Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

(Note: This type of decision is similar to dropping a product line.) Nicholas Company manufactures a fast-bonding glue, normally producing and selling 76,000 litres of

image text in transcribed

image text in transcribed

(Note: This type of decision is similar to dropping a product line.) Nicholas Company manufactures a fast-bonding glue, normally producing and selling 76,000 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 $65 per litre, variable costs are $39 per litre, fixed manufacturing overhead costs in the plant total $437,000 per month, and the fixed selling costs total $585,200 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 19,000 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 $114,000 per month and fixed selling costs can be reduced by 10%. Start-up costs at the end of the shutdown period would total $20,040. 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. Net income is by in two months 1-b. Would you recommend that Nicholas Company close its own plant? O Yes O No 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.) Level of sales litres in two months

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Essentials Of Xbrl Financial Reporting In The 21st Century

Authors: Bryan Bergeron

1st Edition

0471220779, 978-0471220770

More Books

Students also viewed these Accounting questions

Question

identify when neanderthals went extinct.

Answered: 1 week ago

Question

Define Decision making

Answered: 1 week ago

Question

What are the major social responsibilities of business managers ?

Answered: 1 week ago

Question

What are the skills of management ?

Answered: 1 week ago

Question

Carry out an interview and review its success.

Answered: 1 week ago