RG produces a specialised building tool in three factories throughout Ireland. The profit or loss for the last financial year is shown below:

RG produces a specialised building tool in three factories throughout Ireland. The profit or loss for the last financial year is shown below:

As a result of the loss showing in the Belfast factory, RG is considering various options as follows:

Option 1: RG would make no changes and keep all factories open.

Option 2: RG would close the Belfast factory. Under this option, the production in the other two factories (Dublin and Cork) would remain unchanged.

Option 3: RG would close the Belfast factory but move some of the Belfast production to the Cork factory and outsource some additional output. Under this option the Cork factory would take 20% of the existing Belfast production (7 040 units), and outsource an additional 20 000 units from an external supplier outside Ireland. RG can purchase the additional units from the external supplier for 6 per unit.

The following additional information is available:

1. The output produced in the Dublin, Cork and Belfast factories per year is 88 000, 52 800, and 35 200 units, respectively. This level of output represents the typical level of output.
2. The specialised building tool is sold to customers for 8 per unit.
3. The cost of sales consists of the variable costs to produce the building tool, includingdirect materials (1 per unit) and specialised direct labour required to build the tool (2per unit).
4. The factory and administration costs are fixed costs associated specifically with eachfactory.
5. The depreciation of factory equipment (120 000) is a corporate level cost that is allocated to the factories proportionally based on the output produced.

Question:

1. APPLY relevant cost principles to evaluate which option (1, 2 or 3) RG should choose based on financial factors only. As part of your answer you should clearly identify the relevant revenues and costs and state clearly any assumptions that you make. Show all workings.
2. EXPLAIN two important qualitative factors that are also relevant to options 2 and 3 (that is, four qualitative factors total).