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and 2 will result in a loss. For Storing Product AAA) For Manufacturing Container (5) 6,35,000 1,75,000 1,20,000 mative 3 is the most proti 3.8 Shut Down vs Continue Decision - Long-Term Evaluation manufactures the Containers and stores Product 'AAA' by using protective materials 'BBB'. AB Ltd is exploring the possibility AB Ltd has two divisions A and B. Division A manufactures a product 'AAA' for industrial use whereas Division B is fclosing down the Division B and outsource the work to an outside Company X Ltd. The details of expenses of Division B during the previous year is as given below: Particulars Direct Material Cost of Protective Material BBB Direct Labour Maintenance of Machine Depreciation of Machine Rent of Warehouse Manufacturing Overheads 1,70,000 Administrative Overheads apportioned to Division B 2,40,000 2 X Ltd after full assessment of requirement offered to manufacture the Containers at a cost of 3 12,00,000 per annum on a Contract Basis and store the Product 'AAA' at a cost of 5,00,000 per annum. 3. The Stock of Protective Materials costing ? 4,25,000 with Division B, if disposed off, will fetch only 60% of its value. In case of closure of Manufacturing Department of Division B, the terminal benefits to be given to Employees who can be transferred to Division A is estimated to be * 2,00,000 whereas the same for Stores is 1,00,000. 5. In case of closure of B, 75% of the Administrative Overheads of B will be curtailed. Old Machine of Division B, if disposed off, would fetch * 1,50,000. 2,50,000 96,000 44,000 1,25,000 60,000 You are required to evaluate the following proposals on the basis of 5 years term, taking cost of capital 12% per annum: Proposal 1: Closing Division B and manufacturing & storing may be given to X Ltd. Proposal 2: Continue Division B for manufacturing & storing may be given to X Ltd. Proposal 3: Continue Division for storing only and manufacturing may be given to X Ltd