Birch Company normally produces and sells 48,000 units of RG-6 each month. The selling unit, variable costs are $10 per unit, fixed manufacturing overhead costs total $170,000 per selling costs total $ 36,000 per month. Employment-contract strikes in the companies that purchase the bulk of the RG-6 units ha Company's sales to temporarily drop to only 11,000 units per month. Birch Company estim strikes will last for two months, after which time sales of RG-6 should return to normal. Du low level of sales, Birch Company is thinking about closing down its own plant during the s would reduce its fixed manufacturing overhead costs by $49,000 per month and its fixed sel 10%. Start-up costs at the end of the shutdown period would total $15,000. Because Birch
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
What is the answer to Required 1 (the financial disadvantage in dollars) AND the level of unit sales for the two-month period required and Birch to be indifferent (in units sales)?
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