LIQUID CHEMICAL COMPANY

Make Containers & Perform Maintenance

Yr - 1 Yr - 2 Yr - 3 Yr - 4Materials £7,000.00 £7,000.00 £7,000.00 £7,000.00Labour £5,000.00 £5,000.00 £5,000.00 £5,000.00Manager's salary £800.00 £800.00 £800.00 £800.00Depreciation of M/C £1,500.00 £1,500.00 £1,500.00 £1,500.00Maintenance of M/C £360.00 £360.00 £360.00 £360.00Other Expenses £1,575.00 £1,575.00 £1,575.00 £1,575.00Warehouse rent £850.00 £850.00 £850.00 £850.00Cost in each yr £17,085.00 £17,085.00 £17,085.00 £17,085.00 £68,340.00

Buy Containers & Buy Maintenance

Yr - 1 Yr - 2 Yr - 3 Yr - 4Loss in sale of M/C £4,000.00Loss in sale of GHL stock £1,600.00Pension £300.00 £300.00 £300.00 £300.00Container contract £12,500.00 £12,500.00 £12,500.00 £12,500.00Maintenance contract £3,750.00 £3,750.00 £3,750.00 £3,750.00Cost in each yr £22,150.00 £16,550.00 £16,550.00 £16,550.00 £71,800.00

Buy Containers & Perform Maintenance

Yr - 1 Yr - 2 Yr - 3 Yr - 4Loss in sale of M/C £4,000.00Loss in sale of GHL stock £1,600.00Material £700.00 £700.00 £700.00 £700.00Labour £1,000.00 £1,000.00 £1,000.00 £1,000.00Foreman's salary £500.00 £500.00 £500.00 £500.00Other Expenses £650.00 £650.00 £650.00 £650.00Container contract £12,500.00 £12,500.00 £12,500.00 £12,500.00Cost in each yr £20,950.00 £15,350.00 £15,350.00 £15,350.00 £67,000.00

Indian Electricals Ltd.

Year Order1964 250 100%1965 7501966 10001967 10001968 10001969 10001970 1000

In short term, we assume that only the 250 order has been received. The variable costs are only taken into consideration. Selling Price = ₹ 1,680.00

Variable costsMaterial Costs ₹ 58.31Labour + Manufacturing overheads ₹ 67.31Labour + Assembly overheads ₹ 25.30Electroplating ₹ 92.25Change Giving Mechanism ₹ 89.00

₹ 332.17

Investment into toolingMaterial ₹ 50,000.00 The direct labour & overheads are not takenOpportunity costs (switch gear) ₹ 330,000.00 as there is idle capacity which has already been Other Equipments ₹ 39,000.00 accounted for.

₹ 419,000.00

Profit / Loss = (₹ 103,042) If no subsequent order is received.

Long term In long term, the resources will be utilized hence the overheads have to be taken into consideration.The opportunity costs of switchgear is not taken as it is assumed that resources will be added to compensate the constraint. Product overheads are not envisaged, hence not considered.

Material Costs ₹ 58.31Labour & overheads manufacturing ₹ 224.37Labour & overheads assembly ₹ 84.32Electroplating ₹ 92.25Ammortization on tooling M/C ₹ 309.07Cost of Change giving Mechanism ₹ 89.00

₹ 857.32

Order contracted per yr = 500

ROI required = ₹ 247,258.00 ROI required is 10% of 6.18lakh every yr. Taxis 50% hence 20% taken in calculation

ROI per machine = ₹ 123.63 Every yr, the machines pay off certain the investment, hence average is taken.

Indian Electricals Ltd.

Price per machine = ₹ 1,068.74 The initial loss is covered within 6 yrs & 5% royalty

Scenario SummaryCurrent Values: 250 400 500 750 1000

Changing Cells:order_qty 500 250 400 500 750 1000Result Cells:Price_MC ₹ 1,068.74 ₹ 1,235.03 ₹ 1,110.31 ₹ 1,068.74 ₹ 1,013.31 ₹ 985.59

Created by Rahil on 20-11-2013

Indian Electricals Ltd.

Quantity of Vending M/C 250Cost per unit

Material Costs ₹ 14,577.50 58.31Labour & overheads manufacturing ₹ 134,622.00 224.37Labour & overheads assembly ₹ 50,592.00 84.32Electroplating ₹ 23,062.50 92.25Investment on tooling M/C ₹ 618,145.00Product Overheads ₹ 126,149.85Cost of Change giving Mechanism ₹ 22,250.00 89Opportunity Costs (Switchgear) ₹ 330,000.00

₹ 1,319,398.85

Selling Price of vending M/C = ₹ 1,680.00Sales Revenue = ₹ 420,000.00Sales Pricing required for profit = ₹ 5,277.60

Profit -₹ 899,398.85Tax

Scenario SummaryCurrent Values: 250 750 1000 2000

Changing Cells:Qty 250 250 750 1000 2000

Result Cells:Total_cost ₹ 1,319,398.85 ₹ 1,319,398.85 ₹ 1,503,719.88 ₹ 1,595,880.39 ₹ 1,964,522.44Sales ₹ 420,000.00 ₹ 420,000.00 ₹ 1,260,000.00 ₹ 1,680,000.00 ₹ 3,360,000.00Req_sell_Price ₹ 5,277.60 ₹ 5,277.60 ₹ 2,004.96 ₹ 1,595.88 ₹ 982.26

Fixed CostsOverheads Manufacturing 117794.25Overheads Assembly 44268.00Investment in tooling 618145.00 Quantity req. to make Opportunity costs (switchgear) 330000.00 it profitableProduct overheads (15%) 166531.09 977

1276738.34

Variable costsMaterial costs 58.31Labour + Overheads Manufacturing 67.31Labour + Overheads Assembly 25.30Electroplating 92.25Change giving mechanism 89.00Product overheads (15%) 41.08

373.25