Birch Company normally produces and sells 34,500 units of RG-6 each month. RG-6 is a small electrical relay used in the automotive industry as a component part in various products. The selling price is $31 per unit, variable costs are $23 per unit, fixed manufacturing overhead costs total $172,500 per month, and fixed selling costs total $34,500 per month.
Employment contract strikes in the companies that purchase the bulk of the RG-6 units have caused Birch Companyâs sales to temporarily drop to only 17,000 units per month. Birch Company estimates that the strikes will last for about two months, after which time sales of RG-6 should return to normal. Due to the current low level of sales, however, Birch Company is thinking about closing its own plant during the two months that the strikes are on. If Birch Company does close its plant, it is estimated that fixed manufacturing overhead costs can be reduced to $120,750 per month and that fixed selling costs can be reduced by 10%. Startup costs at the end of the shutdown period would total $17,000. Since Birch Company uses just-in-time production methods, no inventories are on hand.
Required:
1.a. Assuming that the strikes continue for two months, compute the increase or decrease in income from closing the plant.
____________ in income by___________
1-b. Would you recommend that Birch Company close its own plant?
Yes No
2. At what level of sales (in units) for the two-month period should Birch Company be indifferent between closing the plant and keeping it open?
Level of Sales ____________ units
please show the solutions step by step
| Birch Company normally produces and sells 34,500 units of RG-6 each month. RG-6 is a small electrical relay used in the automotive industry as a component part in various products. The selling price is $31 per unit, variable costs are $23 per unit, fixed manufacturing overhead costs total $172,500 per month, and fixed selling costs total $34,500 per month. |
| Employment contract strikes in the companies that purchase the bulk of the RG-6 units have caused Birch Companyâs sales to temporarily drop to only 17,000 units per month. Birch Company estimates that the strikes will last for about two months, after which time sales of RG-6 should return to normal. Due to the current low level of sales, however, Birch Company is thinking about closing its own plant during the two months that the strikes are on. If Birch Company does close its plant, it is estimated that fixed manufacturing overhead costs can be reduced to $120,750 per month and that fixed selling costs can be reduced by 10%. Startup costs at the end of the shutdown period would total $17,000. Since Birch Company uses just-in-time production methods, no inventories are on hand. |
| Required: |
| 1.a. | Assuming that the strikes continue for two months, compute the increase or decrease in income from closing the plant. ____________ in income by___________
Level of Sales ____________ units
please show the solutions step by step |
Related questions
| Birch Company normally produces and sells 46,000 units of RG-6 each month. RG-6 is a small electrical relay used as a component part in the automotive industry. The selling price is $25 per unit, variable costs are $14 per unit, fixed manufacturing overhead costs total $175,000 per month, and fixed selling costs total $38,000 per month. |
| Employment-contract strikes in the companies that purchase the bulk of the RG-6 units have caused Birch Companyâs sales to temporarily drop to only 10,000 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 $42,000 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: |
| 1a. | Assuming that the strikes continue for two months, what is the impact on income by closing the plant? |
| 1b. | Would you recommend that Birch Company close its own plant? | ||||
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| 2. | At what level of sales (in units) for the two-month period should Birch Company be indifferent between closing the plant or keeping it open? |
