Alfa Engineering Works Ltd had the following annual budget for the current year ending March 31: Owing to adverse trading conditions, the company has been operating during April-June of this years at...

Alfa Engineering Works Ltd had the following annual budget for the current year ending March 31:

Owing to adverse trading conditions, the company has been operating during April-June of this years at 40 per cent capacity realising budgeted selling prices. Owing to acute competition, it has become inevitable to reduce prices by 25 per cent even to maintain the sales at the existing level. The directors are considering whether or not their factory should be closed down until the trade recession has passed. A market research consultant has advised that in about a years’ time there is every indication that sales will increase to 75 per cent of normal capacity and that the revenues to be produced for a full year at that volume could be expected to be `40 lakh. If the directors decide to close down the factory for a year it is estimated that (a) The present fixed costs would be reduced to `6 lakh per annum; (b) Closing down costs (redundancy payments, etc.) would amount to `2 lakh; (c) Necessary maintenance of plant would cost `50,000 per annum; and (d) On re-operating the factory, the cost of overhauling the plant, training and engagement of new personnel would amount to `80,000. Prepare a report for the directors, making you recommendations.