Birch Company normally produces and sells 42,000 units of RG-6each month. The selling price...

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Accounting

Birch Company normally produces and sells 42,000 units of RG-6each month. The selling price is $26 per unit, variable costs are$17 per unit, fixed manufacturing overhead costs total $175,000 permonth, and fixed selling costs total $46,000 per month.
Employment-contractstrikes in the companies that purchase the bulk of the RG-6 unitshave caused Birch Company’s sales to temporarily drop to only 9,000units per month. Birch Company estimates that the strikes will lastfor two months, after which time sales of RG-6 should return tonormal. Due to the current low level of sales, Birch Company isthinking about closing down its own plant during the strike, whichwould reduce its fixed manufacturing overhead costs by $49,000 permonth and its fixed selling costs by 9%. Start-up costs at the endof the shutdown period would total $14,000. Because Birch Companyuses Lean Production methods, no inventories are on hand.
Required:
1. What is thefinancial advantage (disadvantage) if Birch closes its own plantfor two months?
2. Should Birch closethe plant for two months?
3. At what level ofunit sales for the two-month period would Birch Company beindifferent between closing the plant or keeping it open?

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In: AccountingBirch Company normally produces and sells 42,000 units of RG-6each month. The selling price is...Birch Company normally produces and sells 42,000 units of RG-6each month. The selling price is $26 per unit, variable costs are$17 per unit, fixed manufacturing overhead costs total $175,000 permonth, and fixed selling costs total $46,000 per month.Employment-contractstrikes in the companies that purchase the bulk of the RG-6 unitshave caused Birch Company’s sales to temporarily drop to only 9,000units per month. Birch Company estimates that the strikes will lastfor two months, after which time sales of RG-6 should return tonormal. Due to the current low level of sales, Birch Company isthinking about closing down its own plant during the strike, whichwould reduce its fixed manufacturing overhead costs by $49,000 permonth and its fixed selling costs by 9%. Start-up costs at the endof the shutdown period would total $14,000. Because Birch Companyuses Lean Production methods, no inventories are on hand.Required:1. What is thefinancial advantage (disadvantage) if Birch closes its own plantfor two months?2. Should Birch closethe plant for two months?3. At what level ofunit sales for the two-month period would Birch Company beindifferent between closing the plant or keeping it open?