What are the answers to Required 1 and 2?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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What are the answers to Required 1 and 2?

Transcribed Image Text:Birch Company normally produces and sells 48,000 units of RG-6 each month. The selling price is $30 per
unit, variable costs are $10 per unit, fixed manufacturing overhead costs total $170,000 per month, and fixed
selling costs total $36,000 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 11,000 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 $49,000 per month and its fixed selling costs by
10%. Start-up costs at the end of the shutdown period would total $15,000. 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?
Financial (disadvantage) I
2. At what level of unit sales for the two-month period would Birch Company be indifferent between
closing the plant or keeping it open?
Unit sales required for Birch to be indifferent
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