Richter Company has a single product called a Wim. The company normally produces

Question

Richter Company has a single product called a Wim. The company normally produces and sells 60,000 Wims each year at a selling price of $40 per unit. The company’s unit costs at this level of activity are given below:

A number of questions relating to the production and sale of Wims are given below. Each question is
independent.

One of the materials used in the production of Wims is obtained from a foreign supplier. Civil unrest in the supplier’s country has caused a cutoff in material shipments that is expected to last for three months. Richter Company has enough material on hand to operate at 20% of normal levels for the three-month period. As an alternative, the company could close the plant down entirely for the three months. Closing the plant would reduce fixed manufacturing overhead costs by 25% during the three-month period and the fixed selling expenses would continue at two-thirds of their normal level. What would be the impact on profits of closing the plant for the three-month period? (Round your intermediate calculations of units produced and sold to the nearest whole number. Do not round your other intermediate calculations. Round your final answer to nearest whole number.)

Net:_________ of closing the plant:_______

Richter Company has a single product called a Wim. The company normally produces and sells 60,000 Wims each year at a selling price of $40 per unit. The company’s unit costs at this level of activity are given below:

Explanation / Answer

Operatiing Capcity @ 20 %of Normal =60000*0.2*3months/12 3000 Contribution lost if plant is closes =3000*12.3 -36900 Fixed Cost that Can be avoided Fixed manufacturing =60000*6*3/12*.25 22500 Selling Expenses Fixed 60000*4.5*3/12*1/3 22500 Net benfit Of Closing The Plant 8100

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