The Anaconda Mining Company Currently Is Operating at Less Than

question 384

Essay

The Anaconda Mining Company currently is operating at less than 50 percent of practical capacity. The management of the company expects sales to drop below the present level of 15,000 tons of ore per month very soon. The selling price per ton of ore is $2 and the variable cost per ton is $1. Fixed costs per month total $15,000.
Management is concerned that a further drop in sales volume will generate a loss and, accordingly, is considering the temporary suspension of operations until demand in the metals markets returns to normal levels and prices rebound. Management has implemented a cost reduction program over the past year that has been successful in reducing costs. Nevertheless, suspension of operations appears to be the only viable alternative. Management estimates that suspension of operations would reduce fixed costs from $15,000 to $5,000 per month.
Required:
a. Why does management estimate that fixed costs will persist at $5,000 per month even though the mine is temporarily closed?
b. At what sales volume should management suspend operations at the mine?

---

Definitions:

Alcohol Rehabilitation

A process of medical or psychotherapeutic treatment for dependency on alcohol in order to restore a patient's ability to function without alcohol.

Involuntary Hospitalization

The act of admitting an individual to a psychiatric facility against their will for evaluation and treatment, typically because they are deemed a danger to themselves or others.

Major Depression

A psychological condition marked by an ongoing low mood or lack of enjoyment in pursuits, significantly disrupting everyday functioning.

State Institutions

Public facilities established by the government to provide a range of services, including education, mental health care, correctional facilities, and social services, to the members of a community.