Ploeger Auto Manufactures Automobiles - Accounting Assignment Help

Assignment Task

Problem 
Ploeger Auto manufactures automobiles, vans, and trucks. One of its plants is located in Hamilton, where vinyl covers and upholstery fabric are sewn. These are used to cover interior seating and other surfaces of Ploeger Auto products. The president has just received a report indicating that Ploeger Auto could purchase the entire annual output of the Hamilton plant from an outside supplier for $34 million. The budget (in thousands) for the Hamilton plant’s operating revenues and expenses for the coming year follows:
Budgeted sales$70,000
Budgeted expenses
Materials12,000
Labour:
Direct$13,800
Supervision3,750
Other fixed4,300 21,850
Overhead:
Depreciation – Equipment 5,000
Depreciation – Building 3,000
Pension expense 5,600
Plant manager and staff 3,000
Corporate administration allocation 6,000 22,600
Total budgeted expenses56,450
Budgeted income before income taxes$13,550
None of these expenses are expected to change significantly over the next several years. Additional facts regarding the plant’s operations are as follows:
The plant would not be sold in the foreseeable future. There will be no costs to maintain the vacant plant.
The Purchasing Department was instructed to place blanket orders with major suppliers to ensure the receipt of sufficient materials for the coming year. This has been done. If these orders are cancelled as a consequence of the plant closing, termination charges would amount to 18% of the cost of direct materials.
Approximately 600 plant employees will lose their jobs if the plant is closed. This includes all direct laborers and supervisors as well as the plumbers, electricians, and other skilled workers classified as indirect plant workers. Some would be able to find new jobs, but many others would have difficulty. Potential employers in the area could not match the Hamilton plant’s base pay of $29.40 per hour. A clause in Ploeger’s contract with its affected union may help some employees; under the terms of the collective agreement, the company must provide employment assistance to its former employees for 12 months after a plant closing. The estimated cost for this would be $2 million for the year.
 

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