Question

Retread Corporation has learned that, because of a shortage of materials, it can only produce and sell at 30% of normal levels during December. If the company stays open for the month, the total contribution margin will be $15,000, and total fixed costs will be $60,000. If the company totally closes down all operations for the month, the total fixed costs would be reduced BY 70%. What should the company do

Answer 1

The company should close its business for the month.

Step-by-step explanation:

When the company remains opens then it has contribution margin of $15000 and its fixed cost is $60000. Therefore, the loss that occurred to the company when it remains open is, $60000 - $15000 = $45000 (loss).

However, if the company closed then only 30 % of the fixed cost will be the loss of the company. Therefore, the loss occurred to the company when it closes down:

`60000 * 30 \ percent = 18000 \ dollars (loss)`

Since the loss to the company is lower when it remains close. Thus, the company should be closed for the month.