Reference no: EM132617492

Shutdown or Continue. During the first week of July, the Aurora Beach Resort has been contemplating whether to shut down temporarily during months August-September due to minimal tourist check-ins. This is based on their history since commencement of their business. During these months, they only have an average of 60 visitors from the usual 200 visitors per month. Their income statements for the month just ended are as follows:

Aurora Beach Resort

Income Statement

June 30, 2020

Revenues (200 visitors)          Php 400,000

Variable costs                         160,000

Fixed Cost                               125,000

Operating Income Php            115,000

If Aurora will temporarily shut down its operations, it will still incur P75,000 of its fixed costs. Upon restarting their operations, they will spend P35,000.

Problem 1: How much is the irrelevant cost in the problem.

Problem 2: Perform the incremental costing analysis on the problem and provide recommendation to Aurora's management.

Problem 3: Compute the shutdown point and comment on your answer.

Problem 4: Provide qualitative factors that are relevant to the situation.