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Cost Analysis for Decision Making - Essay Example
Finance & Accounting
Pages 3 (753 words)
Part (a): Discuss each of the four alternatives outlined above. Identify the relevant costs (including amounts) for each of the four alternatives, and explain why these costs are relevant to the decision. Identify any costs that are not relevant, and explain why they are not relevant…
will continue making the containers and performing maintenance.) Alternative B: Liquid Chemical Co. will continue making the containers, but it will outsource the maintenance to Packages, Inc. Alternative C: Liquid Chemical Co. will buy containers from Packages, Inc., but it will perform the maintenance. Alternative D: It is completely outsourced. Packages, Inc. will make the containers and provide the necessary maintenance Alternative A: In case if Liquid Chemical Company opt this alternative in which it will continue to make containers and performing simultaneously, the company will have to incur all the necessary costs as all those costs would be relevant costs needed to make and maintain the current production. Relevant costs pertaining to this particular alternative are full material costs amounting to $500,000, full labor cost which includes cost of supervisors and workers amounting to $500,000 cumulatively. Moreover, the full departmental costs of Dyers’ that amounts to $358,000 would also be a part of this alternative. Overall, this alternative would incur $1,717,000. The costs that are not relevant to this particular alternative are contract costs to Packages Inc in relation to maintenance and container, severance cost and pension cost. The advantage of this alternative is that the company will have control over its production pattern, job security of Dyer’s departmental workers etc. ...