Problem
Micro Company normally produces and sells 30,000 units of MT50 each month. MTSO is a small electrical relay used in the automotive industry as a component part in various products. The selling price is P22 per unitr variable costs are P14 per unit, fixed manufacturing overhead costs total P150000 per month, and fixed selling costs total P30,000 per month. Employment-contract strikes in the companies that purchase the bulk of the MTSO have caused Micro Company's sales to temporarily drop to only 9,000 units per month. Micro Company estimates that the strikes will last for about two months, after which time sales of MTSO should return to normal. Due to the current low level of sales' however, Micro Company is thinking about closing down its own plant during the two months that the strikes are on. If Micro Company does ciose down its plant, it is estimated that fixed manufacturing overhead costs can be reduced to P105,000 per month and that fixed selling costs can be reduced by 10%. Start-up costs at the end of the shutdown period would total P8,000. Should Micro Company temporarily close the plant or keep it open?
Compute for shutdown costs, shutdown point, and continue operation computation to see if it is feasible to continue to be temporarily close or keep it open.