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sumates of Operation Results for 2020 are as follows: 6 Lakhs) the same Particulars Sales Factory A Factory B Factory C Total Costs: 600 Raw Materials 2,400 1,200 4,200 150 Direct Labour 700 290 1,140 150 560 280 Factory Overheads-Variable 990 40 220 110 370 Factory Overheads-Fixed 80 240 120 440 Selling Overheads-Variable 46 140 80 266 Selling Overheads-Fixed 30 100 60 190 Administrative Overheads 40 180 80 300 Head Office Expenses 24 100 60 184 PROFIT 40 160 120 320 When the above estimates were under finalization, the Company's Legal Department advised that the lease of 'Factory A' was due to expire on 31st December 2019, and that it could be renewed by enhancing the Lease Rent by 24 Lakhs per annum. Since this enhancement will have impact on the profitability of the Company, the Management is constrained to examine following proposals: (0) Renew the lease and bear the impact. i) Close down Factory 'A', sell off the Plant, Machinery and Stock, and liquidate all Liabilities including the staff and Workers', pay Retrenchment Compensation from Sale Proceeds which are sufficient for the purpose. In order however to maintain the customer relations, the total planned output of the Factory A will be iransferred EITHER -actory 'B' OR Factory 'C'. Plant Capacity is available at both the factories to take over the manufacture. The additional cost involved in the manufacture of the extra output so transferred in Factory 'B' and 'C' are estimated as under: Factory B Factory C RTP 3.10 M Total 800 490 3.9 Profitability Analysis - Evaluation of Alternatives by closure of one division A Company having its Head Office in New Delhi has three factories UP, MP and TN. The operations of the Factory in MP have Deci been unprofitable for a number of years. The leasehold of MP Factory will also expire by the end of the current year. In view of continued losses, the Management has decided to close down the MP Factory rather than renew the lease. The Factory's Machinery can be sold at a price higher than the WDV and the surplus funds will be sufficient to cover all termination pro costs. The projected profitability of the Factories for the coming year are: (in Lakhs) Particulars UP MP TN Sales 400 100 300 Variable Costs 220 75 195 Fixed Costs: Factory 80 30 40 150 Selling and Administration 30 5 15 HO Expenses apportioned 25 15 25 65 Profit / (Loss) 45 (25) 25 45 The Company would however, like to continue to serve the customer's needs now being served by MP Factory, if it could do so economically. Accordingly, the following proposals were put forward for consideration based on a Selling Price of 250 p.u. 1. Close down MP Factory and expand the operations of the TN Factory for which capacity exists there. This proposal will involve the following changes - (a) Sales Revenue of TN Factory will increase by 25%, (b) Fixed Costs of TN Factory will increase by 10%, (c) Fixed Selling and Administration of TN Factory will increase by 5%, (d) Variable Distribution Costs of the additional output will increase by 4 per unit. 2. Close down MP Factory and expand operations in UP Factory subject to the following changes in the latter - (a) Sales Revenue will increase by 80 Lakhs, (b) Fixed Factory Costs will increase by 20%, (c) Fixed Selling and Administration 50 Process Industry Unit manufactures three Joint Products, A, B and C. C has no realizable value unless it undergoes further rocessing after the point of separation. The Cost details of C 70 per unit are as follows - ach Particulars Marginal Cost Per Unit Fixed Cost Per Unit pto point of separation 30 20 After point of separation 15 5 tal C can be sold at 37 per unit and no more. Would you recommend production of C? Would your recommendation be different if A, B and C are not Joint Products