Hallas Company Essay

Hallas company manufactures a fast-bonding gumwood in its northwest kit and boodle. The smart set normally produces and sells 40,000 gallons of the glue severally month. This glue, which is cognize as MJ-7, is used in the woodland industry to manufacture plywood. The selling bell of MJ-7 is $35 per gallon, variable cost ar $21 per gallon, flash-frozen manufacturing overhead cost in the plant total $230,000 per month, and the placed selling cost total $310,000 per month. Strikes in the mills that purchase the bulk of the MJ-7 glue have caused Hallas societys gross sales to temporarily drop to only 11,000 gallons per month. Hallas Companys management estimates that the strikes bequeath dwell for two months, after which sales of MJ-7 should return key to normal.Due to the current low take of sales, Hallas Companys management is mentation about closing win the Northwest plant during the strike. If Hallas Company does shut down the Northwest plant, fixed manufacturin g overhead costs can be bring down by $60,000 per month and fixed selling costs can be reduced by 10%. Start-up costs at the break off of the shutdown design would total $14,000. Since Hallas Company uses Lean Production methods, no inventories atomic number 18 on hand.Required1. Assuming that the strikes slide by for two months, would you recommend that Hallas Company close the Northwest plant? Explain. Show computations to put forward your answer. 2. At what level of sales (in gallons) for the two-month full point should Hallas Company be indifferent among closing the plant or memory it open? Show computations. (Hint This is a event of break-even analysis, except that the fixed cost division of your break-even computation should include only those fixed costs that are relevant i.e., avoidable over the two-month period.)No, the company should not close the plant it should continue to operate at the reduced level of 11,000 gallons produced and sold each month. gag law wi ll result in a $140,000 greater loss over the two-month period than if the company continues to operate. Additional factors are the possible 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.