Jurica Corporation manufactures various trim pieces for vehiclemanufacturers. The company has a number of plants, including theJuriquilla Plant, which makes door trim pieces.

Mr. Bates is both the regional manager for the Central Americaregion and the plant manager of the Juriquilla Plant. His budget asthe regional manager is charged to the Juriquilla Plant.

Bates has just heard that the company received a bid from anoutside vendor to supply the equivalent of the entire annual outputof the Juriquilla Plant for $20.5 million. Bates is astonished atthe low outside bid because the budget for the Juriquilla Plant’soperating costs for the upcoming year is $24.16 million. If thisbid is accepted, the Juriquilla Plant will be shut.

The budget for the Juriquilla Plant’s operating costs for thecoming year is presented below.

Juriquilla Plant Annual Budget for Operating Costs
Materials				$	8,400,000
Labor:
Direct	$	8,500,000
Supervision		410,000
Indirect plant workers		1,500,000			9,310,000
Overhead:
Depreciation—equipment		1,300,000
Depreciation—building		1,700,000
Pension expense		1,400,000
Plant manager and staff		550,000
Corporate expenses*		1,500,000			6,450,000
Total budgeted costs				$	24,160,000

*Fixed corporate expenses allocated to plants and otheroperating units based on total budgeted wage and salary costs.

Additional facts regarding the plant’s operations are asfollows:

1. Due to Juriquilla’s commitment to use high-quality fabrics inall of its products, the Purchasing Department was instructed toplace yearly purchase orders with major suppliers to ensure thereceipt of sufficient materials for the coming year. If theseorders are canceled as a consequence of the plant closing,termination charges would amount to 20% of the cost of directmaterials.

2. Approximately 300 plant employees will lose their jobs if theplant is closed. This includes all of the direct laborers andsupervisors as well as the plumbers, electricians, and otherskilled workers classified as indirect plant workers. Some would beable to find new jobs while many others would have difficulty. Allemployees would have difficulty matching Jurquilla’s base pay of$11.50 per hour, which is the highest in the area. A clause inJuriquilla’s current contract with the union may help someemployees; the company must provide employment assistance to itsformer employees for 12 months after a plant closing. The estimatedcost to administer this service would be $0.79 million for theyear.

3. Some employees would probably choose early retirement becauseJurica Corporation has an excellent pension plan. In fact, $0.61million of the annual pension expense would continue whether theJuriquilla plant is open or not.

4. Bates and his staff would not be affected by the closing of theJuriquilla Plant. They would still be responsible for administeringthree other area plants.

5. If the Juriquilla Plant were closed, the company would realizeabout $3.68 million salvage value for the equipment and building.If the plant remains open, there are no plans to make anysignificant investments in new equipment or buildings. The oldequipment is adequate and should last indefinitely.

Required:

1. Before looking at the numbers, discuss the human factors andother non-numerical factors that are at play when considering amake or buy decision of this magnitude?  

2. Jurica Corporation plans to prepare a financial analysis thatwill be used in deciding whether or not to close the Denver CoverPlant. Management has asked you to identify:

1. The annual budgeted costs that are relevant to the decisionregarding closing the plant.
2. The annual budgeted costs that are not relevant to the decisionregarding closing the plant.
3. Any nonrecurring costs that would arise due to the closing ofthe plant.

3. Looking at the data you have prepared in (1) above,

1. Calculate the financial advantage (disadvantage) of closing theplant. You should calculate this for both the first year and theyears after the first year.

2. Based on your analysis as a manager should the plant be closed.Discuss your decision.

Your work should be submitted in full and grammatically correctsentences.

Calculations should be organized into tables that are easy tofollow. If you have a mistake in your work but I cannot understandyour calculations, I cannot give partial credit.

Grading Rubric:

Name(s)	Paper Topic / Title:	Possible Points	Earned Points
Req 1: Thoroughly discussed at least 2non numerical elements that should be considered in make or buydecisions.		4
Req 2: Properly calculatedrequirements 2 a-c in organized and easy to followcalculations.		6
Req 3 a: Properly calculated the year1 and future year advantage/disadvantages.		2
Req 3 b: Case writer(s) use criticalthinking and analysis skills to develop beyond the numbers.		5
Grammar / Mechanics Word choice Sentence structure Organized calculations		3
Total		20 points