Quoting Twelve Hundred Account Books
Stuti Binding House has been asked to quote for 1,200 hardbound account books: 210 × 270 mm, 200 pages (100 leaves) on 80 gsm paper, 2.5 mm board covers, rexine covering, headbands and a ribbon marker. The buyer's ceiling price is ₹140 per copy inclusive of 12% GST, and delivery must be within 30 days.
Given rates: text paper ₹75/kg (sheet 70 × 100 cm, wastage 10%); board ₹90 per 70 × 100 cm sheet, wastage 8%; rexine ₹120 per m², consumption 0.10 m² per book, wastage 5%; endpapers, adhesive, headband, ribbon and thread together ₹16.50 per book; labour ₹18 per book at the current output of five books per hour. The unit's fixed overhead is ₹18,000 per month at a normal output of 2,500 books; the owner targets a 20% profit on total cost.
The accountant says the order is "better than nothing" because the workshop is running at half capacity. The supervisor wants to accept it to keep the buyer.
1. Build the cost sheet per book and state the price the unit should quote.
Read the worked answer
Text paper: 100 leaves × 0.21 × 0.27 = 5.67 m². At 80 gsm that is 0.454 kg; with 10% wastage 0.499 kg × ₹75 = ₹37.4. Board: two boards of 0.21 × 0.27 = 0.1134 m². A sheet is 0.70 m² for ₹90, i.e. ₹128.6/m², so ₹14.6 per book; with 8% wastage ₹15.8; add roughly ₹1 for the spine strip = ₹16.8. Rexine: 0.10 m² × ₹120 = ₹12.0; with 5% wastage ₹12.6. Consumables: ₹16.50. Labour: ₹18.00. Variable cost = 37.4 + 16.8 + 12.6 + 16.5 + 18.0 = ₹101.3. Fixed overhead absorption at normal output = 18,000 ÷ 2,500 = ₹7.2 per book. Total cost = ₹108.5. Target price = 108.5 × 1.20 = ₹130.2, plus 12% GST = ₹145.8.
Quote ₹146 per copy inclusive of GST. Note that the buyer's ceiling of ₹140 is below the target price but above cost, so there is room to negotiate rather than walk away.
2. Calculate the contribution, break-even quantity and the profit at ₹140, then advise the owner whether to accept.
Read the worked answer
Net realisation at ₹140 including GST = 140 ÷ 1.12 = ₹125.0. Contribution per book = 125.0 − 101.3 = ₹23.7. Break-even quantity = fixed overhead ÷ contribution = 18,000 ÷ 23.7 ≈ 760 books per month.
At 1,200 books: total contribution = 1,200 × 23.7 = ₹28,440; less ₹18,000 fixed = profit ₹10,440, about ₹8.7 per book and roughly 8.9% on total cost of ₹116.3. So the order is profitable but well short of the 20% target, and it occupies 1,200 of the 2,500-book capacity.
Advice: negotiate. The price that gives 20% at this volume is (101.3 + 15) × 1.2 × 1.12 ≈ ₹156. Ask for ₹156, settle near ₹145–150, and insist the 30-day delivery and penalty terms are realistic. Accept ₹140 only if the remaining capacity cannot be sold in that month - the contribution does cover fixed cost, so the accountant is not wrong, just incomplete. Never quote below ₹101.3 variable cost.
3. Which cost levers could be pulled to make ₹140 comfortably profitable without lowering quality?
Read the worked answer
- Cutting plan for the text paper. From a 70 × 100 cm sheet, 210 × 270 mm pages can be taken as 3 across the 1000 mm grain direction (810 mm used) and 3 along the 700 mm (630 mm used) = 9 pages, grain parallel to the spine. Cutting the other way gives 4 × 2 = 8 pages with the grain across the book. Nine instead of eight is 12% more leaves per ream, worth about ₹4 per book.
- Wastage. Ten percent on paper and eight on board is high for a repeat order. A nest cutting plan reusing off-cuts for endpapers and long runs on one setting can bring paper waste to about 5%, saving roughly ₹1.9 per book.
- Labour. Five books per hour is low for a straightforward case. A casing-in jig, batch gluing and pre-cut boards should reach seven per hour, taking labour from ₹18.0 to about ₹12.9.
Together, variable cost falls from ₹101.3 to roughly ₹83–86, making ₹140 comfortable even with overhead. Do not cut board thickness, page count or paper gsm - rejection under the penalty clause costs far more than the saving.