Cost Analysis

In addition to its Australian business, BRB is considering manufacturing a new range of cheaper bicycles in Indonesia. The following information is available.

-The Indonesian plant has capacity to manufacture 8000 units.

-Big Red Bicycles strategic goal is to generate a pre-tax profit of $1,000,000 for the next financial year for Indonesian operations

-Clients will pay a maximum of $500 per bicycle

-It is possibility to move to an Indian plant with a capacity for 10,000 units.

-The market for bicycles is growing rapidly and BRB will be able to sell everything produced.

-There is limited ability to renegotiate costs with suppliers

-Pricing and cost information is as follows.

Bicycle price per unit - (ex GST)	$500
Current variable costs per unit	$250
Fixed costs	$1,280,000

Answer the following.

How many units at the current variable cost would need to be produced to achieve profit target?

What do the variable costs per unit need to be to achieve the profit target at the current manufacturing capacity?

Would you recommend that the company move its manufacturing plant to India? Explain your position.