Costing a Papad Order for a Self-Help Group
Twelve women of the Maa Mangala Self-Help Group in Ganjam take a loan of Rs 10,000 from their federation at 12% simple interest per annum and accept an order for 500 kg of urad-dal papad at Rs 92 per kg, to be delivered in four months. Their recipe and costs are: 0.6 kg of cleaned urad dal per kg of papad; dal is bought at Rs 112 per kg, but 4% of the purchased weight is lost as grit and husk during cleaning; spices at 0.04 kg per kg of papad costing Rs 250 per kg; salt and fuel at Rs 4 per kg of papad; packaging at Rs 5 per kg; transport of the whole consignment Rs 600. Six members will work 5 hours a day for 6 days at Rs 25 per hour; the remaining members contribute unpaid supervision. The loan is used for raw material and is repaid at the end of four months. The group's bank balance is Rs 3,000, which they want untouched.
1. Compute the total cost, the cost per kg and the profit or loss on this order.
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Build the cost sheet from the recipe upward, taking care of the cleaning loss because it changes the quantity purchased.
| Item | Working | Amount (Rs) |
|---|---|---|
| Urad dal | 500 x 0.6 = 300 kg cleaned; 300 / 0.96 = 312.5 kg bought; 312.5 x 112 | 35,000 |
| Spices | 500 x 0.04 = 20 kg; 20 x 250 | 5,000 |
| Salt and fuel | 500 x 4 | 2,000 |
| Packaging | 500 x 5 | 2,500 |
| Labour | 6 x 5 x 6 = 180 hours; 180 x 25 | 4,500 |
| Transport | given | 600 |
| Interest | 10,000 x 12% x 4/12 | 400 |
| Total | 50,000 |
Cost per kg = 50,000 / 500 = Rs 100. Revenue = 500 x 92 = Rs 46,000. Result: loss of Rs 4,000, that is 8% of cost. Note that the loss is real cash; keeping the Rs 3,000 bank balance untouched does not make the order viable, it only hides the shortfall.
2. The federation offers a repeat order of 500 kg at Rs 110 per kg, but dal now costs Rs 128 per kg. Should the group accept, and what price gives a surplus of Rs 5,000?
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Recalculate only what changes. Dal: 312.5 kg x 128 = Rs 40,000 (up Rs 5,000). All other lines are unchanged: spices 5,000 + salt and fuel 2,000 + packaging 2,500 + labour 4,500 + transport 600 + interest 400 = Rs 15,000.
New total = 55,000; new cost per kg = 55,000 / 500 = Rs 110.
At Rs 110 the group recovers its cost exactly and earns nothing. Any extra wastage, a dal price rise before purchase, or a delayed payment turns the order into a loss. So 'we are not losing' is not a reason to accept.
For a surplus of Rs 5,000: required revenue = 55,000 + 5,000 = 60,000, so price = 60,000 / 500 = Rs 120 per kg. Recommend quoting Rs 120-122 (a small buffer for wastage and delay) and declining below Rs 114.
3. A trader offers Rs 96 per kg for 500 kg with payment after 60 days. The loan is already drawn. Advise the group.
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Separate the costs that change with the order from those that do not.
Relevant cash costs: dal 35,000 + spices 5,000 + salt and fuel 2,000 + packaging 2,500 + transport 600 = Rs 45,100. Revenue at Rs 96 = Rs 48,000, giving a contribution of Rs 2,900.
That contribution does not cover labour (4,500) and interest (400), a shortfall of Rs 2,000. Since labour will be paid whether or not this order is taken, the order does reduce the overall loss, but it still leaves the group worse off than not producing, and it defers cash by 60 days while the loan falls due in four months.
Advice: reject as offered. Counter at a minimum of Rs 100 per kg with payment within 30 days, or accept Rs 96 only if the group is genuinely idle and the trader pays at least 30% in advance. Record the calculation in the group's minute book so the decision is not later blamed on any single member.