Hallas Company manufactures a fast-bonding glue in its Northwest plant. The company normally produces and sells 40,000 gallons of the glue each month. This glue, which is known as MJ-7, is used in the wood industry to manufacture plywood. The selling price of MJ-7 is $35 per gallon, variable production costs are $21 per gallon, fixed manufacturing overhead costs in the plant total $230,000 per month, and fixed selling costs total $310,000 per month.

Strikes in the plywood mills that purchase the bulk of MJ-7 glue have caused Hallas Company's sales to temporarily drop to only 11,000 gallons per month. Hallas Company management estimates that the strikes will last for two months, after which sales of MJ-7 will return to normal. Due to the current low level of sales, Hallas Company management is thinking about closing down the Northwest plant during the strike.

If Hallas Company does close down the Northwest plant, fixed manufacturing overhead costs can be reduced by $60,000 per month and fixed selling costs can be reduced by 10%. Start-up costs at the end of the shutdown period would total $14,000. Since Hallas uses lean production methods, no inventories are on hand.

The answers are:

1. What is Hallas Company's income in a normal month, i.e. one in which it sells 40,000 gallons on MJ-7?: $20,000
2. What will Hallas Company's loss be if it elects to operate the plant during the two months of strikes? Enter your answer as a positive number: $772,000
3. What will Hallas Company's loss be if it elects to close the plant for the two months of strikes and restart it as of the end of the second month? Enter your answer as a positive number: $912,000
4. Should Hallas close the plant for two months? Yes or No?: No
5. What is the net advantage (or disadvantage) to Hallas Company in closing down the plant for two months? Enter your answer as a positive number: $140,000
6. At what level of unit sales volume for the two months is Hallas Company indifferent between closing the plant and keeping it open?: 12,000

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