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Other Expenses Gen Admin O/Hs Total Packages Limited Quotation Supply of New Packages Annual Rate No. of Packages Contract Term Maintenance Work Annual Rate Contract Term
1,25,000 10,000 5 Years 37,500 5 Years Afterwards to be renewable from year to year Afterwards to be renewable from year to year
As the decision is for the future, need additional details to find out the future/Relevant Cost to compare the proposal of Packages Limited Additional Information Required: Breakup of packages production and maintenance on packages Current Inventory Levels What will happen with workers?
Materials (Others)
5,000
5,250
5,513
5,788
6,078
Labour (Regular) Labour (Quality Control) Manager's Salary Rent M/c Depreciation Maintenance Other Expenses Gen Admin O/H
Interest Earned
(9,000)
(9,900)
(10,890)
(11,979)
(13,177)
125,000
125,000 152,925
125,000 153,746
125,000 154,559
125,000 155,358
Materials (PHZ)
14,400
14,400
14,400
14,400
20,400
Materials (Others)
45,000
47,250
49,613
52,093
54,698
Labour Manager's Salary Rent M/c Depreciation Maintenance Other Expenses Gen Admin O/H Interest Earned Annual Charge of Supply of Packages
Materials (PHZ)
16,000
16,000
16,000
16,000
28,000
Materials (Others) Labour Manager's Salary Rent M/c Depreciation Maintenance Other Expenses Gen Admin O/H Interest Earned Annual Charge of Supply of Packages
Remarks Pension of FIVE senior workers. For example, Walters and Hary. Assuming that there will be an additional employee required for inspection and quality control costing Rs 3,500/year at start of Year 1 with annual increment of 5% every year Overhead rent in the beginning was 4500 and rent saved for Year1 is 8500. So, net rent saved for Year1 was -4000 (4500-8500). Also, assuming rent gets increased by 5% every year, net rent saving will vary as shown.
Interest earned @ yearly compounded rate of interest of 10% on investement of money earned by selling Machine (20,000) and PHZ (80,000=500*160). Bharat Polyplex convinced Packages Limited to buy 160 tonnes of PHZ @ Rs 500/ton. Assuming that Packages used equals 10,000.
786,186
Remarks Amount of PHZ used every year is 1,600 = 4*400(As 400 is the realisable unit price). Assuming same quantity of 4 tonnes of PHZ is used every year and Bharat Polyplex kept 20 tonnes of PHZ with themselves and sold remaining to Packages Limited Assuming same quanity of materials will be used for next 5 years. 10% of total (70,000-20,000) is used for maintenance. So, for first year other materials used will be 5,000. Assuming cost of other materials increase by 5% every year.
Only one fifth of workers are required for maintenance. Also assuming that manpower costs increase by 5% every year Assuming that there will be an additional employee required for inspection and quality control costing Rs 3,500/year at start of Year 1 with annual increment of 5% every year 8000-3000 (Saving by handing over supervision to foreman). Also assuming that salary gets incremented by 5% each year No space savings. Also assuming that rent gets increased by 5% every year
Assuming that other expenses gets increased by 5% every year Interest earned @ yearly compounded rate of interest of 10% on investement of money earned by selling Machine (20,000) and PHZ (70,000=500*140). Bharat Polyplex convinced Packages Limited to buy 140 tonnes of PHZ @ Rs 500/ton and decided to keep 20 tonnes of PHZ with themselves for maintenance for next 5 years at the consumption rate of 4 tonnes/year (10% of total material) for maintenance.
768,688
Remarks
For first year, quantity of PHZ used=36 tonnes (10% was used for maintenance; which has been outsourced) Amount of PHZ used is 14,400 = 36*400(As 400 is the realisable unit price). 160 tonnes of PHZ is lying in stock (already purchased) at the beginning of Year1. Rate of consumption of PHZ is 36 tonnes / year. So, current stock can fulfil next 4 years of PHZ requirement and partially of 5th year. 16 tonnes will be available for 5th year. 20 tonnes will need to be purchased for 5th year. Also, 4 years ago, PHZ costed 500/unit and now it costs 600/unit; an increase of 100/unit in 4 years which means 25/unit in a year, which means 5% increase every year. Extrapolating this, the cost of PHZ for 5th year in future will be 700. Quanity of materials used will be 90% of total used (10% was used for maintenance; which has been outsourced) So, for first year, amount of other materials used is 45000 (.9*50000). Assuming same quantity of other materials is used for next five years and cost of other materials increase by 5% every year. Assuming 4/5th of manpower is used for new packages as 1/5th is used for maintenance. Keeping oldest workers. Also assuming that manpower costs increase by 5% every year Assuming that manager's salary increase by 5% every year Assuming rent increases by 5% every year Saleable price of machine is 20,000 and life remaining is 4 years. So the value of machine used every year is 5,000. Also assuming that the same machine can be used for 5th year Other expenses for new packages for first year will be 9250 = 15750-6500 (As expenses for maintenance are 6500; which is being outsourced) Also assuming that other expenses gets increased by 5% every year
893,361
Remarks For first year, assuming same quantity of 40 tonnes of PHZ is used. Amount of PHZ used is 16,000 = 40*400(As 400 is the realisable unit price). 160 tonnes of PHZ is lying in stock (already purchased) at the beginning of Year1. Rate of consumption of PHZ is 40 tonnes / year. So, current stock can fulfil next 4 years of PHZ requirement. 4 years ago, PHZ costed 500/unit and now it costs 600/unit; an increase of 100/unit in 4 years which means 25/unit in a year, which means 5% increase every year. Extrapolating this, the cost of PHZ for 5th year in future will be 700. Same quantity of other materials are used. Also assuming that cost of materials increase by 5% every year. Assuming that manpower costs increase by 5% every year Assuming that manpower costs increase by 5% every year Assuming rent increases by 5% every year Saleable price of machine is 20,000 and life remaining is 4 years. So the value of machine used every year is 5,000. Also assuming that the same machine can be used for 5th year Assuming that other expenses increase by 5% every year
838,662
No.
Alternative Outsource Both Supply & 1 Maintenance of Packages 2 Only Outsource Supply of Packages Only Outsource Maintenance on Packages 4 Do not outsource at all 3
Year 1
Year 2
Year 3
Year 4
159,500 158,475 157,349 156,111 152,100 152,925 153,746 154,559 167,250 172,588 178,192 184,076 152,850 159,263 165,996 173,065
Year 5
Total