Question

Handy Household Products, Inc., is a multiproduct company with several manufacturing plants. The Shreveport Plant manufactures and distributes two household cleaning and polishing compounds, standard and commercial, under the Clean & Bright label. The forecasted operating results for the first six months of the current year, when 100,000 cases of each compound are expected to be manufactured and sold, are presented in the following statement.


The standard compound sold for $40 a case and the commercial compound sold for $60 a case during the first six months of the year. The manufacturing costs, by case of product, are presented in the schedule below. Each product is manufactured on a separate production line. Annual normal manufacturing capacity is 200,000 cases of each product. However, the plant is capable of producing 250,000 cases of standard compound and 350,000 cases of commercial compound annually.


The following schedule reflects the consensus of top management regarding the price-volume alternatives for the Clean & Bright products for the last six months of the current year. These are essentially the same alternatives management had during the first six months of the year.


Handy Household Products’ top management believes the loss for the first six months reflects a tight profit margin caused by intense competition. Management also believes that many companies will leave this market by next year and profit should improve.

Required:
1. What unit selling price should management select for each of the Clean & Bright compounds for the remaining six months of the year? Support your selection with appropriate calculations.
2. Independently of your answer to requirement (1), assume the optimum alternatives for the last six months were as follows: a selling price of $46 and volume of 50,000 cases for the standard compound, and a selling price of $70 and volume of 35,000 cases for the commercial compound.
a. Should management consider closing down its operations until January 1 of the next year in order to minimize its losses? Support your answer with appropriate calculations.
b. Identify and discuss the qualitative factors that should be considered in deciding whether the Shreveport Plant should be closed down during the last six months of the current year.


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  • CreatedApril 22, 2014
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