Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
Auto Parts, Inc
Auto Parts, Inc. is medium-sized company that manufactures auto parts in Buffalo, New
York. The company currently loses $30,000 per month. The owner of the company is
evaluating whether she should shut down the factory. She thinks that the factory should
continue to operate until the economic environment improves and buyer for the factory
can be identified. The logic of the owner is that her company has already invested
millions of dollars in the factory over the years. The monthly fixed costs for the factory
are $40,000. The CEO of Auto Parts, Inc. thinks the factory should be shut down because
most the monthly fixed costs ($40,000/month) are sunk costs.
?
Evaluate the arguments of the owner and CEO (10 points)
?
Provide a recommendation as to whether Auto Parts, Inc. should shut down its
factory in Buffalo.
Expert Solution
The valuation of CEO is incorrect. The company should close if it is not able to tuck up the slightest of average variable cost. That is up to a point where the firm is able to tuck up all its variable costs. The firm should keep itself in a operation. The point where the value of product drop down the slightest of AVC then it should close. The losses are $30000 and the fixed cot are $40000, it means the firm is able to tuck up some of its fixed costs also other than tucking up variable costs. That's why the firm should covering the operations.
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
