Spark Publishing And Printing House: Short-Run Management Decision Raises A “Hamlet-Like”Dilemma Case Solution
Introduction
Sameer Sheth is the owner of Spark Publishing and Printing House was pleased with his proposal which was presented by the management team. He was unaware of both the rising temperatures outside and it was the first major cooling of his spacious and tastefully crafted office. He was just given two months to make decision of controlling the entire family business to take control of the family business. As his father was known for his professional excellence and so was his grandfather, now all the pressure of achieving the same level of success and showing the same level of professional excellence was on Sameer.He had also inherited the skill of being focused to a task by having his full attention on it and same as his father and grandfather; Sameer also didn’t want to fail in any of the job he was given. Spark Publishing and Printing House got an offer from Fine Printing Press to print and distribute it for an initial time of one year. Sameer should analyze the outsourcing cost and continuing operation cost through the cost analysis.
Problem Statement:
SPHH is about the costs involved in making short-term alternate choices. It emphasizes on the significance of analyzing the upcoming differential cash flows &highlight the irrelevancy of past & non-differential costs for the management choices. SPHH is a well reputed publishing & printing house. There are two divisions: publishing, printing &distribution. SPHH has gotan offer from Fine Printing Press to print and distribute it for an initial time of 1 year. The administrative choice involved is whether to subcontract or continue the status quo. Relevant cost analysis should be conducted to conclude which alternative is more cost-effective.(Dave, 2014)
Critical Analysis
Q # 1
One year is the period of evaluation.
Q # 2
Alternatives are: either to continue with the existing P&D unit or outsource its work to the FPP for a monthly payment of INR 75,000.
Q # 3
Using Relevant Cost Analysis for the identification of Relevant Cost;all details are available in Appendix 1 for the relevant cost analysis.
Salaries and Wages
The cost of Salaries and Wages is 288,000. This is a total cost, which is based on 2 staff (Manek &Heralal), Manager (Ashwin), 3 staff (laid off after outsourcing), and the 2 specialist worker costs. The entire cost is a relevant cost, which can also be used in outsourcing.
Material and Supplies
The cost of materials and supplies is 340,000. This cost is based on two costs of the rest of the materials and material stock. The entire cost is relevant, which can be used in outsourcing.
Depreciation
The cost of Depreciation is 150,000. This depreciation cost is based on machinery and vehicle’s depreciation. The entire cost is irrelevant, and cannot be used in outsourcing.
Allocated Overhead:
The cost of the Allocated Overhead is 115,000,but only 60,000 is the relevant cost and the remaining cost is irrelevant.
Rent of Warehouse:
The cost of Warehouse Rent is 48,000. This is an irrelevant, but the publishing warehouse’s rent of 42,000 is savings related. Renting at 36,000 is another relevant option.
Other Operating Cost:
Another Operating Cost Expense is 79,000, out of which 64,000 is the relevant cost while the remaining cost is irrelevant.
755,000 is incurred as the total cost if the P&D Department continues. The Total Cost incurrence is 1,120,000 if the P&D department is outsourced. So, it is a better option to continue the P&D department. See Details in Appendix 2.
Q # 4
No, Sameer should not accept the proposal of the Fine Printing Press, because outsourcing involves high differential cash flow, considering which the company is recommended to not to close the P&D department for one year.
Q # 5
First relevant qualitative factor is that the Spark Publishing and Printing House should consider employees who would get fired if they accept the Fine Printing Press offer. The Second Relevant Qualitative Factor is if they accept the offer; the Spark Publishing and Printing House must ensure that the quality and performance of the printing and distribution services are applied through the Fine Printing Press.Lastly, the Cost of Outsourcing is high than continuing the P&D department. These are the two relevant factors, which should be highly considered by Sameer before coming to any conclusion.
Recommendations
The Spark Publishing and Printing House is recommended to dismiss the Fine Printing Press’s proposal because outsourcing cost is higher than continuing the existing P&D department. Furthermore, outsourcing has the tendency to create-issues for Spark Publishing and Printing House, such as: decrease in the brand image, low quality printing materials being used by the Fine Printing Press and other related issues (relation with suppliers).........................
This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.
