Question
Mr Naroon operates a stall in the towns central market and sells shell foods, such as oysters and tahong. He normally earns 500 per day
Mr Naroon operates a stall in the towns central market and sells shell foods, such as oysters and tahong. He normally earns 500 per day computed as follows:
Sales (100 kg) 2,000
Cost of sales 800
Gross profit 1,200
Operating expenses 700
Net profit 500
His operating expenses are composed of the daily rental of 400 for the stall, store helpers salary of 50 and miscellaneous expense of 250. His merchandise which he buys at an average cost of 8 per kilo is supplied by fisherman who gather the shell foods in Manila Bay. Unfortunately, the long dry season negatively affected his business because of the absence of the much-needed rainfall. The whole manila bay area was contaminated with red tide which made oyster and tahong poisonous and highly dangerous for human and animal consumption. When he studied the situation and opened his store, he incurred a loss because he sold only 40 kilos of the shell foods. He expects that his trends will continue until such time the red tide problems is over. He is now considering to shut down his operations temporarily and go back to business only when the red tide is gone. In case he closes his stall, he will continue to pay rent for the space in order to retain his right over the stall but he will avoid incurring his other operating costs.
Determine income or loss with sales of 40 kilos and compute the shutdown costs.
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