Decisions to take

1 Type of Machine to buy refurbshied machine

2 How to finance ? Cousin or Bank loan cousin loan
3 How to price the copy re 1 0.5
4 How much wholesale biz to target to make money

List down the cost Amount pa or unit Fixed or Var Direct or In

1 Dep on Photo copy machi 35000 7000 pa F D
New 50000 5000
2 Interest Cousin loa 3500 pa F D
New 5000
3 Repairs and Maintaineince Provision 1000 pa F (budgeted) D
-
4 Rent on Shop 100 x 12 1200 pa F Indirect
5 Shop Electricity 230 x12 3000 pa F Indirect
6 Drum and Film 2800/2 1400 pa F (variable) D
7 Toner 800/25000 0.032 per unit V D
8 Paper 0.2 per unit V D
9 Power consumption per pg 0.04 per unit V D
10 Foregone Salary 30000 pa F or Target I Indirect
11 Helper salary
VC 0.272 0.28
FC 12900 42900 12400
Per Unit
Sales BE Analysis SP 1 0.75
- Variable cost S - VC = FC VC 0.28 0.28
= Cont. Units Cont per unit 0.72 0.47
- Fixed Cost Revnue Fixed Cost 1 12900 12900
= Op Income BE Units 1 17,917 27,447
- G&A Exp BEUnits = FC/Cont Unit Fixed Cost 2 42900 42900
Int BE Revenue= FC / Cont % BE Unit 2 59,583 91,277
= PBT N Fixed Cost 42400 42400
- Tax N VC 2 0.26 0.26
PAT N Cont 0.74 0.49
N BE 57,297 86,531

Cont form 30 coCont from Ret 6,660

(FC - Cont fm Retail)/Cont of WS
109,438
How much WS at 50 p over
and above retal to BE
N1 BE 118,438
VC 3 refined 0.18 0.18
Contribution 3 0.82
BE refined 51,707
 Relevent or Ir Sunk or Opprtunity FA v/s MA
R NA

R NA

R Provision If expnensed then only inculded in PNL FA

Ir Sunk Not inculded in MA but in FA

Ir Sunk Not inculded in MA but in FA
R NA deal with incomplete info
R NA
R NA
R NA
R Opportunity included in MA but not in FA

0.5 0.3 1.5

0.28 0.28 0.28
0.22 0.02 1.22
12900 12900 12900
58,636 645,000 10,574
42900 42900 42900
195,000 2,145,000 35,164
42400 42400 42400
0.26 0.26 0.26
0.24 0.04 1.24
176,667 1,060,000 34,194

Retail)/Cont of WS

0.18 0.18 0.18

Cost Information
Sr Particular Amt
1 Photocopy Machine 35000 Depn PA 7000 PA
50000 10 yrs 5000 PA
2 Financing Cost 10% 3500 PA
5000 PA
3 Drum nad film 2800 for 2 yyrs 1400 pa

4 Toner 800 25000 copi 0.032 per unit

5 Electircity (A) 250 pm 3000 pa

6 Power per copy 0.04 per unit

7 Rent of Shop 100 pm 1200 pa

8 Repair and Maint 1000 provision 1000 pa

0
9 Paper 20 paisa 0.2 per unit

10 Foregone salary of Rav 2500x 12 mts` 30000 pa

Sales Break Eve VC per Uni 0.272 0.28

less VC TR=TC FC PA 12,900 Selling Price
Contributin Sales 42,900 VC
less Fixed Cost minus VC Cont (SP - VC) per unit
Op Profits Contribution Fixed Cost 1
less financing Cost Fixed Cost 2 incl Opportunity cost
PBT Cont = Fix is BEP BE Units FC/Cont per unit
less Tax BE 2
PAT With New MC
VC
41400 FC
Cont
BE with New

New FC
New BE to get Target Profit of 12 K

How much w/s biz @ 50 paisa over and above retail to be

Retail Biz 30x300days
Cont of Retail
Fixed Cost to cover
WS biz requ

Total Biz of
Per day
 Fixed/Variabl Direct/inDirect Relevent/Irrelev Opportunity/Sunk MA FA
F D R NA Y Y

F D R NA Y Y

F* D R NA Y Y

V D R NA Y Y

F ID IR y=a+bx N Y (1/3)

V D R Y Y

F ID IR S N Y(1/3)

F D R Budgeted Y N (only if incurred)

V D R NA Y Y

F ID R Opporunity Y ? 1/3

1 0.75 0.5 0.33

0.28 0.28 0.28 0.28
0.72 0.47 0.22 0.05
12900 12900 12900 12900
42900 42900 42900 42900
17,917 27,447 58,636 258,000
59,583 91,277 195,000 858,000

0.26 0.26 0.26 0.26

41400 41400 41400 41400
0.74 0.49 0.24 0.07
55,946 84,490 172,500 591,429

54900 54900 54900 54900

76,250 116,809 249,545 1,098,000

nd above retail to be
9000 Illuminate
6480 Inspire
36420 Integrate
165,545

174,545
581.82
Decisions
Pricing of the photocopy service
What type of Machine to buy
Expanding the biz -
Identify cost
What is the market / customers
Should he plung in Photo Copy Biz
How should he do the biz?
Cost information
Sr Cost Head Old New 50K
1 Machine Cost 35,000 7000 5000 pa
2 Financing cost at 10% 3500 5000 pa
3 Drum and Film 2800 for 2 yr 1400 1400 pa ? Variable
4 Shop electricity 250 pm 3000 pa
5 Shop rent 100 pm 1200 pa
6 Reparit and Maint 1000 0 pa Cost or Exp
7 Toner 800/25K 0.032 0.03 per unit
8 Power per copy 0.04 0.04 per unit
9 paper cost 0.2 0.2 per unit
10 Foregone Salary 2500 pm 30000 pa opportunity Cost

12900
Elect cost = a+bx

Incremental Analysis
Deal with approximations
Make Assumptions
Different cost are relevant for different situations
Cost classification in Contextual

Marginal Income Statement

Sales Revenue SP
- Variable Cost VC
= Contribution Cont per unit
- Fixed Cost (operating and financing) Fixed Cost
= Operating Income Break Even
- tax Unit (FC/Cont per unit)
= PAT rupees (FC/Cont%)
Cont%
Break Even Unit Fixed Cost/Cont per unit Break Even Revenues
BE point at which total cost = Total revenue for earning Profit of 30000
New FC
Break Even Revenues
Break Even Units

Over and above Retail at re 1

how much ws biz to break Even
Cont at Whole sale
Fixed Cost New
Cont in Retail A Re 1, 30 copies x 300 days
cont on 9000 copeise at Re 1

How much ws biz

Total Biz
Daily Bsis

New Machine
FC
VC
Cont
Ne FC with Salary
Ne BE units
 Fixed/Variable Direct/Indrect Relevent/Irrel-Sunk
MgmtAc Fin Acct
F D R
F D R
F D R
F Indirect IR - Sunk No 1/3 in PC Biz
F Indirect IR - Sunk No 1/3 in PC Biz
F budgeted D R (Provision) yes only if incurred
V D R
V D R
V D R
F D R - Opportunity Cost yes 1/3rd alloted to PC
if slaray is paid to Ravinder

1 0.75 0.5
0.28 0.28 0.28
0.72 0.47 0.22
12900 12900 12900

17,917 27,447 58,636

72% 63% 44%

17,917 20,585 29,318

42900 42900 42900

₹59,583.33 ₹68,457.45 ₹97,500.00
59,583 91,277 195,000

o break Even
0.22
42900
1, 30 copies x 300 days
6480

165,545
174,545
581.82

11400
0.26
0.74
 41400 42900
55,946
Decision one needs to take in Ravinder Dave case
How should he do the Photo Copy biz
How should price the service
Type of machine to buy
What type of biz he should traget or focus more
How should he get the machine financed
Should he do the biz and How should he do the Biz
Sr Particulars Amount New 50K Fixed/Variabl
1 Machine refurbish 35000 7000 5000 pa F
2 Financing cost at 10% 3500 5000 pa F
3 Drum and film 2800/2yrs 1400 1300 pa ? Variable F
4 Shop electricity 250 pm 3000 pa F
5 Shop rent 100 pm 1200 pa F
6 paper cost 0.2 0.2 per unit V
7 toner cost 800/25000 cop 0.032 0.03 per unit V
8 power consmption 0.04 0.04 per unit V
9 Repairs and Maint Cost or Exp 1000 0 pa Provising F
10 Ravinders Foregone Salary 30000 pa F

Mgmt account relies on approzx and incomplete info

Mgmt acc relies on incremental cost \ y=a+bx

Marginal Cost Analysis

Sales per unit sp 1 0.75
- VC per unit VC 0.28 0.28
= Contribution per unit cont 0.72 0.47
- Fixed Cost (op n financing) 12900 12900
= Operating Profit Break Even Units 17,917 27,447
- Tax BE to TOI
= PAT 42900 42900
BE to cover Salary 59,583 91,277
Full FC with New MC 41,300 41,300
VC 0.270 0.270
Cont 0.730 0.480
BE for New MC 56,575 86,042
working days in a year 300 300
Daily Biz 189 287

Over and above 30 retail biz at re 1, How much ws biz at re 0.5 he needs to BE

Retail biz 9000 copies

Cont for Retail Biz 6,570
FC to cover 32,980
Cont for WS biz @50p 0.3
BE to cover the rem FC 109,933
Plus Retail Biz 9000

Total Biz to BE 118,933

Daily 396.44444

New FC with Helper 60000

Break Even = total cost = total revenue
Break Even Units = Fixed Cost/ Cont. per unit
Break Even Revenues = Fixed Cost/ Cont %
 Direct/Indirect relevent/Sunk Irrelevent Mgmt Ac Fin Ac
D R Y Y
D R Y Y
D R Y Y
I Ir N 1/3 will go to PC biz
I Ir N 1/3 will go to PC biz
D R Y Y
D R Y Y
D R Y Y
D R yes only if incurred
D R (opportunity Cost0 Yes part of it

0.5 0.6 0.33

0.28 0.28 0.28
0.22 0.32 0.05
12900 12900 12900
58,636 40,313 258,000

42900 42900 42900

195,000 134,063 858,000
41,300 41,300 41,300
0.270 0.270 0.270
0.230 0.330 0.060
179,565 125,152 688,333
300 300 300
599 417 2,294

biz at re 0.5 he needs to BE