Short flower Ltd currently publishes, print and distribute a range of catalogues and instruction manuals. The management
Question:
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will be transferred to publishing to fill a staff vacancy through staff turnover, anticipated in July. This staff member will be paid at his present salary of £1400 per month which is £100 more than that of the staff member who is expected to leave. On closure, all other printing and distribution staff will be made redundant and paid an average of two months redundancy pay.
(ii) The printing department has a supply of materials (already paid for) which cost £18 000 and which will be sold to Long plant Ltd for £10 000 if closure takes place on 30 June. Otherwise the material will be used as part of the July printing requirements. The distribution department has a contract to purchase pallets at a cost of £500 per month for July and August. A cancellation clause allows for non-delivery of the pallets for July and August for a one-off payment of £300. Non-delivery for August only will require a payment of £100. If the pallets are taken from the supplier, Long plant Ltd has agreed to purchase them at a price of £380 for each month's supply which is available. Pallet costs are included in the distribution material and supplies cost stated for a typical month.
(iii) Company expenditure on apportioned occupancy costs to printing and distribution will be reduced by 15 per cent per month if printing and distribution departments are closed. At present, 30 per cent of printing and 25 per cent of distribution occupancy costs are directly attributable costs which are avoidable on closure, whilst the remainder is apportioned costs.
(iv) Closure of the printing and distribution departments will make it possible to sub-let part of the building for a monthly fee of £2500 when space is available.
(v) Printing plant and machinery has an estimated net book value of £48 000 at 30 June. It is anticipated that it will be sold at a loss of £21 000 on 30 June. If sold on 30 November the prospective buyer will pay £25 000.
(vi) The net book value of distribution vehicles at 30 June is estimated as £80 000. They could be sold to the original supplier at £48 000 on 30 June. The original supplier would purchase the vehicles on 30 November for a price of £44 000.
Required:
Using the above information, prepare a summary to show whether Short flower Ltd should close the printing and distribution departments on financial grounds on 30 June or on 30
November. Explanatory notes and calculations should be shown.
Step by Step Answer:
On the basis of the above information printing and publishing should be discontinued on 30 November ...View the full answer
