Problem:
Merger planning
There are two plants manufacturing the same products under a single corporate management. The management proposes to merge the two plants.
Following are the particulars relating to these two plants:
|
Capacity Operation Level
|
Plant I 100%
|
Plant II 60%
|
|
Sales
|
Rs. 4,00,000
|
Rs. 1,80,000
|
|
Variable costs
|
Rs. 3,00,000
|
Rs. 1,20,000
|
|
Fixed costs
|
Rs. 75,000
|
Rs. 25,000
|
You are required to calculate for the proposal of the board of directors:
1. What would be the capacity of the merged plant to be operated for the purpose of break-even?
2. What would be the profitability on working at 80% of the merged capacity?