Case Study : Wellington Chemicals Division

1897 WordsApr 18, 20178 Pages
Wellington Chemicals Division Q1: One common approach in analyzing a situation like this is to prepare a comprehensive, multi-year cash flows spreadsheet for the various options. This requires careful attention to differential cash flows, a relevant time frame, inflation, taxation, and time value of money. If you choose this approach, be careful in carrying it thought comprehensive and in considering what inferences it will support. Assume a 40% tax rate. What conclusion do you draw from your cost analysis? What recommendation would you make to Mr. Walsh? Why? The various options that are stated in the case are 4 as follows: 1- Make the containers and maintain them through the firm department. 2- Buying the containers from an outside…show more content…
Calculations details for the first spreadsheet: 1- Materials cost: The materials cost = £70,000. A part of that of £20,000 is GHL cost and the rest of £50,000 are for steel as it is stated in the case. If the company decides to make the containers and maintain them inside the firm will need the steel materials and it will pay for its cost as well as if it decides to make the containers inside the firm but maintain them outside. For the other two alternatives, there will be no inclusion for the steel cost in the financial analysis because there will be no manufacturing for the container which means no use for the steel. The total steel cost for 4 years = £50,000 × 4 years = 200,000. 2- Th manger salary: The manger will only be needed if the firm makes the containers. Under the other alternatives, he will not be working and getting paid as a manager of the container department even in the firm does the maintenance inside, the company will still transfer him to another department. The manger salary= £8000 × 4 years = 32,000. 3- Labor cost: The labor cost of £50,000 of the container department contains

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