Shutdown or Continue

Selling Price per membership 480

Variable Cost per membership 324
Contribution Margin 156
Fixed Cost per month 180,000
Fixed cost avoided if shutdown 84,000
Additional Cost during shutdown 30,000
Estimated restarting cost 60,000
Demand 4,200
Reduction in SP if continued 12.50%

Shutdown Cost 186,000

Shutdown Savings -6,000
Shutdown Point -38.46
Decision (Shutdown or Continue)

Sell as is or Process Further

Additional
Sales Value at Final Sales
Product Processing
Split-off Value
Cost
A 300,000 120,000 400,000
B 600,000 100,000 720,000
C 80,000 120,000 240,000
TOTAL 980,000 340,000 1,360,000

Product A Product B Product C

Final Sales Value 400,000 720,000 240,000
Sales Value at Split-off 300,000 600,000 80,000
Increase in Sales Value 100,000 120,000 160,000
Additional costs 120,000 100,000 120,000
Differential income ₱20,000 ₱20,000 ₱40,000

Decision if all products are

processed further

Profit Maximization
Machine hour Market demand
CM per unit per unit of for each
Product product
Product A 4 1 5,000
Product B 6 3 3,000
Product C 6 2 7,000
Plant capacity 20,000 machine hours

Machine hour
CM per
CM per unit per unit of Ranking
machine hour
Product
Product A 4 1 4 1st
Product B 6 3 2 3rd
Product C 6 2 3 2nd
 Units of Machine CM per
Total CM
Product Hours machine hour

Product A 5,000 5,000 4 20,000

Product C 3,000 14,000 3 42,000
Product B 7,000 9,000 2 18,000
Total 28,000 ₱80,000