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:

Table 1 Shiny Plant Forecasted Results for Six Months Ending 30 June 2020

$(000) $(000) $(000)

Regular Heavy Duty Total

Sales $2,000 $3,000 $5,000

Cost of Sales (1,600) (1,900) (3,500)

Gross Profit 400 1,100 1,500

Selling and Admin Costs

Variable (400) (700) (1,100)

Fixed (240) (360) (600)

Net Profit/Loss ($240) $40 ($200)

The fixed selling and administration costs are allocated between the two products based on the dollar value of sales.

The cost data for the two products are shown below:

Cost per case Regular Heavy-Duty

Raw material $7 $8

Direct labour 4 4

Variable manufacturing overhead 1 2

Fixed manufacturing overhead 4 5

Variable selling and admin costs 4 7

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 managements 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.

Table 2 Expected Sales Levels for Six Monthly Period

Regular Heavy-Duty

Price per case Sales Volume Price per case Sales Volume

$18 120,000 $25 175,000

20 100,000 27 130,000

21 90,000 30 100,000

22 80,000 32 55,000

23 50,000 35 35,000

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.

REQUIRED:

Write a report (1000 words) addressed to and advising the senior management of Clean Pro on the sustainability of continuous operation for Shiny Plant. In your report address the following with appropriate calculations to support your discussion: CAN YOU PLEASE WRITE THE 1000 WORD REPORT TO THE MANAGERS OF CLEAN PRO ANSWERING THE ABOVE 4 QUESTIONS WITHIN THE REPORT, EXPLAINING THE CALCULATIONS.

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.

2) Identify a recommended price for both products assuming that the decision is to keep the Shiny Plant open.

3) Explain qualitative factors that would affect the decision to keep or drop the Shiny Plant.

4) Provide a summarised recommendation of whether to close the Shiny Plant or not for the next 6 months based on your analysis from 1) to 3). You need to fully explain and justify your recommendation considering all the factors including both financial (e.g. profitability and price) and qualitative factors (e.g., impact on the community).

A key focus is that you can clearly communicate your understanding, conclusions and recommendations to the management team.

CAN YOU PLEASE WRITE THE 1000 WORD REPORT TO THE MANAGERS OF CLEAN PRO ANSWERING THE ABOVE 4 QUESTIONS WITHIN THE REPORT