Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Birch Company normally produces and sells 30,000 units of RG-6 each month. RG-6 is a small electrical relay used as a component part in the

image text in transcribed

Birch Company normally produces and sells 30,000 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 $22 per unit, variable costs are $14 per unit, fixed manufacturing overhead costs total $150,000 per month, and fixed selling costs total $30,000 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 8,000 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 $45,000 per month and its fixed selling costs by 10%. Start-up costs at the end of the shutdown period would total $8,000. Because Birch Company uses Lean Production methods, no inventories are on hand. Required: 1a. Assuming that the strikes continue for two months, what is the impact on income by closing the plant? Net income is decrease in two months 1b. Would you recommend that Birch Company close its own plant? O Yes O No 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? Level of sales E unit in two months

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Anxiety Audit

Authors: Lynn Lyons

1st Edition

0757324258, 978-0757324253

More Books

Students also viewed these Accounting questions

Question

Customers have to repeat information they have already provided.

Answered: 1 week ago