Tooling & Other Equipments Costs (in short-run) Material Cost Direct Labour (assuming only for manufacturing)

Opportunity cost for inhouse designing & manufacturing of tools Sub total Other Investments (assembly & storage) Total fixed costs

50000 0 330000 380000 39000 419000

Analysis for acceptance/ rejection of Trial order for manufacturing 250 Vending Machines_Analysis in Short-Run
Particulars Material Cost Labour & Overheads for manufacturing Labour & Overheads for Assembly Electroplating Change giving mechanism Total Variable Cost Selling Price Labour for tooling Royalty Contribution Opportunity cost of inhouse tooling (Including material & other Investments) Total Contribution Available YEAR 1 (Trial order for selling Machines) Total Contribution (1680-332.17-84)*250 Amount Expected to be recovered by the end of Year 1 (or by selling 250 machines) Amount Expected to be recovered from further sales of machines (in next year) Amount (`) 58.31 67.31 25.30 92.25 89.00 332.17 1680 0 84.00 1263.83 419000 315958

315958 502800 224211

YEAR 2 (Possible Scenarios) Scenario 1: 750 Machines @ Rs. 1680 Contribution Amount Need to be recovered Surplus after full recovery on 'Investments along with desired profits' Scenario 2: 600 Machines @ Rs. 1400 Contribution Amount Need to be recovered Surplus after full recovery on 'Investments along with desired profits' 947873 224211 723662

598698 224211 374487

Scenario 3: 450 Machines @ Rs. 1200 Contribution Amount Need to be recovered Surplus after full recovery on 'Investments along with desired profits' Scenario 4: 300 Machines @ Rs. 1100 Contribution Amount Need to be recovered Surplus after full recovery on 'Investments along with desired profits' Scenario 5: 150 Machines @ Rs. 1100 Contribution Amount Need to be recovered Surplus after full recovery on 'Investments along with desired profits' Scenario 6: No Machine Sold Contribution Amount Need to be recovered Surplus after full recovery on 'Investments along with desired profits'

363523.5 224211 139313

213849 224211 -10362

106924.5 224211 -117287

0 186843 -186843

From the above analysis, it may be noted that the company can lose a maximum of Rs. 1,86,843 in the worst scenario when it does not receive any order for further supply. However, the possibility of such a scenario is meager given the first mover's advantage; it would be worth to take this risk given the strong profit position of the company.

Please Note: The scenarios made are arbitrary in nature; one can always come out with other scenarios within the range of 0-750 machines by varying prices from Rs. 1033 to 1680 per machine.

750 600 450 300 0

299 374 498 747

631.1 705.8 830.3 1079.4

664.2632 742.9158 874.0035 1136.179

200 100

1121 2242

1453.0 1529.442 1680.0 166.3118 502800

97817.00

Analysis for Determining the Price of Vending Machines need to be quoted for Long-Run Deals/ Supply of Machines (April 01, 1966-March 31, 2010)
Particulars Material Cost Labour & Overheads for manufacturing Labour & Overheads for Assembly Electroplating Change giving mechanism Total Variable Cost Royalty Fixed cost(618145/2000) Expected Return (PBT)@20% p.a. Total Cost in Long Run Total Investment along with returns to be recovered (assuming 4 years period) YEAR 3-7 One Possible Scenario (Conservative) Scenario : 2500 Machines @ Rs. 1200 (Assuming that he could sell 450 Machines in Year 2) Surplus from the machines manufactured using tools made in the beginning for Trial Orders Surplus from the machines manufactured using fresh tools Surplus after full recovery on 'Investments along with desired profits' (Based on Full Costs) 769275 -155303 613972 1183500 318097 Amount (`) 58.31 224.37 84.32 92.25 89.00 548.25 51.63 309.07 123.63 1032.58 865403

6.18 4.64 3.09 1.55

5.41 3.86 2.32 0.77 3.09

4.55 4.5 4.4 4.38 4.38 4.442 22.21 20.7025 20.25 19.36 19.1844 19.1844 572.1669 x2 4.78

4.75 4.7 4.69 4.65 4.65 4.688 23.44 22.5625 22.09 21.9961 21.6225 21.6225

4.94 4.9 4.85 4.85 4.85 4.878 24.39 24.4036 24.01 23.5225 23.5225 23.5225

4.95 4.91 4.85 4.82 4.8 4.866 24.33 24.5025 24.1081 23.5225 23.2324 23.04

5.05 5.05 5.02 5 5 5.024 25.12 25.5025 25.5025 25.2004 25 25

cf 119.49 571.1144

493.2841 98.65682

-0.338 -0.092 0.098 0.114244 0.008464 0.009604

TSS SST SSE

1.052496

t2 549.4336 594.8721 591.9489 631.0144 2860.553 572.1106 109.8867 118.9744 118.3898 126.2029 114.4221 0.996216 0.996216

0.086 0.244 0.007396 0.059536 0.199244 4.9811