DECISION MAKING Case Study Solution
Costs relevant to offshoring relocation and automation
The costs relevant for the decision making are thought to be costs which occur due to the decisions being taken by the company and decisions are always taken at marginal or incremental costs.The company needs to consider those costs which are relevant to the company under these three methods.The costs of the relocation would include costs incurred such as the redundancy payments. The key issue here is that we do not include fixed costs in the calculation of the costs relevant to decision making for the company as the fixed costs tend to be fixed regardless of whether any decision is taken or whether any units are produced or not.
On the other hand, the cost resulting due to the offshoring relate to the rent of the office or the location where the offshoring takes place.The rent and any other expense incurred due to the relocation will be considered as relevant for the calculation and decision can be based on that financial data. In addition to this, the costs which deem necessary in the automation will be the transaction cost with every transaction and this will lead to an accurate and an informed decision to be made on a timely basis.
Offshoring relevant costs
Under the offshoring function, the relevant cost for the offshoring of the bank reconciliation department would of $15000 which is the outsourcing fees for the reconciliation department.In addition to this, the company would have to pay $200 for per bank reconciliation whereas the cost of the accounts payable manager and the other costs allocated will not be considered to be relevant as the costs of the accounts payable manager is being incurred a long time before the offshoring, so this is not a direct cost.
The accounts payable department would allocate the $15000 of cost for the offshoring services and $0.65 per payment for the accounts payable. These are the direct costs of the offshoring and as far as the accounts payable manager is concerned the cost is not relevant as the manager was hired for the local services.
Relocation relevant costs
The relocation relevant cost can be said to be the cost for lease in the NJ building and the rental income which would be earned by subleasing the space available to the company and the workstation cost combined with employee and $50000 for wiring the new floor space.
Automation relevant cost
The automation process will include the relevant cost of $0.125 per electronic payment and many labor cost savings.The company would get after the automation process and the company should record every expense occurred due to automation and every revenue or cost saving earned by the company.
Non-financial consideration for each alternative
Offshoring process
The company should have an overview of the employee working hours in the week and other compliance laws and regulations as lack of compliance will lead to the company’s reputation being hit seriously and the company can further face fines and penalties. The employees should have a say before the offshoring process begins so that their views should be known to the company and their will should be known to the company.
Relocation process
The company should consider the relocation place and the impact of the relocation as the company’s competitors might make a strategy or take an advantage of the relocation in the long run. Furthermore,they can use the opportunity and can launch a price war against the company
Automation process
The automation process might lead to bad publicity of the company and the pressure groups might act against the company as the company would have several employees redundant due to the automation process.
DECISION MAKING Harvard Case Solution & Analysis
Offshoring relevant costing total expenses
The total expenses of the company in offshoring are calculated by assuming that there would be no increase in the company’s postage fees and the company would save the salaries due to the offshoring process, the company would only recruit one person which is the accounts payable manager. The cost savings calculated are approximately $499,333 and this is due to the assumption of a reduction in salaries costs and no increase in the postage fees of the company. On the other hand, the bank reconciliation would experience a lower level of cost savings as the cost savings would be approximately $32429 which shows that the company is not getting enough cost savings in the bank reconciliation out sourcing and this can also be due to the fact that the company has apportioned the accounts payable manager’s salary which if taken out might increase the cost savings of the company. These cost savings are also high for the company and the company should save $30000 as it is a method of reducing costs of the company. See Exhibit No 1
Impact on cost savings if accounting function is performed in India
If the two accounting functions are being performed in India, then this will rather lead to huge amount of costs being incurred on the services being provided. This is because the company has a huge amount of severance costs which is calculated as total salaries divided by the number of weeks in the year and then multiplied by the number of severance weeks which the employees can claim and the benefits of the employees to the company are calculated in this way.This raises the cost of the company as the severance fees is quite high and the company’s cost savings are too low and this resulted in $186152 of costs being spent by the company.This shows that with the severance cost the company’s cost-saving is not there which means that the company needs to consider redundancy to the employees as this will lead to substantial amount being paid to employees.......................
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