12 Help Save &Exit Check m his type of decision is similar to dropping a product line.) Nicholas Company manufactures a fast-bonding glue, normally (Note: T producing and selling 52,000 litres of the glue each month. This glue. which is known as MJ-7, is used in the manufacture plywood. The selling price of MJ-7 is $35 per litre, variable costs are $21 per litre, fixed manufacturing overhead costs in the plant total $299,000 per month, and the fixed selling costs total $400,400 per month wood industry to Strikes in the mills that purchase the bulk of the MJ-7 glue have caused Nicholas Company's sales to temporarily drop to only 13,000 litres per month. Nicholas Company's management estimates that the strikes will last for two should return to normal. Due to the current low level of sales. Nicholas Company's management is thinking about closing down the plant during the strike. months, after which sales of MJ-7 If Nicholas Company does close down the plant, fixed manufacturing overhead costs can be reduced by $78,000 per month and fixed selling costs can be reduced by 10% Start-up costs at the end of the shutdown period would total $5,080. Since Ncholas Company uses lean production methods, no inventories are on hand 1-o. Assuming that the strikes continue for two months, compure the increase or decrease in income frm closing the plant in two Prey 2014 Next> A ielts r 12 Help Save & Exit Su 2 10 1-b. Would you recomm No Yes closing the plant and References 2. At what level of sales (in litres) for the two-month period should Nicholas Company be indifferent keeping it open? (Hint This is a type of break-even analysis, except that the fixed-cost portion of your break-even computation should include only those fixed costs that are relevant Q.e, avoidabie) over the two-month period)