You work for the controller at Green Partxs Inc., a small specialized supplier to the auto parts industry. Currently, it produces 20,000 units per month, using two shifts, with each shift producing 10,000 units. However, the s bankruptcy of one of its major customers means that production must be cut to 11,000 units within the next six months. The company does not expect to regain the lost business for at least another two years, but it is confident that it can still make a profit at this lower production level.
Instructions
(a) Determine the impact on variable costs of the reduction in production.
(b) Determine the impact on fixed costs of the reduction in production and how the Green Partxs management might reduce them.
(c) What else could the company do to increase profits and offset the impact of the reduced production level?