PLEASE HELP ME OUT WITH THIS QUESTION.

Plant Closing Decision The Dough Knot Corporation bakes breads, pastries, cookies and every other baked good imaginable. The company has a number of plants around the world, including the ELAC Cookie Plant, which makes cookies. Isabel is the plant manager of the ELAC Cookie Plant but also serves as the regional production manager for the company. His budget as the regional manager is charged to the ELAC Cookie Plant. Isabel has just heard that The Dough Knot has received a bid from an outside vendor to supply the equivalent of the entire annual output of the ELAC Cookie Plant for $35 million. Isabel was astonished at the low outside bid because the budget for the ELAC Cookie Plants operating costs for the upcoming year was set at $52 million. If this bid is accepted, the ELAC Cookie Plant will be closed down. The budget for ELAC Covers operating costs for the coming year is presented below. ELAC Cookie Plant Annual Budget for Operating Costs Materials $14,000,000 Labor: Direct $13,100,000 Supervision 900,000 Indirect plant 4,000,000 18,000,000 Overhead: Depreciationequipment 3,200,000 Depreciationbuilding 7,000,000 Pension expense 5,000,000 Plant manager and staff 800,000 Corporate expenses* 4,000,000 20,000,000 Total budgeted costs $52,000,000 *Fixed corporate expenses allocated to plants and other operating units based on total budgeted wage and salary costs. Additional facts regarding the plants operations are as follows: a. Due to ELAC Cookies commitment to use high-quality ingredients in all of 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 canceled as a consequence of the plant closing, termination charges would amount to 20% of the cost of direct materials. b. Approximately 400 plant employees will lose their jobs if the plant is closed. This includes all of the direct laborers and supervisors as well as the plumbers, electricians, and other skilled workers classified as indirect plant workers. Some would be able to find new jobs while many others would have difficulty. All employees would have difficulty matching ELAC Cookies base pay of $18.80 per hour, which is the highest in the area. A clause in ELAC Cookies contract with the union may help some employees; the company must provide employment assistance to its former employees for 12 months after a plant closing. The estimated cost to administer this service would be $1.5 million for the year. c. Some employees would probably choose early retirement because The Dough Knot has an excellent pension plan. In fact, $3 million of the annual pension expense would continue whether ELAC Cookie is open or not. d. Isabel and his staff would not be affected by the closing of ELAC Cover. They would still be responsible for administering three other area plants. e. If the ELAC Cookie Plant were closed, the company would realize about $3.2 million salvage value for the equipment and building. If the plant remains open, there are no plans to make any significant investments in new equipment or buildings. The old equipment is adequate and should last indefinitely. Required: The Dough Knot Corporation plans to prepare a financial analysis that will be used in deciding whether or not to close the ELAC Cookie Plant. Management has asked you to identify:

1. The annual budgeted costs that are relevant to the decision regarding closing the plant.

2. The annual budgeted costs that are not relevant to the decision regarding closing the plant.

3. Any nonrecurring costs that would arise due to the closing of the plant. Looking at the data you have prepared above,

4. Calculate the financial advantage (disadvantage) of closing the plant.

5. Should the plant be closed?