Plant Closing Decision

Mobile Seating Corporation manufactures seats for automobiles, vans, trucks, and boats. The company has a number of plants, including the Greenville Cover Plant, which makes seat covers.

Miriam Restin is the plant manager at the Greenville Cover Plant but also serves as the regional production manager for the company. Her budget as the regional manager is charged to the Greenville Cover Plant.

Restin has just heard that Mobile Seating has received a bid from an outside vendor to supply the equivalent of the entire annual output of the Greenville Cover Plant for $21 million. Restin was astonished at the low outside bid because the budget for the Greenville Cover Plant’s operating costs for the coming year was set at $24.3 million. If this bid is accepted, the Greenville Cover Plant will be closed down.

The budget for the Greenville Cover Plant’s operating costs for the coming year is presented below. Additional facts regarding the plant’s operations are as follows:

a- Due to the Greenville Cover Plant’s commitment to use high-quality fabrics in all of its products, the Purchasing Department was instructed to place blanket purchase orders with major suppliers to ensure the receipt of sufficient materials for the coming year. If these orders are canceled as a consequence of the plant closing,termination charge would amount to 25% of the cost of direct materials.

b- Approximately 350 employees will lose their jobs if the plant is closed. This includes all of the direct laborers and supervisors, management and staff, and the plumbers, electricians, and other skilled workers classified as indirect plant workers. Some of these workers would have difficultly finding new jobs. Nearly all the production workers would have difficult matching the Greenville Cover Plant ‘s base pay of $12.50 per hour, which is the highest in the area. A clause in Greenville Cover’s contract with the union may help some employees, the company must provide employment assistance and...