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Shut-down Problem is where one department of the business is making a loss and we have to decide that if we shut down that department what will its impact on our overall total profit of the entire business?
If we decide to close Rooks then we would lose sales and contribution but end up saving variable cost and fixed cost.
This can be simply done by adding up everything except fixed costs take to $50,000 like this way:
———————Totals
Sales————150,000
VC—————(90,000)
Contribution—-60,000
Fixed cost—–(50,000)
Profit————10,000If we close down ROOKs we will lose $10,000 Profit and the effect of change in profit will then be $5000 loss in total.
Can we be asked anything more than this in the exam questions?
Exam questions can be asked in all sorts of different ways so as to test that you understand what is happening. However there are no other principles involved then there are in this question.
I assume that you have a Revision Kit from one of the ACCA Approved Publishers (if not then it is essential that you buy one) in which case you will have several questions on this to practice on.
- Topics: 44
- Replies: 26
- ☆☆
Thanks 🙂
But please say what I did say and calculate above was all correct
Yes it is correct for part (a) of the question, but you know it is correct because I work through the example in my free lecture (and there is an answer printed in the lecture notes as well) 🙂
How you do your workings for the answer is irrelevant.
Have you done part (b) also?
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