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...

• Homework Help
• 2
• 100% (1) 1 out of 1 people found this document helpful

This preview shows page 1 - 2 out of 2 pages.

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.