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Birch Company normally produces and sells 47,000 units of RG-6 each month. The selling price is $30 per unit, variable costs are $10 per unit, fixed manufacturing overhead costs total $195,000 per month, and fixed selling costs total $34,000 per month. Employment-contract strikes in the companies that purchase the bulk of the RG-6 units have caused Birch Company's sales to temporarily drop to only 9,000 units per month. Birch Company estimates that the strikes will last for two months, after which time sales of RG-6 should return to normal. Due to the current low level of sales, Birch Company is thinking about closing down its own plant during the strike, which would reduce its fixed manufacturing overhead costs by $41,000 per month and its fixed selling costs by 10%. Start-up costs at the end of the shutdown period would total $16,000. Because Birch Company uses Lean Production methods, no inventories are on hand. Required: 1. What is the financial advantage (disadvantage) if Birch closes its own plant for two months? 2. Should Birch close the plant for two months? 3. At what level of unit sales for the two-month period would Birch Company be indifferent between closing the plant or keeping it open? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What is the financial advantage (disadvantage) if Birch closes its own plant for two months? Financial (disadvantage) Polaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 38,000 Rets per year. Costs associated with this level of production and sales are given below: Unit Total Direct materials 5 25 $ 950,000 Direct labor 6 223,000 Variable manufacturing overhead 3 1 14 , 000 Fixed manufacturing overhead 9 342 , 000 Variable selling expense 2 76,000 Fixed selling expense 6 22 B , 000 Total cost $ 51 $ 1,933,000 , The Rets normally sell for $56 each. Fixed manufacturing overhead is $342,000 per year within the range of 32,000 through 38,000 Rets per year. Required: 1. Assume that due to a recession, Polaski Company expects to sell only 32,000 Rets through regular channels next year. A large retail chain has offered to purchase 6,000 Rets if Polaski is willing to accept a 16% discount off the regular price. There would be no sales commissions on this order: thus, variable selling expenses would be slashed by 75%. However, Polaski Company would have to purchase a special machine to engrave the retail chain's name on the 6,000 units. This machine would cost $12,000. Polaski Company has no assurance that the retail chain will purchase additional units in the future. What is the nancial advantage (disadvantage) of accepting the special order? (Round your intermediate calculations to 2 decimal places.) 2. Refer to the original data. Assume again that Polaski Company expects to sell only 32,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 6,000 Rets. The Army would reimburse Polaski for all of the variable and xed production costs assigned to the units by the company's absorption costing system, plus it would pay an additional fee of $1.60 per unit. Because the army would pick up the Rets with its own trucks. there would be no variable selling expenses associated with this order. What is the nancial advantage (disadvantage) of accepting the US. Army's special order? 3. Assume the same situation as described in (2} above, except that the company expects to sell 38,000 Rets through regular channels next year. Thus, accepting the US. Army's order would require giving up regular sales of 6,000 Rets. Given this new information, what is the nancial advantage (disadvantage) of accepting the U.S. Army's special order? _- a inancial advantage - a inanoial (disadvantage) - (Prepared from a situation suggested by Professor John W. Hardy.) Lone Star Meat Packers is a major processor of beef and other meat products. The company has a large amount of T-bone steak on hand, and it is trying to decide whether to sell the T-bone steaks as they are initially cut or to process them further into let mignon and the New York cut. If the T-bone steaks are sold as initially cut, the company gures that a 1-pound T-bone steak would yield the following prot: Selling price ($2.50 per pound) $ 2.50 Lesa joint costs incurred up to the split-off point where Tbone steak can be identified as a separate product 1.25 Profit per: pound $ 1.25 ' If the company were to further process the T-bone steaks, then cutting one side of a T-bone steak provides the let mignon and cutting the other side provides the New York cut. One 16-ounce T-bone steak cut in this way will yield one 6-ounce let mignon and one 8-ounce New York cut: the remaining ounces are waste. It costs $0.17 to further process one T-bone steak into the let mignon and New York cuts. The let mignon can be sold for $3.60 per pound, and the New York cut can be sold for $3.20 per pound. Required: 1. What is the nancial advantage (disadvantage) of further processing one Tbone steak into let mignon and New York cut steaks? 2. Would you recommend that the T-bone steaks be sold as initially cut or processed further? Cornplete this question by entering your answers in the tabs below. Required 1 Required 2 What is the nancial advantage (disadvantage) of further processing one Tbone steak into let mignon and New York cut steaks? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Required 2 >
