Bharat Pharma Ltd was established three years ago by a group of biotechnology researchers to commercialize a new therapeutic drug they had created.…

Bharat Pharma Ltd was established three years ago by a group of biotechnology researchers to commercialize a new therapeutic drug they had created. The production technology required for this drug is highly sophisticated and capital-intensive. As a result, the company incurs very high fixed manufacturing costs. This situation is a major concern for Dr. Kavita Rao, the company's CEO. She recently organised a meeting of all senior managers to discuss profitability. Dr. Rao demonstrated how the average cost per unit decreases as production increases, due to the company's heavy fixed-cost base. She explained: "It is evident that as we move closer to the plant's maximum production capacity of 90,000 vials, the average cost per vial continues to fall. Producing and selling as near to that capacity as possible must improve our profitability.” The data she presented are shown below: Production Volume (vials) 50,000 60,000 75,000 90,000 Average Cost per Unit (₹) 3,400 3,050 2,700 2,466.66 Current annual sales and production: 78,000 vials Selling price per vial:3,900 (Average cost is defined as total fixed + variable cost divided by number of units produced.) You are a member of the management accounting team. Soon after the meeting, you are contacted by Arun Mehta, the Marketing Director. He wants to understand how profitability changes with production. Arun then informs you about a discussion he had with Dr. Rao. She again emphasized pushing production closer to the capacity of 90,000 vials. Arun has the opportunity to secure an export order for 8,000 additional vials, but due to strong competition, the customer will pay only - 2,550 per vial. Dr. Rao believes the price is below cost and wants to reject it. However, she says she would be willing to sell at 2,500 per vial, but only if the order is increased to 20,000 vials. Based on the above facts, you are required to answer the following questions (MCQ 1 to 5):