\f1viIr-'alsl'r's conclusion was rst no time should be lost in closing the department and entering into the two eouoacts ofrred by Packages, Ltd. However, he felt bound to give the manager of the department, Mr. Duffy, an oppornmity to question this conclusion before he acted on it. He therefore called him in and put the Facts both]! him. at the same time making clear that Mr. Duffy's own position was not in jeopardyeven if his department were closed, there was another managerial position shortly becoming vacant to which he could be moved without loss of pay or prospects. lair. Duffy looked thoughttl throughout their conversation and asked fortirne to think the matter over. The next rooming, he asked to speak with Mr. Walsh again and said he thought there were a number of considerations that ought to be borne in mind before his department was closed. "For htstance," he said, \"what will you do With the drum making machinery\"? It cost 120.00!) four years ago, but you'd be lucky if you got cannon re it new, even though it's good for another four years at least. And then tltere's the stock of GHL we bought a year ago. We bought a ve-year supply in order to be able to buy directly from the manufacturer and we paid 100,000. Dyers gure of 10,000 for materials probwly includes about 10,000 for GHL. We bought it for 500 a ton, but you wouldn't have more than 400 a ton left ifynu sold h, after you'd covered all the handling expenses." Walsh thought that Dyer ought to be present drn'ing this discussion. He called him in and put Duy's points to him. \"I don't much like all this conjecture,\" Dyer said. \"I think my gures are pretty conclusive. Besides, if we are going to have all this talk about 'what will happen it",1 don't forget the problem of space we're faced widt. We're paying 5,500 a year in hire purchase fees for a warehouse a few kilometers away from our plant. If we closed Duy's department. we'd have all the space we need without that warehouse." \"That's a good point,\" said Walsh, \"drough I must say I'm a bh worried about the workers if we close the department. I don't think we can nd morn liar any of them elsewhere in the rm. I could see whether Packages eantakeanyot'them. But some ofthenaregeiiingon. There's Walters and Hines, for example. They've been with us since they left school 40 years ago. I'd feel botmd to give them penises1,500 a year each, say." Duffy showed some relief at this. \"But I still don't like Dyers gures," he said. \"'What about the allocated space cost and the 22,500 for general administrative overhead? You surely don't Expect to close down any space or sack anyone in the general office if I'm closed, do you?" \"Probly not," said Dam, \"but someone has to pay her 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 nish up by convincing nrnselves that managers , accountants, typists, stationery, and the like don't have to be paid for. And they do, believe me\" \"Well, 1 drink we've thrashed this out pretty hilly," said Walsh. \"but I've been taming over in my mind the possibility of perhaps kmphrg on the maintenance work ourselves. What are your views, Duffy?\" \"I don't throw," said Duffy, \"inn it's worth looking into. We shouldn't need the drum machinery for that. and I could hand supervision over to the aremau. You'd save my salary plus 3,000 a year time, say. You'd only need about 3 of the workers. but your could imp the oldest. The other 1?. rrreu are split about equally between dnun- making, applying t'jHL to new containers, and general departmental labor. You wouldn't save any space, so I suppose the hire purchase fees would be the same. I shouldn't think the other expenses would be more than 6,500 a year." \"What about materials?" asked Walsh. \"We use about 10 percent of the Lil-ll. on maintenance," Duffy replied, \"and not much else." \"Well, I've told Packages, Ltd. that I'd let them know my decision within a week," said Walsh. \"I'll let. you know what I decide to do before I write to them." QUESTIONS 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 ows, a relevant time ame, ination, taxation, and time value of money. If you choose this approach, be careful in coming it through comprehensively and in considering what brfbrences it will support. Assume a 40% tar. rate. Ifyon choose some other cost analysis approach. he sin'eyou areclearasto why youare nntdniug a multi- year spreadsheet analysis What conclusions do you draw from your cost. analysis? What recommendation would you make to Mr. Walsh? Why