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In April 2001 your client, Company A decided to undertake a major restructuring of its manufacturing activities. The client currently has two factories in different

In April 2001 your client, Company A decided to undertake a major restructuring of its manufacturing activities. The client currently has two factories in different towns that produce the same products. Management has decided that production will be moved to one of the factories (Z) and the facilities there will be upgraded in order to increase production significantly. The remaining factory (X) will be closed.

The company has incurred the following costs:

Cost of closing factory X, including the cost of terminating some existing contracts and redundancy payments for staff

1,000,000

Cost of feasibility study carried out by external consultants to determine the best system for factory Z

90,000

Cost of relocating key staff to the town where factory Z is located. The staff are not contracted to remain with the company, but they are grateful for their jobs.

50,000

Cost of implementing the new system in factory Z:

consulting fees

550,000

allocation of time spent by internal employees

150,000

training for new staff

40,000

Efficiency losses in early production stages

30,000

Campaign specifically to advertise the new technology being used

20,000

Required

How should each of the above costs be accounted for: capitalised or expensed?

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