Normal capacity of a company is 2,40,000 machine hours, but at present the company utilizes 40% of its capacity. In this situation, the monthly performance of the company is as follows:
|
|
Rs. in Lakhs |
|
Sales |
30.00 |
|
Consumption of Materials |
15.00 |
|
Wages (including Rs. 1 lakh for security guards) |
6.00 |
|
Factory Overheads (60% fixed) |
5.00 |
|
Other Overheads (10% variable) |
3.50 |
|
Net Profit |
0.50 |
The following two alternative proposals are under consideration of the company:
- The factory will utilize about 50% of the unutilized capacity by accepting the contract work, by charging Rs. 3.50 per machine hour.
- Discontinue the own production completely and lease out the entire facility on a monthly rental of Rs. 6.85 lakhs.
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