POINT OF VIEW
The case will be reviewed from the perspective of Frank Greystock, the Financial Controller of Victoria Chemical’s Merseyside Plant.
CASE CONTEXT
Victoria Chemicals (VC) is the leading producer in polypropylene, an essentially priced commodity. It has two plants dedicated to its production, Merseyside and Rotterdam, sharing a similar scale, size, age, and design. Given the age and design of both plants, VC incurs a higher cost per unit of output relative to its competitors, ranking 5th out of 8 (7 leading producers and the average of the next 10 largest producers).
In January 2008, Lucy Morris, the plant manager of VC’s Merseyside plant, proposed to her colleagues major changes to the plant. The proposed project focuses on …show more content…
First, the transport division was concerned with the acceleration of the purchase of new tanks. Second, the sales and marketing directors had divided thoughts on whether the company will be able to accommodate the lost sales due to temporary shut-down. Third, the assistant plant manager proposed the inclusion of a separate project, EPC rubber process modernization. Lastly, the treasury staff was concerned whether they used the proper rates in their computations.
At the moment, based on Lucy’s computations, not taking into account the aforementioned concerns, the engineering efficiency project met the requirements for it to be passed by VC.
PROBLEM DEFINITION
Frank is faced with three problems. First, how he should deal with and incorporate, if necessary, the concerns raised by the various stakeholders of Victoria Chemicals. Second, determine whether or not the computations made by Lucy were proper and reflect the probable results of the project. Lastly, check whether the project’s revised computations meet the Capital-Expenditure criteria of VC for it to be passed and implemented.
ANALYTICAL FRAMEWORK/METHODOLOGY
Evaluate concerns voiced out by the …show more content…
Key differences include the incorporation of tax, proper treatment of the increase in work-in-process inventory and engineering expenses.The cash flows did not compute for the net operating profit after tax (NOPAT). Moreover, it attributed the increase in work-in-process to the income statement, when it should have been added to the NOPAT as an increase in working capital. Engineering costs, on the other hand, was removed from the income statement and was included in the initial investment since it represents costs necessary to execute the project that the company wishes to earn
The case will be reviewed from the perspective of Frank Greystock, the Financial Controller of Victoria Chemical’s Merseyside Plant.
CASE CONTEXT
Victoria Chemicals (VC) is the leading producer in polypropylene, an essentially priced commodity. It has two plants dedicated to its production, Merseyside and Rotterdam, sharing a similar scale, size, age, and design. Given the age and design of both plants, VC incurs a higher cost per unit of output relative to its competitors, ranking 5th out of 8 (7 leading producers and the average of the next 10 largest producers).
In January 2008, Lucy Morris, the plant manager of VC’s Merseyside plant, proposed to her colleagues major changes to the plant. The proposed project focuses on …show more content…
First, the transport division was concerned with the acceleration of the purchase of new tanks. Second, the sales and marketing directors had divided thoughts on whether the company will be able to accommodate the lost sales due to temporary shut-down. Third, the assistant plant manager proposed the inclusion of a separate project, EPC rubber process modernization. Lastly, the treasury staff was concerned whether they used the proper rates in their computations.
At the moment, based on Lucy’s computations, not taking into account the aforementioned concerns, the engineering efficiency project met the requirements for it to be passed by VC.
PROBLEM DEFINITION
Frank is faced with three problems. First, how he should deal with and incorporate, if necessary, the concerns raised by the various stakeholders of Victoria Chemicals. Second, determine whether or not the computations made by Lucy were proper and reflect the probable results of the project. Lastly, check whether the project’s revised computations meet the Capital-Expenditure criteria of VC for it to be passed and implemented.
ANALYTICAL FRAMEWORK/METHODOLOGY
Evaluate concerns voiced out by the …show more content…
Key differences include the incorporation of tax, proper treatment of the increase in work-in-process inventory and engineering expenses.The cash flows did not compute for the net operating profit after tax (NOPAT). Moreover, it attributed the increase in work-in-process to the income statement, when it should have been added to the NOPAT as an increase in working capital. Engineering costs, on the other hand, was removed from the income statement and was included in the initial investment since it represents costs necessary to execute the project that the company wishes to earn