Delco Manufacturers is planning to introduce a new product in the next period 2021.

It is expected that 12000 units can be sold at a selling price of 70.

The production manager has put forward two possible production methods. The following financial information has been prepared for each of the alternatives.

	Alternative A	Alternative B
Capital Expenditure	900,000	600,000
Maximum Capacity(units)	16000	13000
Unit Cost
Direct Materials	14	14
Direct Labour	12	16
Variable Production Cost	6	10
Fixed Production Cost	800,000	200,000

Determine the number of units that would have to be produced and
sold under each alternative if the company wished to earn a 25%
return on its investment.
Explain what is meant by operational gearing utilising your answer from part
If you are advised that the company are risk averse, advise the Management
as to which of the production methods to adopt, fully justify your answer utilising the calculations from parts (a) to (c).