- Jane Corporation normally produces 10,000 gallons of wood glue per month but labor strikes have reduced monthly sales to 1,500 gallons (15% of normal).
- Management expects the strikes to last 2 months and is considering temporarily closing the plant.
- If closed, fixed overhead costs would reduce to $340,000 per month and fixed selling costs would reduce by $62,000 per month but startup costs would be $56,000.
- Jane Corporation normally produces 10,000 gallons of wood glue per month but labor strikes have reduced monthly sales to 1,500 gallons (15% of normal).
- Management expects the strikes to last 2 months and is considering temporarily closing the plant.
- If closed, fixed overhead costs would reduce to $340,000 per month and fixed selling costs would reduce by $62,000 per month but startup costs would be $56,000.
- Jane Corporation normally produces 10,000 gallons of wood glue per month but labor strikes have reduced monthly sales to 1,500 gallons (15% of normal).
- Management expects the strikes to last 2 months and is considering temporarily closing the plant.
- If closed, fixed overhead costs would reduce to $340,000 per month and fixed selling costs would reduce by $62,000 per month but startup costs would be $56,000.
- Jane Corporation normally produces 10,000 gallons of wood glue per month but labor strikes have reduced monthly sales to 1,500 gallons (15% of normal).
- Management expects the strikes to last 2 months and is considering temporarily closing the plant.
- If closed, fixed overhead costs would reduce to $340,000 per month and fixed selling costs would reduce by $62,000 per month but startup costs would be $56,000.
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Notes 16
Lecture Notes
Jane Corporation produces wood glue that is used by furniture manufacturers. The company normally produces and sells 10,000 gallons of the glue each month. White Glue is sold for P280 per gallon, variable costs is P168 per gallon, fixed factory overhead cost totals P460,000 per month, and the fixed selling costs totals P620,000 per month.
Labor strikes in the furniture manufacturers that buy the bulk of White Glue have caused the monthly sales of Jane Corporation to temporarily decrease to only 15% of its normal monthly volume. Jane Corporation’s management expects that the strikes will last for about 2 months, after which, sales of White Glue should return to normal. However, due to the dramatic drop in the sales level, Jane Corporation’s management is considering to close down its plant during the two-moth period that the strikes are on.
If Jane Corporation will temporarily shut down its operations, it is expected that the fixed factory overhead costs can be reduced to P340,000 per month and that the fixed selling costs can be reduced by P62,000 per month. Start-up costs at the end of the shut-down period would total P56,000. Jane Corporation uses the JIT system, so no inventories are on hand.
39. The shut down point in units is
A. 2,750.00 . B. 9,642.86 C. 3,250.00 D. 1,100.00
40. At the sales level of only 30% of the normal volume, should the company continue operating or shut down temporarily for two months? A. Continue, because the expected sales is above the shutdown point.
B. Shut down, because the expected sales is above the shutdown point.
C. Continue, so that the shutdown costs may be avoided.
D. Shut down, because the shutdown costs is less than the contribution margin under continued operations.
