PIKNIK Inc. sells a wide range of drums, bins, boxes and other containers that are used in the chemical industry. One of the companys products is a heavy duty corrosion-resistant metal drum, called the VQC drum, used to store toxic wastes. Production is constrained by the capacity of an automated welding machine that is used to make precision welds. A total of 2000 hours of welding time is available annually on the machine. Since each drum requires 0.4 hour of welding time, annual production is limited to 5000 drums. At present, the welding machine is used exclusively to make the VQC drums. The accounting department has provided the following financial data concerning the VQC drums.

VQC DRUMS(Rs.)
Selling price per drum		150
Variable Cost per drum:
Direct materials	52.1
Direct labor(18 per hour)	7.2
Manufacturing overheads	1.4
Selling & administrative expenses	0.8	61.5
Contribution per drum		88.5
Fixed Manufacturing overheads		20000
Fixed Selling & administrative overheads		150000

Management believes 6000 VQC drums could be sold each year if the company had sufficient manufacturing capacity. As an alternative to adding another welding machine, management has considered buying additional drums from an outside supplier. Marcor. Industries Inc., a supplier of quality products would be able to provide up to 4000 VQC-type drums per year at a price of Rs. 138 per drum which Piknik would resell to its customers at its normal selling price.

Jennifer Alba, Picniks production manager, has suggested that the company could make better use of the welding machine by manufacturing bike frames, which would require 0.5 hour of welding time per frame and sell for far more than the drums. Megan believes that Picnik could sell up to 1600 bike frames per year to bike manufacturers at a price of Rs. 240 each. The accounting department has provided the following specific data concerning the variable costs for the proposed new product:

BIKE FRAMES (in Rs.)
Selling price per frame		240
Variable Cost per frame:
Direct materials	99
Direct labor (60 per hour)	30
Manufacturing overheads	2
Selling & administrative expenses	4	135
Contribution per frame		105

The bike frames could be produced with existing installed equipment and capacity.

Required:

1. Calculate the profit assuming that the company sells the maximum possible drums that it can sell.
2. Calculate the profit assuming that the company sells the maximum possible bike frames and drums that it can sell.
3. Which option should the company choose?