Due to heavy rains brought by La Niña, the management of the company is contemplating to close club operations of the airline temporarily. The expected demand for the club was reduced, which is expected to last for four (4) months. Assume the typical monthly operating revenues and costs of the club operations: P400 Selling price per membership Variable costs per membership Contribution margin 270 130 Fixed costs per month Fixed costs avoided if stop operations Additional costs during the shutdown period for four (4) months Estimated restarting costs P150,000 70,000 25,000 50,000 If they continue operating, the company will demand for the club is 4,000 memberships. forced to reduce membership selling price by 12.50%. The

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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1. Net advantage of continued/shut down operations
 2.Should the club operations shut down or continue?

Due to heavy rains brought by La Niña, the management of the company is contemplating to close club
operations of the airline temporarily. The expected demand for the club was reduced, which is expected to
last for four (4) months. Assume the typical monthly operating revenues and costs of the club operations:
P400
Selling price per membership
Variable costs per membership
Contribution margin
Fixed costs per month
Fixed costs avoided if stop operations
Additional costs during the shutdown
period for four (4) months
Estimated restarting costs
270
130
P150,000
70,000
25,000
50,000
If they continue operating, the company will be forced to reduce the membership selling price by 12.50%. The
demand for the club is 4,000 memberships.
Transcribed Image Text:Due to heavy rains brought by La Niña, the management of the company is contemplating to close club operations of the airline temporarily. The expected demand for the club was reduced, which is expected to last for four (4) months. Assume the typical monthly operating revenues and costs of the club operations: P400 Selling price per membership Variable costs per membership Contribution margin Fixed costs per month Fixed costs avoided if stop operations Additional costs during the shutdown period for four (4) months Estimated restarting costs 270 130 P150,000 70,000 25,000 50,000 If they continue operating, the company will be forced to reduce the membership selling price by 12.50%. The demand for the club is 4,000 memberships.
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