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QUESTION 2 (35 points) Jawal Co. has a single product called a Phono. The company normally produces and sells 78000 Phonos each year at a selling price of $44 per unit. The company's units production, selling price, costs at this level of activity are given below: Description Production Level Selling Price Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Variable selling expenses Fixed selling expenses Total cost per unit Unit/$ Phono Units $ $ $ $ $ $ wa|a|awa|a|a| | Value 78000 44.00 6.50 12.00 1.90 7.00 4.70 4.50 36.60 $ 3) Due to a strike in its supplier's plant, Jawal Co. is unable to purchase more material for the production of Phonos. The strike is expected to last for two months. Jawal Co. has enough material on hand to operate at 25% of normal levels for the two-month period. As an alternative, Jawal Co. Could own entirely for the two months. If the plant were closed, fixed manufacturing overhead costs would continue at 40% level during the two-month period and the fixed selling expenses would be reduced by 20%. What would be the impact on profits of closing the plant for the two-month period? (Enter losses/reductions with a minus sign) - Show both long & short solutions (14 points) - SHOULD THE COMPANY SELL FOR 2 MONTHS OR CLOSE DOWN? (2 points) Long Approach Solution Continue to Operate Close the plant Explanation Sales Variable expenses Contribution margin Fixed expenses: Fixed manufacturing overhead cost: Fixed selling expense: Total fixed expenses Net operating income (loss) 10 Amount $ Amount $ Short Approach Solution Contribution margin lost 0 Fixed costs Fixed manufacturing overhead cost Fixed selling cost Net advantage of closing the plant - SHOULD THE COMPANY SELL FOR 2 MONTHS OR CLOSE DOWN? Why