CLOSURE OF DEPARTMENT V Ltd manufactures electric calculators. This factory is the production centre and all...

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CLOSURE OF DEPARTMENT V Ltd manufactures electric calculators. This factory is the production centre and all sales occur at the two sales centres in X and Y. The following information is provided: For period 10, budgeted production is 80,000 units and the cost structure is as follows: Budgeted Production = 80,000 units Direct material and labour Variable overheads Fixed overhead Production cost Variable costs (sales, packaging, ad sales commission Fixed costs (depot rent, administration etc) $/Unit 9 Budgeted Sales. X 50,000 Stock levels remain unchanged and can be ignored. Budgeted sales are: X 50,000 units, Y Y 30,000 30,000 units. Fixed selling price is $14 per unit and the sales depot costs are budgeted at: X Y ($) $ 1 2 15,000 40,000 Required: Statement showing: (a) Why management is considering the closure of the depot. (b) What will the effect be on the company's profits. 12 9,000 54,000 Management is considering closure of the Y depot. Y's fixed costs include $6,000 for part of the costs of a central warehouse in Newport which is used by both sales depots, and if the Y depot is closed the whole of the warehouse costs would have to be borne by X. The manager of Y depot would have to be offered a gratuitous pension of $3,000 per annum and has a long expectation of life (no funded pension scheme is in operation). If the Y branch is closed, factory production for period 10 will be cut to 50,000 units and it is not thought that there will be any immediate economies in the factory fixed costs or alternative utilisation of spare factory capacity. CLOSURE OF DEPARTMENT V Ltd manufactures electric calculators. This factory is the production centre and all sales occur at the two sales centres in X and Y. The following information is provided: For period 10, budgeted production is 80,000 units and the cost structure is as follows: Budgeted Production = 80,000 units Direct material and labour Variable overheads Fixed overhead Production cost Variable costs (sales, packaging, ad sales commission Fixed costs (depot rent, administration etc) $/Unit 9 Budgeted Sales. X 50,000 Stock levels remain unchanged and can be ignored. Budgeted sales are: X 50,000 units, Y Y 30,000 30,000 units. Fixed selling price is $14 per unit and the sales depot costs are budgeted at: X Y ($) $ 1 2 15,000 40,000 Required: Statement showing: (a) Why management is considering the closure of the depot. (b) What will the effect be on the company's profits. 12 9,000 54,000 Management is considering closure of the Y depot. Y's fixed costs include $6,000 for part of the costs of a central warehouse in Newport which is used by both sales depots, and if the Y depot is closed the whole of the warehouse costs would have to be borne by X. The manager of Y depot would have to be offered a gratuitous pension of $3,000 per annum and has a long expectation of life (no funded pension scheme is in operation). If the Y branch is closed, factory production for period 10 will be cut to 50,000 units and it is not thought that there will be any immediate economies in the factory fixed costs or alternative utilisation of spare factory capacity.

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Step 12 a Management is considering the closure of the Y depot because the sales and profits generat... View the full answer