A decision has already been taken at board level to close this division as it does not seem to be economically viable any longer. The only question remaining now is when the division should be closed. The managing director would like to close the division on the 30 th of September 2022 so that future losses are kept to minimum, but the divisional manager request that the division be kept operational until 31 December 2022, so that all business transactions and contracts may be completed before closure.

The following information is available regarding this division: Finished goods inventory on hand The division has finished goods of their product Watchek on hand on the 30 th of September 2022. The original production cost of the completed products was R800 000. The goods can be sold for R650 000 on the 30 th of September 2022. Alternatively, the division could use the finished goods to complete outstanding contracts for the period up to 31 December 2022. If the contracts are thus completed, the division will receive payment of R720 000 from clients.

Additional production required

5 2 000 units of products Bluebay must still be manufactured in order to complete outstanding contracts. Should the contracts not be completed, a penalty payment of R250 000 will be incurred by the division on 30 September 2022. The production cost for the products are R55,00 per unit, which includes R5 fixed overhead.

Labour cost All the labourers from the division will be retrenched. The retrenchment packages amount to R130 000 if paid on 30 September 2022 and R150 000 if paid on 31 December 2022. Their normal salary payments amount to R30 000 per month.

Rent If the division is closed on 30 September 2022, rental payments amounting to R10 000 per month will be avoided.

Overhead Total overheads of R300 000 per annum is charged an equal monthly portions to the RWC division. 40% of this cost is apportioned head office costs and 60% is directly traceable to the division. The directly traceable cost will no longer be incurred if the division is closed. It is estimated that further 5% saving per month on the apportioned head office costs could also be realized.

REQUIRED Marks (a) Advised the managing director on which date the RWC division ought to be closed.

(10)

(b) Comment briefly on any other non-financial considerations that management should bear in before making the final decision on the date of closure.