Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

please provide a step by step computation on arriving at this solution: Birch Company normally produces and sells 46,000 units of RG-6 each month. The

please provide a step by step computation on arriving at this solution:

Birch Company normally produces and sells 46,000 units of RG-6 each month. The selling price is $20 per unit, variable costs are $10 per unit, fixed manufacturing overhead costs total $155,000 per month, and fixed selling costs total $48,000 per month.

Employment-contract strikes in the companies that purchase the bulk of the RG-6 units have caused Birch Companys sales to temporarily drop to only 11,000 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 $42,000 per month and its fixed selling costs by 10%. Start-up costs at the end of the shutdown period would total $15,000. 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?

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

Financial Accounting

Authors: Charles Horngren, William Thomas, Walter Harrison, Greg Berberich, Catherine Seguin

5th Canadian edition

133472264, 978-0133446265, 133446263, 978-0133472264

More Books

Students also viewed these Accounting questions

Question

Write down the Limitation of Beer - Lamberts law?

Answered: 1 week ago

Question

Discuss the Hawthorne experiments in detail

Answered: 1 week ago

Question

Explain the characteristics of a good system of control

Answered: 1 week ago

Question

State the importance of control

Answered: 1 week ago