Big-Auto Corporation manufactures automobiles, vans, and trucks. The Denver Cover Plant, one of Big-Auto's plants, produces coverings made primarily of vinyl and upholstery fabric that are sewn at Denver Cover and used to cover interior seating and other surfaces of Big-Auto products.
T. Vosilo is the plant manager for Denver Cover. The Denver Cover Plant was the first Big-Auto plant in the region. As other area plants were opened, Vosilo, in recognition of his management ability, was given responsibility for managing them. Vosilo functions as a regional manger although the budget for him and his staff is charged to the Denver Cover Plant.
Vosilo has just received a report indicating that Big-Auto could purchase the entire annual output of Denver Cover from outside suppliers for $30,000,000. Vosilo was astonished at the low outside price because the budget for Denver Cover's operating costs for the coming year was set at $52,000,000. Vosilo believes that Big-Auto will have to close down operations at Denver Cover to realize the $22,000,000 in annual cost savings.
The budget for Denver Cover's operating costs is as follows:

Additional facts regarding the plant's operations follow.
(a) Due to Denver Cover's commitment to use high-quality fabrics in all of its products, 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 15% of the cost of direct materials.
(b) Approximately 700 plant employees will lose their jobs if the plant is closed. This includes all the direct laborers and supervisors as well as the plumbers, electricians, and other skilled workers classified as indirect plant workers. Some will be able to find new jobs, but many others will have difficulty finding employment. All employees will have difficulty matching Denver Cover's base pay of $9.40 an hour, which is the highest in the area. A clause in Denver Cover's contract with the union will 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 is $1,000,000 for the year.
(c) Some employees will probably elect early retirement because Big-Auto has an excellent pension plan. In fact, $3,000,000 of the 20A pension expense will continue whether Denver Cover is open or not.
(d) Vosilo and his staff will not be affected by the closing of Denver Cover. They will still be responsible for administering three other area plants.
(e) Denver Cover considers equipment depreciation to be a variable cost and uses the units-of-production method to depreciate its equipment; Denver Cover is the only Big-Auto plant to use this depreciation method. However, Denver Cover uses the customary straight-line method to depreciate its building.
Required:
(1) Without regard to costs, identify the advantages to Big-Auto of continuing to obtain covers form its own Denver Cover Plant.
(2) Big-Auto plans to prepare a numerical analysis that will be used in its decision on whether to close the Denver Cover Plant.
(a) Identify the recurring annual budgeted costs that can be avoided by closing the plant.
(b) Identify the recurring annual budgeted costs that are not relevant to the plant-closing decision, and explain why they are not relevant.
(c) Identify any nonrecurring costs that arise due to the closing of the plant, and explain how they affect the decision.
(d) Identify any revenues or costs not specifically mentioned in the case that Big-Auto should consider before making its decision.

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Denver Cover Plant Budget for Operating Costs For the Year Ending December 31, 20A (in thousands) Materials Direct labor Factory overhead: $12,000 13,000 Supervision Indirect labor $3,000 4,000 5,000 3,000 4,000 2,000 Depreciation building Pension expense.... Piant manager and staff Corporate allocation 6000 27000 52.000 Total budgeted costs