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(Costing for Management Decision by Jain & Narang) The annual flexible budget of Kothari Ltd is as follows: Production capacity 40% 60% 80% 100% Cost: (Rs in lakh) Direct material 12 18 24 30 Direct labour 16 24 32 40 Production overhead 11.4 12.6 13.8 15 Admin. overhead 5.8 6.2 6.6 7 S& D overhead 6.2 6.8 7.4 8 Total 51.4 67.6 83.8 100 Owing to pandemic and recessed market condition, the company is operating at 50% capacity and the selling price of the output had to be decreased. Directors seriously think to close down the factory in the next year till trade recession has passed. However, a market research consultant advised the directors that the market gives strong signal of recovery and the sales, in such a case, will increase to about75% of normal capacity. The revenue to be produced from sales in the second year will amount to Rs.90 lakh. The present revenue from sales @ 50% capacity would amount to Rs.49.5 lakh for the complete year. If the directors decide to close down the factory for the next year, it is estimated that: The present fixed costs would be reduced to rs.11 lakh a year; Closing down cost costs (redundancy payments etc.) would amount to Rs.7.5 lakh; Maintenance of plant would cost approx. Rs.1 lakh p.a.; On re-opening the factory, the cost of overhauling plant, training & engagement of new personnel would amount to Rs. 4 lakh. Advise the directors whether or not it is desirable to close the factory. Activate Go to Sett