Question

Jurica Corporation manufactures various trim pieces for vehicle manufacturers. The company has a number of plants, including the Juriquilla Plant, which makes door trim pieces.

Mr. Bates is both the regional manager for the Central America region and the plant manager of the Juriquilla Plant. His budget as the regional manager is charged to the Juriquilla Plant.

Bates has just heard that the company received a bid from an outside vendor to supply the equivalent of the entire annual output of the Juriquilla Plant for $20.5 million. Bates is astonished at the low outside bid because the budget for the Juriquilla Plant’s operating costs for the upcoming year is $24.16 million. If this bid is accepted, the Juriquilla Plant will be shut.

The budget for the Juriquilla Plant’s operating costs for the coming year is presented below.

Juriquilla Plant Annual Budget for Operating Costs
Materials				$	8,400,000
Labor:
Direct	$	8,500,000
Supervision		410,000
Indirect plant workers		1,500,000			9,310,000
Overhead:
Depreciation—equipment		1,300,000
Depreciation—building		1,700,000
Pension expense		1,400,000
Plant manager and staff		550,000
Corporate expenses*		1,500,000			6,450,000
Total budgeted costs				$	24,160,000

*Fixed corporate expenses allocated to plants and other operating units based on total budgeted wage and salary costs.

Additional facts regarding the plant’s operations are as follows:

1. Due to Juriquilla’s commitment to use high-quality fabrics in all of its products, the Purchasing Department was instructed to place yearly 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.

2. Approximately 300 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. All employees would have difficulty matching Jurquilla’s base pay of $11.50 per hour, which is the highest in the area. A clause in Juriquilla’s current 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 $0.79 million for the year.

3. Some employees would probably choose early retirement because Jurica Corporation has an excellent pension plan. In fact, $0.61 million of the annual pension expense would continue whether the Juriquilla plant is open or not.

4. Bates and his staff would not be affected by the closing of the Juriquilla Plant. They would still be responsible for administering three other area plants.

5. If the Juriquilla Plant were closed, the company would realize about $3.68 million salvage value for the equipment and building. If the plant remains open, there are no plans to make any significant investments in new equipment or buildings. The old equipment is adequate and should last indefinitely.

Required:

1. Before looking at the numbers, discuss the human factors and other non-numerical factors that are at play when considering a make or buy decision of this magnitude?  

2. Jurica Corporation plans to prepare a financial analysis that will be used in deciding whether or not to close the Denver Cover Plant. Management has asked you to identify:

1. The annual budgeted costs that are relevant to the decision regarding closing the plant.
2. The annual budgeted costs that are not relevant to the decision regarding closing the plant.
3. Any nonrecurring costs that would arise due to the closing of the plant.

3. Looking at the data you have prepared in (1) above,

1. Calculate the financial advantage (disadvantage) of closing the plant. You should calculate this for both the first year and the years after the first year.

2. Based on your analysis as a manager should the plant be closed. Discuss your decision.

Your work should be submitted in full and grammatically correct sentences.

Calculations should be organized into tables that are easy to follow. If you have a mistake in your work but I cannot understand your calculations, I cannot give partial credit.

Grading Rubric:

Name(s)	Paper Topic / Title:	Possible Points	Earned Points
Req 1: Thoroughly discussed at least 2 non numerical elements that should be considered in make or buy decisions.		4
Req 2: Properly calculated requirements 2 a-c in organized and easy to follow calculations.		6
Req 3 a: Properly calculated the year 1 and future year advantage/disadvantages.		2
Req 3 b: Case writer(s) use critical thinking and analysis skills to develop beyond the numbers.		5
Grammar / Mechanics Word choice Sentence structure Organized calculations		3
Total		20 points

Answer 1