Scribd Logo
Upload

Welcome to Scribd!

  • 923 views

    Temporarily Shut Down Operations or Continue

    Uploaded by

    Aira Jaimee Gonzales
    A corporation is considering temporarily shutting down operations in August and September due to slow business. The accounting department provided operating data for consideration. If the company shuts down, certain costs will be incurred including security, restart costs, and reduced but not eliminated fixed overhead and expenses. The shutdown point was calculated to be 4,500 units based on contribution margin. Continuing operations would result in a net advantage of ₱440,000 compared to shutting down.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Temporarily Shut Down Operations or Continue

    Uploaded by

    Aira Jaimee Gonzales
    923 views2 pages
    A corporation is considering temporarily shutting down operations in August and September due to slow business. The accounting department provided operating data for consideration. If the company shuts down, certain costs will be incurred including security, restart costs, and reduced but not eliminated fixed overhead and expenses. The shutdown point was calculated to be 4,500 units based on contribution margin. Continuing operations would result in a net advantage of ₱440,000 compared to shutting down.

    Original Title

    Temporarily Shut Down Operations or Continue.docx

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    A corporation is considering temporarily shutting down operations in August and September due to slow business. The accounting department provided operating data for consideration. If the company shuts down, certain costs will be incurred including security, restart costs, and reduced but not eliminated fixed overhead and expenses. The shutdown point was calculated to be 4,500 units based on contribution margin. Continuing operations would result in a net advantage of ₱440,000 compared to shutting down.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    923 views2 pages

    Temporarily Shut Down Operations or Continue

    Uploaded by

    Aira Jaimee Gonzales
    A corporation is considering temporarily shutting down operations in August and September due to slow business. The accounting department provided operating data for consideration. If the company shuts down, certain costs will be incurred including security, restart costs, and reduced but not eliminated fixed overhead and expenses. The shutdown point was calculated to be 4,500 units based on contribution margin. Continuing operations would result in a net advantage of ₱440,000 compared to shutting down.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    You are on page 1of 2

    1.

    A corporation has been experiencing a slowdown in business activities in August and September
    and is considering temporarily shutting down its operations during those months. The accounting
    department has provided the following normal operating data for consideration: unit sales price, P 150;
    unit variable production cost, P 60; unit variable marketing cost, P10; monthly fixed overhead, P 500,000,
    monthly fixed expenses, P200,000; regular sales in units, 10,000 per month; estimated sales in units in
    August and September, 5,000 per month.

    If the company shuts down its operations, the following costs are expected to be incurred: security and
    safety, P 200,000 per month; restart-up costs, P 100,000 per set-up, regular fixed overhead, 40% of total
    will remain; regular fixed expenses, reduced by 30%.

    Required: Compute the total shutdown costs, shutdown point in two months, and the advisable alternative
    (continuing or discontinuing the operations) with its advantage amount.

    m
    er as
    Unavoidable fixed overhead (P500,000 x 40% x 2) P 400,000

    co
    eH w
    Unavoidable fixed expenses (P200,000 x 70% x 2) 140,000
    Security and safety (P200,000 x 2) 400,000

    o.
    Re-start up costs 100,000
    rs e
    ou urc
    Total shut down costs P1,040,000

    Fixed costs and expenses [(P500,000 + P200,000) x 2 months] P1,400,000


    o

    Shut-down costs 1,040,000


    aC s

    Unit contribution margin (P150 – P60 – P10) 80


    vi y re

    Computation of SDP

    Shut-down point = (Fixed costs and expenses – Shut-down costs) / UCM


    ed d

    = [(P1,400,000 – P1,040,000} / P80]


    ar stu

    Shut-down point = 4,500 units

    To prove, we have:
    sh is

    Contribution margin (4,500 x P80) P 360,000


    - Fixed costs and expenses 1,400,000
    Th

    Loss from continuing operations ( 1,040,000)


    - Shut down costs 1,040,000
    No difference P0

    Contribution margin (5,000 units x 2 months x P80) P 800,000


    - Fixed costs and expenses 1,400,000
    Loss from continuing operations ( 600,000)
    - Shut down costs 1,040,000
    Net advantage of continuing the operations P 440,000

    Loss of continuing operations at shut down point P1,040,000


    Loss of continuing operations 600,000

    https://www.coursehero.com/file/58140398/TEMPORARILY-SHUT-DOWN-OPERATIONS-OR-CONTINUEdocx/
    Net advantage of continuing the operations P 440,000

    m
    er as
    co
    eH w
    o.
    rs e
    ou urc
    o
    aC s
    vi y re
    ed d
    ar stu
    sh is
    Th

    https://www.coursehero.com/file/58140398/TEMPORARILY-SHUT-DOWN-OPERATIONS-OR-CONTINUEdocx/

    Powered by TCPDF (www.tcpdf.org)

    You might also like