Greener Garden Group produces and sells 21,200 litres of organic lawn and garden fertilizer. The fertilizer, GoGrow, is a favourite among landscaping companies in southern Manitoba. The selling price of GoGrow is $16 per litre, variable costs are $9 per litre, fixed manufacturing overhead costs in the plant total $121,900 per month, and the fixed selling costs total $164,300 per month. Recent supply chain problems have made it difficult for the Greener Garden Group to get the quantity of chemicals needed to produce the fertilizer. Because of this, sales have dropped to 6,360 litres per month and will most likely stay at this level until the supply of chemicals is back to normal. Management expects that the supply chain issues will ease up soon with business returning to normal in two months. However, the CEO of Greener Garden Group thinks the company should fully shut down operations for two months until the supply chain issues are resolved. If the Greener Garden Group does close the plant for two months, fixed manufacturing overhead costs can be reduced by $31,800 per month and fixed selling costs can be reduced by 10%. Start-up costs at the end of the shutdown period would total $1,960 to get the plant up and running again. If the plant is shut down, all employees will be temporarily laid off for the entire two-month period. There is no inventory of GoGrow on hand. Required: 1. Assuming that the strikes continue for two months, compute the increase or decrease in income from closing the plant. Net income is increase by $ 5,460 in two months 2. This part of the question is not part of your Connect assignment. 3. At what level of sales (in litres) for the two-month period should the Green Garden Group be indifferent between closing the plant and keeping it open? Show computations. (Hint: This is a type of break-even analysis, except that the fixed-cost portion of your break-even computation should include only those fixed costs that are relevant (ie avoidable) over the two-month period)
Greener Garden Group produces and sells 21,200 litres of organic lawn and garden fertilizer. The fertilizer, GoGrow, is a favourite among landscaping companies in southern Manitoba. The selling price of GoGrow is $16 per litre, variable costs are $9 per litre, fixed manufacturing overhead costs in the plant total $121,900 per month, and the fixed selling costs total $164,300 per month. Recent supply chain problems have made it difficult for the Greener Garden Group to get the quantity of chemicals needed to produce the fertilizer. Because of this, sales have dropped to 6,360 litres per month and will most likely stay at this level until the supply of chemicals is back to normal. Management expects that the supply chain issues will ease up soon with business returning to normal in two months. However, the CEO of Greener Garden Group thinks the company should fully shut down operations for two months until the supply chain issues are resolved. If the Greener Garden Group does close the plant for two months, fixed manufacturing overhead costs can be reduced by $31,800 per month and fixed selling costs can be reduced by 10%. Start-up costs at the end of the shutdown period would total $1,960 to get the plant up and running again. If the plant is shut down, all employees will be temporarily laid off for the entire two-month period. There is no inventory of GoGrow on hand. Required: 1. Assuming that the strikes continue for two months, compute the increase or decrease in income from closing the plant. Net income is increase by $ 5,460 in two months 2. This part of the question is not part of your Connect assignment. 3. At what level of sales (in litres) for the two-month period should the Green Garden Group be indifferent between closing the plant and keeping it open? Show computations. (Hint: This is a type of break-even analysis, except that the fixed-cost portion of your break-even computation should include only those fixed costs that are relevant (ie avoidable) over the two-month period)
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter7: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 62P
Related questions
Question
Transcribed Image Text:Greener Garden Group produces and sells 21,200 litres of organic lawn and garden fertilizer. The fertilizer, GoGrow, is a favourite
among landscaping companies in southern Manitoba. The selling price of GoGrow is $16 per litre, variable costs are $9 per litre, fixed
manufacturing overhead costs in the plant total $121,900 per month, and the fixed selling costs total $164,300 per month.
Recent supply chain problems have made it difficult for the Greener Garden Group to get the quantity of chemicals needed to produce
the fertilizer. Because of this, sales have dropped to 6,360 litres per month and will most likely stay at this level until the supply of
chemicals is back to normal. Management expects that the supply chain issues will ease up soon with business returning to normal in
two months. However, the CEO of Greener Garden Group thinks the company should fully shut down operations for two months until
the supply chain issues are resolved.
If the Greener Garden Group does close the plant for two months, fixed manufacturing overhead costs can be reduced by $31,800 per
month and fixed selling costs can be reduced by 10%. Start-up costs at the end of the shutdown period would total $1,960 to get the
plant up and running again. If the plant is shut down, all employees will be temporarily laid off for the entire two-month period. There is
no inventory of GoGrow on hand.
Required:
1. Assuming that the strikes continue for two months, compute the increase or decrease in income from closing the plant.
Net income is
increase
by $ 5,460 in two months
2. This part of the question is not part of your Connect assignment.
3. At what level of sales (in litres) for the two-month period should the Green Garden Group be indifferent between closing the plant
and keeping it open? Show computations. (Hint: This is a type of break-even analysis, except that the fixed-cost portion of your
break-even computation should include only those fixed costs that are relevant (ie avoidable) over the two-month period)
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