Multiple Products- Continue Operations: Stac Industries is a multiproduct company with several manufacturing plants. The Clinton Plant manufactures and distributes two household cleaning and polishing compounds-regular and heavy-duty-under the Cleen-Brite label. The forecasted operating results for the first six months of Year 1, when 100,000 cases of each compound are expected to be manufactured and sold, are presented in the following statement.

The regular compound sold for $20 a case and the heavy-duty sold for $30 a case during the first six months of Year 1. The manufacturing costs by case of product are presented in the following schedule. Each product is manufactured on a separate production line. Annual normal manufacturing capacity is 200,000 cases of each product. However, the plant is capable of producing 250,000 cases of regular com- pound and 350.000 cases of heavy-duty compound'annually.

The schedule below reflects the consensus of top management regarding the price- volume alternatives for the Cleen-Brite products for the last six months of Year 1. These are essentially the same alternatives management had during the first six months of Year 1.

Top management believes the loss for the first six months reflects a tight profit margin caused by intense competition. Management also believes that many com- panies will be forced out of this market by Year 2, and profits should improve after that.

Required:

a. What unit selling price should Stac Industries select for each of the Cleen-Brite compounds (regular and heavy-duty) for the remaining six months of Year 1? Support your selection with appropriate calculations.

b. Without prejudice to your answer to requirement (a), assume the optimum price- volume alternatives for the last six months were a selling price of $23 and volume level of 50,000 cases for the regular compound and a selling price of $35 and volume of 35.000 cases for the heavy-duty compound.

(1) Should Stac Industries consider temporarily closing down its operations until Year 2 in order to minimize its losses? Support your answer with appropriate calculations. (Stac could save none of its fixed costs by tem- porarily closing.)

(2) Identify and discuss the qualitative factors that should be considered in deciding whether the Clinton Plant should be closed down during the last six months of Year 1.

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CLINTON PLANT Cleen-Brite Compounds Forecasted Results of Operations For the Six-Month Period Ending June 30, Year 1 (in thousands) Sales revenue Cost of sales Gross profit Nonmanufacturing costs: Variable Fixeda Total nonmanufacturing costs Income (loss) before taxes Heavy- Regular Duty Total $2,000 $3,000 $5,000 1,600 1,900 3,500 400 1,100 1,500 400 700 1,100 240 360 600 640 1,060 1,700 $ (240) $ 40 $ (200)