Rinku Ltd is a manufacturing company which is producing bags of different varieties. The company is planning to establish a new plant in the…

Rinku Ltd is a manufacturing company which is producing bags of different varieties. The company is planning to establish a new plant in the neighboring country to produce the bags. New plant has a production capacity of 2,00,000 units per year. As per the studies, normal capacity utilization is 90% of the production capacity. The company will be able to sell the whole production after making price adjustments. The following are the annual cost data on the basis of cost studies for the new plant in the neighboring country: Material Cost = 42,00,000 (100% variable) Labour = 40,00,000 (70% variable) Factory Overheads = 35,00,000 (60% variable) Administrative Overheads = 10,00,000 (30% variable) Bags are being produced and sold on steady basis. It is estimated that it costs 1as inventory holding cost per bag per month and that the set up cost per run of bag manufacture is 1,000. The production of the new plant will be sold only the sales agent in the neighboring country who will receive 5 per bag. There is no other selling expenses other than commission. Fixed cost are calculated on the basis of normal capacity utilization of the plant. Assume 365 days in a year. Being a cost manager of the company, you are required answer the following questions being asked by the management of the company: