The Grand Mogul is a 5-star hotel in Mumbai, India. The hotel has installed its own electrical generators to supplement the normal power supply and to ensure uninterrupted power to its demanding clientele. The Power Department now generates 1,200,000 KWh of energy per year. The hotel also has a large Maintenance Department that keeps the hotel’s facilities and equipment in excellent working condition. The following data are available (Rs. denotes Indian currency).

A local firm, with independent power generation capabilities, approaches the Grand Mogul and offers to sell it all needed power for Rs.3.00 per KWh. If it chooses to buy needed power, the Grand Mogul would eliminate the power generation equipment and all associated staff, and put the freed space to other uses. Hotel management is confident of support quality, and so; the decision will turn on monetary considerations alone.

Required:
a. Evaluate the monetary benefits of outsourcing power generation to the local firm. Be sure to consider the effects of eliminating the Power Department on the costs incurred in the Maintenance Department.
b. What other information would you like in order to improve the confidence in your estimated monetary benefit? How will this information help improve yourdecision?

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Pwer All All Other Holel Operations Maintenance Generation Traced costs Rs. 1,750,000 Rs. 3,000,000 Not relevant Service consumption pattern Maintenanc Power Hotel Operations 70% 80% Services Maintenance Power 30% provided by 20%