W25582

MEDSTAR POLYMERS: CONSIDERING PRODUCTION-FUNCTION-

BASED INPUT OPTIMIZATION

Monika Sharma and Zillur Rahman wrote this case solely to provide material for class discussion. The authors do not intend to
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On March 23, 2021, Vineet Sharma, the sole owner of MedStar Polymers, India (MedStar), a medical-
grade latex glove manufacturing company, received a call from the procurement manager of Vinayaka
Mission Hospital, who placed an order requesting 80,000 gloves. It was the most significant order
MedStar had received since its inception in 2015. MedStar had been running at 100 per cent production
capacity for the past two months, yet Vineet was struggling to deliver orders on time. His company was
in no position to fulfill such a huge demand, but he knew that fulfilling this order would provide both
relief from his financial woes and a huge profit. The development of vaccines and the deceleration of
COVID-19 cases in the last quarter of 2020 indicated that demand for gloves would likely taper off in
the second half of 2021. This might be the last bulk order due to the pandemic.

The unprecedented market conditions resulting from the pandemic had created exceptional business growth
and expansion opportunities for glove manufacturers, and several of MedStar’s competitors had responded
by scaling up production. MedStar’s assistant manager had also suggested adding a new production line,
but Vineet believed he could optimize the existing production line to fulfill orders efficiently. Moreover,
adding a production line was not as simple as it sounded. Even if he could arrange for financial resources,
increasing capacity would require more inputs such as raw material and skilled and unskilled labour. The
challenge of increasing output while dealing with resource constraints, which had been exacerbated by the
pandemic, was already constraining the existing production line. Whether he decided to increase capacity or
adjust production in response to demand, he would have to cope with input shortages and rising prices. He
knew that he had to act efficiently and quickly to capitalize on this brief but significant increase in demand.

BACKGROUND

M.S. (MedStar) Polymers and Packers was founded in 2015 as a limited liability partnership by the late
Sohan Aggarwal and Mahesh Sharma (Vineet’s father, who acted as a financing partner), in the
Khushkhera industrial region of Delhi National Capital Region (NCR). The company manufactured
gloves using a process that generally required several inputs (also known as factors of production): raw
materials, specialized machines, infrastructure, different categories of workers, space (the factory area),
machine layout, and location. The combination of inputs determined the level of output a firm could
achieve. In economic theory, this relationship between inputs and output was represented in

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mathematical form as the production function. Managers commonly used the Cobb-Douglas function,1
which was considered the best fit for the actual data.2
Aggarwal did not understand the economic theory behind production, but he had considerable
experience working in glove factories. He knew that in order to produce medical-grade gloves, the
company would need to employ strict controls over aspects of production, including the latex glove-
making machine equipment, the production materials, and processes. He ensured the best quality in all
three domains. The combination of latex glove manufacturing machinery, tools, and equipment (K) was
an important component of the production process. There was no unified standard for the production-
line equipment; machinery could be designed according to manufacturers’ requirements and customized
according to various materials (e.g., natural rubber, nitrile rubber, PVC) to increase product stability,
ensure uniform length, reduce coating thickness, and reduce sagging. Further, it could be configured to
achieve a high degree of automation to produce large outputs.
The machine layout (i.e., the arrangement of machinery and equipment within the factory) played a vital
role in determining the total output and reducing wastage. In terms of process controls, the production of
disposable latex gloves required real-time, comprehensive controls. The relevant controls needed to be
designed according to factors such as the operator, temperature, humidity, and so on, and adjusted
according to environmental conditions.3 For instance, the linear speed of the automatic latex glove
machinery was an essential factor. An excessively fast latex gloves assembly line would affect the quality
of the product. In contrast, an excessively slow line would lead to wasted time, energy, and raw materials.4
In a narrow sense, production could be considered to be a simple process of transforming inputs into
outputs. However, in business, production included various other activities associated with providing
goods and services, such as procuring raw material, establishing and maintaining employment practices,
acquiring financial resources, distributing product, and so on. Even though they were not directly
included in the firm’s production function, these activities had an indirect impact on output generation
because they affected the total factor productivity (TFP). Total factor productivity, graphically shown
as a shift in isoquants, measured efficiency in terms of the proportion of output that could not be
explained by the inputs used in production.5
In the initial days, due to limited financial resources and fewer purchase orders, Aggarwal depended on
his network of family and friends to stay afloat. There was no standardization of process in place for
most activities, such as procurement of raw material, order placement, and labour recruitment. Suppliers
frequently demanded advance payments, while most purchases had to be made on credit, which usually
meant a reduced cash flow for most of the business. Moreover, MedStar’s initial customer and supplier
agreements were poorly drafted and did not consider the long-term implications for customer and
supplier relationship management. As a result, some customers and suppliers did not remain loyal to
the firm for a long time. However, with time, Aggarwal successfully established a network of reliable
suppliers and loyal customers.

1
The Cobb-Douglas production function was normally expressed as 𝑞 = 𝑎𝑓1𝑏1 ∗ 𝑓2𝑏2 ∗ … 𝑓𝑛𝑏𝑛 . In a simplified case of two
inputs, this function could be written as follows: q = aLb1Kb2, where q = the number of gloves produced, a = the total factor
productivity parameter, L = the number of workers hired, K = the amount of capital used, and b1, b2 were the coefficients
of labour and capital, respectively.
2
W. Bruce Allen, Neil A. Doherty, Keith Weigelt, and Edwin Mansfield, “Production Theory,” chap. 5 in Managerial
Economics: Theory, Applications, and Cases (New York: WW Norton, 2013): 161–165; Atushi Ishikawa, Shouji Fujimoto,
and Takayuki Mizuno, “Why Does Production Function Take the Cobb–Douglas Form?,” Evolutionary and Institutional
Economics Review 18, no. 1 (2021): 79–102, https://doi.org/10.1007/s40844-020-00180-3.
3
Loong Than, Siew Wei Phang, and Kin Nam Ho, “Coagulant Dipping Time and Temperature Optimization for Latex
Glove Uneven Coating Investigation,” in MATEC Web of Conferences 152, no. 01013 (2018): 1–11,
10.1051/matecconf/201815201013.
4
Ai Hui Tan, Chin Leei Cham, and Esther Hee Ying Lim, “Analysis and Prediction of Glove Quality Based on
Manufacturing Factors,” in 2020 IEEE International Conference on Power and Energy (PECon) (2020): 420–425,
10.1109/PECon48942.2020.9314405.
5
Several studies showed that rubber and plastic industries in India had the lowest TFP. For micro enterprises, the TFP
had remained close to 1 despite an overall rise in TFP in the Indian manufacturing sector; Sean Dougherty, Richard Herd,
and Thomas Chalaux, “What Is Holding Back Productivity Growth in India?: Recent Microevidence,” OECD Journal:
Economic Studies 2009, no. 1 (2010): 1–22, https://doi.org/10.1787/19952856; Lopamudra D. Satpathy, Bani Chatterjee,
and Jitendra Mahakud, “Firm Characteristics and Total Factor Productivity: Evidence from Indian Manufacturing Firms,”
Margin: The Journal of Applied Economic Research 11, no. 1 (2017): 77–98, https://doi.org/10.1177/0973801016676013.

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In November 2016, demonetization served a significant blow to MedStar. As most of the company’s
business was cash-dependent, demonetization led to poor cash flow and inconsistent sales orders.
Aggarwal invested all of his limited funds into acquiring raw materials, but the unpredictability of
purchase orders eventually resulted in losses.

When Aggarwal died in April 2017, his family offered to sell the business to Mahesh Sharma, who was
working as the general manager of a large company at that time, and who had no time or interest in
running the business. However, Vineet, who had just graduated from a commerce program, showed
interest in running the business. After legal formalities, MedStar was converted into a sole
proprietorship under Vineet, who continued Aggarwal’s practices for most activities while using his
economic knowledge to modify specific processes from time to time.

Vineet realized that despite maintaining good relationships with suppliers, he still faced financial
difficulties created by the industry practice of procuring raw materials on advance payments. Thus, he
persuaded his suppliers to agree to credit-based sales to ease the cash flow, and succeeded in getting
material on credit. Next, he focused on establishing good rapport with customers, realising that customer
satisfaction was critical to a company's long-term success; Vineet achieved this by prioritizing high quality
and on-time delivery. Further, he realized the potential of digitalization during demonetization, and he
started investing in digitalizing sales and payment methods. All these efforts helped him acquire new
customers and retain existing customers, ensuring a steady flow of income. The business stabilized from
2019 onwards, registering profit for the first time and moving beyond the break-even level.

AN OPPORTUNITY RIFE WITH NEW CHALLENGES

When the first case of COVID-19 was reported in India in January 2020, Vineet saw a huge opportunity
coming. In the production process, machinery (combined K) was one of the most important inputs, with
an output elasticity of 0.6. Thus, he first used local connections to bring in the relevant individuals to
modify his machinery, which could be automated later to ramp up production. He accepted several
orders and expanded production, utilizing the unused capacity. The government-imposed lockdown
halted production for some time at the end of March 2020, but manufacturing soon resumed after a
relaxation for essential industries was declared from April 17, 2020. However, the usual lead time of
20–30 days was extended to 50 days due to this brief production halt.

At the peak of the crisis, the demand from hospitals rose more than 70 per cent; consequently, the lead
time increased to 120 days to delivery, even when the utilization rate of factories rose to 95 per cent.
As the utilization rate approached 100 per cent, problems in the existing production process and supply
chain management became evident. Initially, manufacturing was helped by higher-than-average selling
prices, weak input costs, and unutilized capacity. However, as the pandemic deepened, production and
distribution were disrupted by extended lockdowns in some places, import-export restrictions, and
transport and travel restrictions. It became difficult to cope with the increasing demand as the economy
unlocked and orders from industrial consumers also started flowing in.

Supply Chain Management Issues

The glove manufacturing industry was primarily based on a pull demand strategy, where production
was triggered by customer orders, instead of a push demand strategy, where products were produced
ahead of time according to projected demand6. Thus, most manufacturers, including MedStar, avoided
maintaining large inventories and practised lean manufacturing to reduce costs. However, MedStar
lacked a well-established procurement department that could assist in sourcing competitive supplies on
a regular basis. It stuck to the same suppliers for most raw materials (about 80 per cent of the company’s

6
AS Tho, “How [the] world’s largest glove maker meets coronavirus demand,” Financial Management, 17 March 2020,
https://www.fm-magazine.com/news/2020/mar/top-glove-malaysia-coronavirus-demand-23152.html

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raw material was acquired from local intermediaries and wholesalers, who imported natural rubber latex
from Southeast Asian countries). At the same time, many of MedStar’s competitors shopped around for
lower-cost supplies and switched suppliers on a frequent basis. Aggarwal had established a network of
reliable contacts with suppliers, which allowed him to respond quickly and cost-effectively to
fluctuations in customer demand with available ready stock, while keeping inventory at a minimal level.

During the pandemic, Vineet was unable to obtain supply from his regular sources due to import restrictions,
and he had to find alternative suppliers at short notice. New suppliers charged higher prices, often demanding
advance payments and bulk orders, which increased inventory requirements. Despite this, he faced
unexpected delays due to the countrywide lockdown and travel and transport restrictions. He managed to
procure the raw materials, but the experience made him aware of the flaws of a “single sourcing” policy and
just-in-time manufacturing practices during a time of heightened supply chain volatility.

Another challenge was rising input costs. Production managers always strove to produce given levels
of output at the lowest feasible costs. However, several constraints, such as the unavailability of raw
materials or obsolete equipment and production processes, limited their available options. For example,
in the case of natural rubber, the supply was already limited due to the limited number of plantations
around the world and reduced production owing to climate change and plant diseases. An increased
demand for rubber gloves and packaging tape during the pandemic resulted in further tightening of the
natural rubber supply. The global rubber supply also suffered due to snarled shipping lines, which
disrupted the movement of natural rubber; stockpiling by China and US auto manufacturers; and a
devastating leaf disease in rubber plantations.7 The price of natural rubber increased by more than 10
per cent, compressing glove makers’ margins.8 Faced with an uncertain supply of natural rubber latex
and greater price volatility, the industry opted to use synthetic rubber (nitrile latex) as an alternative
material to produce medical and surgical gloves.

Several of MedStar’s competitors had shifted to nitrile, as their production lines could be easily
modified for its use and nitrile was more cost-effective. Moreover, the prolonged use of latex gloves
and exposure to the powder used in the gloves had been associated with asthma, latex allergies, severe
airway inflammation, wound inflammation, and post-surgical adhesions.9 Several customers had also
shifted to nitrile gloves. Vineet pondered moving to nitrile, but using synthetic polymer went against
his ecological wisdom. The increased production and usage of non-biodegradable gloves meant they
would eventually end up in one of Delhi’s landfills.

Another problem disrupting the supply chain was the ambiguity around the classification of packaging
materials as “essential” or “non-essential” products.10 With packaging material excluded from the initial
list of essential products, packaging manufacturers were required to close during the initial lockdown,
though they were subsequently exempted. Despite this exemption from the government, confusion and
strict conditions imposed by local administrations resulted in delayed production and shipments. As a
result, operating costs increased, jeopardising Vineet’s ability to manufacture gloves in an economically
feasible manner, which eventually increased glove costs. However, as MedStar was a price-taking firm,
it was difficult to transfer the whole cost increase to consumers.

7
VT Chandrasekharan, “Impact of Pandemic Stretches into the Rubber Market,” Hindu Business Line, November 11, 2020,
https://www.thehindubusinessline.com/markets/commodities/impact-of-pandemic-stretches-into-the-rubber-
market/article33077412.ece.
8
Subramani Mancombu, “Indian Rubber Prices at 4-Year High on Global Cues, Chinese Buying,” Money Control, October
26, 2020, https://www.moneycontrol.com/news/business/markets/indian-rubber-prices-at-4-year-high-on-global-cues-
chinese-buying-6014191.html.
9
Esah Yip and Paul Cacioli, “The Manufacture of Gloves from Natural Rubber Latex,” Journal of Allergy and Clinical
Immunology 110, no. 2 (2002): S3–S14, https://doi.org/10.1067/mai.2002.124499;.Kevin J. Kelly, and Gordon Sussman,
“Latex Allergy: Where Are We Now and How Did We Get There?,” Journal of Allergy and Clinical Immunology: In Practice
5, no. 5 (2017): 1212–1216, https://doi.org/10.1016/j.jaip.2017.05.029.
10
TNN, “No Lockdown for Packaging Material for Essential Goods,” Times of India, April 4, 2020,
https://timesofindia.indiatimes.com/city/mumbai/no-lockdown-for-packaging-material-for-essential-
goods/articleshow/74973629.cms.

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Human Resource Management: Floating Workforce and Labour

MedStar did not have a formal organizational structure, and Vineet managed most activities with the
help of MedStar’s manager. While the management and the supervisory staff were fixed, semi-skilled
and unskilled workers were hired on a contract basis. These semi-skilled and unskilled workers were
an important yet uncertain input in Vineet’s production process. Most of these workers were migrants
from eastern Uttar Pradesh and Bihar and were hired through labour contractors. These contractors
brought in labour for construction companies in the industrial area and provided “leftover” labour to
small-scale enterprises such as MedStar.

As construction work ceased during the pandemic, most labourers returned to their home states. Vineet
managed to retain labour for the initial months with incentives such as advanced payments, a dispensary
facility, emergency medical assistance, and a housing facility near the factory area. But the workers
returned home around November for Diwali11 celebrations and did not return due to rumours of a second
wave of COVID-19. The decreased level of accessible labour started posing a direct risk to output, as
the production dependency on labour (output elasticity of labour) was roughly 0.3. This implied that a
10 per cent decrease in labour would result in a 3 per cent decrease in output.

Customer-Related Issues

MedStar did not have a dedicated sales force, and its marketing approach was subtle word-of-mouth
promotion among manufacturers in the industrial area. On average, 85 per cent of the company’s sales
came locally, from customers in the automotive and manufacturing industries, food services, and food
processing industries. MedStar’s customers preferred its gloves for their superior quality and unique
fingertip texture design, which effectively prevented slippage by offering an enhanced grip.

With COVID-19, the demand from hospitals rose 20–50 per cent. Initially, as industrial customer
demand was low, Vineet could easily cater to the increased demand. However, as the economy
gradually unlocked and demand from industrial customers also started rising, production failed to catch
up. The pull demand strategy resulted in a four-month order backlog. Vineet was frustrated because he
was unable to accept any more orders, and had to make excuses to some of his long-standing customers.
He tried to seek co-operation and understanding from customers and fulfill the orders of front-line
workers on a priority basis. However, his preference for medical customers resulted in delayed orders
for other loyal customers. One of his customers even reported an impairment charge for a prepaid glove
order that was delayed by more than four months.

As the order books swelled, glove prices skyrocketed, customer demand surged, and Vineet’s
competitors aggressively expanded their capacity to meet orders, a need for an addition to the
production line became inevitable. Vineet could not afford to miss the best phase of business in terms
of revenue growth.

CURRENT ISSUE

As he sat brooding over a recent order request for 80,000 gloves, Vineet remembered his manager’s
wary remark: “We may have the issue of financial resources as of now, and investment in production
line might seem risky and expensive, but nothing is more expensive than a missed opportunity.”
Accepting this order meant a surge of 160 per cent, and it seemed implausible to produce such an
amount at the current level of capacity.

11
Diwali was a major Indian festival celebrated over five days.

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Challenges in Scaling Up

Increasing the production scale for single-use gloves required a significant capital investment (a
minimum of ₹2 million12) and regulatory approvals from the Environmental Protection Agency. Adding
a new production line would take four to six months and would require access to more skilled and
unskilled workers as well as raw materials, both of which were constrained due to coronavirus
restrictions. Many factories faced a delay of almost two months in ramping up their production.

All of this suggested that by the time the installation of the machines was complete, the COVID-19
crisis would have ended and demand would have died out. Moreover, ramping up production was
always associated with a risk to the sustainability of demand. It was difficult to forecast demand because
no one knew how extensive or prolonged this virus would be. Before the pandemic, the global demand
for gloves had been expanding at 10 per cent annually, and it would eventually return to that level.

Instead, it was anticipated that the growth in sales would slow down in the coming years due to an
excess supply of inventory. Vineet was well aware of the possibility of an oversupply in the market
once the pandemic subsided: “Eventually, we may experience a slowdown effect,” he said, “since
consumers may have ordered surplus stock and they are required to clear it before making new orders.
So, for the coming years, there might be less demand for gloves.”

Typically, a choice between different courses of action would depend on relevant decision factors such as
the marginal product of inputs, costs (e.g., the price per unit of capital and the labour wage rate), the
productivity of different inputs, marginal cost, marginal revenue, incremental cost, and incremental revenue.

Challenge of New Competitors and Reduced Demand

Several companies that were diversifying from their core businesses into rubber-glove manufacturing
had proposed to invest large sums of money. The lure of increased usage (due to raised hygiene
standards, an ageing population, and clean manufacturing) and higher profit margins had attracted new
competitors. These new players were not likely to generate massive profits due to new plant gestation
periods and high start-up costs, so they were not even an immediate threat to MedStar. However, in the
long run, they would eventually pull down the average price by increasing supply over the coming
years, when demand was likely to taper off. Consequentially, the post-pandemic industry would go back
to volume-driven competition, competing on low-cost production.

Labour Issues

As the region suffered from a labour shortage, no contractor was willing to procure labour in small
quantities for small enterprises like MedStar. Vineet was unable to recruit enough workers, even after
a 15 per cent increase in wages. The only way of recruiting a decent standard workforce was to offer a
more competitive wage rate. This would require another 25 per cent increase in the basic pay rate so
that MedStar could attract and hire local people without relying on contractors. While increasing the
wage rate might enable the company to attract a better qualified workforce, the increased cost would
squeeze the company’s profit margins. Moreover, Vineet knew that wage rates were sticky and would
be resistant to downward adjustment after this health crisis ended.

12
₹ = INR = Indian rupee; US$1 = ₹73.2065 on March 31, 2021.

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Nitrile or Natural Rubber?

Vineet identified an alternate formulation of natural latex and a process that eliminated the protein
allergy issue and could also make glove manufacturing faster and more energy efficient.13 This could
allow him to manufacture a thinner version of the gloves using less raw material, while still maintaining
the same level of strength and durability. These gloves would be more sustainable, biodegradable, and
have a lower level of allergens. However, these process and material innovations had only been used
experimentally in laboratory settings and had not been used for large-scale production so far. Vineet
understood that this was not the best time to innovate, as failure was not an option in the current
situation. Moreover, he lacked the requisite technical expertise and competence.

Around December 2020, nitrile latex prices also started rising, and the price gap between natural rubber
and synthetic rubber reduced. However, the price difference was still considerable, and increased cases of
skin allergies had resulted in customers’ reluctance to use latex gloves. Vineet knew that the cost
difference was not a major incentive; the principal issues were customer preference and profitability, both
of which were necessary for the firm to survive. Should he take the risk of using the new formulation, or
adopt the safer option of using nitrile just like others had done? How should he increase the company’s
output and respond to the disruption of critical inputs such as semi-skilled and unskilled labour? Should
he scale up production by adding a new production line, or optimize the existing production line?

13
Jayathilaka, Lokuvithana PI, Thilini U. Ariyadasa, and Shantha M. Egodage, “Development of Biodegradable Natural
Rubber Latex Composites by Employing Corn Derivative Bio‐Fillers,” Journal of Applied Polymer Science 137, no. 40
(2020): 1–15, https://doi.org/10.1002/app.49205; Mohd Fikri Ab Rahman, Arjulizan Rusli, Muhammad Afiq Misman, and
Azura A. Rashid, “Biodegradable Gloves for Waste Management Post-COVID-19 Outbreak: A Shelf-Life Prediction,” ACS
Omega 5, no. 46 (2020): 30329–30335, https://doi.org/10.1021/acsomega.0c04964; Vishantini Tangavaloo, Nor Yuliana
Yuhana, and Yu Lih Jiun, “Production and Properties of Natural Rubber Glove Using Sustainable Benign Accelerator,”
Progress in Rubber, Plastics and Recycling Technology (2021): 1–14, https://doi.org/10.1177/14777606211019419.

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EXHIBIT 1: MEDSTAR GLOVES—SUMMARY OF FIXED AND RECURRING EXPENDITURES

Table E1 A Synoptic View of MedStar Gloves

Estimated Production Capacity (per year) *: 600,000 gloves
Shelf Life: 3 years (stored under proper conditions)
I. Fixed Capital
A. Land & Building
Built-up Area = 2,000 square metres Rented at
₹15,000
per month
B. Machinery & Equipment
Amount (in
Serial No. Description Quantity Rate (₹)
millions)
1. Vats (for dipping) 3 150,000 0.450
2. Coagulation tanks 2 170,000 0.340
3. Electrical air oven 1 200,000 0.200
4. Pot mill (1.5 HP motor) 1 150,000 0.150
5. Testing equipment - 150,000 0.150
6. De-ammoniating vessels (0.5 HP motor) 1 100,000 0.100
7. Moulds - 50,000 0.050
8. Mixer with 0.5 HP motor 1 50,000 0.050
9. Miscellaneous equipment & tools (box- NA NA 0.050
stamping machine, can-sealing machine)
10. Miscellaneous accessories: switch, starter, NA NA 0.050
electric meter etc.
Total 1.590
C. Office Furniture & Fixtures at 10% 0.127
D. Electrification, Installation, Packaging, Taxes, Forwarding 0.254
Charges, etc. at 20%
E. Preliminary & Pre-Operative Expenses at 10% 0.127
Total Fixed Investment (in millions) 2.098

Notes: * Plant functioning on single shift basis, Working days: 300 days

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EXHIBIT 1 (CONTINUED)

II. Working Capital (per month)

A. Personnel
Designation No. Salary (₹)/Wages Total (₹)
Administrative Assistant 1 20,000 20,000
Storekeeper 1 18,000 18,000
Supervisor 1 15,000 15,000
Unskilled & Semi-Skilled Worker 4 12,000 (₹60/hour) 48,000
Total 101,000
Prerequisites at 10% 10,100
Total 111,000
B. Raw Material
Items Quantity Rate (₹) Total (₹)
Latex 60% DRC 200 kg 90/kg 18,000
Calcium Carbonate 70 kg 25/kg 1,750
Calcium Nitrate 60 kg 15/kg 900
Zinc Oxide 35 kg 220/kg 7,700
Sulphur 33 kg 20/kg 660
Accelerator 15 kg 210/kg 3,150
Antioxidant 10 kg 600/kg 6,000
Vulca Stabilizer-20% 5 kg 300/kg 1,500
Other Additives 5 kg 70/kg 350
Casein 2 kg 540/kg 1,080
Dispersal 2 kg 120/kg 240
Glove Packaging Box 333 5/box 1,665
Total 42,995
C. Utilities
Electricity and Water Charges 15,000
Total 15,000
D. Contingent Expenditure
Rent, Telephone Bill, Transport, Repair & 25,000
Maintenance, Stationery, Postage, Insurance,
Advertisement etc.
E. Recurring Expenditure (per month) 0.194 million
(Personal+ Raw Material+ Utilities+ Contingent Expenditure)
Working Capital for 3 Months [(0.194 million)*3] 0.582 million
III. Total Cost of the Project
A Fixed Investment 2.098 million
B Working Capital for 3 months 0.582 million
Total 2.680 million
IV. Financial Analysis
Cost of Production (per year)
Serial No. Particulars Amount (in ₹
millions)
1. Total Recurring Expenditure 2.3300
2. Depreciation Machinery & Equipment (10 0.2098
percent per annum)
Office Furniture & Fixtures 0.0250
(20 percent per annum)
3. Interest on Total Capital Investment at 13% 0.2310
per year (in the current year, 2021, the interest
was 17% per year; thus, the price per unit of
capital was ₹1,200 per unit of capital)
Total 2.6420

Notes: ₹ = INR = Indian rupee; US$1 = ₹73.2065 on March 31, 2021. HP = horsepower; DRC = Dry Rubber Content; kg
= kilograms.
Source: Company files..

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EXHIBIT 2: LATEX GLOVE MANUFACTURING PROCESS

2
3
4

7
8

9
10

Note: Steps in the process illustrated above included (1) mould washing, including brushing and cleaning; (2) soaking in calcium water; (3) drying; (4) dipping in latex; (5) crimping;
(6) drying; (7) leaching; (8) drying and vulcanizing; (9) cooling; and (10) demoulding (stripping).
Source: Created by author based on company visit and interview with the owner.

This document is authorized for use only in Dr. Madhumita Das's Managerial Economics 8.11.2023 at Vit University from Aug 2023 to Feb 2024.