(Note: This type of decision is similar to dropping a product line.) Nicholas Company manufactures a fast-bonding glue, normally producing and selling 76,000 litres of the glue each month. This glue, which is known as MJ-7, is used in the wood industry to manufacture plywood. The selling price of MJ-7 is $65 per litre, variable costs are $39 per litre, fixed manufacturing overhead costs in the plant total $437,000 per month, and the fixed selling costs total $585,200 per month. Strikes in the mills that purchase the bulk of the MJ-7 glue have caused Nicholas Company's sales to temporarily drop to only 19,000 litres per month. Nicholas Company's management estimates that the strikes will last for two months, after which sales of MJ-7 should return to normal. Due to the current low level of sales, Nicholas Company's management is thinking about closing down the plant during the strike. If Nicholas Company does close down the plant, fixed manufacturing overhead costs can be reduced by $114,000 per month and fixed selling costs can be reduced by 10%. Start-up costs at the end of the shutdown period would total $20,040. Since Nicholas Company uses lean production methods, no inventories are on hand. Required: 1-a. Assuming that the strikes continue for two months, compute the increase or decrease in income from closing the plant. Net income is by in two months
(Note: This type of decision is similar to dropping a product line.) Nicholas Company manufactures a fast-bonding glue, normally producing and selling 76,000 litres of the glue each month. This glue, which is known as MJ-7, is used in the wood industry to manufacture plywood. The selling price of MJ-7 is $65 per litre, variable costs are $39 per litre, fixed manufacturing overhead costs in the plant total $437,000 per month, and the fixed selling costs total $585,200 per month. Strikes in the mills that purchase the bulk of the MJ-7 glue have caused Nicholas Company's sales to temporarily drop to only 19,000 litres per month. Nicholas Company's management estimates that the strikes will last for two months, after which sales of MJ-7 should return to normal. Due to the current low level of sales, Nicholas Company's management is thinking about closing down the plant during the strike. If Nicholas Company does close down the plant, fixed manufacturing overhead costs can be reduced by $114,000 per month and fixed selling costs can be reduced by 10%. Start-up costs at the end of the shutdown period would total $20,040. Since Nicholas Company uses lean production methods, no inventories are on hand. Required: 1-a. Assuming that the strikes continue for two months, compute the increase or decrease in income from closing the plant. Net income is by in two months
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Sagar
Transcribed Image Text:(Note: This type of decision is similar to dropping a product line.) Nicholas Company manufactures a fast-bonding glue, normally
producing and selling 76,000 litres of the glue each month. This glue, which is known as MJ-7, is used in the wood industry to
manufacture plywood. The selling price of MJ-7 is $65 per litre, variable costs are $39 per litre, fixed manufacturing overhead costs in
the plant total $437,000 per month, and the fixed selling costs total $585,200 per month.
Strikes in the mills that purchase the bulk of the MJ-7 glue have caused Nicholas Company's sales to temporarily drop to only 19,000
litres per month. Nicholas Company's management estimates that the strikes will last for two months, after which sales of MJ-7 should
return to normal. Due to the current low level of sales, Nicholas Company's management is thinking about closing down the plant
during the strike.
If Nicholas Company does close down the plant, fixed manufacturing overhead costs can be reduced by $114,000 per month and fixed
selling costs can be reduced by 10%. Start-up costs at the end of the shutdown period would total $20,040. Since Nicholas Company
uses lean production methods, no inventories are on hand.
Required:
1-a. Assuming that the strikes continue for two months, compute the increase or decrease in income from closing the plant.
Net income is
by
in two months
AI-Generated Solution
AI-generated content may present inaccurate or offensive content that does not represent bartleby’s views.
Unlock instant AI solutions
Tap the button
to generate a solution
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education