A plant to provide the company’s present needs can be constructed for P 2,800,000 with an annual operating disbursement of P 600,000. It is expected that at the end of 5 years, the production requirements could be doubled, which necessitate the addition of an extension costing P 2,400,000. The disbursement after 5 years will be likewise double. Another plan is to provide the entire expected capacity can be constructed for P 4,000,000 and its operating disbursement will be P 640,000 when operating on half capacity (for the first five years) and P 900,000 on full capacity. The plants are predicted to have indeterminately long life. The required rate of return is 20%. What would you recommend?

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A: Calculate the number of units as follows: Number of units is 38,125

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Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.