BMS fm case study series-8

The existing manufacturing units has yearly fixed overheads of Rs.1,00,000. It wished to expand the production by purchasing one of the two types of machinery Model A and Model B, each costing Rs.5,00,000 and having the estimated life of 5 years. The estimated annual Sales and Cost under both of these models are given as under:

Model A (Rs.)    Model B (Rs.)

Sales                                 20,00,000           24,50,000

Materials                             9,20,000           11,12,200

Labour                                4,12,450             5,67,800

Variable Overheads            3,80,900             4,95,670

Compute the comparative profitability of each model of machinery under the payback period and also calculate payback profitability. Ignore depreciation and taxation.