Case study:
A manufacturer of product X when produces 1,00,000 units under its normal capacity of the plant is a year has the given costs.
Raw material costs Rs. 11.50 per unit.
Variable overhead costs: Rs. 3.50 per unit.
Labor costs Rs. 5.00 per unit.
Fixed overhead costs Rs. 10.00 per unit.
Variable marketing and selling costs Rs. 1 per unit.
In the next three months the firm can sell only 15,000 units at a price of Rs. 30 per unit. Alternatively, if the plan is shut down, the fixed manufacturing costs can be decreased to Rs. 60,000. Additional costs of shut down will be Rs. 10,000. Decide what to do? Sell 15,000 units or shut down?