Gargantuan Industries is a multiproduct company with several manufacturing plants. The Boise Plant manufactures and distributes two household cleaning and polishing compounds, standard and commercial, under the Super Clean label. The forecasted operating results for the first six months of the current year, when 155,000 cases of each compound are expected to be manufactured and sold, are presented in the following statement.

GARGANTUAN INDUSTRIES: BOISE PLANT
Forecasted Results of Operations
For the Six-Month Period Ending June 30
(in thousands)
	Standard	Commercial	Total
Sales	$ 7,905.0	$ 12,710.0	$ 20,615.0
Cost of goods sold	6,665.0	8,447.5	15,112.5
Gross profit	$ 1,240.0	$ 4,262.5	$ 5,502.5
Selling and administrative expenses:
Variable	$ 1,581.0	$ 2,511.0	$ 4,092.0
Fixed*	882.0	1,418.0	2,300.0
Total selling and administrative expenses	$ 2,463.0	$ 3,929.0	$ 6,392.0
Income (loss) before taxes	$ (1,223.0)	$ 333.5	$ (889.5)

^*The fixed selling and administrative expenses are allocated between the two products on the basis of dollar sales volume.

The standard compound sold for $51 a case and the commercial compound sold for $82 a case during the first six months of the year. The manufacturing costs, by case of product, are presented in the schedule below. Each product is manufactured on a separate production line. Annual normal manufacturing capacity is 310,000 cases of each product. However, the plant is capable of producing 360,000 cases of standard compound and 460,000 cases of commercial compound annually.

	Standard (Cost per Case)	Commercial (Cost per Case)
Direct material	$ 19.50	$ 21.50
Direct labor	10.20	12.40
Variable manufacturing overhead	3.10	6.20
Fixed manufacturing overhead*	10.20	14.40
Total manufacturing cost	$ 43.00	$ 54.50
Variable selling and administrative costs	$ 10.20	$ 16.20

*Depreciation charges are 50 percent of the fixed manufacturing overhead of each line.

The following schedule reflects the consensus of top management regarding the price-volume alternatives for the Super Clean products for the last six months of the current year. These are essentially the same alternatives management had during the first six months of the year.

Standard Compound		Commercial Compound
Alternative Prices (per case)	Sales Volume (in cases)	Alternative Prices (per case)	Sales Volume (in cases)
$ 49	131,000	$ 63	186,000
51	111,000	65	151,000
53	101,000	71	111,000
55	91,000	75	66,000
57	61,000	81	46,000

Gargantuans top management believes the loss for the first six months reflects a tight profit margin caused by intense competition. Management also believes that many companies will leave this market by next year and profit should improve.

Required:

1. What unit selling price should Gargantuan Industries select for each of the Super Clean compounds for the remaining six months of the year?

2-a. Independently of your answer to requirement 1, assume the optimum alternatives for the last six months were as follows: a selling price of $57 and volume of 61,000 cases for the standard compound, and a selling price of $81 and volume of 46,000 cases for the commercial compound. Calculate the contribution margin.

2-b. Given the scenario in requirement (2-a), should management consider closing down its operations until January 1 of the next year in order to minimize its losses?

What unit selling price should Gargantuan Industries select for each of the Super Clean compounds for the remaining six months of the year? Independently of your answer to requirement (1), assume the optimum alternatives for the last six months were as follows: a selling price of $57 and volume of 61,000 cases for the standard compound, and a selling price of $81 and volume of 46,000 cases for the commercial compound. Calculate the contribution margin. Note: Enter your answers in thousands rounded to 1 decimal place. Show less Complete this question by entering your answers in the tabs below. Given the scenario in requirement (2-a), should management consider closing down its operations until January 1 of the next year in order to minimize its losses? Should management consider closing down its operations