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ASE 12–30 Plant Closing Decision [LO1, LO2] Mobile Seating Corporation manufactures seats for

17 / 01 / 2019 Research Papers

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CASE 12–30 Plant Closing Decision [LO1, LO2] Mobile Seating Corporation manufactures seats for… 1 answer below » CASE 12–30 Plant Closing Decision [LO1, LO2] Mobile Seating Corporation manufactures seats for automobiles, vans, trucks, and boats. The com- pany has a number of plants, including the Greenville Cover Plant, which makes seat covers. Miriam Restin is the plant manager at the Greenville Cover Plant but also serves as the regional production manager for the company. Her budget as the regional manager is charged to the Greenville Cover Plant. Restin has just heard that Mobile Seating has received a bid from an outside vendor to supply the equivalent of the entire annual output of the View complete question » CASE 12–30 Plant Closing Decision [LO1, LO2] Mobile Seating Corporation manufactures seats for automobiles, vans, trucks, and boats. The com- pany has a number of plants, including the Greenville Cover Plant, which makes seat covers. Miriam Restin is the plant manager at the Greenville Cover Plant but also serves as the regional production manager for the company. Her budget as the regional manager is charged to the Greenville Cover Plant. Restin has just heard that Mobile Seating has received a bid from an outside vendor to supply the equivalent of the entire annual output of the Greenville Cover Plant for $21 million. Restin was astonished at the low outside bid because the budget for the Greenville Cover Plant’s operating costs for the coming year was set at $24.3 million. If this bid is accepted, the Greenville Cover Plant will be closed down. The budget for the Greenville Cover Plant’s operating costs for the coming year is presented on the following page. Additional facts regarding the plant’s operations are as follows: a.       Due to the Greenville Cover Plant’s commitment to use high-quality fabrics in all of its prod- ucts, 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 25% of the cost of direct materials. b.       Approximately 350 employees will lose their jobs if the plant is closed. This includes all of the direct laborers and supervisors, management and staff, and the plumbers, electricians, and other skilled workers classified as indirect plant workers. Some of these workers would have difficulty finding new jobs. Nearly all the production workers would have difficulty matching the Greenville Cover Plant’s base pay of $12.50 per hour, which is the highest in the area. A clause in Greenville Cover’s contract with the union may help some employees; the company must provide employment assistance and job training to its former employees for 12 months after a plant closing. The estimated cost to administer this service would be $0.8 million. c.       Some employees would probably choose early retirement because Mobile Seating Corpora- tion has an excellent pension plan. In fact, $0.7 million of the annual pension expense would continue whether the Greenville Cover Plant is open or not. d.       Restin and her regional staff would not be affected by the closing of the Greenville Cover Plant. They would still be responsible for running three other area plants. e. If the Greenville Cover Plant were closed, the company would realize about $2 million sal- vage value for the equipment in the plant. If the plant remains open, there are no plans to make any significant investments in new equipment or buildings. The old equipment is adequate for the job and should last indefinitely. Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Labor: Direct . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,700,000 $  8,000,000 Supervision . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,000 Indirect plant . . . . . . . . . . . . . . . . . . . . . . .   . 1…


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