Birch company normally produces and sells 39000 units of

Reference no: EM13597541

Birch Company normally produces and sells 39,000 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 $49 per unit, variable costs are $21 per unit, fixed manufacturing overhead costs total $228,000 per month, and fixed selling costs total $300,000 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 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 $59,000 per month and its fixed selling costs by 12%. Start-up costs at the end of the shutdown period would total $13,000. Because Birch Company uses Lean Production methods, no inventories are on hand.

Requirement 1:

(a)Assuming that the strikes continue for two months, compute the increase or decrease in income in closing the plant. (Input the amount as positive value. Omit the "tiny_mce_markerquot; sign in your response.)

(b) Would you recommend that Birch Company close the own plant?

Requirement 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? (Round your answer to the nearest whole number.)

Reference no: EM13597541

Questions Cloud

During the current month the factory payroll of 180000 was : canberra company uses a job order cost accounting system. during the current month the factory payroll of 180000 was

Simpson auto body repair purchased 20000 of machinery the : simpson auto body repair purchased 20000 of machinery. the company paid 8000 in cash at the time of the purchase and

From past experience the company has learned that 20 of a : silver company makes a product that is very popular as a mothers day gift. thus peak sales occur in may of each year as

Partridge co can further process product j to produce : partridge co. can further process product j to produce product d. product j is currently selling for 21 per pound and

Birch company normally produces and sells 39000 units of : birch company normally produces and sells 39000 units of rg-6 each month. rg-6 is a small electrical relay used as a

A business is operating at 70 of capacity and is currently : a business is operating at 70 of capacity and is currently purchasing a part used in its manufacturing operations for

In my opinion we ought to stop making our own drums and : in my opinion we ought to stop making our own drums and accept that outside suppliers offer said wim niewindt managing

In a process costing system costs flow into finished goods : 1.the direct labor and overhead costs of providing services to clients are accumulated in a work-in-process account. a

Q starts a sole proprietorship by spending all of the : q starts a sole proprietorship by spending all of the following on january 11 2012. he spent 13000 on office

User Account

All Pages