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(Replacement of existing machine by new one for export order) A manufacturing unit is producing 15,000 containers per annum. There is good demand in local as well as in export market. The unit is thinking of replacing the present production machine by an automatic machine. Due to this change, the production will be doubled. The present selling price of each container is Rs. 20. The new machine will be operated by one operator while present machine is operated by two operators. The old machine has book value of Rs. 4,00,000 with no scrap value of Rs. 10,000. The units is charging 10% depreciation. The cost structure of containers is as follows: Re. per unit Direct material 6.00 Direct labour 4.00 Variable overheads 2.00 Fixed overheads (including depreciation) 2.00 After the new machine is commissioned there will be an increase in fixed overheads (excluding depreciation) by Rs. 15,000 per annum. (a) Calculate present and future profitability assuming no change in selling price. (b) In case the local market demand falls and the new machine is having 80% idle capacity, will it be feasible to offer the product in export market at a selling price Rs. 10.50 per unit? Will your recommendations differ if the export price is Rs. 9.50 per container as against Rs. 10.50