10-24A.Solution - Problem 10-24A(60 minutes 1 Selling price per unit Variable expenses per unit Contribution margin per unit $40 24 $16*$9.50 $10.00

10-24A.Solution - Problem 10-24A(60 minutes 1 Selling price...

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Problem 10-24A(60 minutes)
3. If the plant operates at 25% of normal levels, then only 5,000 units will be produced and sold during the three-month period: 80,000 units per year × 3/12 = 20,000 units. 20,000 units × 25% = 5,000 units produced and sold. Given this information, the simplest approach to the solution is: Contribution margin lost if the plant is closed (5,000 units × $16 per unit*) ........................$(80,000)Fixed costs that can be avoided if the plant is closed: Fixed manufacturing overhead cost ($400,000 × 3/12 = $100,000; $100,000 × 40%) ...................................$40,000 Fixed selling cost ($360,000 × 3/12 = $90,000; $90,000 × 1/3) .........................30,000 70,000 Net disadvantage of closing the plant ...............$(10,000)*$40.00 ($9.50 + $10.00 + $2.80 + $1.70) = $16.00 Profits would decline by $10,000 if the plant is closed.

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