Brief 5, MBA 733 Essay

Satisfactory Essays
Subject: Shamrock manufacturing

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.


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…
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