Deepak Diwan owns a small manufacturing firm that produces electronics components for use in helicopters. Most of his business is a result of military and aircraft manufacturer contracts, although 11 % of revenues come from firms that own or rent helicopters. The latter is typically large Fortune 500 companies or leasing/rental firms that work on a contractual basis for the clients. Deepak would like to increase his revenues from sales to private corporations that own their helicopters. Specifically, he would like to do business with oil companies that maintain helicopter fleets for ferrying people to and from oil rigs in the Gulf of Mexico and other offshore locations. Early this week, Deepak received request from an oil company for 120 electronics components. He turned the order to his chief estimator, who estimated that the fixed costs associated with producing these components will be Rs. 17,50,000 the unit variable cost will be Rs. 20,000 and the unit selling price will be Rs.40,000. Deepak will not accept any order on which the return on sales is less than 20%. Additionally, the estimator has told him that Rs.50,000 expense can be classified as either fixed or variable. Deepak intends to take this information and make a decision whether to accept the contract from the oil company. He has to make a decision within the next 3 days.

Questions : (a) What is the breakeven point for this project? Will the company make money if it manufactures these components? Show your calculations with assumptions made

(b) If the project will be profitable, will it provide Deepak with the desired 20% return? Explain

(c) Of what value is break even analysis to Deepak? Be complete in your answer.

(d) What are the challenges of getting break even in this company?