Liquid Chemicals Case Analysis

Topics: Economics, Costs, Opportunity cost Pages: 4 (476 words) Published: November 29, 2008
A solution to case study
Liquid Chemical Company

A Proposal
Presented to

Dr. Madhumita Chakraborty
Indian Institute of Management, Lucknow
On
November 25th, 2008.

In
Partial Fulfillment of the Requirement for the Course
Management Accounting -II
by
NameRoll Number
Rajesh Kumar Snehi24089
Sai Harish Chava24090
Samarendra Singh24092

INTRODUCTION

The Liquid Chemicals Company (LCC) produces and sells a wide variety of high grade products throughout Great Britain. LCC uses high quality containers for packaging of its products. A separate department is designated for this purpose, which deals with manufacturing and maintenance of containers. Mr. Walsh, the general manager of LCC, wishes to outsource both manufacturing and maintenance of containers to Packages Ltd. he wants to have a close look at the tradeoff associated with all the option available to him. Mr. Walsh is pondering over following options:

Option A: Status quo
Option B: manufacturing outsourced, maintenance in-house
Option C: both manufacturing and maintenance outsourced
Option D: manufacturing in-house, maintenance outsourced

Assumption: GHL not to be stored for more than four years

OPTION A COMPARED TO OPTION C

ManufacturingMaintenance
Option A
Option C

: In-house
: Outsourced

Incremental annual cost of Option A compared to Option C (Pounds Sterling)

Period< 4 yearsPeriod > 4 Years
Materials 6600 7400
Labor4700 4700
Manager’s salary800800
Rent of warehouse850850
Depreciation (opportunity cost) of Machine500 1500
Maintenance of machine360360
Other expenses15751575
Total1538517185
Payment to Packages Ltd. (Savings)-16250-16250
Net Incremental Cost-865935

OPTION B COMPARED TO OPTION C

ManufacturingMaintenance
Option B
Option C

: In-house
: Outsourced
Only maintenance department; salary of foreman, laying-off...
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