Case study on Varun Nagar Agricultural cooperative Society

Done by: Haveen Pradap

Key Goals
Mr.Agarwal have to make the course of actions such that the society will sustain the good image, which it
has earned over the years. So the decision has to be in the best interest of the members of the society as
well as the bank.

Analysis of Case
The society currently has 5 lakhs cash reserve and 100 tons of paddy ready to be sold and have an option
to sell paddy in few days from now or to delay the sale by 6 month. The society has taken an overdraft
amount of 5 lakhs from the bank. It also has the choice to buy fertilizer at discounted price or buy the
fertilizers at nominal price after 6 months.
These are the following course of actions that Mr. Agarwal may undertake for operation of the society:-He can give cash reserve to the members of the society, which is a payment due towards paddy
procurement on 31 March 1991
-He can sell paddy in few days at rate of 5000 Rs per ton and raise 5 lakh rupees
-He can delay the sale of paddy by 6 months so he can sell at higher price
-He can buy fertilizers at a special price of 250 Rs per bag before the end of first week of April 1991
-He can buy fertilizers at a nominal price of 300 Rs per bag after 6 months
-He can pay 5 lakhs over draft with interest of 10% to bank
- He can continue 5 lakhs of over draft and pay only10% interest to bank

Recommendations.
Mr.Agarwal should have to follow the following course of action as below
1) He can pay the bank an overdraft amount of 1 lakh rupees at end of March 1991 from the cash
balance the society has and continue to use remaining 4 lakhs rupees from overdraft.
2) He can sell 35 tons of paddy by the end of may 1991 at price of 5000 Rs per ton to amass an amount
of Rs 175000
3) The draft money + money from 35 tons of paddy sold is used to buy 2105 fertilizer bags before first
week of April 1991 at discounted price of 250 Rs per bag.
i)
The draft money + money from 35 tons of paddy sold = 4,00,000 + 1,75000= 5,75,000 Rs
ii)
The total cost to buy fertilizer before 1st April is = price of fertilizer + insurance price + cost
of labor and equipment + rent to storage space
I.e. = 526250 + 20,000 + 25,000 + (500*6) =5,74,250 Rs

4) He sells the paddy after 6 months from 31 may 1991 at a price of Rs 7000
I.e.= 65*7000=4,55,000
5) He pays bank the over draft amount of 400000 with
Interest after 6 months from 31 st may 1991

= 400000 + 20000 = 4,20,000

------------profit of

Rs 35,000

Thus the society made a profit of 35,000 rupees with a provision to draw an overdraft amount of 5
lakhs from the bank for any future operation cost or any other needs

Assumptions
1) The fertilizer company is willing to sell additional 105 bags along with 2000 bags of fertilizer at a
special price of 250 per bag.
2) Mr.Agarwal has complete authority to make decisions and action execution.
3) The farmers have savings for their expense till we pay them back after 6 months from 31st march

1991.
4) After 6 months from May 1991, the price of paddy is Rs 7000.
5) The need of fertilizer is exactly 2000 bags.
6) Bank does not force to pay the overdraft amount of 5 lakhs and continue with 10% interest.
7) The rate of interest is calculated by bank in simple interest.
Risks
1) The price of the paddy per ton may not go up to 7000 Rs.
2) The farmers may need money immediately after 31st march 1991 which induces problem in cash flow
to buy fertilizer

Conclusion: If Mr. Agarwal takes actions as per the recommendations made, the society can make a profit of 35,ooo
rupees and it can avail overdraft of 5 lakhs rupees from the bank for any future expenditure as the overdraft of 5
lakhs took on September 1990 would have been repaid by September 1991