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QuickSnap Photo Company QuickSnap Photo Company manufactures high end cameras with operations in multiple cities across North America. One of the largest manufacturing facilities in Vancouver, British Columbia specializes in the production of waterproof cameras. The manager of the Vancouver operations recently found out that QuickSnap received an offer from another company to provide the entire volume of cameras that the Vancouver plant typically produces for a total of $29 million per year. The manager was surprised at how low this offer was, considering the budget for the Vancouver plant to produce these cameras was $34.8 million for the coming year. If QuickSnap accepts this offer to buy the waterproof cameras from an external company, they will no longer require the Vancouver production facility and it will be shut down. The annual budget for the Vancouver facility's operating costs for the coming year: Annual Operating costs Budget $ 12,300,000 Materials Labour: Direct Supervision Indirect Plant 8,050,000 750,000 3,000,000 11,800,000 Overhead: Depreciation - equipment Depreciation - building Pension expense Plant manager and staff* Corporate expenses 2,000,000 2,500,000 2,400,000 800,000 3,000,000 ** 10,700,000 Total budgeted costs $ 34,800,000 *Expense for the manager and his regional staff. **Fixed corporate expenses allocated to plants and other operating units based on total budgeted wage and salary costs. sification: Internal Additional facts regarding the facility's operations are as follows: a. Due to the plant's commitment to use high-quality fabrics in all its products, the Purchasing Department was instructed to place blanket purchase orders with major suppliers to ensure the receipt of sufficient materials for the coming year. If these orders are cancelled because of the plant closing, termination charges would amount to 30% of the cost of direct materials. b. Approximately 300 employees will lose their jobs if the plant is closed. This includes all the direct labourers and supervisors, management and staff, and the plumbers, electricians, and other skilled workers classified as indirect plant workers. Some of these workers would have difficulty finding new jobs. Nearly all the production workers would have difficulty matching the plant's base pay of $13.00 per hour, which is the highest in the area. A clause in the plant's contract with the union may help some employees; the company must provide employment assistance and job training to its former employees for 12 months after a plant closing. The estimated cost to administer this service would be $1.1 million. C. Some employees would probably choose early retirement because the company has an excellent pension plan. In fact, $1.1 million of the annual pension expenditures would continue whether the plant is open or not. d. The manager and his regional staff would not be affected by the closing of the Vancouver plant. They would still be responsible for running three other plants. e. If the plant were closed, the company would realize about $3 million salvage value for the equipment in the plant. If the plant remains open, there are no plans to make any significant investments in new equipment or buildings. The old equipment is adequate for the job and should last indefinitely. Required: 1. Without regard to the costs, identify the advantages of the company continuing to Additional facts regarding the facility's operations are as follows: a. Due to the plant's commitment to use high-quality fabrics in all its products, the Purchasing Department was instructed to place blanket purchase orders with major suppliers to ensure the receipt of sufficient materials for the coming year. If these orders are cancelled because of the plant closing, termination charges would amount to 30% of the cost of direct materials. b. Approximately 300 employees will lose their jobs if the plant is closed. This includes all the direct labourers and supervisors, management and staff, and the plumbers, electricians, and other skilled workers classified as indirect plant workers. Some of these workers would have difficulty finding new jobs. Nearly all the production workers would have difficulty matching the plant's base pay of $13.00 per hour, which is the highest in the area. A clause in the plant's contract with the union may help some employees; the company must provide employment assistance and job training to its former employees for 12 months after a plant closing. The estimated cost to administer this service would be $1.1 million. c. Some employees would probably choose early retirement because the company has an excellent pension plan. In fact, $1.1 million of the annual pension expenditures would continue whether the plant is open or not. d. The manager and his regional staff would not be affected by the closing of the Vancouver plant. They would still be responsible for running three other plants. e. If the plant were closed, the company would realize about $3 million salvage value for the equipment in the plant. If the plant remains open, there are no plans to make any significant investments in new equipment or buildings. The old equipment is adequate for the job and should last indefinitely. Required: 1. Without regard to the costs, identify the advantages of the company continuing to produce cameras from its own Vancouver plant. 2. Without regard to costs, identify the disadvantages of the company continuing to produce cameras from its own Vancouver plant. 3. The company plans to prepare a financial analysis that will be used in deciding whether to close the Vancouver location. Management has asked you to identify in a special schedule: a) The annual budgeted costs that are relevant to the decision regarding closing the plant (show the dollar amounts). b) The annual budgeted costs that are not relevant to the decision regarding closing the plant and explain why they are not relevant (show the dollar amounts). assification: Internal 2/3 c) Any non-recurring costs that would arise due to the closing of the plant and explain how they would affect the decision (show the dollar amounts). 4. Using the information from the response above, prepare an incremental analysis comparing the alternatives. 5. Prepare a Memo for the company's Management explaining to them whether the plant should be closed. Use a combination of financial and non-financial considerations in your response