Compute the shut down costsDetermine the shutdown point. (Shut down point = (Total fixed costs – shutdown costs)/CMU)Determine the net loss if the operations in continued. The Megafish Company is in the fish canning industry. Its regular monthly production fromJanuary to October averages 100 tons of tuna fish that will produce 1,000,000 cans ofcanned tuna that can be sold for P10 per can in the market. Its annual fixed costs amountsto P18,000.000 which are evenly allocated on a twelve month period.During the months of November and December, the supply of tuna fish goes down to anaverage of 20 tons monthly or 200,000 cans of canned tuna monthly.Management is considering to shut down operations, during the months of November andDecember on the belief that the company will be saved from greater losses during thesemonths.If management decides to shut down operations, additional costs of P50,000 monthly will beincurred for security and insurance of the plant. The company will also spend additionalP60,000 in re-starting operations in January.The following data are gathered from the records of Megafish Company:Raw materials & ingredientsDirect laborVariable overheadP 5.200.550.25P 6.00Total variable cost per canVariable selling and administrative expenses averages PO.10 per can. It is assumed that themarket can absorb all canned tuna produced.Shut down operations will reduce fixed costs during November and December by 40%.

A) Calculation Of Shut Down Cost S.NO. Particular Amount 1 Additional cost for the Security…

Answered: Compute the shut down costs Determine…

Compute the shut down costs Determine the shutdown point. (Shut down point = (Total fixed costs – shutdown costs)/CMU) Determine the net loss if the operations in continued.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Compute the shut down costs

Determine the shutdown point. (Shut down point = (Total fixed costs – shutdown costs)/CMU)

Determine the net loss if the operations in continued.

The Megafish Company is in the fish canning industry. Its regular monthly production from
January to October averages 100 tons of tuna fish that will produce 1,000,000 cans of
canned tuna that can be sold for P10 per can in the market. Its annual fixed costs amounts
to P18,000.000 which are evenly allocated on a twelve month period.
During the months of November and December, the supply of tuna fish goes down to an
average of 20 tons monthly or 200,000 cans of canned tuna monthly.
Management is considering to shut down operations, during the months of November and
December on the belief that the company will be saved from greater losses during these
months.
If management decides to shut down operations, additional costs of P50,000 monthly will be
incurred for security and insurance of the plant. The company will also spend additional
P60,000 in re-starting operations in January.
The following data are gathered from the records of Megafish Company:
Raw materials & ingredients
Direct labor
Variable overhead
P 5.20
0.55
0.25
P 6.00
Total variable cost per can
Variable selling and administrative expenses averages PO.10 per can. It is assumed that the
market can absorb all canned tuna produced.
Shut down operations will reduce fixed costs during November and December by 40%.

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