$($Note: This type of decision is similar to dropping a product line.$)$ Nicholas Company manufactures a fast$-$bonding glue, normally producing and selling $66,000$ litres 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 $$25$ per litre, variable costs are $$15$ per litre, fixed manufacturing overhead costs in the plant total $$379,500$ per month, and the fixed selling costs total $$508,200$ per month.

Strikes in the mills that purchase the bulk of the MJ$-7$ glue have caused Nicholas Company$$s sales to temporarily drop to only $16,500$ litres per month. Nicholas Company$$s management estimates that the strikes will last for two months, after which sales of MJ$-7$ should return to normal. Due to the current low level of sales, Nicholas Company$$s management is thinking about closing down the plant during the strike.

If Nicholas Company does close down the plant, fixed manufacturing overhead costs can be reduced by $$99,000$ per month and fixed selling costs can be reduced by $10\%.$ Start$-$up costs at the end of the shutdown period would total $$19,640.$ Since Nicholas Company uses lean production methods, no inventories are on hand.

Required:

$1-$a$.$ Assuming that the strikes continue for two months, compute the increase or decrease in income from closing the plant.

$1-$b$.$ Would you recommend that Nicholas Company close its own plant?

multiple choice

No

Yes

$2.$ At what level of sales $($in litres$)$ for the two$-$month period should Nicholas Company be indifferent between closing the plant and keeping it open? $($Hint: This is a type of break$-$even analysis, except that the fixed$-$cost portion of your break$-$even computation should include only those fixed costs that are relevant $($i$.$e$.,$ avoidable$)$ over the two$-$month period.$)$