MEMORANDUM FOR: Theodore Kennedy
FROM: Erica Ellis, Director of Managerial Accounting Office
SUBJECT: QualSupport Plant Closing Decision
As we approach the close of the fiscal year, I would appreciate your review of the attached accounting income statements for the close of this year along with detailed statements that forecast the proposed recommendations for next year.
In reviewing the attached analysis including the figures associated with closing the plant, it is my recommendation that the plant remains open. The total costs associated with closing the plant total a net disadvantage of $2.1 million dollars in the first year and an additional disadvantage of $1 million in the years succeeding the plant closure. Some considerations that also need to be taken into account are the current and future costs of purchasing seat covers from outside suppliers.
In the event the plant is closed, there are $18 million in continuing costs that still will occur due to the continuity of the business as a whole as well as $4.3 million in non-recurring costs that are directly associated with the closing of the Denver Cover plant.
As key decision makers, it is important to look at all various alternatives when assessing the offered bid. In the event the bid is accepted, it is important to look at alternative uses of the plant’s building and equipment as well as what will the supplier’s pricing be set at in years to come. Also, if the plant is to remain open, what will it cost to manufacture the covers in the coming years including any associated taxes and inflation. In the case of this bid, it is recommended that the plant remains open and the bid is rejected.