Question
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?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started