Can anyone help me solve the caselet?

MilliChem Limited MilliChem Limited is engaged in the research, formulation and production of several chemicals used in a variety of manufacturing processes. These chemicals are sold throughout the United Kindgom as well as exported to customers in some other European countries. Many of the chemicals produced require very careful packing. In the interest of quality, the company operates a Containers Division to manufacture its own containers, These containers have a special patented lining. This lining is of a very high quality and is made from a material known as PFL with special anti-corrosive properties. The company had always made a feature of the special properties of the containers used and, within the division, also operated a department especially to maintain its containers in good condition and to make new ones to replace those that were past repair. Jim Mills, the chief executive, had for some time suspected that the company might save money and get equally good service by buying its containers from an outside source. After careful inquiries, he approached a firm specializing in container production, KTPack Limited, and asked for a quotation from it. At the same time he asked Paul Johnson, his chief account tant, to let him have an up-to-date statement of the cost of operating the Containers Division. Within a few days, the quotation from KTPack Limited came in. The firm was prepared to supply all the new containers required-at that time running at the rate of 3,000 a year-for E568,750 a year, the contract to run for a guaranteed term of five years and thereafter to be renewable from year to year. If the required number of containers increased, the contract price would be increased proportionally. Additionally, and irrespective of whether the above contract was concluded or not, KTPack Limited would undertake to carry out purely maintenance work on containers, short of replacement, for a sum of $170,625 a year, on the same contract terms. Mills compared these figures with the cost figures prepared by Johnson, covering a year's operations of the Containers Division, as shown below: E E Materials 326,600 Labor 225,000 Division overhead: Manager's salary 36,250 Rent 20,500 Depreciation of machinery 68,250 Maintenance of machinery 16,375 Other expenses 71.650 213.025 764,625 Proportion to general administrative overhead 102.375 Total cost of department for year 867,000 Mills's conclusion was that no time should be lost in closing the division and in entering into the contracts offered by KTPack, Limited, However, he thought it was important to give the manager of the division, Simon Drake, an opportunity to question this conclusion before he acted on it, He therefore called him in and put the facts before him, at the same time making it clear that Drake's own position was not in jeopardy; for even if the Containers Division were closed, there was another managerial position shortly becoming vacant to which he could be moved without loss of pay or prospects.Drake asked for time to think the matter over. The next morning, he asked to speak to Mills again and said he thought there were a number of considerations that ought to be borne in mind before his department was closed. "For instance," he said, "what will you do with the machinery? It cost $546,000 four years ago, but you'd be lucky if you got $90,000 for it now, even though it's good for another five years or so. And then there's the stock of PFL we bought two years ago. That cost us E455,000, and at the rate we're using it now, it'll last us another three years or so. We've used up about two fifths in the last couple of years. Johnson's figure of E318,500 for materials probably includes about $91,000 for PFL. But it'll be tricky stuff to handle if we don't use it up. We bought it for 12.275 a ton, and you couldn't buy it today for less than E2,725. But you wouldn't have more than $1,813 a ton left if you sold it, after you'd covered all the handling expenses. Apart from that, there is Material X which we use in the manufacturing of the containers to give them that special coating, If we discontinue the division, we would have to dispose of this safely since it is a toxic substance and is now obsolete. We only purchased it because we got such a good deal 3 years back of $540 a ton. We still have 75 tons of material X which would last us another 5 years. It would cost $100 a ton to safely dispose off. I imagine the annual cost of this is also included in the material figure quoted by Johnson. " Mills thought that Johnson ought to be present during this discussion, He called him in and put Drake's points to him, "I don't much like all this conjecture," Johnson said. "I think my figures are pretty conclusive. Besides, if we are going to have all this talk about 'what will happen if,' don't forget the problem of space we're faced with. We're paying $39,600 a year in rent for warehouse space a couple of miles away. If we closed Drake's department, we'd have all the warehouse space we need without renting." "That's a good point," said Mills, "But I'm a bit worried about the workers if we close the department. I don't think we can find room for any of them elsewhere in the firm. I could see whether KTPack can take any of them. But some of them are getting on. There are Gerard and Briggs, for example. They've been with us since they left school 40 years ago. I'd feel bound to give them a small pension- $6,750 a year each, say. 4 of our workers would also qualify for statutory redundancy payments as per legislation passed last year. I'd have to check, but I think this would be around (8,750 per worker." Drake showed some relief at this. "But I still don't like Johnson's figures," he said, "What about this $102,375 for general administrative overhead? You surely don't expect to sack anyone in the general office if I'm closed, do you?" "Probably not," said Johnson, "but someone has to pay for these costs. We can't ignore them when we look at an individual department, because if we do that with each department in turn, we shall finish up by convincing ourselves that directors, accountants, typists, stationery, and the like don't have to be paid for, And they do, believe me." "Well, I think we've thrashed this out pretty fully." said Mills, "but I've been turning over in my mind the possibility of perhaps keeping on the maintenance work ourselves. What are your views on that, Drake?" "I don't know," said Drake, "but it's worth looking into. We shouldn't need any machinery for that, and I could hand the supervision over to a foreman. You'd save $13,500 a year there say. You'd only need about one fifth of the workers, but you could keep on the oldest and also save the redundancy payouts. You wouldn't save any space here or at the rented warehouse, so I suppose the rent would be the same. I shouldn't think the other expenses would be more than $29,500 a year," "What about materials?" asked Mills, "We use about 10 percent of the total on maintenance," Drake replied. "Well, I've told KTPack Limited, that I'd let them know my decision within a week, " said Mills. "I'll let you know what I decide to do before I write to them." Questions 1. Identify the four alternatives implicit in the case. 2 Using cash flow as the criterion, which alternative is the most attractive? 3. What, if any, additional information do you think is necessary in order to make a sound decision