Situation Analysis:
Kanpur Confectionaries Private Limited (KCPL) is a family venture started by Mr. Mohan Kumar Gupta in 1945. The company is currently producing glucose biscuits and has its presence majorly in the northern part of India. Production process of glucose biscuit is very simple and all the necessary equipment needed for biscuit making is indigenously available. Even the raw materials needed are very common, they are maida (refined wheat flour), Vanaspathi (vegetable oil) and Sugar. Being a low investment business and absence of skilled labour requirement makes entry into biscuit industry very easy. At present there are two types of competitors in the market, organised and unorganised. Two national players, A-One Confectionaries …show more content…
Many retailers sell its biscuit in lose form and it is considered as a typical middle class brand with very little impact on metropolitan areas. (Give KCPL loss figures). Due to unorganised players the market is changing. Labour and raw material costs are rising but KCPL could not increase its prices to take care of the rising costs. Also, with a capacity to produce 240 tonnes per month, KCPL is utilising only half of it and rest is rendered surplus. Historically, KCPL was trapped in similar situation when it was producing candies and had to shut down its operation in Rajasthan during 1954. This concludes that KCPL has been consistently weak in marketing and had not learned the best practices of cost management. Pearson health drinks Limited had outsourced its supply to KCPL promising a takeoff of 100 to 125 tonnes per month at a conversion rate of ₹ 3 per Kilo. However Pearson has failed to impact the market. APL offered to place an initial order for producing 70 tonnes of glucose biscuits per month availing pre-printed packing material and “APL secret ingredient” to KCPL. The conditions put forth by APL is to bring recommended changes in equipment, posting of two quality control officers at KCPL’s plant & bondage to buy ingredients …show more content…
200 * 120 * (1150/100)
Vanaspathi consumption per tonne 150kg
Price of Vanaspathi per tin of 15 kg ₹ 500
Total price of Vanaspathi consumed for 120 tonnes production ₹ 6,00,000 150 * 120 * (500/15)
Cost of Preservatives and packaging per tonne ₹ 1,000
Price of preservatives and packaging for 120 tonnes production ₹ 1,20,000 1,000 * 120 Casual labour costs for MKG:
Casual labour cost for 120 tonnes production ₹ 36,000 300 * 120
Total Variable Costs ₹ 19,14,000 8,82,000 + 2,76,000 + 6,00,000 + 1,20,000 + 36,000
Fixed costs per month for APL ₹ 1,27,098 36.84% of 3,45,000 (refer Exhibit 1)
Reimbursed cost of materials by APL ₹ 9,59,817 4,80,200+ 1,52,950+ 3,26,667
Casual labour cost for 70 tonnes production per month for APL ₹ 21,000 300*70 Monthly Profit:
Conversion charge per kg ₹ 1.5
Revenue generated from 70 tonnes production ₹ 1,05,000 1.5 * 1000 * 70
Costs to APL for conversion charges= Fixed costs + Casual labor costs ₹1,48,098 1,27,098 + 21,000
Profit from APL per month = Revenue – Costs ₹ (-) 43,098 1,05,000 – 1,48,098
Profit from MKG per month= Revenue – (Fixed Costs + Variable Costs) ₹ 40,098 1,27,098 + 21,000 (refer exhibit 1)
Total profit per month ₹ (-) 3,000 40,098 - 43,098
Annual Loss ₹ 36,000 ₹
Kanpur Confectionaries Private Limited (KCPL) is a family venture started by Mr. Mohan Kumar Gupta in 1945. The company is currently producing glucose biscuits and has its presence majorly in the northern part of India. Production process of glucose biscuit is very simple and all the necessary equipment needed for biscuit making is indigenously available. Even the raw materials needed are very common, they are maida (refined wheat flour), Vanaspathi (vegetable oil) and Sugar. Being a low investment business and absence of skilled labour requirement makes entry into biscuit industry very easy. At present there are two types of competitors in the market, organised and unorganised. Two national players, A-One Confectionaries …show more content…
Many retailers sell its biscuit in lose form and it is considered as a typical middle class brand with very little impact on metropolitan areas. (Give KCPL loss figures). Due to unorganised players the market is changing. Labour and raw material costs are rising but KCPL could not increase its prices to take care of the rising costs. Also, with a capacity to produce 240 tonnes per month, KCPL is utilising only half of it and rest is rendered surplus. Historically, KCPL was trapped in similar situation when it was producing candies and had to shut down its operation in Rajasthan during 1954. This concludes that KCPL has been consistently weak in marketing and had not learned the best practices of cost management. Pearson health drinks Limited had outsourced its supply to KCPL promising a takeoff of 100 to 125 tonnes per month at a conversion rate of ₹ 3 per Kilo. However Pearson has failed to impact the market. APL offered to place an initial order for producing 70 tonnes of glucose biscuits per month availing pre-printed packing material and “APL secret ingredient” to KCPL. The conditions put forth by APL is to bring recommended changes in equipment, posting of two quality control officers at KCPL’s plant & bondage to buy ingredients …show more content…
200 * 120 * (1150/100)
Vanaspathi consumption per tonne 150kg
Price of Vanaspathi per tin of 15 kg ₹ 500
Total price of Vanaspathi consumed for 120 tonnes production ₹ 6,00,000 150 * 120 * (500/15)
Cost of Preservatives and packaging per tonne ₹ 1,000
Price of preservatives and packaging for 120 tonnes production ₹ 1,20,000 1,000 * 120 Casual labour costs for MKG:
Casual labour cost for 120 tonnes production ₹ 36,000 300 * 120
Total Variable Costs ₹ 19,14,000 8,82,000 + 2,76,000 + 6,00,000 + 1,20,000 + 36,000
Fixed costs per month for APL ₹ 1,27,098 36.84% of 3,45,000 (refer Exhibit 1)
Reimbursed cost of materials by APL ₹ 9,59,817 4,80,200+ 1,52,950+ 3,26,667
Casual labour cost for 70 tonnes production per month for APL ₹ 21,000 300*70 Monthly Profit:
Conversion charge per kg ₹ 1.5
Revenue generated from 70 tonnes production ₹ 1,05,000 1.5 * 1000 * 70
Costs to APL for conversion charges= Fixed costs + Casual labor costs ₹1,48,098 1,27,098 + 21,000
Profit from APL per month = Revenue – Costs ₹ (-) 43,098 1,05,000 – 1,48,098
Profit from MKG per month= Revenue – (Fixed Costs + Variable Costs) ₹ 40,098 1,27,098 + 21,000 (refer exhibit 1)
Total profit per month ₹ (-) 3,000 40,098 - 43,098
Annual Loss ₹ 36,000 ₹