Merseyside

Conflict of interest

Transport division vs Production division

The production division believes that cost of tank cars should be applied to the books of Merseyside Works’ whereas the transport division believes in the opposite.

Our group insights

With a total cost of 2M GBP, depreciable over 10 years (straight line), our group proposes to expense this under Merseyside Works’ project under cost of project plus tanks since Merseyside Works’ is eventually having direct ownership of the plant.

Cannibalisation- Opposing views between ICG sales vs Marketing department

Acceptance would incur internal cannibalization cost to compensate for the increased volume as there will be a shift in resources and capacity away from Rotterdam to Mersey side

The director of sales was skeptical and argued that Greystock assumed Victoria Chemicals was able to sell the increased output. However, the industry was experiencing a downturn and we expect an oversupply. Victoria Chemicals would probably shift capacity from Rotterdam to Merseyside, which could result in Merseyside cannibalizing Rotterdam.

On the other hand, the Vice President of Marketing believed that cost reduction from energy savings would help Victoria Chemicals compete better with its competitors.

Eventually, Greystock did not include charge for loss of business as he felt a cannibalization charge was unnecessary.

Our group insights

Since both plants are not of geographical proximity to each other, the market they serve are vastly different and cannibalization cost shouldn’t be incurred. Moreover, given the highly competitive nature of the polypropene industry, product cannibalization will occur anyway (Chapter 6 derivations, n.d.). It is acceptable to not include the cannibalization charge since costs associated does not play a part in incremental cash flow analysis.

Assistant plant manager vs shareholders

Tewitt, the assistant plant manager proposes a renovation of EPC production line with an...