AFM102 Lecture Notes - Lecture 19: Vending Machine, Disturbance Storm Time Index, Net Present Value
15 Oct 2015
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Close a plant or not, during a strike: selling price /unit, variable costs /unit, fixed costs are ,000/ month . ,000 avoidable if close plant: strike expected to last 3 months, sales have dropped from 20,000/month to 8,000/month, if close, there will be a one-time start-up fee of ,500. If you close the plant, the contribution margin lost is the 8,000 in sales (lost) Method 2 (8,000 x (45-27) x 3 months) = 432,000: avoid fixed costs (110,000 x 3months)= 330,000 (gain, one- time start-up (22,500) (432,000) + 330,000 + (225,000) = (124,000, therefore don"t stay open. Contribution margin (3 months x 8,000 x ) Therefore operating loss is 124, 500 less if open so stay open. Staying open or closing? (indifferent means operating income is equal) Let volume be x where the operating income is equal. Avoidable fixed costs/ contribution margin per unit (330,000 225,000) / 18 = ,084.
