XYZ Manufacturing Plant has an annual production capacity of 1,800 units, but is now operating at 1,000 units. The sales income at this level is P3,750,000. Variable cost is P2,250, and the fixed cost is P1,225,000 per year. A modernization plan is being proposed which would increase the fixed cost P475,000, but would decrease variable cost by P415 per unit.

a.) Should the company implement this program?

b.) If they reduce the selling price per unit by P280 the sales are expected to increase by 400 units. Is this better than modernization plan?

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