Sihor Manufacturing ltd. sold 2,00,000 units of its product for Rs.30 per unit. Variable cost per unit is Rs.25 and total fixed costs are Rs.8,00,000.

Required

i.Calculate (a) Total contribution and (b) operating income.(1 Mark)

ii.Sihor's current manufacturing process is Labour intensive. Numina Jewel, Sihor's production manager, has proposed investing in state-of-the-art manufacturing equipment, which will increase the annual fixed costs to Rs.24,00,000. The variable costs are expected to decrease to Rs.16 per unit. Sihor expects to maintain the same sales volume and selling price next year. How would acceptance of Jewel's proposal affect your answers to (a) and (b) in requirement (i)?(1Mark)

iii.Should Sihor accept Jewel's proposal? Explain.(1 Mark)