Theodore Co. has been incurring losses in the past years during the third quarter of the year. Management is considering to shutdown operations during this period to avoid continued losses. Allocated fixed operational monthly costs were determined from the records amount to P60,000. Average monthly sales during the year except the third quarter are 10,000 units. The company averages only 2,500 units monthly during the third quarter. Units are sold at a price of P30 each. Variable costs to produce and sell the units are P18 per unit. If management decides to shutdown operations they would save on allocated fixed costs 40%, but will incur additional shutdown costs of P4,000 per month. What would be the advantage of continued operations?
Theodore Co. has been incurring losses in the past years during the third quarter of the year. Management is considering to shutdown operations during this period to avoid continued losses. Allocated fixed operational monthly costs were determined from the records amount to P60,000. Average monthly sales during the year except the third quarter are 10,000 units. The company averages only 2,500 units monthly during the third quarter. Units are sold at a price of P30 each. Variable costs to produce and sell the units are P18 per unit. If management decides to shutdown operations they would save on allocated fixed costs 40%, but will incur additional shutdown costs of P4,000 per month. What would be the advantage of continued operations?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter16: Cost-volume-profit Analysis
Section: Chapter Questions
Problem 9E: Gelbart Company manufactures gas grills. Fixed costs amount to 16,335,000 per year. Variable costs...
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Theodore Co. has been incurring losses in the past years during the third quarter of the year. Management is considering to shutdown operations during this period to avoid continued losses. Allocated fixed operational monthly costs were determined from the records amount to P60,000. Average monthly sales during the year except the third quarter are 10,000 units. The company averages only 2,500 units monthly during the third quarter. Units are sold at a price of P30 each. Variable costs to produce and sell the units are P18 per unit. If management decides to shutdown operations they would save on allocated fixed costs 40%, but will incur additional shutdown costs of P4,000 per month.
What would be the advantage of continued operations?
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