Birch Company normally produces and sells 46,000 units of RG-6 each month. The selling price is...

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Accounting

Birch Company normally produces and sells 46,000 units of RG-6each month. The selling price is $25 per unit, variable costs are$17 per unit, fixed manufacturing overhead costs total $200,000 permonth, and fixed selling costs total $40,000 per month.
Employment-contract strikes in the companies that purchase thebulk of the RG-6 units have caused Birch Company’s sales totemporarily drop to only 9,000 units per month. Birch Companyestimates that the strikes will last for two months, after whichtime sales of RG-6 should return to normal. Due to the current lowlevel of sales, Birch Company is thinking about closing down itsown plant during the strike, which would reduce its fixedmanufacturing overhead costs by $49,000 per month and its fixedselling costs by 8%. Start-up costs at the end of the shutdownperiod would total $14,000. Because Birch Company uses LeanProduction methods, no inventories are on hand.
Required:
1. What is the financial advantage (disadvantage) if Birchcloses its own plant for two months?
2. Should Birch close the plant for two months?
3. At what level of unit sales for the two-month period wouldBirch Company be indifferent between closing the plant or keepingit open?

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Birch Company normally produces and sells 46,000 units of RG-6each month. The selling price is $25 per unit, variable costs are$17 per unit, fixed manufacturing overhead costs total $200,000 permonth, and fixed selling costs total $40,000 per month.Employment-contract strikes in the companies that purchase thebulk of the RG-6 units have caused Birch Company’s sales totemporarily drop to only 9,000 units per month. Birch Companyestimates that the strikes will last for two months, after whichtime sales of RG-6 should return to normal. Due to the current lowlevel of sales, Birch Company is thinking about closing down itsown plant during the strike, which would reduce its fixedmanufacturing overhead costs by $49,000 per month and its fixedselling costs by 8%. Start-up costs at the end of the shutdownperiod would total $14,000. Because Birch Company uses LeanProduction methods, no inventories are on hand.Required:1. What is the financial advantage (disadvantage) if Birchcloses its own plant for two months?2. Should Birch close the plant for two months?3. At what level of unit sales for the two-month period wouldBirch Company be indifferent between closing the plant or keepingit open?