The management of Z co. which is operating now at 50% expects that the volume of...

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The management of Z co. which is operating now at 50% expects that the volume of sales will drop below the present level of 5,000 units per month. The operating statement prepared for monthly sales show the following position: Sales (5,000units at Rs.3 per unit) Less: Variable cost at Rs. 2 per unit Fixed Overheads Rs. www. 10,000 5,000 Rs. www 15,000 15,000 Net profit Nil It is proposed that the company should suspend until market conditions improve. The general manager estimates that a minimum of fixed costs (shut down costs) amounting to Rs. 2,000 would be necessary in any event. A) Advise the management at what level of sales, it could think of suspending production. B) If the selling price is reduced to Rs.2.80, what should be the sales level for shut down decision? The management of Z co. which is operating now at 50% expects that the volume of sales will drop below the present level of 5,000 units per month. The operating statement prepared for monthly sales show the following position: Sales (5,000units at Rs.3 per unit) Less: Variable cost at Rs. 2 per unit Fixed Overheads Rs. www. 10,000 5,000 Rs. www 15,000 15,000 Net profit Nil It is proposed that the company should suspend until market conditions improve. The general manager estimates that a minimum of fixed costs (shut down costs) amounting to Rs. 2,000 would be necessary in any event. A) Advise the management at what level of sales, it could think of suspending production. B) If the selling price is reduced to Rs.2.80, what should be the sales level for shut down decision?

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