Hallas Company Essay

Hallas Company manufactures a fast-bonding glue in its Northwest plant. The play along normally produces and sells 40,000 gallons of the glue each calendar month. This glue, which is known as MJ-7, is used in the wood industry to manufacture plywood. The selling price of MJ-7 is $35 per gallon, inconsistent costs are $21 per gallon, fixed manufacturing overhead costs in the plant total $230,000 per month, and the fixed selling costs total $310,000 per month. Strikes in the mills that purchase the bulk of the MJ-7 glue have caused Hallas Companys sales to temporarily drop to only 11,000 gallons per month. Hallas Companys focussing estimates that the strikes bequeath last for two months, after which sales of MJ-7 should return to normal. delinquent to the current low level of sales, Hallas Companys management is cerebration about closing down the Northwest plant during the strike. If Hallas Company does fold down the Northwest plant, fixed manufacturing overhead costs nookie be cut back by $60,000 per month and fixed selling costs can be reduced by 10%. Start-up costs at the devastation of the shutdown period would total $14,000. Since Hallas Company uses Lean Production methods, no inventories are on hand.Required1. Assuming that the strikes continue for two months, would you urge that Hallas Company close the Northwest plant? Explain. Show computations to support your answer. 2. At what level of sales (in gallons) for the two-month period should Hallas Company be indifferent betwixt closing the plant or keeping it open? Show computations. (Hint This is a type of break-even analysis, except that the fixed cost portion of your break-even computation should embroil only those fixed costs that are relevant i.e., avoidable over the two-month period.)No, the caller-up should not close the plant it should continue to operate at the reduced level of 11,000 gallons produced and sold each month. Closing will result in a $140,000 greater loss over the two-mon th period than if the company continues to operate. surplus factors are the potential loss of goodwill among the customers who need the 11,000 gallons of MJ-7 each month and the adverse effect on employee morale. By closing down, the needs ofcustomers will not be met (no inventories are on hand), and their business may be permanently lost to another supplier.