Case Study Solution

By: Ankit
Kartikey
samyak
Sheetal
Shivam
Q.1 ) Use Table 1 to calculate the profit per meter if Amir decides to get the amount
of the cloth shown in Table 2 manufactured instead of buying it from suppliers.

As per the conclusion of the figures seen Excel sheet, Amir will earn higher net profit with
every thread count if he decides to get the amount of the cloth manufactured.
 Thread Count 70x60 76x64 80x72 76x64 80x80 Total
Sales(meters) 540,000 460,000 280,000 210,000 230,000  
Manufacturing Sales 200,000 150,000 100,000 80,000 80,000 610,000
Price 86 102 120 115 132  
Discounted Price(2.5%) 83.85 99.45 117 112.125 128.7  
Sales(INR) 46,440,000 46,920,000 33,600,000 24,150,000 30,360,000 181,470,000
New Sales (INR) 16,770,000 14,917,500 11,700,000 8,970,000 10,296,000 62,653,500
             
Cost of Sales
Purchase Price 42,120,000 41,860,000 29,680,000 21,420,000 26,450,000 161,530,000
New Purchase Price 12,800,000 11,250,000 8,700,000 6,720,000 7,600,000 47,070,000
Cut Piece(Meters) 1,026,000 874,000 532,000 399,000 437,000 3,268,000
New Cut Piece(Meters) 380,000 285,000 190,000 152,000 152,000 1,159,000
Packaging(Actual) 540,000 460,000 280,000 210,000 230,000 1,720,000
New Packaging(Actual) 640,000 535,000 330,000 250,000 270,000 2,025,000
Freight in(Actual) 520,000 430,000 260,000 202,000 220,000 1,632,000
New Freight (Actual) 1,040,000 860,000 520,000 404,000 440,000 3,264,000
Greige 44 51 60 54 63  
Dyeing 20 24 27 30 32  
1% of Greige Check 2,000 1,500 1,000 800 800  
Brokerage Check 88,000 76,500 60,000 43,200 50,400 318,100
Greige Check 40,000 30,000 20,000 16,000 16,000 122,000
Total Cost of Sales 44,206,000 43,624,000 30,752,000 22,231,000 27,337,000 168,150,000
New Total Cost of Sales 14,988,000 13,036,500 9,820,000 7,585,200 8,528,400 53,958,100
             
Gross Profit 2,234,000 3,296,000 2,848,000 1,919,000 3,023,000 13,320,000
New Gross Pofit 1,782,000 1,881,000 1,880,000 1,384,800 1,767,600 8,695,400
Administrative Expenses
Salaries(Meters) 769,186 655,233 398,837 299,128 327,616 2,450,000
New Salaries(Meters) 284,884 213,663 142,442 113,954 113,953 868,895
Additional Salaries 96,000 96,000 96,000 96,000 96,000 480,000
Rent(Meters) 298,256 254,070 154,651 115,988 127,035 950,000
New Rent(Meters) 110,465 82,849 55,233 44,186 44,186 336,919
Sampling(Actual) 30,000 25,000 15,000 10,000 20,000 100,000
New Sampling(Actual) 35,556 29,076 17,679 11,905 23,478 117,693
Electricity(Meters) 122,442 104,302 63,488 47,616 52,151 389,999
New Electricity(Meters) 45,349 34,012 22,674 18,139 18,139 138,314
Telephone(Meters) 91,047 77,558 47,209 35,407 38,779 290,000
New Telephone(Meters) 33,721 25,291 16,860 13,488 13,488 102,849
Debt Recovery(Meters) 97,953 83,442 50,791 38,093 41,721 312,000
New Debt Recovery(Meters) 36,279 27,209 18,140 14,512 14,512 110,651
Maintainence(Meters) 28,884 24,605 14,977 11,233 12,302 92,001
How would Amir go about making this decision based on a differential/incremental profit
basis?

Analysis of net profit

25.21

21.53
19.97

14.75

10.75 10.19

7.25
6.22
4.24

1.21
1 2 3 4 5
What other financial and nonfinancial considerations should Amir consider in making this
decision?

 The other financial and non-financial considerations to be considered are that of

Transportation costs which as mentioned would double as the cloth would move to several
locations which also adds up to a lot of time being consumed before the cloth is bought to
the shop, which would also lead to delay in payments.
 Increase in the sampling costs, also when the cloth being send to an experienced person for
quality check might reduce the bargaining power.
Course of action recommended.

 It's in our strong beliefs that if Aamir seeks out to the discovery of these events, he and his
team can evaluate accordingly. A major part of his theory must be put to test the
authenticity of it. The possible outcomes can throw some light on the fact that more and
more attention to increasing the sales would promptly give results and make up for the
25% profit that he's earning in the discussed agendum.
 On the other hand, shrinking the costs might as well rig out to be wholesome in the long
run.