2 points eBook - Print D References {MWote: This type of decision is similar to dropping a product line ) Micholas Company manufactures a fast-bonding glue, normally producing and selling 54,000 litres of the glue each month. This glue, which is known as MJ-7, is used in the wood industry to manufacture plywood. The selling price of MJ-7 is $45 per litre, variable costs are $27 per litre, fixed manufacturing overhead costs in the plant total $310,500 per month, and the fixed selling costs total $415,800 per month. Strikes in the mills that purchase the bulk of the MJ-7 glue have caused Nicholas Company's sales to tempaorarily drop to only 13,500 litres per month. Micholas Company's management estimates that the strikes will last for two months, after which sales of MJ-7 should return to normal. Due to the current low level of sales, Nicholas Company's management is thinking about closing down the plant during the strike. If Michelas Company does close down the plant, fixed manufacturing overhead costs can be reduced by $81,000 per menth and fixed selling costs can be reduced by 10%. Start-up costs at the end of the shutdown period would total $11160. Since Nicholas Company uses lean production methods, no inventories are on hand. Required: 1-a. Assuming that the strikes continue for two months, compute the increase or decrease in income from closing the plant. Ferneome s reaeee o Jrwe e 1-b. Would you recommend that Nicholas Company close its own plant? O No O Yes 2. At what level of sales (in litres) for the two-month peried should Nicholas Company be indifferent between closing the plant and keeping it open? (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.) 10 points B0k - Print D References "That old equipment for producing oil drums is worn out,\" said Bill Seebach, president of Hondrich Company. "We need to make a decision quickly.\" The company is trying to decide whether it should rent new equipment and continue to make its oil drums internally or whether it should discontinue production and purchase them from an cutside supplier. The alternatives follow: Alternative T: Rent new equipment for producing the oil drums for $168 000 per year. Alternative 2: Purchase oil drums from an outside supplier for $21.05 each. Hondrich Company's costs per unit of producing the oil drums internally (with the cld equipment) are given below. These costs are based on a current activity level of 30,000 units per year: Direct materials $5.38 Direct labour 11.68 Wariable overhead 2.68 Fixed overhead (52.88 superwision, 51_88 depreciation, and $4.88 general company overhead} 8.68 Total cost per unit $26.98 The new equipment would be more efficient and, according to the manufacturer, would reduce direct labour costs and variable overhead costs by 25%. Supervision cost ($84,000 per year) and direct materials cost per unit would not be affected by the new equipment. The new equipment's capacity would be 50,000 cil drums per year. The total general company overhead would be unaffected by this decision. Requirect 1. Seebach is unsure what the company should do and would like an analysis showing the unit costs and total costs for each of the two alternatives given above. Assume that 30,000 oil drums are needed each year. a. What will be the total relevant cost of 30,000 subassemblies if they are manufactured internally as compared to being purchased? b. What would be the per unit cost of the each subassembly manufactured internally? {De not round intermediate caleulations. Round your answer to 2 decimal places.) 2345 Check my work 3 O Purchase from the outside supplier 2. Seebach is unsure what the company should do and would like an analysis showing the unit costs and total costs for each of the two alternatives given above. a-1. What will be the total relevant cost of 42,000 subassemblies if they are manufactured internally? Total relevant cost (42,000 subassemblies) $ 884,100 Book Print a-2. What would be the per unit cost of subassembly manufactured internally? (Do not round intermediate calculations. Round your References answer to 2 decimal places.) Per unit cost of subassembly $ 21.05 a-3. Which course of action would you recommend if 42,000 assemblies are needed each year? O Manufacture internally Indifferent between the two alternatives O Purchase from the outside supplier b-1. What will be the total relevant cost of 50,000 subassemblies if they are manufactured internally? Total relevant cost (50,000 subassemblies) $ 252,000 b-2. What would be the per unit cost of subassembly manufactured internally? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Per unit cost of subassembly b-3. Which course of action would you recommend if 50,000 assemblies are needed each year? Indifferent between the two alternatives O Manufacture internally Purchase from the outside supplier