2. Variable production cost per unit $22.30 Import duties, etc. ($14,000 ÷ 20,000 units) 0.70 Shipping cost per unit 1.50 Break-even price per unit $24.50 3. If the plant operates at 25% of normal levels, then only 5,000 units will be produced and sold during the three-month period: 80,000 units per year × 3/12 = 20,000 units. 20,000 × 25% = 5,000 units produced and sold. this information, the simplest approach to the solution is: Contribution margin lost if the is closed (5,000 units × $16 per unit*) $(80,000) Fixed costs that can be avoided if the plant is closed: Fixed manufacturing overhead cost ($400,000 × 3/12 = $100,000; $100,000 × 40%) $40,000 selling cost ($360,000 × 3/12 = $90,000; $90,000 × 1/3) 30,000 70,000 Net disadvantage of closing the plant $(10,000) *$40.00 ($9.50 + $10.00 + $2.80 + $1.70) = $16.00 – Profits would decline by $10,000 if the plant is closed. Problem 12-24 (continued) Alternative approach: Keep the Close the Plant Open Plant (5,000 units × $40 per unit) $ 200,000 $ 0 Variable expenses (5,000 units × $24 per unit) 120,000 0 Contribution margin 80,000 0 Fixed expenses: Fixed manufacturing overhead cost: $400,000 × 3/12 100,000 $400,000 × 3/12 × 60% 60,000 Fixed selling expense:
2. Variable production cost per unit $22.30 Import duties, etc. ($14,000 ÷ 20,000 units) 0.70 Shipping cost per unit 1.50 Break-even price per unit $24.50 3. If the plant operates at 25% of normal levels, then only 5,000 units will be produced and sold during the three-month period: 80,000 units per year × 3/12 = 20,000 units. 20,000 × 25% = 5,000 units produced and sold. this information, the simplest approach to the solution is: Contribution margin lost if the is closed (5,000 units × $16 per unit*) $(80,000) Fixed costs that can be avoided if the plant is closed: Fixed manufacturing overhead cost ($400,000 × 3/12 = $100,000; $100,000 × 40%) $40,000 selling cost ($360,000 × 3/12 = $90,000; $90,000 × 1/3) 30,000 70,000 Net disadvantage of closing the plant $(10,000) *$40.00 – ($9.50 + $10.00 + $2.80 + $1.70) = $16.00 Profits would decline by $10,000 if the plant is closed. Problem 12-24 (continued) Alternative approach: Keep the Plant Open Close the Plant (5,000 units × $40 per unit) $ 200,000 $ 0 Variable expenses (5,000 units × $24 per unit) 120,000 0 Contribution margin 80,000 0 Fixed expenses: Fixed manufacturing overhead cost: $400,000 × 3/12 100,000 $400,000 × 3/12 × 60% 60,000 Fixed selling expense:
14e_gnb_ch12_sm.docx