Assume that each year a company normally produces and sells 80,000 units of its only product for $40 per unit. The companys average unit costs at this level of activity are given below:

Direct materials	$ 9.50
Direct labor	10.00
Variable manufacturing overhead	2.80
Fixed manufacturing overhead	5.00
Variable selling expenses	1.70
Fixed selling expenses	4.50
Total cost per unit	$ 33.50

One of the companys raw material suppliers is experiencing a shortage that will last for three months. The company can respond to this shortage in one of two ways over the next three months. It has enough raw materials on hand to enable it to continue operating at 25% of normal output. The second option is to close down the plant for three months. Under this option, the company could avoid 40% of the fixed manufacturing overhead costs that it would ordinarily incur during this three-month period. Furthermore, its fixed selling expenses would continue at 30% of their normal levels during the three-month closure. What is the financial advantage (disadvantage) of closing the plant for three months?

Multiple Choice

$28,000

$(18,000)

$(13,000)

$23,000