Question

A company is considering expansion. Fixed costs amount to Rs.4,20,000 and are

expected to increase by Rs.1,25,000 when plant expansion is completed. The present

plant capacity is 80,000 units a year. Capacity will increase by 50% with the

expansion. Variable costs, currently Rs.6.80 per unit, are expected to go down by

Rs.0.40 per unit with the expansion. The current selling price Rs.16 per unit and is

expected to remain same under each alternative. What are the breakeven points under

each alternative? Which alternative is better and why?
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Answer 1

expected to increase by Rs.1,25,000 when plant expansion is completed. The present

plant capacity is 80,000 units a year. Capacity will increase by 50% with the

expansion. Variable costs, currently Rs.6.80 per unit, are expected to go down by

Rs.0.40 per unit with the expansion. The current selling price Rs.16 per unit and is

expected to remain same under each alternative. What are the breakeven points under

each alternative? Which alternative is better and why?