Brief 5, MBA 733 Essay

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Subject: Shamrock manufacturing
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The Shamrock Manufacturing Chicago plant manager, Sean Fitzpatrick is contemplating replacing a large piece of manufacturing equipment. Mr. Fitzpatrick is also inline for a promotion to Shamrocks larger Houston plant within the next year, and is hesitant to make any decisions that will reduce short-run operating income and his performance evaluation. While the prospective replacement equipment promises to reduce cash operating costs, it costs $90,000, as well as the loss on disposal cost of the old equipment, which has not fully depreciated. Prior to making a decision, Mr. Fitzgerald must identify all relevant costs and chose a decision for the best interest of Shamrock (Datar,
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All relevant costs located in worksheets #2, and #3 indicate that Shamrock manufacturing will benefit by replacing the machines at either equipment cost. However, worksheet #1 presents a problem for Mr. Fitzgerald as it shows a $6500 increase in the first year expenses, which are irrelevant in the long-run, but may encourage Mr. Fitzgerald not to purchase the new equipment because it may reflect badly on the short-run net operating income of his plant during the evaluation period for his promotion. Worksheet #3 offers a breakeven scenario in the first year and a $24,000 reduction in relevant cash flows in year two, which is the best option for Mr. Fitzgerald and Shamrock, if available.

Reference:

Datar, S., Rajan, M., (2013). Financial and Managerial accounting, custom edition, Pearson Learning Solutions, Ch. 9

Appendix A
Shamrock Manufacturing relevant cash flow analysis

Appendix B
5-Step Critical Thinking Decision-Making Process Matrix
Step 1: Identify the problem(s) and uncertainties.
What exactly is the problem…
Sean Fitzpatrick has an opportunity to decrease long-run cash flow by replacing a large piece of plant equipment.

The problem is this …
Mr. Fitzpatrick is up for a promotion and is concerned that any short-run decreases in operating income will affect his performance evaluation.

This is an important problem because…
Mr.

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