Ram company manufactures carpets. His company is situated in a small town and is having a labour crisis. He is operating at 50% capacity level and manufactures 2,000 carpets per year and each carpet on an average sell at Rs 10,000.

1. Direct material 5,000 per unit
2. Direct labour 2,000 per unit
3. Variable overhead 1,000 per unit
4. Manufacturing overhead (fixed) 20,00,000
5. Administrative overheads (fixed) 15,00,000

In case management shuts down the plant, fixed manufacturing overheads will reduce to 10,00,000. Fixed administrative overheads will reduce by 10,00,000. Management has to pay 10,00,000 to the laborer in case the plant shuts down. Management is certain that the business will recover after a few months and the labours problem will be over. Required a. Advice the management whether the plant should shut down or continue to operate. State reasons b. What will be your decision in case the plant was operating at 80% instead of 50% level? Show calculations.