Case 17-2 Lipman Bottle Company

1)
One Seperation: Two Seperation:
Market: Albany UoM Round Round
Bottle Size oz 0-1 0-1
Order Size Nos 5,000-9,999 5,000-9,999
Avg. Order Size Nos 7,500 7,500
Set-up Time Hrs 2 4
Hours/1,000 bottles Hrs 0.27 0.53
Operating Time/1,000 bottles Hrs 1 2.4
Total Time/1,000 bottles Hrs 1.27 2.93
Operating Cost/1,000 bottles $ 18.53 42.92
Cost/1,000 Passes $ 2.63 5.26
Direct Cost to Manufacturer $ 21.16 48.18
Scrap Cost/1,000 Bottles $ 1.4 3.3
Shipping Cost/1,000 Bottles $ - -
Total Direct Cost/1,000 bottles $ 22.56 51.48

One Seperation: Two Seperation:

Market: Albany UoM Round Round
Bottle Size oz 17-32 17-32
Order Size Nos 5,000-9,999 5,000-9,999
Avg. Order Size Nos 7,500 7,500
Set-up Time Hrs 2 4
Hours/1,000 bottles Hrs 0.27 0.53
Operating Time/1,000 bottles Hrs 1 2.4
Total Time/1,000 bottles Hrs 1.27 2.93
Operating Cost/1,000 bottles $ 18.53 42.92
Cost/1,000 Passes $ 2.63 5.26
Direct Cost to Manufacturer $ 21.16 48.18
Scrap Cost/1,000 Bottles $ 2.9 6.3
Shipping Cost/1,000 Bottles $ - -
Total Direct Cost/1,000 bottles $ 24.06 54.48

One Seperation: Two Seperation:

Market: New York - New Jersey UoM Round Round
Bottle Size oz 0-1 0-1
Order Size Nos 5,000-9,999 5,000-9,999
Avg. Order Size Nos 7,500 7,500
Set-up Time Hrs 2 4
Hours/1,000 bottles Hrs 0.27 0.53
Operating Time/1,000 bottles Hrs 1 2.4
Total Time/1,000 bottles Hrs 1.27 2.93
Operating Cost/1,000 bottles $ 18.53 42.92
Cost/1,000 Passes $ 2.63 5.26
Direct Cost to Manufacturer $ 21.16 48.18
Scrap Cost/1,000 Bottles $ - -
Scrap Cost/1,000 Bottles $ 1.06 1.06
Shipping Cost/1,000 Bottles $ 22.22 49.24

One Seperation: Two Seperation:

Market: New York - New Jersey UoM Round Round
Bottle Size oz 17-32 17-32
Order Size Nos 5,000-9,999 5,000-9,999
Avg. Order Size Nos 7,500 7,500
Set-up Time Hrs 2 4
Hours/1,000 bottles Hrs 0.27 0.53
Operating Time/1,000 bottles Hrs 1 2.4
Total Time/1,000 bottles Hrs 1.27 2.93
Operating Cost/1,000 bottles $ 18.53 42.92
Cost/1,000 Passes $ 2.63 5.26
Direct Cost to Manufacturer $ 21.16 48.18
Scrap Cost/1,000 Bottles $ - -
Scrap Cost/1,000 Bottles $ 26.19 26.19
Shipping Cost/1,000 Bottles $ 47.35 74.37
 One Seperation: Two Seperation:
Two Seperation: Oval Market: Albany UoM Round Round
0-1 Bottle Size oz 0-1 0-1
5,000-9,999 Order Size Nos 100,000-249,999 100,000-249,999
7,500 Avg. Order Size Nos 175,000 175,000
4 Set-up Time Hrs 2 4
0.53 Hours/1,000 bottles Hrs 0.01 0.02
1.76 Operating Time/1,000 bottles Hrs 1 2.4
2.29 Total Time/1,000 bottles Hrs 1.01 2.42
33.55 Operating Cost/1,000 bottles $ 14.80 35.45
5.26 Cost/1,000 Passes $ 2.63 5.26
38.81 Direct Cost to Manufacturer $ 17.43 40.71
3.3 Scrap Cost/1,000 Bottles $ 1.4 3.3
- Shipping Cost/1,000 Bottles $ - -
42.11 Total Direct Cost/1,000 bottles $ 18.83 44.01

One Seperation: Two Seperation:

Two Seperation: Oval Market: Albany UoM Round Round
17-32 Bottle Size oz 17-32 17-32
5,000-9,999 Order Size Nos 100,000-249,999 100,000-249,999
7,500 Avg. Order Size Nos 175,000 175,000
4 Set-up Time Hrs 2 4
0.53 Hours/1,000 bottles Hrs 0.01 0.02
1.76 Operating Time/1,000 bottles Hrs 1 2.4
2.29 Total Time/1,000 bottles Hrs 1.01 2.42
33.55 Operating Cost/1,000 bottles $ 14.80 35.45
5.26 Cost/1,000 Passes $ 2.63 5.26
38.81 Direct Cost to Manufacturer $ 17.43 40.71
6.3 Scrap Cost/1,000 Bottles $ 2.9 6.3
- Shipping Cost/1,000 Bottles $ - -
45.11 Total Direct Cost/1,000 bottles $ 20.33 47.01

One Seperation: Two Seperation:

Two Seperation: Oval Market: New York - New Jersey UoM Round Round
0-1 Bottle Size oz 0-1 0-1
5,000-9,999 Order Size Nos 100,000-249,999 100,000-249,999
7,500 Avg. Order Size Nos 175,000 175,000
4 Set-up Time Hrs 2 4
0.53 Hours/1,000 bottles Hrs 0.01 0.02
1.76 Operating Time/1,000 bottles Hrs 1 2.4
 2.29 Total Time/1,000 bottles Hrs 1.01 2.42
33.55 Operating Cost/1,000 bottles $ 14.80 35.45
5.26 Cost/1,000 Passes $ 2.63 5.26
38.81 Direct Cost to Manufacturer $ 17.43 40.71
- Scrap Cost/1,000 Bottles $ - -
1.06 Scrap Cost/1,000 Bottles $ 1.06 1.06
39.87 Shipping Cost/1,000 Bottles $ 18.49 41.77

One Seperation: Two Seperation:

Two Seperation: Oval Market: New York - New Jersey UoM Round Round
17-32 Bottle Size oz 17-32 17-32
5,000-9,999 Order Size Nos 100,000-249,999 100,000-249,999
7,500 Avg. Order Size Nos 175,000 175,000
4 Set-up Time Hrs 2 4
0.53 Hours/1,000 bottles Hrs 0.01 0.02
1.76 Operating Time/1,000 bottles Hrs 1 2.4
2.29 Total Time/1,000 bottles Hrs 1.01 2.42
33.55 Operating Cost/1,000 bottles $ 14.80 35.45
5.26 Cost/1,000 Passes $ 2.63 5.26
38.81 Direct Cost to Manufacturer $ 17.43 40.71
- Scrap Cost/1,000 Bottles $ - -
26.19 Scrap Cost/1,000 Bottles $ 26.19 26.19
65.00 Shipping Cost/1,000 Bottles $ 43.62 66.90
Two Seperation: Oval

0-1 Variable Cost per machine hour (in $) 14.63

100,000-249,999 Cost per thousand passes (in $) 2.63
175,000 Set-up time per Seperation (in Hrs) 2
4
0.02
1.76
1.78
26.08
5.26
31.34
3.3
-
34.64

Two Seperation: Oval

17-32
100,000-249,999
175,000
4
0.02
1.76
1.78
26.08
5.26
31.34
6.3
-
37.64

Two Seperation: Oval

0-1
100,000-249,999
175,000
4
0.02
1.76
 1.78
26.08
5.26
31.34
-
1.06
32.40

Two Seperation: Oval

17-32
100,000-249,999
175,000
4
0.02
1.76
1.78
26.08
5.26
31.34
-
26.19
57.53
 Case 17-2 Lipman Bottle Company

2) Particulars UoM Amount

Total Fixed Cost $ 106,944
Total machine hours Hrs 16,000
Fixed Cost/Machine Hour $/Hrs 6.684
Profit Margin % 30%

Direct Cost/1,000 Bottles (in $) Machine Hours/1,000 Bottles (in Hrs)

Pricing List for Albany
One Round Two Round Two Oval One Round Two Round
Bottle Size: 0-1
Order Size: 5,000- oz 22.56 51.48 42.11 1.27 2.93
9,999
Bottle Size: 17-
32 oz 24.06 54.48 45.11 1.27 2.93
Bottle Size: 0-1
Order Size: oz 18.83 44.01 34.64 1.01 2.42
100,000-249,999
Bottle Size: 17-
32 oz 20.33 47.01 37.64 1.01 2.42

3) Profit Margin: New York- New Direct Cost/1,000 Bottles (in $) Machine Hours/1,000 Bottles (in Hrs)
Jersey One Round Two Round Two Oval One Round Two Round
Bottle Size: 0-1
Order Size: 5,000- oz 22.22 49.24 39.87 1.27 2.93
9,999
Bottle Size: 17-
32 oz 47.35 74.37 65.00 1.27 2.93
Bottle Size: 0-1
Order Size: oz 18.49 41.77 32.40 1.01 2.42
100,000-249,999
Bottle Size: 17-
32 oz 43.62 66.90 57.53 1.01 2.42

From the above table it can be seen that though the profit margin is higher for larger bottle sizes and larger order siz
Though the gross margin of profit is higher for two seperation round>two seperation oval>one seperation round for
The profit margin computed over each machine hours is higers for one seperation round>two seperation oval>two s
Hence, Lipman should consider selling bottle sizes of 17-32 oz and one seperation round in New York and New Jerse
1,000 Bottles (in Hrs) Break Even Cost/1,000 Bottles (in $) Selling Price/1,000 Bottles (in $)
Two Oval One Round Two Round Two Oval One Round Two Round Two Oval

2.29 31.03 71.08 57.44 44.33 101.55 82.06

2.29 32.53 74.08 60.44 46.47 105.83 86.34

1.78 25.59 60.20 46.56 36.55 86.00 66.51

1.78 27.09 63.20 49.56 38.70 90.29 70.80

1,000 Bottles (in Hrs) Break Even Cost/1,000 Bottles (in $) Gross Margin/1,000 Bottles (in $) Gross Margin/Machine Hours (in $)
Two Oval One Round Two Round Two Oval One Round Two Round Two Oval One Round Two Round

2.29 30.69 68.84 55.20 13.15 29.50 23.66 10.38 10.06

2.29 55.82 93.97 80.33 23.92 40.27 34.43 18.89 13.73

1.78 25.25 57.96 44.32 10.82 24.84 18.99 10.70 10.25

1.78 50.38 83.09 69.45 21.59 35.61 29.76 21.35 14.70

ottle sizes and larger order sizes.

val>one seperation round for each unit.
nd>two seperation oval>two seperation round
nd in New York and New Jersey.
gin/Machine Hours (in $)
Two Oval

10.32

15.01

10.65

16.69
 International Software Solution

1)
Resource Plan
Resource Location Band FY1 FY2 FY3 FY4 FY5
Client Premises E 97.6 50.2 50.2 45.9 27.6
Offshore E 33 34.5 34.5 31.5 15
Client Premises D 56.5 44.5 70.6 58.1 1
Offshore D 59 48.5 49.3 51.9 53
Client Premises C 143.8 150.4 166.4 138.1 6
Offshore C 54.9 46.8 46.8 46.7 38.6
Client Premises B 13.4 17.3 17.3 15.9 8
Offshore B 344.7 447 470.1 419.2 223.2
Client Premises A 35 0 0 0 0
Offshore A 85.4 113.3 113.3 112.4 62.2
Total FTE months 4248.6 923.3 952.5 1018.5 919.7 434.6

Hourly Labour Rate (in Rs.)

Resource Allocation Band FY1 FY2 FY3 FY4 FY5
Client Premises E 1621.5 1694.5 1770.7 1850.4 1933.7
Offshore E 1347.8 1419.2 1494.5 1573.7 1657.1
Client Premises D 1213.3 1267.8 1324.9 1384.5 1446.8
Offshore D 1006.3 1059.6 1115.7 1174.9 1237.1
Client Premises C 968.3 1011.9 1057.4 1105 1154.7
Offshore C 798.1 840.4 884.9 931.8 981.2
Client Premises B 752.1 785.9 821.3 858.3 896.9
Offshore B 580.8 611.5 643.9 678.1 714
Client Premises A 558.9 584.1 610.3 637.8 666.5
Offshore A 422.1 444.4 468 492.8 518.9

2)
Spilt Labour Hours (in Hrs.)
Location FY1 FY2 FY3 FY4 FY5 Total
Client Premises 55,408 41,984 48,720 41,280 6,816 194,208
Offshore 103,860 124,218 128,520 119,106 70,560 546,264
Total 159,268 166,202 177,240 160,386 77,376 740,472

Infrastructure expenses will be incurred for the offshore resources by ISS.

Hence, it is a variable cost, divided yearly based on the labour hours at offshore.
Travel expenses will be incurred for off shore resources to travel to client premises.
Hence, it is a varibale cost, and will be divided yearly based on the total labour hours at Offshore.
Other Expenses are to be treated as fixed cost and would be divided equally through the years.
3) Full Cost of Project (in Rs.)
Total FY1 FY2 FY3 FY4 FY5
Labour Costs 625,808,801 132,415,065 132,570,146 150,279,795 141,927,794 68,616,001
Project Specific Costs 5,025,294 958,895 1,133,164 1,169,990 1,089,404 673,840
Total Full Costs 630,834,095 133,373,960 133,703,310 151,449,785 143,017,198 69,289,842

Profit Margin 69,165,905

4)
Labour Cost (in Rs.) for Nearshore Model
Resource Location Band FY1 FY2 FY3 FY4 FY5
Client Premises E 25,321,344 13,610,224 14,222,262 13,589,338 8,539,219
Offshore E 9,206,822 10,058,453 10,511,083 10,028,944 4,990,594
Client Premises D 10,968,232 9,026,736 14,966,070 12,870,312 231,488
Offshore D 12,289,942 10,557,373 11,214,433 12,337,127 13,165,545
Client Premises C 22,278,646 24,350,362 28,152,218 24,416,080 1,108,512
Offshore C 9,069,848 8,079,599 8,443,181 8,804,271 7,604,666
Client Premises B 1,612,502 2,175,371 2,273,358 2,183,515 1,148,032
Offshore B 41,441,764 56,159,181 61,719,129 57,513,143 32,000,466
Client Premises A 3,129,840 0 0 0 0
Offshore A 7,461,799 10,345,033 10,810,560 11,207,297 6,480,988
Total Labour Hours 677,674,903 142,780,740 144,362,332 162,312,294 152,950,027 75,269,510

Considering a 10% reduction in Travel Expense for the nearshore model,

And the revised hourly charges for labor,
The profit margin in the near shore model drops to Rs. 17,738764
from a profit margin of Rs. 69,165,905 in the Offshore Model
Hence, the Nearshore Model is not a profitable one.

5)
Revised Labour Hours (in Hrs.)
Resource Location Band FY1 FY2 FY3 FY4 FY5
Client Premises E 14,054 7,229 7,229 6,610 3,974
Offshore E 5,346 5,589 5,589 5,103 2,430
Client Premises D 8,136 6,408 10,166 8,366 144
 Offshore D 9,558 7,857 7,987 8,408 8,586
Client Premises C 23,008 24,064 26,624 22,096 960
Offshore C 9,882 8,424 8,424 8,406 6,948
Client Premises B 3,706 3,571 3,571 3,278 1,722
Offshore B 62,640 81,081 85,239 76,023 40,446
Client Premises A 6,504 712 1,130 930 16
Offshore A 16,434 21,267 21,281 21,166 12,150
Total Labour Hours 740,472 159,268 166,202 177,240 160,386 77,376

Spilt Labour Hours (in Hrs.)

Location FY1 FY2 FY3 FY4 FY5 Total
Client Premises 55,408 41,984 48,720 41,280 6,816 194,208
Offshore 103,860 124,218 128,520 119,106 70,560 546,264
Total 159,268 166,202 177,240 160,386 77,376 740,472

Profitability increases by Rs. 11,931,135

The profit margin increases to Rs.81,097,040 from Rs.69,165,905.
Labour Hours (in Hrs.)
Resource Location Band FY1 FY2 FY3 FY4 FY5
Client Premises E 15,616 8,032 8,032 7,344 4,416
Offshore E 5,940 6,210 6,210 5,670 2,700
Client Premises D 9,040 7,120 11,296 9,296 160
Offshore D 10,620 8,730 8,874 9,342 9,540
Client Premises C 23,008 24,064 26,624 22,096 960
Offshore C 9,882 8,424 8,424 8,406 6,948
Client Premises B 2,144 2,768 2,768 2,544 1,280
Offshore B 62,046 80,460 84,618 75,456 40,176
Client Premises A 5,600 0 0 0 0
Offshore A 15,372 20,394 20,394 20,232 11,196
Total Labour Hours 740,472 159,268 166,202 177,240 160,386 77,376

Labour Cost (in Rs.)

Resource Location Band FY1 FY2 FY3 FY4 FY5
Client Premises E 25,321,344 13,610,224 14,222,262 13,589,338 8,539,219
Offshore E 8,005,932 8,813,232 9,280,845 8,922,879 4,474,170
Client Premises D 10,968,232 9,026,736 14,966,070 12,870,312 231,488
Offshore D 10,686,906 9,250,308 9,900,722 10,975,916 11,801,934
Client Premises C 22,278,646 24,350,362 28,152,218 24,416,080 1,108,512
Offshore C 7,886,824 7,079,530 7,454,398 7,832,711 6,817,378
Client Premises B 1,612,502 2,175,371 2,273,358 2,183,515 1,148,032
Offshore B 36,036,317 49,201,290 54,485,530 51,166,714 28,685,664
Client Premises A 3,129,840 0 0 0 0
Offshore A 6,488,521 9,063,094 9,544,392 9,970,330 5,809,604
Total Labour Hours 625,808,801 132,415,065 132,570,146 150,279,795 141,927,794 68,616,001

Project Specific Costs (in Rs.)

Total FY1 FY2 FY3 FY4 FY5
Infrastructure Expenses 286,520 54,475 65,153 67,410 62,472 37,009
Travel Expenses 4,389,614 834,588 998,179 1,032,748 957,100 566,999
Other Expenses 349,160 69,832 69,832 69,832 69,832 69,832
Total 5,025,294 958,895 1,133,164 1,169,990 1,089,404 673,840
Hourly Labour Rate (in Rs.) for Near Shore Model
Resource Allocation Band FY1 FY2 FY3 FY4 FY5
Client Premises E 1621.5 1694.5 1770.7 1850.4 1933.7
Nearshore E 1550.0 1619.7 1692.6 1768.8 1848.4
Client Premises D 1213.3 1267.8 1324.9 1384.5 1446.8
Nearshore D 1157.2 1209.3 1263.7 1320.6 1380.0
Client Premises C 968.3 1011.9 1057.4 1105.0 1154.7
Nearshore C 917.8 959.1 1002.3 1047.4 1094.5
Client Premises B 752.1 785.9 821.3 858.3 896.9
Nearshore B 667.9 698.0 729.4 762.2 796.5
Client Premises A 558.9 584.1 610.3 637.8 666.5
Nearshore A 485.4 507.3 530.1 553.9 578.9

Project Specific Costs (in Rs.) for Nearshore Model

Total FY1 FY2 FY3 FY4 FY5
Infrastructure Expenses 286,520 54,475 65,153 67,410 62,472 37,009
Travel Expenses 3,950,653 751,129 898,361 929,473 861,390 510,299
Other Expenses 349,160 69,832 69,832 69,832 69,832 69,832
Total 4,586,333 875,437 1,033,346 1,066,715 993,694 617,140

Full Cost of Project (in Rs.) for Nearshore Model

Total FY1 FY2 FY3 FY4 FY5
Labour Costs 677,674,903 142,780,740 144,362,332 162,312,294 152,950,027 75,269,510
Project Specific Costs 4,586,333 875,437 1,033,346 1,066,715 993,694 617,140
Total Full Costs 682,261,236 143,656,177 145,395,678 163,379,009 153,943,721 75,886,651

Profit Margin 17,738,764

Labour Cost (in Rs.) for Revised Resources

Resource Location Band FY1 FY2 FY3 FY4 FY5
Client Premises E 22,789,210 12,249,202 12,800,036 12,230,404 7,685,297
Offshore E 7,205,339 7,931,909 8,352,761 8,030,591 4,026,753
Client Premises D 9,871,409 8,124,062 13,469,463 11,583,281 208,339
 Offshore D 9,618,215 8,325,277 8,910,650 9,878,324 10,621,741
Client Premises C 22,278,646 24,350,362 28,152,218 24,416,080 1,108,512
Offshore C 7,886,824 7,079,530 7,454,398 7,832,711 6,817,378
Client Premises B 2,786,982 2,806,606 2,933,027 2,813,851 1,544,103
Offshore B 36,381,312 49,581,032 54,885,392 51,551,196 28,878,444
Client Premises A 3,635,086 415,879 689,395 592,899 10,664
Offshore A 6,936,791 9,451,055 9,959,695 10,430,703 6,304,635
Total Labour Hours 613,877,666 129,389,814 130,314,913 147,607,034 139,360,040 67,205,866

Project Specific Costs (in Rs.) for Nearshore Model

Total FY1 FY2 FY3 FY4 FY5
Infrastructure Expenses 286,520 54,475 65,153 67,410 62,472 37,009
Travel Expenses 4,389,614 834,588 998,179 1,032,748 957,100 566,999
Other Expenses 349,160 69,832 69,832 69,832 69,832 69,832
Total 5,025,294 958,895 1,133,164 1,169,990 1,089,404 673,840

Full Cost of Project (in Rs.) for Nearshore Model

Total FY1 FY2 FY3 FY4 FY5
Labour Costs 613,877,666 129,389,814 130,314,913 147,607,034 139,360,040 67,205,866
Project Specific Costs 5,025,294 958,895 1,133,164 1,169,990 1,089,404 673,840
Total Full Costs 618,902,960 130,348,709 131,448,077 148,777,024 140,449,444 67,879,706

Profit Margin 81,097,040