Jawal Co. has a single product called a Phono. The company normally produces and sells 80000 Phonos each year at a selling price of $50 per unit. The company's units production, selling price, costs at this level of activity are given below: Description Unit$ Production Level Phono Units Selling Price Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses Total cost per unit Value 80000 50.00 5.60 11.00 3.40 7.00 4.50 4.70 36.20 |3) Due to a strike in its supplier's plant, Jawal Co. is unable to purchase more material for the production of Phonos. The strike is expected to last for two months. Jawal Co. has enough material on hand to operate at 20% of normal levels for the two-month period. As an alternative, Jawal Co.could close its plant down entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at 45% of their normal level during the two-month period and the fixed selling expenses would be reduced by 30%. What would be the impact on profits of closing the plant for the two-month period? (Enter losses/reductions with a minus sign) - Show both long & short solutions (14 points) - SHOULD THE COMPANY SELL FOR 2 MONTHS OR CLOSE DOWN? (2 points) Continue to Operate Close the plant Explanation Long Approach Solution Sales Variable expenses Contribution margin Fixed expenses: Fixed manufacturing overhead cost: Fixed selling expense: Total fixed expenses Net operating income (loss) 0 Short Approach Solution Contribution margin lost Solution Amounts Amounts Fixed costs Fixed manufacturing overhead cost Fixed selling cost Net advantage of closing the plant - SHOULD THE COMPANY SELL FOR 2 MONTHS OR CLOSE DOWN? Why