CAUSTIC SODA SOLUTIONS

Caustic Soda Solutions Case Study

Caustic Soda Solutions Case Study

Part 1: Caustic Soda Solutions

Introduction

In case, the problem associated to the cost reduction. The company general manager, Mr Smith believes that it would be cheaper for the company to purchase or outsource supplies from the Storm Containers rather than manufacturing in the company. Caustic Soda Solutions (CSS) is a company who specialized in manufacturing packaged containers for the packaging of their toxic series of products. In this case, Mr. Smith persuaded that the repairing and manufacturing cost of the containers can be reduced if the company go for outsourcing. Being an external management accountant, I will be identifying the alternative (scenarios), analysing them and giving a reasonable decision to in order to recommend which alternative is best for the company. The following are the scenarios that identified: The following are the scenarios that has been identified

Scenario 1

Under this scenario, Mr Smith wants to outsource the production and maintenance of the containers. (See Appendix Figure 1)

Scenario 2

Under second scenario, in house production of containers and outsourcing maintenances. (See Appendix Figure 2)

Scenario 3

Under the third scenario, Caustic Soda Solutions produces the containers, whereas, Storm carries out the maintenance of the containers.

Cost Implications

The cost implications for the Caustic Soda Solutions in the above given scenarios include the need of repair or the maintenance in the machinery. The maintenance of machinery can be required by the company at any stage as any problem with the machine may take place in the future. Therefore, there are possible chances of the change or increase in the cost of Caustic Soda Solutions which will serve as the cause of cost implication. In addition to this, another possible cause for the cost implication is that how long the present stock of putron will last. This will make its impact on the demand that is the demand will increase which will increase the cost of putron. Thus, the cost implications for the Caustic Soda Solutions will increase (Alabbadi & Areiqat, 2010, pp. 239).

Scenario 4

Maintaining the current situation that is in-house production and maintenance that is company should continue their production and in house maintenance of the containers. However, the main theme of the company is that whether to maintain and repair in house (Caustic Soda Solutions) and outsource the production to storm containers. We will see the cost of performing maintenance in-house compared with the quoted price from Storm Containers.

Relevant Costs and Non Relevant Costs

In the spread analysis, the principle of relevant costs is that only those costs into the decision-making included, from the decisions influenced. All decisions issued by a given production system go out, that short-term nature are, let the fixed costs unaffected. Thus, fixed costs for short-term decisions are not relevant. In the short term, the only variable costs altered. For the scenarios given, the “Apportioned general administrative overhead”, is the non relevant cost.

The cost implications of choosing any of the above stated scenarios fully examined so as to enable ...