Business Economics

CaseAnalysis:GopalBanerjee&Company

Note:ReadthecasestudyGopalBenerjee&Co.toanswerthefollowingquestions.

Questions:

1.

Whatistheproblem?DoyouagreewithSriGopalBanerjee?

2.

Inparticular,SriBanerjeefailstounderstandtheway,thenetloss(orRs.12,800)figures
is derived. Prepare a small table which would help him to understand this derivation.
And,ifnecessary,explain.

3.

Discusstheconditionsunderwhichprofitsandsupernormalprofitscanbeearned.

Source:(M.Adhikary,ManagerialEconomics)

GopalBanerjee&Co.

TradingandProfitandLossAccountfortheYearEndingDecember1994.

Dr.
Toopeningstock
Topurchase
Toinwardparcelpostage
Togrossprofit

Cr.
50,000 Bysale
5.50.000 Byclosingstock
5,000
90,000
6,95,000
25,000 Bygrossprofit
5,000
3,000
1,000
3,000
7,000

Tosalaries&wage
Toadvertisement
Toboxes&wrappings
Toofficesupplies&postage
Tolight&power
Toinsurance,taxes&repairs
ofbuilding
Totelephone
Todepreciation
Tointerestonborrowings
Tomisc.expenses
Tonetprofit

2,000
5,000
10,000
7,000
22,000
Rs.90,000

6,35,000
60,000

90,000

Rs.90,000

The above statement was given to a business economist for his comments. On enquiry, Sri Gopal
Banerjeesuppliedthefollowingadditionalinformation:

a)

Uptotheyear1988,heworkedasamanagerofanotherjewelleryshopwherehewasgettinga
salaryofRs.600permonth.Sincethenhelefttheserviceandstartedhisownretainshop.

b)

Thebuildinginwhichtheretailshopishoused,isatwostoreyairconditionedbuildingownedby
SriGopalBanerjeehimself.Thebuildingislocatedinsuchamarketplacethatitcanreadilybelet
outanytimeforRs.800permonth.

c)

SriBanerjeehasinvestedhisowncapitaloftheorderofRs.2,00,000.Ifborrowed,itwouldhave
beenobtainedata9percentinterestperannum.


Thebusinesseconomistmadecertainadjustmentsandtherebyafreshcalculation,whichshowedthatSri
GopalBanerjeewasactuallyrunningthebusinessatanetlossofRs.12,800perannum.

Onbeingtoldso,SriBanerjeewassurprisedandargued:

a)
Impossible;Iamworkingforprofitsandnotforsalary.Idontactuallydrawanysalaryfromthe
business.

b)

c)

Ihavegotmyownbuilding.Idonotpayanyrent.
Ihaveinvestedmyownmoney.Idonotpayanyinterest.Infact,Ihaveworkedhardtoputthis
businessinapositionwherethereisnoneedforborrowingmoneyIthink,itiscreditablethata
businessmanhereisfreefromanydebttobanksandmoneylenders.

d)

IfIamsavingsomemoneybywayofemployingmyownlabour,ownbuildingandownmoney,
howcanIincurloss?Netloss;Unbelievable!