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Additional D Decision: Option 3 is most preferable due to maximum Book question M00 -3.3 Hring Out Spare Capacity - Evaluation of Alternatives - ROI Approach Moltd manufactures Product X'. The Company operates a single shift of 8 hours for 300 days in a year. The Capital Employed in the business is ? 18 Crores. The manufacturing operations of the Company comprise of four Production Departments. The Company at present produces 9,000 units of Product X at maximum capacity. However, the capacity utilisations of all the four Departments are not equal and the present individual capacity utilisations are as under - department Capacity Utilisation 75% 100% 70% 50% The present Return on Capital of the Company has gone down to 10% from the earlier cut-off rate of 15% due to increased cost of production. As the Company cannot operate more than one shift, the Management is considering two alternative proposals to increase the Return on Capital Employed. B A "Alternative l: To hire out the surplus capacity of departments A, C and D. The cost and revenue projections are - Department Hire Charges per Hour Incremental Cost per Hour *2,500 2,000 1,800 1,500 D 1,600 1,200 A C Alternative II: To increase the installed capacity of the Factory to 12,000 units by adding Plant and Machinery in Department B ta Capital Cost of * 4 Crores. Any balance surplus capacity in other Departments after meeting the increased volume to be hired out as per Alternative I. The additional units would fetch an Incremental Revenue of 1,600 per unit. Evaluate the two proposals and suggest to the Management, which of the two proposals is to be accepted