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Question
‘Best Bulbs Pvt. Ltd. was manufacturing good quality LED bulbs and catering to local market. The current production of the company is 800 bulbs a day. Sumit, the marketing manager of the company surveyed the market and decided to supply the bulbs to five-star-hotels also. He anticipated the higher demand in future and decided to buy a sophisticated machine to further improve the quality and quantity of the bulbs produced.
Identify the factor affecting fixed capital requirements of the company.
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Solution
In the given scenario, the decision of marketing manager is derived by the prospects of growth by expanding the supply of bulbs to five star hotels. To expand the production, the organisation would have to acquire more fixed machinery and inputs initially. This will require the organisation to generate higher amount of fixed investment for the business. An organisation with high prospects of growth requires a big amount in fixed investment and vice - versa.
