Reference no: EM132931159

Question - Lana Company produces wood glue that is used by furniture manufacturers. The company normally produces and sells 10,000 gallons of the glue each month. The glue is sold for P 140 per gallon, variables costs is P 84 per gallon, fixed factory overhead costs total P 230,000 per month, and the fixed selling costs totals P 310,000 per month.

Labor strikes in the furniture manufacturers that buy the bulk of glue have caused the monthly sales of Lana Corporation to temporarily decrease to only 10% of its normal monthly volume. Lana Corporation's management expects that the strikes will last for about two months, after which sales of glue should return to normal. However, due to the dramatic drop in the sales level, Lana's management is considering to close down its plant during the two-month period that the strikes are on.

If Lana will temporarily shut down its operations, it is expected that the fixed factory overhead costs can be reduced to P 170,000 per month and that the fixed selling costs can be reduced by P 31,000 per month. Start-up costs at the end of the shut-down period would total P 28,000. Lana Corporation uses the JIT system so no inventories are on hand.

REQUIRED -

-What is the shut-down cost?

-What is the shutdown point?

-What is the best alternative for the company- Continue or Shutdown?

-How much is the net advantage of your decision in c?