I am working a HBR case study for Spark Publishing and Printing House Sort-Run Managerial Decision Raises a Dilemma.

The question is: Determine the period of evaluation?

Below is the case study.

The case is on Spark Publishing & Printing House (SPPH) previously known Spark Printing

Press was established in late 1930 in INDIA before independence by Gujarati intellect

Narottamdas Sheth. Later the legacy was carried by his son Sudhir Seth and now his grand

son has taken the charge about 2 months ago. Initially Narrottamdas started with publishing a

Gujarati daily, NavoAwaj followed by English monthly magazine called Spark in political

environment of India.

Later after his death, Sudhir Seth inherited his father's business acumen and ventured into

publishing and named the press as SPPH. Soon SPHH became a well known brand with its

publications of academic literature, technical manuals, religious publications and books by

reputed authors. But Sudhir had to discontinue the daily and the magazine his father had

started as both had become uneconomical in the new business model for which he regrets.

Sudhir divided the business into two departments, one of which was Publishing and the other,

Printing and Distribution. The Publishing Department handled negotiations, editorial

responsibilities and design while the Printing and Distribution Department (P&D) dealt with

the printing, binding and distribution of published material. He had modernized the printing

department with the acquisition of a state-of-the-art printing machine at a cost of INR

2,000,000.

Sameer, a management graduate from US took over the business in January 2014 respecting

his father, Sudhir's wish. Over the next two months, he tracked the trends and rapid changes

in the publishing industry. He found gaps in the company in terms of radical technological

changes and innovations in publishing, and found huge scope for publishing in presence of

digital information systems and Internet and intend to expand to electronic resources such as

e-books, micro-publishing, websites, blogs and video game publishing. He also keen to

consider outsourcing printing and distribution facility and close down that segment of SPPH

due to his inclination towards creativity in publishing.

He got a proposal from Fine Printing Press (FPP) to handle all of SPPH's printing and

distribution work for a monthly payment of INR 75,000 for a contract period of one year

initially followed by renewals with mutual consent. He also learned that another printing

press had made a similar proposal to SPPH in the past which was rejected by his father

because he is concerned that

the printing press had not depreciated fully

reluctant to lay off Printing Department staff appointed by the founder Narrotamdas

Now, after a relevant cost analysis of the proposal and options Sameer intends to take a

decision whether to close down the Printing & Publishing Department (P & D) and outsource

the facility or keep it.

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2 INPUT DATA

The information to be considered in making any decision on the possible closure of the P&D

Department:

From the P&D staff,

Manek and Hiralal the oldest staff of the company who are due for retirement in 2

years and would be entitled to collect on the firm's Employee Pension Plan in two

years, Sameer intended to give each of them a pension equivalent to their present

salary of INR 2,000 per month until they became eligible for their pension.

Two specialist staff of the P&D department would have to be retained at their present

salary of INR 4,000 per month in order to coordinate the work with FPP.

He wanted to transfer P&D Department manager, Aswin as Publishing Department

manager which was likely to fall vacant with INR 6,500 per month, which was more

than Ashwin's current salary of INR 6,000 per month.

To lay off rest all contractual appointments with a retrenchment compensation of 15

months' salary to each of them.

The P&D Department Materials & Supplies:

To sell the P&D Department stock of printing material worth INR 90,000 to FPP for

INR 88,000.

To pay the supplier a cancellation penalty equivalent to 10% of the value of supplies

cancelled as per the contract.

Depreciations:

To sell the machinery with an original cost of INR 2,000,000 and life span of 20 years

out of which 18 years competed, at scrap value, resulting in a loss of INR 75,000.

Depreciation calculated in Straight Line Method

The written down value of the vehicle worth INR 200,000 after depreciation had

option to sell it to FPP for INR 100,000 or hold on to it for the company's general

use.

General overhead costs

Closing the P&D Department would make it possible to rent out its head office space

for INR 5,000 per month.

Warehouse

The P&D department had a five-year lease on a warehouse, with three years left on

the lease. Since it was not possible to cancel the lease, Sameer was left with two

options if he decided to close the department. He could use the P&D warehouse for

the Publishing Department and terminate its lease on the warehouse it was currently

using. Since the warehouse being used by the Publishing Department was rented on a

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yearly basis, the firm could save on the rent of that warehouse. The other option was

to sublease the P&D warehouse for INR 3,000 per month.

Operating Expenses

Other operating expenses included the administration and selling costs of the

department. In case of a temporary closure, expenses worth INR 15,000 would be

unavoidable, but the firm would not incur the rest of the expenses.

Cost statement for previous year (2013) :

SN Cost Particular Publishing

Department

Printing and

Distribution

Department

1 Salary & Wages 340,000 288,000

2 Material & Supplies 170,000 340,000

3 Depreciation 115,000 150,000

4 Allocated General Overheads 85,000 115,000

5 Warehouse Rent 42,000 48,000

6 Other Operating Expenses 96,000 79,000

Total Expenses 848,000 1,020,000

Table 1 : COST STATEMENT FOR THE YEAR 2013