CS-54 Finance & Accounting On Computers Dec-2003
Q.2. Mr. Ramchandra has developed a revolutionary new computerised method of preparing tax returns for individuals. He has a choice of computers on which to instal his new process. Under Plan A he would lease a computer for Rs. 5 lakhs per year and process returns with a variable cost of Rs. 2 per return. Under Plan B, he would lease a smaller, less efficient computer for Rs. one lakh per year, but processing costs under Plan B will be Rs. 12 per return. Under either process, M r. Ramchandra would charge Rs. 22 per return processed.
Answer the following questions on the basis of the above information:
(i) Which plan has a higher degree of operating leverage?
(ii) Construct break-even charts of the two plans.
(iii) Which plan is more risky?
(iv) At what volume of tax returns would Mr. Ram chandra have the same operating Profit under either plan?
