S. H. Ltd., a cycle manufacturing company, has drawn up a programme for the manufacture of a new product for the purpose of fuller utilization of its capacity. The scheme envisages the manufacture of baby tricycle fitted with a bell. The company estimates the sales of tricycles at 10,000 during the first year and expects that from the second year onwards the sales estimates will stabilize at 20,000 tricycles. Since the company has no provision for the manufacture of the small bells specially required for the tricycles, the requirement of the bells is initially proposed to be met by way of purchase from the market at 8 each. However, if the company desires to manufacture the bell in its factory by installation of new equipment, it has two alternative proposals as under Installation of Super X Machine Installation of Janta Machine Initial Cost of Machine 3.00 Lacs 2.00 Lacs Life 10 Years 10 Years 54000 * 28000 Fixed Overheads p.a. other than depreciation Variable expenses per unit *4.00 5.00 Depreciation on machine should be charged on straight line basis. Required: (a) For each of the two levels of output namely 10,000 and 20,000 bells state with suitable workings whether the company should purchase the bells from market or install new equipment for manufacture of bells. If your decision is in favour of the installation of new equipment, which of the two new machines should be installed? (b) What would be your decision in case the forecast of requirement from the second year onwards is estimated at 40,000 bells instead of 20,000 bells? (c) At what volume of bells will the installation of the two machines break even