Question
Clean Pro manufactures multiple products with several manufacturing plants. The Shiny Plant is one of the plants which manufactures and distributes two household cleaning and
Clean Pro manufactures multiple products with several manufacturing plants. The Shiny Plant is one of
the plants which manufactures and distributes two household cleaning and polishing products: Regular
and Heavy-Duty. The following forecasted financial results for Shiny Plant based on the production and
sales of 100,000 cases of each product (Regular and Heavy Duty) in the first 6 months of 2020 are
presented below:
Each product is manufactured on a separate production line and sales of each product are not mixed.
Shiny Plant has set its annual normal manufacturing capacity at 200,000 cases of each product
(100,000 units for each product per six-monthly period). The costs above are based on this normal
capacity. However, the plant has a practical capacity of 250,000 cases of regular and 350,000 cases of
heavy-duty product annually.
The following schedule reflects management's views on the price and volume alternatives for the two
products for the first six months of 2020. Management expects these to be unchanged for the next six
months.
Management believes the expected losses projected for the first 6 months of 2020 reflect a tight profit
margin caused by intense competition and that many competitors will be forced out of the market by
next year so the company profit should improve in long-term.
1) Should Clean Pro close the Shiny Plant for the second 6 months of 2020 based on financial
considerations only? In your analysis, you need to show the best profit if the plant remains
operational (stays open) after taking into account the range of expected sales volumes provided
in Table 2.
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