overhead:

Depreciation - equipment

2,600,000

Depreciation - building

4,200,000

Pension expense

3,200,000

Plant manager and staff*

1,200,000

Corporate expenses**

3,400,000

14,600,000

Total budgeted costs

$48,600,000

       

 

Download Questions

The budgeted cost that is going to save will not include the corporate expenses and the Pension reagrding expenses as it will remain same irresepctive of the opening of the plant.

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