Task: Short term Decision Making

BeBright Co., a wholesaler, sells its products to retailers throughout Kuala Lumpur. The company has adopted a regional structure with each region consisting of 2 sales territories. Each region has its own regional office and a warehouse which distributes the goods directly to the customer. Each sales territory also has an office where the sales and marketing staffs are located. In the Cheras region as well there are 2 sales territories with offices located in Connaught Gardens and Midah Gardens. The budgeted results for the next 3 months are as follows: -

1. The company is evaluating whether it should discontinue Midah Gardens sales office as it is not profitable. Assuming that the above results are likely to be typical of future quarterly performance, should the company discontinue this sales territory?

2. State which of the above costs are relevant and irrelevant. Why?

3. Analyse the relevant costs related to keeping or discontinuing the Midah Gardens sales office. What should the company do (keep or discontinue Midah Gardens)?

4. What are TWO (2) qualitative factors that the company should consider in making its final decision?

Total 000s 2,600 540 Connaught Midah, 000s 000s 1,000 Cost of goods sold Marketing / salespersons' salaries Sales office rent Depreciation of sales office equipment Allocation of warehouse rent Depreciation of warehouse equipment Regional & headquarter's costs 1,600 300 240 150 120 270 50 40 90 48 24 72 38 60 272 186 458 Avoidable costs Unavoidable costs Total costs assigned to each location Reported profit / (loss) 340 1,972 272 1,700 1100 5,190 760 3,218 382 3,600 110 Sales 5,300