Greener Garden Group produces and sells 20,600 litres of organic lawn and garden fertilizer. The fertilizer, GoGrow, is a favourite among landscaping companies in southern Manitoba. The selling price of GoGrow is $22 per litre, variable costs are $15 per litre, fixed manufacturing overhead costs in the plant total $118,450 per month, and the fixed selling costs total $159,650 per month.
Recent supply chain problems have made it difficult for the Greener Garden Group to get the quantity of chemicals needed to produce the fertilizer. Because of this, sales have dropped to 6,180 litres per month and will most likely stay at this level until the supply of chemicals is back to normal. Management expects that the supply chain issues will ease up soon with business returning to normal in two months. However, the CEO of Greener Garden Group thinks the company should fully shut down operations for two months until the supply chain issues are resolved.
If the Greener Garden Group does close the plant for two months, fixed manufacturing overhead costs can be reduced by $30,900 per month and fixed selling costs can be reduced by 10%. Start-up costs at the end of the shutdown period would total $770 to get the plant up and running again. If the plant is shut down, all employees will be temporarily laid off for the entire two-month period. There is no inventory of GoGrow on hand.
Required:
Assuming that the strikes continue for two months, compute the increase or decrease in income from closing the plant.