ompany normally produces selling price iS $22 per unit, variable costs are S14 per unit, fixed manufacturing overhead costs total $150,000 per month, and fixed selling costs total $30,000 per month. Employment-contract strikes in the companies that purchase the bulk of the RG-6 units have caused Birch Company's sales to temporarily drop to only 8,000 units per month. Birch Company estimates that the strikes will last for two months, after which time sales of RG-6 should return to normal. Due to the current low level of sales, Birch Company is thinking about closing down its own plant during the strike, which would reduce its fixed manufacturing overhead costs by $45,000 per month and its fixed selling costs by 10%. Start-up costs at the end of the shutdown period would total S8,000. Because Birch Company uses Lean Production methods, no inventories are on hand. Required: 1. What is the financial advantage (disadvantage) if Birch closes its own plant for two months? 2. Should Birch close the plant for two months? Explain. 3. At what level of unit sales for the two-month period would Birch Company be indifferent between closing the plant or keeping it open? (Hint: This is a type of break-even analysis, except that the fixed cost portion of your break-even computation should include only those fixed costs that are relevant [i.e., avoidable] over the two-month period.)
ompany normally produces selling price iS $22 per unit, variable costs are S14 per unit, fixed manufacturing overhead costs total $150,000 per month, and fixed selling costs total $30,000 per month. Employment-contract strikes in the companies that purchase the bulk of the RG-6 units have caused Birch Company's sales to temporarily drop to only 8,000 units per month. Birch Company estimates that the strikes will last for two months, after which time sales of RG-6 should return to normal. Due to the current low level of sales, Birch Company is thinking about closing down its own plant during the strike, which would reduce its fixed manufacturing overhead costs by $45,000 per month and its fixed selling costs by 10%. Start-up costs at the end of the shutdown period would total S8,000. Because Birch Company uses Lean Production methods, no inventories are on hand. Required: 1. What is the financial advantage (disadvantage) if Birch closes its own plant for two months? 2. Should Birch close the plant for two months? Explain. 3. At what level of unit sales for the two-month period would Birch Company be indifferent between closing the plant or keeping it open? (Hint: This is a type of break-even analysis, except that the fixed cost portion of your break-even computation should include only those fixed costs that are relevant [i.e., avoidable] over the two-month period.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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I want the answer please
![ompany normally produces
selling price iS
$22 per unit, variable costs are S14 per unit, fixed manufacturing overhead costs total $150,000 per
month, and fixed selling costs total $30,000 per month.
Employment-contract strikes in the companies that purchase the bulk of the RG-6 units have
caused Birch Company's sales to temporarily drop to only 8,000 units per month. Birch Company
estimates that the strikes will last for two months, after which time sales of RG-6 should return to
normal. Due to the current low level of sales, Birch Company is thinking about closing down its
own plant during the strike, which would reduce its fixed manufacturing overhead costs by $45,000
per month and its fixed selling costs by 10%. Start-up costs at the end of the shutdown period would
total S8,000. Because Birch Company uses Lean Production methods, no inventories are on hand.
Required:
1. What is the financial advantage (disadvantage) if Birch closes its own plant for two months?
2. Should Birch close the plant for two months? Explain.
3. At what level of unit sales for the two-month period would Birch Company be indifferent
between closing the plant or keeping it open? (Hint: This is a type of break-even analysis,
except that the fixed cost portion of your break-even computation should include only those
fixed costs that are relevant [i.e., avoidable] over the two-month period.)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fb34d4583-f046-4666-9679-fae8db1dfc3f%2F4085560e-91ac-45ff-ac67-4760edc4e1fc%2Fjoge0lb.jpeg&w=3840&q=75)
Transcribed Image Text:ompany normally produces
selling price iS
$22 per unit, variable costs are S14 per unit, fixed manufacturing overhead costs total $150,000 per
month, and fixed selling costs total $30,000 per month.
Employment-contract strikes in the companies that purchase the bulk of the RG-6 units have
caused Birch Company's sales to temporarily drop to only 8,000 units per month. Birch Company
estimates that the strikes will last for two months, after which time sales of RG-6 should return to
normal. Due to the current low level of sales, Birch Company is thinking about closing down its
own plant during the strike, which would reduce its fixed manufacturing overhead costs by $45,000
per month and its fixed selling costs by 10%. Start-up costs at the end of the shutdown period would
total S8,000. Because Birch Company uses Lean Production methods, no inventories are on hand.
Required:
1. What is the financial advantage (disadvantage) if Birch closes its own plant for two months?
2. Should Birch close the plant for two months? Explain.
3. At what level of unit sales for the two-month period would Birch Company be indifferent
between closing the plant or keeping it open? (Hint: This is a type of break-even analysis,
except that the fixed cost portion of your break-even computation should include only those
fixed costs that are relevant [i.e., avoidable] over the two-month period.)
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