Universe Ltd manufactures 20,000 units of ‘X’ in a year at its normal production capacity. The unit cost as to variable costs and fixed costs at this level are Tsh 13,000 and Tsh 4,000 respectively. The sellingprice is Tshs 20,000 per unit. Due to trade depression, it is expected that only 2,000 units of ‘X’ can be sold during the next year. The management plans to shut down the plant. The fixed cost for the next year then is expected to be reduced to Tsh 33,000,000. Additional costs of plant shut-down are expected at Tsh 12,000,000. Should the plant be shut down? What is the shut down point?

Answer rating: 100% (QA)

To determine whether the plant should be shut down we need to calculate the contribution margin ... View the full answer