Costing and Shelf-Life Decision for a Biscuit Supply Order
A home-based baker in Bhubaneswar plans to supply 600 packs of 250 g butter biscuits to local shops. The daily production run uses 60 kg maida at Rs 45/kg, 22 kg sugar at Rs 48/kg, 18 kg bakery fat at Rs 120/kg, 4 kg milk powder at Rs 320/kg, and 1.5 kg leavening and flavour at Rs 200/kg. Packaging costs Rs 2.50 per pack, three workers are paid Rs 350 each for the day, electricity is 40 units at Rs 7/unit, and daily rent and overheads are Rs 900. About 3% of the biscuit mass is lost as trim and breakage. The baker wants a 25% margin on total cost and is also offered a shop order at Rs 22 per pack. The shop will store packs in a warm, humid room for up to 45 days.
1. Calculate the total cost, cost per pack and target selling price, showing each cost line. Then state whether the Rs 22 offer meets the 25% margin target.
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Ingredients: maida 60 × 45 = Rs 2,700; sugar 22 × 48 = Rs 1,056; fat 18 × 120 = Rs 2,160; milk powder 4 × 320 = Rs 1,280; leavening/flavour 1.5 × 200 = Rs 300. Ingredient subtotal = Rs 7,496. Wastage at 3% = Rs 225 (rounded). Packaging: 600 × Rs 2.50 = Rs 1,500. Labour: 3 × Rs 350 = Rs 1,050. Electricity: 40 × Rs 7 = Rs 280. Rent/overheads = Rs 900. Total cost = 7,496 + 225 + 1,500 + 1,050 + 280 + 900 = Rs 11,451. Cost per pack = 11,451 ÷ 600 = Rs 19.09. A 25% margin on cost = 19.09 × 1.25 = Rs 23.86, so the target price is about Rs 24 per pack. At Rs 22, the margin is (22 − 19.09) ÷ 19.09 = 15.2%, below the 25% target. The offer is not acceptable on the stated pricing policy unless the baker deliberately accepts a lower contribution for a trial order.
2. Advise the baker on whether to accept the Rs 22 order, including any conditions or alternative calculations.
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The Rs 22 order gives Rs 2.91 contribution per pack, or Rs 1,746 over 600 packs, but it falls short of the 25% target by about Rs 1.14 per pack. If the bakery has idle capacity and the order brings no extra fixed cost, accepting it may still help cash flow and market entry; if it displaces full-price sales, it destroys margin. The baker should counter at Rs 24, or offer Rs 22 only with conditions: customer collection, no returned stock, a shorter 30-day shelf-life guarantee, and payment within 7 days. Before accepting, recalculate with actual yields: if breakage rises to 5–6%, cost per pack rises and the Rs 22 margin shrinks further. Also check whether the shop will pay for secondary packaging or display cartons. A trial order at Rs 22 for one month can be justified only as a documented market test, not as the normal price.
3. Recommend packaging, storage and quality-control measures for a 45-day shelf life in a warm, humid shop, and explain how these affect cost.
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Butter biscuits are vulnerable to moisture pick-up and rancidity. Use a moisture-barrier pouch or a sealed liner inside a rigid box, with a label showing ingredients, net weight, batch code, manufacturing date and best-before date. Add a small oxygen absorber or use nitrogen flushing only if the cost is justified; for a small bakery, a good sealed pouch with minimal headspace is more practical. Store in a cool, dry place away from sunlight; the shop's warm, humid room is not ideal, so reduce the promised shelf life to 30 days unless the shop can keep packs below about 25°C and under 60% relative humidity. Keep a retained sample from each batch and check aroma, texture and moisture at 7-day intervals. These measures add packaging cost but reduce returns and protect the brand; include them in the Rs 24 price rather than absorbing them silently.