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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

Respuesta :

Answer:

The company should close its business for the month.

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:

[tex]60000 \times 30 \ percent = 18000 \ dollars (loss)[/tex]

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

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