Costing 600 Tote Bags for a College Fest
A student-run label is producing 600 saleable cotton tote bags for a college fest, to be sold at ₹349 each. The printer quotes ₹450 setup per colour per screen, ₹18 per bag for the first colour and ₹9 per bag for each additional colour, printed on the same face. Printing is done only on bags that have already passed fabric inspection; 8% of the ordered blanks are rejected before printing and cannot be printed on. Each blank costs ₹72. The printer applies a flat 12% tax on its printing invoice, which includes setup charges but not blanks.
A second printer offers no setup fee and a flat ₹34 per bag for two colours, minimum order 500, with the same 12% tax.
Projection: 85% of bags sell at full price, the remainder go to a clearance bin at 40% off. The label has ₹70,000 in cash and cannot borrow. A third colour would need another setup and ₹9 per bag, and the team believes it could support a ₹25 higher price.
1. Work out how many blanks to order, the total cost of the two-colour run, and the landed cost per saleable bag. Then compare the two printers.
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Blanks. If 8% of ordered blanks are rejected, 92% survive. Need N × 0.92 ≥ 600, so N = 600/0.92 = 652.17, rounded up to 653 blanks. Blank cost = 653 × ₹72 = ₹47,016.
Printing, printer 1. Setup = 2 × ₹450 = ₹900. Per bag = 18 + 9 = ₹27. Printing on 600 good bags = ₹16,200. Invoice = ₹17,100. Tax at 12% = ₹2,052. Printing total = ₹19,152.
Total cost = 47,016 + 19,152 = ₹66,168, or ₹110.28 per saleable bag.
Printer 2. 600 × ₹34 = ₹20,400; tax ₹2,448; total ₹22,848. That is ₹3,696 more, so printer 1 wins at this quantity.
But the ranking is quantity-dependent. Set 1.12(900 + 27Q) = 1.12(34Q), so 900 = 7Q and Q = 128.6. Below about 129 bags the no-setup printer is cheaper; above it, printer 1 is. The team should not treat 'printer 1 is cheaper' as a permanent fact.
2. Does the project fit inside ₹70,000 of cash? Find the break-even number of bags sold and state the main financial risk.
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Cash fit: barely. Total cost ₹66,168 against ₹70,000 leaves ₹3,832 - 5.5% headroom. Any of the following breaks it: blank prices rising above ₹77, spoilage above 12%, or the printer demanding payment before delivery while fest sales money arrives after.
Revenue at full projection. Full price: 510 × ₹349 = ₹177,990. Clearance at 40% off, so ₹209.40 each: 90 × ₹209.40 = ₹18,846. Total ₹196,836. Surplus before other costs = ₹130,668.
Break-even. Average revenue per bag must reflect the mix, not the sticker price: (0.85 × 349) + (0.15 × 209.40) = ₹296.65 + ₹31.41 = ₹328.06. Break-even = 66,168 / 328.06 = 201.7, so 202 bags sold, i.e. 34% of stock. Using ₹349 instead would give 190 bags and understate the risk.
Main risk is not break-even, which is comfortable, but cash timing and unsold stock. The label is fully committed before a single bag sells, so a wet fest or a weak clearance bin converts a paper profit into 300 unsold bags and no working capital.
3. Should the team add the third colour? Decide using the marginal numbers and the cash constraint.
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Marginal cost. Extra setup ₹450 plus 600 × ₹9 = ₹5,400, so ₹5,850 before tax; with 12% tax, ₹6,552.
Marginal revenue if the ₹25 uplift holds. The uplift does not apply uniformly, because clearance bags are discounted from the new price. Extra per bag = (0.85 × 25) + (0.15 × 10) = 21.25 + 1.50 = ₹22.75. Across 600 bags that is ₹13,650, well above ₹6,552. On the team's own assumption, the third colour pays for itself roughly twice over.
But two constraints override the arithmetic.
- Cash. 66,168 + 6,552 = ₹72,720, which exceeds the ₹70,000 available. The project would be unfundable at the moment of ordering unless the printer accepts staged payment or the blanks order is trimmed.
- The ₹25 is a belief, not a measurement. It only holds if buyers actually pay it. Test it first: show two mock-ups at a stall and record stated willingness to pay. If the uplift looks closer to ₹10, extra revenue falls to about ₹5,460, which is below the ₹6,552 cost.
Verdict: do not commit now. Run the pricing test, and add the colour only if the uplift is verified and a payment schedule frees the cash.