Case Study: Gian Auto Corporation

Essay by Rashad871 September 2006

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Gian Auto Corporation is a manufacture and supplier of components for manufacturers and suppliers of parts for automobiles, van and trucks. The company maintains an excellent track record with over 10 percent increase in sales in each year. One of the critical success factors of company's business strategy is the location of its plants in favorable business environments and areas with lower wage rates. One of GianAuto's earliest plant is the Denver Cover Plant, which basically prepares and sews coverings, mainly leather and upholstery fabrics. The person who was in charge of operating the Denver Cover Plant was Ted Vosilo.


GianAuto Corporation found an external supplier, which can provide coverings at a lower price than the Denver Cover Plant. The budget for Denver Cover Plant's budget was set at $82 million, whereas GianAuto can purchase those coverings from an external party at the price of $60 million.


Budget and Operating Cost for Year ending December 31, 2004 (000s omitted)

Materials $32,000


Direct $ 23,000

Supervision $ 3,000

Indirect plant $ 4,000 $30,000


Dep- Equipment $ 5,000

Dep.- Building $ 3,000

Pension Expense $ 4,000

Plant manager $ staff $ 2,000

Corporate allocation $ 6,000 $ 20,000

Total Budgeted Cost $ 82,000

However, there are additional factors that should be considered before making the decision to shut down the Denver Plant:

1. Blanket order had been placed with major suppliers to ensure sufficient supply for the coming year.

Disadvantage: if order were cancelled due to the closing, termination charges of 15 % of direct material or $4,000,000 would have to be paid off.

2. 400 plant employees would be laid off

Disadvantage: Employees may not be able to find a handsome rewarding job matching Denver, which is...