RELOCATION

Falkirk meets with the head of corporate facilities to discuss the availability of space in the N.J. service center and the possibility of subleasing any excess space created in the New York office. The head of facilities states that the company currently has over 4,000 square feet of excess space in N.J. and there is up to an additional 28,500 square feet of space available in the building that could be leased for approximately $25 per square foot. But space must be leased in blocks of 9,500 square feet, which is equivalent to one floor in the building.

Also, the head of facilities states that the company currently has approximately 3,500 square feet of excess space in the New York office and could sublease the space in blocks of 10,000 square feet (equivalent to one floor). But if a block or blocks of 10,000 square feet of space cannot be created, the available space could not be subleased. Given current real estate prices, he estimated the sublease rent would be $65 per square foot. Based on past moves, he estimates the costs to move employees and set up new workstations average $1,000 per position in the new space plus $50,000 per floor to build out and wire the new space.

Falkirk prepares a grid (see Table 5) highlighting the level of management and interdepartment interaction as well as the number of N.J. resident employees in each function. He believes that those functions with the lowest level of interdepartment and management interaction would be best for possible relocation and selects the departments with low to medium interdepartment rankings. Additionally, Falkirk prepares a summary list of employees by function and their residence (see Table 6) to estimate the likely number of employees that would be retained and the potential severance costs if a portion of the accounting functions are relocated to N.J.

He assumes that department heads and their assistants would have offices in both the corporate headquarters and the N.J. location. He estimates that 250 square feet of office space per position will be needed for each employee relocated from the New York office and a comparable[A1] [A2] amount would be available for subleasing. He assumes 100% of all employees who are N.J. residents would be retained. Of the residents not in N.J., he assumes all department heads and their assistants would remain while all other employees not from N.J. would terminate and severance would be paid to any employee not relocating. I have provided information regarding the companys severance policy in Table 7, section F, and summary employee information by department in Table 6.

Table[A1] [A2] 6: Summary Employee Information for Severance Calculations

						Weeks of		Total				Actual Costs
		Number of				Eligible		Annual		Benefits						Payroll
Tax Department:			Employees			Severance		Salaries		Load		Health		401 (k)		Taxes
Department head and assistant[A3] [A4]			2		32		$250,000		$62,500		$17,200		$12,500		$19,125
Federal Tax
N.J. residents			4		76		445,000		111,250		32,200		22,250		34,043
NonN.J. residents			4		66		357,000		89,250		27,200		17,850		27,311
Total			8		142		802,000		200,500		59,400		40,100		61,354
State Taxes
N.J. residents			9		140		627,000		156,750		76,600		31,350		47,966
NonN.J. residents			3		52		185,000		46,250		20,000		9,250		14,153
Total			12		192		812,000		203,000		96,600		40,600		62,119
Controllers Department:
Department head and assistant			2		28		285,000		71,250		15,000		14,250		21,803
SEC Reporting
N.J. residents			5		96		379,000		94,750		34,400		18,950		28,994
NonN.J. residents			2		36		146,000		36,500		17,200		7,300		11,169
Total			7		132		525,000		131,250		51,600		26,250		40,163
U.S. GAAP Reporting
N.J. residents			5		74		413,500		103,375		37,200		20,675		31,633
NonN.J. residents			2		30		161,500		40,375		12,200		8,075		12,355
Total			7		104		575,000		143,750		49,400		28,750		43,988
Regulatory Reporting
N.J. residents				4		52		351,000		87,750		27,200		17,550		26,852
NonN.J. residents				2		30		174,000		43,500		17,200		8,700		13,311
Total				6		82		525,000		131,250		44,400		26,250		40,163
Management Reporting
N.J. residents				4		52		303,000		75,750		27,200		15,150		23,180
NonN.J. residents				2		30		152,000		38,000		17,200		7,600		11,628
Total				6		82		455,000		113,750		44,400		22,750		34,808
Cost Accounting
N.J. residents		5				70		322,000		80,500		34,400		16,100		24,633
NonN.J. residents		1				12		63,000		15,750		10,000		3,150		4,820
Total		6				82		385,000		96,250		44,400		19,250		29,453
General Accounting
N.J. residents		9				128		559,000		139,750		69,400		27,950		42,764
NonN.J. residents		1				18		69,000		17,250		7,200		3,450		5,279
Total		10				146		628,000		157,000		76,600		31,400		48,042
Table 6: Summary Employee Data (continued)[A5]
						Weeks of		Total		Actual Costs
		Number of			Eligible			Annual		Benefits						Payroll
		Employees			Severance			Salaries		Load		Health		401 (k)		Taxes
Accounts Payable
N.J. residents		7			106			333,000		83,250		46,600		16,650		25,475
NonN.J. residents		3			60			137,000		34,250		25,000		6,850		10,481
Total (a)		10			166			470,000		117,500		71,600		23,500		35,956
Bank Reconciliation
N.J. residents		3			42			137,000		34,250		30,000		6,850		10,481
NonN.J. residents		2			24			78,000		19,500		12,200		3,900		5,967
Total a		5			66			215,000		53,750		42,200		10,750		16,448
Financial Reporting & Analysis Department
Budgeting
N.J. residents		2			28			177,000		44,250		12,200		8,850		13,541
NonN.J. residents		2			26			148,000		37,000		15,000		7,400		11,322
Total		4			54			325,000		81,250		27,200		16,250		24,863
Financial Analysis
N.J. residents		6			72			526,000		131,500		39,400		26,300		40,239
NonN.J. residents		2			30			159,000		39,750		17,200		7,950		12,164
Total		8			102			685,000		171,250		56,600		34,250		52,403

^a The severance and continuing benefits for the accounts payable manager total $29,073 and the severance and continuing benefits for the most experienced staff member in bank reconciliations is $19,714.

Note: When calculating severance using the total salaries, you must first find the average weekly salary (salariesumber of employees/52 weeks) [A6] [A7] and multiply by the number of weeks of severance. Follow a similar process for health benefits. For 401(k) and payroll taxes, you may either follow the same process or apply the rate.

Section 7F: The company severance policy calls for two weeks of salary for each year of service with minimum payment of 12 weeks. Health benefits and retirement plan

QUESTIONS

A) Using the information that Falkirk gathered on potential real estate savings through relocation, estimate the annual cost savings available through relocating some or all of the accounting functions to N.J.

B) What are the impacts on AC-USs costs over the next three years, including the one-time costs? (Be sure to include severance costs, using information from Table 6, in the one-time costs).

Table 5: Matrix for Evaluating Relocation Prospects Number of Mange- Employees men department ployee(s) in Inter- Function Interaction Interaction N.J Tax Department Federal tax preparation State tax preparation Tax planning and management Controller's Department Controller SEC reporting U.S. GAAP reporting Regulatory financial reporting Management reporting Cost accounting General accounting Accounts payable Bank reconciliations Financial Planning and Analysis Planning and budgeting Financial analysis Low Low Low Low Medium 12 Hi High Medium Mediumm Medium Mediumm Mediumm Mediumm Low Low High 10 10 Mediumm Low High High Mediumm Hi 93 Table 5: Matrix for Evaluating Relocation Prospects Number of Mange- Employees men department ployee(s) in Inter- Function Interaction Interaction N.J Tax Department Federal tax preparation State tax preparation Tax planning and management Controller's Department Controller SEC reporting U.S. GAAP reporting Regulatory financial reporting Management reporting Cost accounting General accounting Accounts payable Bank reconciliations Financial Planning and Analysis Planning and budgeting Financial analysis Low Low Low Low Medium 12 Hi High Medium Mediumm Medium Mediumm Mediumm Mediumm Low Low High 10 10 Mediumm Low High High Mediumm Hi 93