EXAMPLE 3-6 Shutdown Analysis For the most recent financial reporting period, a business domiciled in Ecuador...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
EXAMPLE 3-6 Shutdown Analysis For the most recent financial reporting period, a business domiciled in Ecuador (which recognizes the U.S. dollar as an official currency) has revenue of $2 million and total costs of $2.5 million, which are or can be broken down into total fixed cost of $1 million and total variable cost of $1.5 million. The net loss on the firm's income statement is reported as $500,000 (ignoring tax implications). In prior periods, the firm had reported profits on its operations. 1. What decision should the firm make regarding operations over the short term? 2. What decision should the firm make regarding operations over the long term? 3. Assume the same business scenario except that revenue is now $1.3 million, which creates a net loss of $1.2 million. What decision should the firm make regarding operations in this case? EXAMPLE 3-6 Shutdown Analysis For the most recent financial reporting period, a business domiciled in Ecuador (which recognizes the U.S. dollar as an official currency) has revenue of $2 million and total costs of $2.5 million, which are or can be broken down into total fixed cost of $1 million and total variable cost of $1.5 million. The net loss on the firm's income statement is reported as $500,000 (ignoring tax implications). In prior periods, the firm had reported profits on its operations. 1. What decision should the firm make regarding operations over the short term? 2. What decision should the firm make regarding operations over the long term? 3. Assume the same business scenario except that revenue is now $1.3 million, which creates a net loss of $1.2 million. What decision should the firm make regarding operations in this case?
Expert Answer:
Answer rating: 100% (QA)
Answer Explanation Solution to 1 In the short run the firm is able to cover all of its t... View the full answer
Related Book For
Posted Date:
Students also viewed these accounting questions
-
The actual profit of $23,400 for the most recent fiscal quarter is 90% of the forecast profit. What is the forecast profit?
-
The following data were collected for the most recent twelvemonth period by the cost accountant in one of Richardson Company's manufacturing plants. Required Using the method of least squares,...
-
The following data are available for the most recent year of operations for Slacker & Sons. The revenue portion of the sales activity variance is $125,000 F. Master budget based on actual sales of...
-
In Exercises 1 through 28, differentiate the given function. y = 2x
-
Blind River, Inc. recently hired Neil Young as its bookkeeper. Mr. Young is somewhat inexperienced and has made numerous errors recording daily business transactions. Indicate the effects of the...
-
Explain how planned spending and actual spending can differ. Illustrate with an example.
-
Use Aspen Plus Analysis to develop and print out ternary diagrams for the system water-chloroform-acetone using NRTL as the LLE correlation. Compare results to experimental data in Table 13-A2 (mole...
-
Reds Lumber hired a consultant to update its system for reporting the cost of customers. The consultant showed Red an analysis that indicates that customer support costs are significantly higher for...
-
Critically analyse the problems faced by Food Empire in its operations, including its supply chain and value - added activities, and the innovations used by the company to improve operational...
-
Alfonso Inc. acquired 100 percent of the voting shares of BelAire Company on January 1, 2020. In exchange, Alfonso paid $198,000 in cash and issued 100,000 shares of its own $1 par value common...
-
In a physics laboratory experiment, a coil with 230 turns enclosing an area of 12.1 cm2 is rotated during the time interval 4.1010 ?2 s from a position in which its plane is perpendicular to Earth's...
-
Simplify 5(1+4)-8(4-r).
-
Simplify: 10(d)().
-
An LTI system has the following transfer function: H(s) = (s - 1) (s+ 1)(s+2)(s + 3) (a) Is the system causal? Explain. (b) Is the system stable? Explain (c) Obtain the transfer function of the...
-
Lessee Company enters into a 6 - year finance lease of non - specialized equipment with Lessor Company on January 1 . Lessee has agreed to pay $ 2 8 , 0 0 0 annually beginning immediately on January...
-
Find all solutions of each of the following equations a.) z6-223+4=0 b.) z7+26+25 + z + z + z 2 +z+1 = 0 (Hint: multiply the equation by z - - 1)
-
DLW Corporation acquired and placed in service the following assets during the year: Asset Computer equipment Date Acquired 3/13 Cost Basis $ 15,200 Furniture Commercial building 4/30 11/18 $ 20,500...
-
It is possible to investigate the thermo chemical properties of hydrocarbons with molecular modeling methods. (a) Use electronic structure software to predict cHo values for the alkanes methane...
-
Broadus Company expects annual sales of 10,000 units of its product at $20 per unit. Variable cost is $10 per unit, and fixed cost is expected to total $70,000. Required: Prepare a break-even chart.
-
Cantach Tool Company manufactures a product in two departments, Cutting and Assembly. The product is cut out of sheet metal, bent to shape, and painted in the Cutting Department. Then it is...
-
The food-service manager of Too-Simple Hotel is planning a new price structure for room service. It has been determined that the hotel's cost of a glass of orange juice is 20 cents. To provide the...
-
Calculate and Use Overhead Rate Bagley Corporation expects to incur \($450,000\) of factory over- head and \($600,000\) of general and administrative costs next year. Direct labor costs at \($20\)...
-
Applied vs. Actual Manufacturing Overhead Kubal Inc. applies overhead based on machine hours. Kubal reports the following for the year just ended: What is the amount of over- or underapplied overhead...
-
Applied vs. Actual Manufacturing Overhead Davis Manufacturing Corporation applies manufactur- ing overhead on the basis of 140% of direct labor cost. An analysis of the related accounts and job order...
Study smarter with the SolutionInn App