Attached is a case study and I just need help in answering two questions:
What are the advantages of one alternative over the other? Which action would you favor?
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Segregate the relevant cost i.e. costs which will change if the closing the division is taken:
The relevant costs if we close down the division are :
1. Amount to be paid for contracting = $250,000
2. Savings in other material cost: -$100,000
3. Savings in GHL: $40000/1000*800=-$32,000
You will find the answer to this puzzling question inside.