Question 8 The board of Mingus plc is considering closure of a factory located in Smallville. The following budget has been prepared for the year ended 30th June 2010. 000 Sales 500 (400) Direct and variable costs Fixed costs Factory in Smallville (80) Head Office charge (30) National advertising charge (10) Joint fixed costs with factory in Bigtown (15) Loss for the year (35) There are two possible outcomes of closure: (1) the whole turnover will be lost; the sale of assets would release 250,000 for investment. (2) 25% of the production could be transferred to Bigtown with no increase of fixed costs at that factory; the sale of assets would release 200,000 for investment. Required: Discuss, with supporting calculations, the two possible outcomes of closure of the Smallville factory. UOL 2009 Zone B Question 10