Pavan company manufactures carpets. His company is situated in a small town and is having a labour crisis. He is operating at 50% capacity level and manufactures 2,000 carpets per year and each carpet on an average sell at Rs 10,000. Direct material Direct labour Variable overhead Manufacturing overhead (fixed) Administrative overheads (fixed) *5,000 per unit 2,000 per unit 1,000 per unit €20,00,000 €15,00,000 In case management shuts down the plant, fixed manufacturing overheads will reduce to 10,00,000. Fixed administrative overheads will reduce by 10,00,000. Management has to pay 10,00,000 to the laborer in case the plant shuts down. Management is certain that the business will recover after a few months and the labours problem will be over. Required a. Advice the management whether the plant should shut down or continue to operate. State reasons b. What will be your decision in case the plant was operating at 80% instead of 50% level? Show calculations.

Pavan company manufactures carpets. His company is situated in a small town and is having a labour crisis. He is operating at 50% capacity level and manufactures 2,000 carpets per year and each carpet on an average sell at Rs 10,000. Direct material Direct labour Variable overhead Manufacturing overhead (fixed) Administrative overheads (fixed) *5,000 per unit 2,000 per unit 1,000 per unit €20,00,000 €15,00,000 In case management shuts down the plant, fixed manufacturing overheads will reduce to 10,00,000. Fixed administrative overheads will reduce by 10,00,000. Management has to pay 10,00,000 to the laborer in case the plant shuts down. Management is certain that the business will recover after a few months and the labours problem will be over. Required a. Advice the management whether the plant should shut down or continue to operate. State reasons b. What will be your decision in case the plant was operating at 80% instead of 50% level? Show calculations.

Name: Pavan company manufactures carpets. His company is situated in a smal
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Description: Pavan company manufactures carpets. His company is situated in a small town and is havinga labour crisis. He is operating at 50% capacity level and manufactures 2,000 carpets peryear and each carpet on an average sell at Rs 10,000.Direct materialDir

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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