Professional Documents
Culture Documents
● Mr. Madhusudan Gupta, founder of Harsh electricals had been a specialist supplier of home appliances in
Andhra Pradesh
● Initially, he invested Rs. 8,00,000 in the form of equity to begin his business to business trading in 2008
● The business was a huge success and sales reached Rs. 4 million and post tax reached Rs. 6,50,000 for
financial year 2008-2009.
● In FY 2009-10. he expanded his business in neighboring states of Maharashtra and karnataka
● The business performed well till FY 2010-11 and dropped in next 2 consecutive years FY 2011-2012 and FY
2012-13
● The decline in financial performance can be attributed to two major reason:
(a) Decline in profit margin due to the increased marketing and servicing cost
(b) Surge in post repairs and replacement costs due to inferior quality of products
Situational Analysis
● The number of manufacturers who were providing quality products could fulfill demand of only 30-40% of
demand
● For sustainable growth of his business, he considered shifting the focus of his business to manufacturing
quality appliances
● The competitive strategy of Harsh Electricals was to manufacture fibre air coolers with high cooling capacity
at a competitive price.
● Mr. Gupta onboarded Mr. N Nagesh, an industrial engineer and a skilled mechanical expert
● Both concluded to manufacture two different models of fibre air coolers- Standard Model and Baleno
model.
COST ANALYSIS
Manufacturing Costs: Fixed
Costs
Raw Material Cost:
● Stable for the production of each cooler unit and changes proportionately with the total
volume of production
● Procured 40% raw materials from suppliers at a credit of 15 days and rest was procured on
cash
● Firm had a moderate working capital policy
● Fixed order inventory management system where supplies were reordered only when the stock
reached a previously set minimum limit
Manufacturing Costs: Fixed Costs
Continued
Labor Cost:
● Required 5 casual workers on a daily basis to run the assembly line for the production of 40
units
● Casual workers required for 8 hours each day at a minimum wage of ₹200 per day
● Standard & Baleno model were expected to consume 60 & 72 minutes of assembly line labor
respectively
● Staff member with a monthly salary of Rs 6,000 was also hired to set up the machines before
each production run and to handle the materials
Additonal Expenses
● Delivery of raw material from suppliers would come at an additional cost of 0.5%
● The cost for drilling remained constant at Rs 10 per cooler irrespective of the model of the
cooler to be drilled
● Fixed costs like rent were to be paid on a monthly basis while the drilling and assembly line
labor were to be paid every two weeks
● Electricity costs were Rs 10 per unit with a minimum bill to be charged for 1000 units per
month
● Fixed cost for workshop insurance at Rs 25000 per year
● Cost incurred on wires, screws, nuts and bolts, and oiling was estimated to be ₹45,000 per year
with an expected increase of ₹5,000 with every 1,000 subsequent units produced
Financials
Revenue
Price 2300
Profit Margin 15%
Cost Price 2000