MODERN BAKERIES (INDIA) LIMITED, AHMEDABAD (B)

Towards the end of 1967, Mr. Lal, the General Manager of Modern Bakeries
Limited, Ahmedabad, was concerned with the problem of designing a distribution system
for the company’s products. In as much as the plant was scheduled to begin production in
coming April 1968, arrangements for distribution had to be made. There were at least
four alternative distribution plans and he was working on the economics, efficiency and
effectiveness of each one of them so as to arrive at the best possible decision, keeping in
view the objectives of the company and its long term goals. He was also open to
suggestions on any other distribution scheme, which might not have so far attracted his
attention. Lal was aware of the fact that any channel arrangement decided upon would
involve the company in relatively long-term commitments and was therefore extremely
anxious to arrive at a decision after a very careful examination of all the pros and cons.

The Company

The early 1967, under the Colombo Plan, Government of India had received, as
gifts, units of automatic machinery for the manufacture of bread and other related items
from certain friendly countries. Consequent upon the receipt of this gift, Modern Bakeries
(India) Limited, a Government of India undertaking, was set up to run bakeries in large
Indian cities namely Ahmedabad, Bombay, Cochin, Chandigarh, Calcutta, Delhi,
Hyderabad, Kanpur, and Madras. The Ahmedabad unit was the third in the series, two
earlier ones being at Bombay and Madras, which had already gone into production.

The major objectives which the company set before itself were:

1. To make bread eating more popular, thereby changing the food habits of the
people from rice to wheat.
2. To raise the nutrition standard of the people by providing them a unique
balanced food product fortified with vitamins, minerals and other nutrients.

Even though the above two objectives were considered important, the Management of
the Company had decided to run the units on a commercial basis.

Though there was central organization for laying down common broad policies for all
the units in the country, yet General Manager at each unit had been given enough
flexibility to decide a sales and distribution strategy best suited to local conditions, for
effective achievement of company objectives and for running the units at an efficient
level, providing adequate return on investment.

The plant and machinery gifted to Modern Bakeries for all units provided for a
most modern manufacturing process, which was fully automatic and hence highly
hygienic. No other bakery in the country had so far developed facilities for fully
automatic process, only a large bakery at Bombay, which was 80 to 85% automatic.
To that extent ‘Modern’ units had an edge over existing manufacturers in the market.
Also as a government undertaking ‘Modern’ was assured of continuous supply basic
raw material (maida) in adequate quantities as against other bakeries in the private
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sector which faced persistent raw material shortage. Most of these bakeries had a
fixed quota of ‘maida’ allotted to them by the Civil Supplies authorities of the
Government based on consumption in a particular base year and any increase in this
quota was usually not possible. Additional procurement from the open market was
not only difficult but also meant payment of much higher prices.

The Ahmedabad Unit

The Ahmedabad unit of ‘Modern’ had a three-shift capacity of 36,000 loaves of

400 grams each per day. The plant and building(s) had been constructed at cost of
Rs.15 lakhs and the machinery gifted by the Australian Government, worth about Rs.
13 lakhs was being installed. The unit had available to it Rs. 7 to 8 lakhs as working
capital and if necessary additional working capital could be obtained from the
government. Also if sales volume and market potential justified, the plant capacity
could be doubled by an additional investment of Rs. 6 to 7 lakhs in plant and
machinery. Initially the unit was to manufacture plain bread only, with plans to add
other types of bread, biscuits, buns cakes and pastries to its product line later on. Also
to begin with, only three sizes of breads 800 grams, 400 grams and 200 grams were to
be sold with possibility of adding other sizes later. The ‘Modern’ bread to be priced at
Rs. 1.30 (800 grams), Rs. 0.68 (400 grams) and Rs.0.36 (200 grams), was to be
wrapped in wax paper, which besides the promotional value, had an important
protection function for the product. The wax wrapper was expected to cost the
company about 8 paise per piece. According to a preliminary estimate of the General
Manager, the unit would have to sell at least 26,000 loaves of bread of 400 grams per
day (or an equivalent quantity in other sizes) to break even.

Ahmedabad Market

With an area of 35.90 sq. miles, Ahmedabad and its surburbs had a total
population of 11.5 lakhs according to 1961 census. At a 2.5 per cent annual increase,
the present population was estimated at 13.22 lakhs, without taking into account any
migration from and to the city. It was difficult to make any realistic estimate of the
migration figure but various trends indicated that almost 2 lakh increase in population
could be attributed to this factor.

The city was divided into 29 municipal wards each with varying population and
area (See City Map and Exhibit 1). The major religions in the city with their
respective population figures were as follows.

Hindu 76.94%
Muslims 15.51%
Jains 5.60%
Christians 1.38%
Sikhs 0.27%
Others 0.30%
Total 100.0%

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The income distribution of the city population was as follows

Income Group Percentage of

(Monthly Income) Households
Below Rs. – 100 32.8
Rs. 101 – 250 49.4
Rs. 251 – 500 13.9
Rs. 501 – 1000 3.1
Over Rs. 1000 0.6
Total 100.0

The break- up of the working population into various occupational categories was
as under:

Occupational Classification No. of Workers

1. Professional, Technical & Related Workers 15,828
2. Administrative, Executive and Workers 7,476
3. Clerical and related workers 35,589
4. Sales workers 47,801
5. Workers in Transport and communication 14,833
6. Craftsman, Production process workers and Labourers
not elsewhere classified 197,361
7. Service, sport and recreational workers 33,181

From even a casual observation one could feel that population was very unevenly
distributed in different parts of the city, not only in terms of numbers but more so in
its other characteristics like religion, occupation, income, social class, etc.

Major trading area of the city was concentrated in the 7 to 8 sq. miles area within
the old city (around Lal Darwaja and Ahmedabad Railway Station).

About 75% of the city’s total estimated number of 25,000 retail outlets of all
types and all the wholesaler and leading stockists of different products were located
in this area, with provided for city population’s over three-fourth of the household
needs. A number of specialized retail markets like cloth market, vegetable market,
provision and grain markets, etc., had developed in this area.

There were a number of other shopping areas scattered all over the city with
number of stores ranging from 15 to 20 in some areas to 50 to 60 in others. These
areas had a good mix of shops which included Kirana Stores, Provision stores,
General Stores, Fruits and vegetables, Milk and Sweets, Tea Stalls, Restaurants and a
few service establishments like Barber, Laundry, Tailors, etc. There were also a few
stores though relatively very small, almost in all the residential localities providing
for some essential needs of the community. Residential localities were also visited by
numerous peddlers and ha wkers, who brought some of the everyday use items to the
consumer’s door-steps.

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 Present Production and Distribution of Bread

There were presently about 130 bakeries operating in Ahmedabad, concentrated

largely in the followings 7 areas of the city:

1. Delhi Dharwaja
2. Penkorenaka
3. Mission Road and Three Gata
4. Khanpur- Mirzapur
5. Jamalpur
6. Kalupur
7. Maninagar-Shahalam Tolnaka

Of these only 5 bakeries had medium to large size operations and consumed more than
10,000 kgs. of ‘maida’ per month. Rest were small size operations, consuming less than
2,000 kgs of ‘maida’ a month.

On the basis of information available about the quota allotment of ‘maida’ to

different bakeries, Mr. Lal estimated the current production of bread at 41,375 loaves of
400 grams or 16550 kgs per day (exhibit 2 explains the basis of estimates)

The existing bakeries produced, besides other products, five different types of
bread. These were plain bread, sandwich bread, milk bread, vitamin bread and sweet
buns. While the larger ones produced all the five types, other concentrated on one or two
types only. Plain bread had the maximum sales in the market and was the most popular
one among the five varieties.

Bread was produced in different sizes and average price was as follows:
Plain Bread Milk Bread Buns
100 grams 16p 15p
200 grams 25p 30p
250 grams 30p 30p
400 grams 60 to 65p 60 to 70p
500 grams Rs. 1 to 1.20

Regarding distribution, almost all the existing bakeries, excepting 8 to 10, sold
only at the store. About 4 to 5 large bakeries, in addition to counter sales at the store,
employed a few delivery boys who did house to house delivery but only in selected areas.
A few bakeries also sold bread to independent hawkers and peddlers, who either did door
to door delivery or stationed themselves particularly in the evenings at busy street corners
or in smaller shopping areas in different parts of the city on a regular basis so that
consumers of the area became familiar with the place where they could find bread
whenever the need or desire to consume arose. These people usually used a cycle (with a
box at the back or a cart (hand driven) for the purpose and worked either on commission
basis or bought the goods at a wholesale price added their margin and sold to the ultimate
consumer. Only one bakery in Ahmedabad, which had the largest operation in the city,
had in addition to its main store in Teen Dharwaja area to other retail outlets for selling

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its products to the consumer. Also this was the only bakery, which used Wax paper for
wrapping but that too on a restricted scale for two sizes of one variety only.

It is thus clear that bread was distributed in Ahmedabad through restricted outlets either
at the bakery itself or through vendors. No bakery had attempted to achieve an intensive
distribution of the product either by using various types of retailers available in the
market or by developing its own mass distribution organization. Also as all the bakeries
did their own distribution, there were no other distributors or wholesalers in the trade.

Potential Demand

Mr. Lal felt that the present production of bread was no true indicator of actual demand
because of shortage of raw material. The present quota allotment was on the basis of
actual consumption in the base year 1963-64. With growth in population and changing
food habits, actual demand could be higher than the present production. This could also
be supported by the fact that almost all the bakeries had asked for additional allotment of
‘maida’ from the Government, and there were requests from new parties who wanted to
enter the market in case they could obtain some quota allotment. If their additional
requirements were taken into account the demand would be around 49,360 loaves of 400
grams or 19,854 kgs. per day. This was, however, a rough estimate difficult to cross
check by any other means. Exhibit 3 gives basis of this estimate.

Though Mr. Lal had been able to arrive at an estimate of present potential demand
for the entire city population, it was difficult to break up this figure and arrive at a
wardwise or areawise demand, which would be of tremendous use in developing a
distribution system. Most of the information he had about various wards of the city was
of a qualitative nature, gathered largely through observation and discussions with
informed sources (Exhibit-4). The only ward-wise data available was about ward
population, density and area (Exhibit – 1). He wondered if projections could be made on
the basis of this limited available data or else major adjustments would be necessary on
the basis of his impressions and feelings about the characteristics of the wards to
supplement this data.

Alternative Distribution Plans

In his consideration of different distribution plans, Mr, Lal thought, it would be

good idea to lay down certain basic objectives which must be satisfied by any plan to be
decided upon. He laid down the following major objectives:

1. Being a convenience good, bread should reach the final consumer with least
possible effort on his/her part;
2. Time lag between production and consumer purchase should be as minimum
as possible to ensure the freshness of the product;
3. There should be as little handling as possibly feasible;
4. Distribution should be achieved at an economical cost to ensure a competitive
position for the company; and

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 5. Distribution system should effectively meet the long-term objectives of the
company.

The alternative plans under consideration were:

1. Sole distributor selling to retailers

2. Direct distribution to the consumer
3. Direct distribution to the retailers
4. Appointment of distributors to distribute to retailers.

1. Sole Distributor Selling to Retailers

One idea was to hand over the entire production to sole distributor who in town
would sell the bread to various retailers in the city and work on commission basis.
However, Lal was not sure at this stage whether he could get a distributor to the
type he would be prepared to work would be acceptable to ‘Modern’. He was
thinking in terms of 2 paise commission per bread of 400 grams to such a
distributor.

Another problem which was concerning Mr. Lal in this type of distribution
arrangement was about the type of retail distribution such a distributor will be
able to achieve. He was not sure whether the distributor would really find it
advantageous to achieve the intensive distribution expected by ‘Modern’ to make
its bread popular among the masses. Also he wondered if such an arrangement
would not put the distributor into a strong position so as to be able to dictate terms
to the manufacturer.

2. Direct Distribution to the Consumer

Mr. Lal felt that if ‘Modern’ was to undertake direct distribution of its product to
the consumer, it would have to set up depots at various points in the city, from
where distribution could be made to the final consumers. He estimated that he
would need 15 depots in various parts of the city to achieve the type of
distribution he wanted. Each depot could be assigned a specific area and with help
of cycle route salesmen, it could distribute 1,800 to 2,000 loaves a days. His
preliminary estimates showed that it would cost the ‘Modern’ about Rs. 2,300/-
per month to run such a depot (cost data about the running of depots is given in
Exhibit 5). These cost estimates did not include expenses that would be involved
in feeding the depots from the factory. He wondered if this arrangement would
provide enough scope for achieving the basic objectives of the company and also
ensure efficient distribution at reasonable cost.

3. Direct Distribution to the Retailers

Under this distribution system the city could be divided into 5 to 6 routes and with
the help of its own vehicles ‘Modern’ could distribute bread directly to the
retailers. If this were done, it would bring the company nearer to its final
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 consumer and would also help maintain a better control on retail distribution. He
estimated that ‘Modern’ would require five 4-wheeler Standard – 120 vehicles to
distribute bread to the entire Ahmedabad market. The cost of each vehicle was
estimated at Rs.45,000/- and each vehicle will have carrying capacity of 3,500
loaves of 400 grams. On the basis of two trips per day five vehicles could
distribute 35,000 loaves. The drivers of the vehicles could function as salesman
and could be given a salary of Rs. 300/- per month. Other persons required would
be 3 additional clerks with an average salary of Rs. 350/- per month. Distribution
cost per loaf of bread under this system was estimated at 1.13 paise (See Exhibit 6
for details).

4. Appointment of Distributor to distribute to Retailers

‘Modern’ could appoint distributors in the city who would supply its bread to the
retailers in their respective areas. Distributors under this system could maintain
certain physical distribution facilities for lifting their stocks from the factory and
distributing them to the retailers.

The city could be divided into nine viable zones, each zone having a distributor.
At 2 paise commission, to break-even each distributor will have to sell about
2,300 loaves of 400 grams if he operated with Standard 120 vehicle, 1,400 loaves
if he operated by using three-wheeler Auto-Ricksaw and 2.700 loaves if he
distributed by four-wheeler 120 type vehicle. The estimated cost of operating all
those different kinds of ve hicles and resultant distribution cost of bread is given in
Exhibit 7. Mr. Lal was however, worried whether the distributors would be able to
breakeven by achieving enough volume in the initial stages. If many of them
found it unprofitable and decided to give up their distribution arrangement with
‘Modern’, the company would be in a mess. Also he was not sure if these
distributors would be able to develop the type of mass distribution retail
organization expected by ‘Modern’.

Besides debating over these four alternatives, Lal also wanted to lay down
some broad guidelines on the basis of which, he thought his company should
select retailers under whatever distribution arrangement it made (expect the one
where direct distribution to the consumer was envisaged and hence no retailers
were required). He knew that retailers were the last link in the distribution chain
and on their right selection would depend, the reputation and image of the
company and its subsequent success. Decisions also had to be made regarding the
type of retail outlets to be used, their number in different location and facilities to
be offered to them. As the present bakeries were not using retail outlets, there
were no precedents to draw any guidelines. Regarding the retailers compensation,
he thought, they should get 10, 5 and 2 paise for 800 grams, 400 grams and 200
grams of bread respectively. These figures would be fixed for whatever
distribution arrangement he made where retailers were to be a part of the scheme.
Mr. Lal was planning not to lock up any amount of working capital in giving
credit to other parties and hence was intending to run ‘Modern’s’ distribution
business on cash basis only. Botheration of credit collection and carrying of credit
risk were influencing Lal to take this approach.
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At this stage, a suggestion was made to Mr. Lal that ‘Modern’ should use the
existing milk booths through which Municipal Corporation distributed its
pasteurized bottled milk. However, his enquiries revealed that any arrangement
with the milk booths could be made only on an exclusive basis and he wondered
whether such an arrangement would be satisfactory from his point of view. Also
there were basic differences terms of timings when consumers bought these two
products. While bread purchases were concentrated in the evening between 6 to 8
p.m., most of the milk was bought either early in the morning or in the evening
around 4 p.m. these booths presently worked only during the abovementioned
timings. After his detailed discussion with Municipal Corporation milk
authorities, Mr. Lal was convinced that it would not be possible to work out any
mutually acceptable arrangement with them.

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Exhibit – 1
Name of Wards Area Population Density No. of Literate
Sq. per Sq. households and
miles mile educated
persons
1 Khadia-1 0.13 34,035 261,808 6,444 25,140
2 Khadia – II 0.07 25,797 368,529 4,794 18,542
3 Khadia – III 0.10 21,548 215,430 3,955 17,096
4 Jamalpur–I 0.22 51,706 235,027 8,496 25,686
5 Jamalpur-II 0.11 23,170 210,636 4,143 16,632
6 Raikhad 0.38 41,677 109,676 7,480 24,175
7 Kalupur-I 0.10 31,380 313,800 5,224 21,255
8 Kalupur-II 0.11 33,331 303,009 6,005 25,214
9 Kalupur-III 0.12 26,198 218,317 4,517 16,049
10 Dariapur-I 0.13 43,678 335,985 7,660 24,091
11 Dariapur-II 0.09 31,465 346,611 5,865 19,860
12 Shahp ur-I 0.14 41,039 293,129 7,475 22,218
13 Shahpur-II 0.42 54,512 129,790 9,939 31,487
14 Ellis Bridge 15.70 110,825 8,089 20,817 66,446
15 Sabarmati 1.93 27,387 14,190 6,084 13,785
16 Dariapur- 2.26 99,737 44,131 21,269 41,018
Kazipur
17 Railwaypura 0.26 4,599 17,535 9,927 12,402
18 Shaherkotda 0.86 44,705 51,983 9,012 16,492
19 Saraspur 0.06 21,042 350,700 4,553 12,860
20 Asarva 3.69 107,376 29,099 23,654 41,352
21 Rakhial 2.42 82,376 34,267 18,556 34,906
22 Gomtipur 0.06 9,119 1551,983 1,553 55,226
23 Rajpur-Hirpur 0.06 36,247 60,412 7,640 13,363
24 Rajpur-Hirpur 0.44 6,768 15,382 1,503 3,768
(New Limited)
25 Khokhara 2.21 48,468 21,931 11,928 22,971
Mahmodbad
26 Maninagar TPS 0.90 25,858 28,731 5,179 17,939
27 Kankaria TPS 0.75 27,355 36,473 5,285 13,241
28 Kamalpur TPS 0.42 27,147 64,636 5,431 10,444
29 Beherampura 3.22 10,864 3,374 2,383 3,923

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 EXHIBIT – II

Estimates of present production of bread on the basis of quote allotment of media to the
bakeries.
1. Present quota of ‘maida’ per month: 3753 bags of 90 kgs.
each
2. On an average 40% additional quota is granted 1501 bags
every month if supplies are available :
3. Total quota of maida per month : 5254 bags or 472,860
kgs.
4. On the basis of 75% of the quota being used for 354,645 kgs per month
bread manufacturing maida used for bread
5. Total weight of bread produced * 496,503 kgs. per month
(30 days)
6. Per day production of bread : 16550 kgs.
7. Number of loaves of .4 kg. 41,375 per day.

* 1 kg of Maida could be turned into 1.40 kgs. of bread.

EXHIBIT – III

Estimates of potential demand of bread on the basis of additional quota demanded by

bakeries.

1 Existing quota of maida per month : 3753 bags

2 Actual additional quota demanded by bakeries per month 3000* bags
3 Total bags of maida demand per month (3753 + 3000) 6753 bags
4 Total kgs. of maida demanded per month : 607,770
5 On the basis of 75% of the maida being used for bread: Total 425,439 kgs.
for bread production:
6 Total weight of bread produced per month by bakeries (Qty. 595,615 kgs.
Of maida x 1.4)
7 Per day estimated production of bread, buns, small breads 19,854 kgs.
8 No. of loaves of 0.4 kg each per day 49,660

*Bakeries had requested for 4000 bags of additional quota, but Mr. Lal discounted the
additional quota requested by 25% because he felt that the bakeries will ask for larger
quota than required because of shortage of materials.

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EXHIBIT - IV
Name of Ward Income/Social Class Predominant Groups
Khadia I,II,III Middle Middle Income Traders Officer workers
Shop/service workers
Jamalpur I,II and T.P.S Lower Middle Income Traders Office Workers
Lower Income Factory workers shop Service
workers scheduled Caste
population
Raikhad Lower Income Labour Class Schedule Caste
Kalupur I,II,III Middle Middle Income Traders Officer workers
Lower Middle Income Shop/service workers
Dariapur I,II Middle Middle Income Traders Office workers
Lower Income Shop/service workers Factory
workers Schedule Caste
Ellia Bridge High Income Rich Industrialists
High Middle Income Professionals
Middle Middle Income Rich Business men
Lower Middle Income Traders Office/shop/
Service workers
Sabarmati Middle Middle Income All classes separate township
Lower Middle Income
Lower Income
Dariapur-Kazipur Lower Middle Income Factory Workers
Lower Income Office/shop workers
Labourers
Railwaypura Lower Income Factory workers
Labour classes
Saraspur Middle Middle Income Mainly factory workers all
Lower Middle Income other classes separate
Lower Income township
Asarwa Lower Middle Income Trades
Lower Income Labourers
Rakhail Lower Income Factory workers
Labourers
Gomtipur Lower Income Factory workers
Labourers
Rajpur-Hirpur Lower Income Factory Workers
Labourers
Rajpur-Hirpur Lower Income Factory Workers
(New limit) Labourers
Khokhara Lower Middle Income Traders /Shop/service workers
Kehmedabad Lower Income Factory workers
Labourers
Maninagar TPS Middle Middle Income Traders /Professionals
Lower Middle Income Shop/service workers
Berhampura Lower Middle Income Shop/service workers
Lower Income Factory Workers/ Labourers.

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Notes 1: All the wards within old city limits had congested housing. Ellisbridge,
Maninagar TPS, Kankaria TPS are areas where housing societies predominate. Housing
societies are clusters of independent house with some group recreation and trade
facilities. The remaining areas are not as congested as in the old city is not sparsely
constructed as in societies. These areas have developed as lands around network of major
roads or separate townships.

Note 2: Hindu community was a predominant religious group in nearly all the wards of
Ahmedabad except Jamalpur wards. Christian community packets had developed ma inly
in Khanpur area of Shapur ward. A Few muslim community pockets had also developed
in Kapupur area. Jain community pockets had been in all wards inside the old city wall.

EXHIBIT – V

Estimated Monthly Cost of Operating One Sales Depot

Expense
Amount in Rs. (p.m.)
1. Rent of space needed for depot (15 x 10 sizes) 300.00
2. Furniture: Table, chairs, Racks, etc. 10.00
3. Depot Incharge’s Salary 398.00
4. Asst. to Depot Incharge and his Salary 150.00
5. Maintenance and depreciation of cycles 100.00
6. Salary of persons employed to distribute bread in 1200.00
Various regions (12 persons @ Rs. 100 per month)
7. Expenses like stationery, electricity, other routine 50.00
Depot expenses, etc.
8. Miscellaneous 190.00
Total 2300.00

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 EXHIBIT – VI

Estimated Cost of Operating Vehicle if Modern Bakeries Distributed Direct of

retailers:

4 WHEELER 120
Cost Rs. 45,000
Expected life 5 years
Carrying capacity 3500 loaves
Mileage 5 km per litre
Expected running of vehicles for 2 trips in a day 100 kms.

Fixed expenses per day Variable expenses per day

Depreciation : Rs. 25.00
Maintenance & Tax : 5.00
Interest (8%) : 10.00
Office Personnel (3) : 7.00
Total Rs. 47.00
Petrol & Oil : Rs. 22.00
Salary of driver cum salesman : 10.00
Rs. 32.00

Fixed cost + Variable cost Rs. 47 + 32 = Rs. 79

Cost of transportation per loaf
Of bread of 400 grams 7900
-------- = 1.13 paise
7000
EXHIBIT – VII
MODERN BAKERIES (INDIA) LIMITED, AHMEDABAD (B)
I. STANDARD 20 – 4 WHEELER
Cost Rs. 33,000
Expected life 5 years
Carrying capacity 2000 loaves per trip (400 gms.)
Mileage 7 km per litre
Estimated running of vehicle for trips in a 100 kms.
day
Fixed expenses (per day) Variable expenses (per day)
Depreciation Rs. 19.00 Driver Rs. 8.00
Taxes & maint. Rs. 4.00 Petrol, oil etc. Rs. 15.00
Interest (8%) Rs. 7.00 Rs. 23.00
Total Rs. 30.00
Fixed cost + Variable cost 30 + 23 = Rs. 53
Total number of bread carried in 2 trips 4800 loaves of 400 gms.
Cost of transportation per loaf of bread of 5300
400 gms. ------ = 1.32 paise
4000
No. of breads to be distributed for breaking 2331 loaves of 400 gms./day
even on

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II. 3 WHEELER TEMPO

Cost Rs. 13,000

Carrying capacity 1400 loaves of 400 gms. Per trip
Expected life 5 years
Mileage 9 km. per litre
Est. running of vehicle for 2 trips in a day 100 kms
Fixed expenses (per day) Variable expenses ( per day)
Depreciation : Rs. 8.00 Driver Rs. 8.00
Taxes & Maint. : Rs. 4.00 Petrol, Oil Rs. 12.00
Int. (8%) Rs. 4.00 Rs. 20.00
Total Rs. 16.00
Fixed cost + Variable cost Rs. 16 + 20 = Rs. 36.00
Cost of transportation of per loaf of bread
3600
of 400 gms. ------ = 1.3 paise
2000
No. of breads to be distributed for 1430 loaves of 400 gms/day.
breaking even on the basis of 2 np.
Commission.

III. 3 WHEELER AUTO RIKSHAW

Cost Rs. 10,000
Expected life 5 years
Carrying capacity 1400 loaves of 400 gms.
Mileage 10 km. per litre
Est. running of vehicle for 2 trips in a day 100 kms
Fixed expenses (per day) Variable cost ( per day)
Depreciation : Rs. 6.00 Petrol, Oil Rs. 11.00
Taxes & Maint. : Rs. 4.00 Driver Rs. 8.00
Int. (8%) Rs. 3.00 Total Rs. 19.00
Total Rs. 13.00
Fixed cost + Variable cost Rs. 13 + 19 = Rs. 32.00
Cost of transportation of per loaf of bread
3200
of 400 gms. ------ = 1.14 paise
2800
No. of breads to be distributed for 1304 loaves of 400 gms/day.
breaking even on the basis of 2 paise
Commission.

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Prepared by Professors M.N. Vora & Subash C. Mehta. Case material of the Indian
Institute of Management, Ahmedabad, is prepared as a basis for class discussion.
Cases are not designed to present illustrations of either effective or ineffective
handling of administrative problems. Copy Right © 1960 Indian Institute of
Management, Ahmedabad

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