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Ovation Company has a single product called a Bit. The company normally produces and sells 6 9 , 6 0 0 Bits each year at
Ovation Company has a single product called a Bit. The company normally produces and sells Bits each year at a selling price of $ per unit. The companys unit costs at this level of activity are given below:
Direct materials $
Direct labour
Variable manufacturing overhead
Fixed manufacturing overhead $ total
Variable selling expenses
Fixed selling expenses $ total
Total cost per unit $
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Due to a strike in its supplier's plant, Ovation Company is unable to purchase more material for the production of Bits. The strike is
expected to last for two months. Ovation Company has enough material on hand to operate at of normal levels for the twomonth period. As an alternative, Ovation could close its plant down entirely for the two months. If the plant were closed, fixed overhead costs would continue at of their normal level during the twomonth period and the fixed selling expenses would be
reduced by What would be the impact on profits of closing the plant for the twomonth period? input the amount as a positive
value. Do not round your Intermedlate calculatlons.
Net disadvantage of closing the plant:
An outside manufacturer has offered to produce Bits and ship them directly to Ovation's customers. If Ovation Company accepts
this offer, the facilities that it uses to produce Bits would be idle; however, fixed manufacturing overhead costs would be reduced by
Since the outside manufacturer would pay for all shipping costs, the variable selling expenses would be only twothirds of their
current amount. Compute the unit cost that is relevant for comparison to the price quoted by the outside manufacturer. Do not round
your Intermedilate calculatlons. Round your answer to decimal places.
Total avoidable unit cost:
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