Chakki Extraction Rate Decision: 78% Atta versus 70% Atta plus Maida
A family chakki in a semi-urban block mills 600 kg of wheat a day for 26 days a month. Wheat costs ₹26/kg, power works out to ₹2/kg of wheat milled, daily labour is ₹1,000 and the shed rent is ₹12,000 a month. At present the chakki gives 78% extraction: 468 kg of atta sold at ₹40/kg and 132 kg of bran sold at ₹12/kg. A supplier offers a small plansifter for ₹1.4 lakh that would let the unit split the output into 70% atta at ₹40/kg, 8% maida at ₹50/kg and the same 22% bran at ₹12/kg. Sieving would add ₹1.5/kg of wheat in power, wear and extra labour. The family can fund the machine only from a bank loan at about 11% interest, repayable over four years, and the nearest bakery that might buy maida is 22 km away. The owner's son argues that more products means more profit.
1. Compute the daily and monthly contribution of the present operation and of the proposed plansifter operation, and give a reasoned recommendation.
Read the worked answer
Cost per day (common to both):
- Wheat: 600 × ₹26 = ₹15,600
- Power: 600 × ₹2 = ₹1,200
- Labour: ₹1,000
- Rent: ₹12,000 ÷ 26 = ₹461.54
- Total = ₹18,261.54 per day, i.e. ₹30.44 per kg of wheat.
Present (78% extraction):
- Atta 468 kg × ₹40 = ₹18,720
- Bran 132 kg × ₹12 = ₹1,584
- Revenue ₹20,304; contribution = 20,304 − 18,261.54 = ₹2,042.46/day, about ₹53,100 a month.
Proposed (70% atta + 8% maida):
- Atta 420 × ₹40 = ₹16,800; maida 48 × ₹50 = ₹2,400; bran = ₹1,584
- Revenue ₹20,784; extra sieving 600 × ₹1.5 = ₹900
- Contribution = 20,784 − 18,261.54 − 900 = ₹1,622.46/day, about ₹42,200 a month.
Recommendation: reject the plansifter on these prices. It lowers daily contribution by about ₹420, roughly ₹10,900 a month, and adds a loan instalment. The son has confused product variety with profit: maida is only 8% of output, so it cannot lift the total enough to pay for the sieving cost.
2. At what maida price would the plansifter break even against the present operation? Show the working, and name three non-financial factors that still matter.
Read the worked answer
Break-even working. Let the maida price be ₹x/kg. The proposed contribution must equal ₹2,042.46/day.
Required revenue = 2,042.46 + 18,261.54 + 900 = ₹21,204.00 Revenue from atta and bran is fixed at 16,800 + 1,584 = ₹18,384. So maida revenue must be 21,204 − 18,384 = ₹2,820. Price = 2,820 ÷ 48 = ₹58.75/kg.
At ₹50/kg maida the machine loses money; it becomes worthwhile only above roughly ₹59/kg, which is well above the prevailing wholesale rate in most blocks.
Non-financial factors:
- Demand and distance - the only identified buyer is 22 km away; transport on 48 kg a day can wipe out the margin, and bakery demand is seasonal.
- Storage and quality - maida needs fine sieving, a moisture-tight bin and clean handling; the chakki has no spare room, and damp maida cakes and turns sour.
- Brand and bran purity - customers who buy stone-ground whole atta may see the unit as a maida mill; also, finer sieving changes bran quality, and the bran buyer may renegotiate the ₹12/kg rate.
3. Wheat prices rise 15% and local atta buyers refuse any price increase for the next two months. Work out the effect and propose four practical responses open to this small unit.
Read the worked answer
Effect. Wheat rises from ₹26 to ₹29.90/kg, adding ₹3.90 × 600 = ₹2,340 a day to cost. Present contribution of ₹2,042.46 turns into a loss of about ₹298/day - the unit is now working for nothing and cannot service a loan. Note that the loss comes entirely from the raw material, so the response must attack purchase price, extraction or yield, not just output.
Four practical responses:
- Buy better. Purchase in bulk at harvest with two or three other chakkis, share transport, and pay cash for a small discount; check weight, moisture and foreign matter at intake, because paying for damp wheat means paying for water.
- Protect yield. Review sieve condition, dust loss and spillage; a 1% gain in extraction on 600 kg is 6 kg of atta a day.
- Differentiate instead of discounting. Sell whole-wheat atta on its freshness and stone-ground character at a small premium to households, and sell 5 kg and 10 kg packs where the customer absorbs a modest rise.
- Trim fixed and variable cost. Shift to a single long shift at off-peak power hours if the tariff allows, renegotiate rent, and defer the plansifter purchase. If the price standstill lasts beyond two months, cut the milling days rather than mill at a loss.