Fusion Metals Company is considering the elimination of its Packaging Department. Management has received an offer from an outside firm to supply all Fusion’s packaging needs. To help her in making the decision, Fusion’s president has asked the controller for an analysis of the cost of running Fusion’s Packaging Department. Included in that analysis is $9,100 of rent, which represents the Packaging Department’s allocation of the rent on Fusion’s factory building. If the Packaging Department is eliminated, the space it used will be converted to storage space. Currently Fusion rents storage space in a nearby warehouse for $11,000 per year. The warehouse rental would no longer be necessary if the Packaging Department were eliminated.
Required:
Identify the relevance of each of the figures given in the
exercise with regard to the department-closing decision.
|
| Relevance of each figure in decision making as below : | |||||||||
| $ 9,100 | Departmental allocation of factory building | ||||||||
| This cost is not relevant as it is just internal allocation of cost departmentwise | |||||||||
| If packaging department will run inhouse or not, doe not affect total cost of factory building | |||||||||
| $ 11,000 | Warehosue rent being paid for storage | ||||||||
| This cost is relevant as Fusion Metals Company is incurring this cost as extra | |||||||||
| If packaging department is outsourced, Co. will discontinue to incur this extra cost | |||||||||
| and will be able to utilise that space as storage space. | |||||||||
| The view is taken from total costing for Fusion Metals Company | |||||||||
Get Answers For Free
Most questions answered within 1 hours.