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Liquid Chemical Co Case Study: Favorable Actions; Advantages

Attached is the case study.

Questions:

What are the advantages of one alternative over the other?

Which action would you favor?

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Solution Preview

What are the advantages of one alternative over the other?

The advantage of subcontracting is
There is a direct saving of 378,700 - 325,000 = $53,700
The extra warehouse space need not be rented and that would bring savings of $17,000 rent.
The advantages of not subcontracting are.
Savings on machinery 240,000/8 = 30,000 per year, usage for 4 years.
So, 120,000 - salvage money 40,000 = $80,000 loss on machinery averted.

Savings on special chemical:
200,000 - 40,000(used) = 160,000: 20% loss on sales that is $32,000 loss on sales and $32,000 opportunity cost.

Use of general administrative overheads. ...

Solution Summary

In a 403 word solution, the response provides excellent data for the decision process. Calculations are shown as required.

$2.19