Greener Garden Group produces and sells $23,000$ 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 $$18$ per litre, variable costs are $$11$ per litre, fixed manufacturing overhead costs in the plant total $$132,250$ per month, and the fixed selling costs total $$178,250$ 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 $6,900$ 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 $$34,500$ per month and fixed selling costs can be reduced by $10\%.$ Start$-$up costs at the end of the shutdown period would total $$3,150$ 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:

Assuming that the strikes continue for two months, compute the increase or decrease in income from closing the plant.

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 $($i$.$e$.,$ avoidable$)$ over the two$-$month period.$)$

Answer rating: 100% (QA)

Impact of Closing the Plant for Two Months Scenario 1 Plant Remains Open Production 6900 litresmonth 2 months 13800 litres total for 2 months Revenue ... View the full answer