The Megafish Company is in the fish canning industry. Its regular monthly production from January to October averages 100 tons of tuna fish that will produce 1,000,000 cans of canned tuna that can be sold for P10 per can in the market. Its annual fixed costs amounts to P18,000,000 which are evenly allocated on a twelve month period. During the months of November and December, the supply of tuna fish goes down to an average of 20 tons monthly or 200,000 cans of canned tuna monthly. Management is considering to shut down operations, during the months of November and December on the belief that the company will be saved from greater losses during these months. If management decides to shut down operations, additional costs of P50,000 monthly will be incurred for security and insurance of the plant. The company will also spend additional P60,000 in re-starting operations in January. The following data are gathered from the records of Megafish Company: Raw materials & ingredients Direct labor P 5.20 0.55 Variable overhead 0.25 P 6.00 Total variable cost per can Variable selling and administrative expenses averages PO.10 per can. It is assumed that the market can absorb all canned tuna produced. Shut down operations will reduce fixed costs during November and December by 40%.
The Megafish Company is in the fish canning industry. Its regular monthly production from January to October averages 100 tons of tuna fish that will produce 1,000,000 cans of canned tuna that can be sold for P10 per can in the market. Its annual fixed costs amounts to P18,000,000 which are evenly allocated on a twelve month period. During the months of November and December, the supply of tuna fish goes down to an average of 20 tons monthly or 200,000 cans of canned tuna monthly. Management is considering to shut down operations, during the months of November and December on the belief that the company will be saved from greater losses during these months. If management decides to shut down operations, additional costs of P50,000 monthly will be incurred for security and insurance of the plant. The company will also spend additional P60,000 in re-starting operations in January. The following data are gathered from the records of Megafish Company: Raw materials & ingredients Direct labor P 5.20 0.55 Variable overhead 0.25 P 6.00 Total variable cost per can Variable selling and administrative expenses averages PO.10 per can. It is assumed that the market can absorb all canned tuna produced. Shut down operations will reduce fixed costs during November and December by 40%.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Determine the net advantage of continued operations compared to the shutdown
Transcribed Image Text:The Megafish Company is in the fish canning industry. Its regular monthly production from
January to October averages 100 tons of tuna fish that will produce 1,000,000 cans of
canned tuna that can be sold for P10 per can in the market. Its annual fixed costs amounts
to P18,000.000 which are evenly allocated on a twelve month period.
During the months of November and December, the supply of tuna fish goes down to an
average of 20 tons monthly or 200,000 cans of canned tuna monthly.
Management is considering to shut down operations, during the months of November and
December on the belief that the company will be saved from greater losses during these
months.
If management decides to shut down operations, additional costs of P50,000 monthly will be
incurred for security and insurance of the plant. The company will also spend additional
P60,000 in re-starting operations in January.
The following data are gathered from the records of Megafish Company:
Raw materials & ingredients
Direct labor
Variable overhead
P 5.20
0.55
0.25
P 6.00
Total variable cost per can
Variable selling and administrative expenses averages PO.10 per can. It is assumed that the
market can absorb all canned tuna produced.
Shut down operations will reduce fixed costs during November and December by 40%.
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