Reference no: EM132451119

Discussion 1: Outsourcing

For this discussion, consider the following scenario:

• Acme Company operates an employee dining area. Acme owns the building in which the dining hall is located and owns the kitchen needed for the operation-all stoves, refrigerators, freezers, microwaves, deep fryers, warming lights, cafeteria line and food warmers, and so forth. The dining area employees are employees of Acme Company.

• Acme operates the employee dining as an employee benefit. They operate it at a loss. Currently, it is costing Acme approximately $1.00 per meal served. For example, a lunch that Acme charges employees $3.00 for costs Acme closer to $4.00.

• Several other companies in the area have outsourced their employee dining operation to Windsor Foods.

Your supervisor has asked you to contact Windsor Foods to explore a possible outsourcing.

• Windsor Foods tells you that they can operate the facility profitably if they charge the employees only what Acme is presently charging them. They say that they can do this because of their experience in food service and because of their central kitchen and large-scale buying of ingredients. They offer to buy all of Acme's equipment for $30,000 cash upfront. They also offer to pay Acme $500 a month for the use of the dining area and to pay for the dining area utilities. They offer to hire all of Acme's food service employees, who will continue to do the same jobs but be employed by and paid by Windsor Foods.

• Support all material with references and in-text citations.

Post 2-3 paragraphs about this opportunity for Acme to outsource their food service. Do NOT focus solely on the accounting considerations. Include in your discussion:

Question 1: Does the move to outsource to Windsor foods seem worthy of investigation? Explain why or why not.

Question 2: What more would you need to do to be sure you are making the right move?

Question 3: What additional information do you need?

Question 4: What are the risks associated with outsourcing employee food services?

Discussion 2: Store Closing?

For this discussion, consider the following scenario:

• The privately owned Baker Company was founded in 1960. The company manufactures kitchen cabinets and has been very successful, expanding from one facility to twelve facilities in the same and other states. All facilities but the original are located near interstate highways. The original facility, which is no longer the headquarters, is in a downtown area of a major city (which grew up around it) with relatively high real-estate taxes. It has had a negative contribution margin and a net loss for the last five years. The founder is retired and three of his children want to close the facility. The fourth does not, because it "was Dad's first place and I went there every day after school." She believes they can bring the facility back to profitability if the city's downtown revitalization project succeeds and they dedicate the first floor of the facility to retail.

• Support all material with references and in-text citations.

Post 2-3 paragraphs about whether the original facility should be closed. Consider as part of your post:

Question 1: Your definition for "negative contribution margin."

Question 2: Whether the fact that the facility is not near an interstate makes a difference in the decision.

Question 3: Would it make a difference if the company were publicly traded?

Question 4: Might there be additional costs, in addition to revenues, to convert the first floor of the facility to retail?

Question 5: What risks may be associated with leasing to retail stores?

Question 6: What is your recommendation? Close and sell the facility or modify the first floor to be able to lease to retail stores.