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    Shut down point

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    Claire's Antiques was ready to submit a sealed quote (bid) for a new customer who desired to purchase 150 clocks during the upcoming year. The sealed quote was for 150 clocks at $650 each, for a total selling price of $97,500. Claire's Antiques gained knowledge that its competitor was also placing a bid with this client. The competitors bid became known to have been for $600 per clock. If Claire's Antiques loses this bid, its clock sales will decline, resulting in lower profits, and possibly the lay off of workers will take place.

    What possibilities would you suggest for Claire's Antiques?
    What should the company do and why?

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    Solution Preview

    Here we can use the concept of Marginal Costing. The firm should operate such as to avoid the shut down. If the Claire's does not take the contract then it can be in problem. Thus it should analyze its Shut Down point. This will be the output level at which price equals average variable cost and losses equal total fixed costs, whether the firm produces or not. Also the ...

    Solution Summary

    This helps in computation of shut down point.