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Note This type of decision is similar to dropping a product line ) Nicholas Company manufactures a fast - bonding glue, normally producing and selling
Note This type of decision is similar to dropping a product line Nicholas Company manufactures a fastbonding glue, normally producing and selling items of the glue each month. This glue, which is known as M is used in the wood industry to manufacture plywood. The sering price of MJ is $ per litre, variable costs are $ per litbe, fixed manufacturing overnead costs in the plant total per month, and the fixed selling costs total $ per month Strikes in the mins that purchase the bulk of the MJ glue have caused Nicholas Company's sales to temporanly drop to only litres per month Nicholas Company's management estimates that the strikes will last for two months, after which sales of MJ 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 $ per month arid fixed selling costs can be reduced by Startup costs at the end of the shutdown period would total $ Since Nicholas Company uses lean production methods, no Inventories are on hand Required a Assuming that the strikes continue for two months, compute the increase or decrease in income from closing the plant Net income is decrease by $ in two months b Would you recommend that Nicholas Company close its own plant? No Yes At what level of sales in litres for the twomonth period should Nicholas Company be indifferent between closing the plant and keeping it open? Hint This is a type of breakeven analysis, except that the fixedcost portion of your breakeven computation should include only those fixed costs that are relevant le avoidable over the twomonth period. Level of sales litres in two months
Note This type of decision is similar to dropping a product line Nicholas Company manufactures a fastbonding glue, normally producing and selling items of the glue each month. This glue, which is known as M is used in the wood industry to manufacture plywood. The sering price of MJ is $ per litre, variable costs are $ per litbe, fixed manufacturing overnead costs in the plant total per month, and the fixed selling costs total $ per month
Strikes in the mins that purchase the bulk of the MJ glue have caused Nicholas Company's sales to temporanly drop to only litres per month Nicholas Company's management estimates that the strikes will last for two months, after which sales of MJ 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 $ per month arid fixed selling costs can be reduced by Startup costs at the end of the shutdown period would total $ Since Nicholas Company uses lean production methods, no Inventories are on hand
Required
a Assuming that the strikes continue for two months, compute the increase or decrease in income from closing the plant Net income is decrease by $ in two months
b Would you recommend that Nicholas Company close its own plant?
No
Yes
At what level of sales in litres for the twomonth period should Nicholas Company be indifferent between closing the plant and keeping it open? Hint This is a type of breakeven analysis, except that the fixedcost portion of your breakeven computation should include only those fixed costs that are relevant le avoidable over the twomonth period.
Level of sales
litres in two months
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