Canteen Order Pricing for a Masala Papad SHG
A self-help group in Bankura produces 200 g packets of masala papad. Monthly sales are 8,000 packets at a wholesale price of ₹18; plant capacity is 12,000 packets. Variable cost is ₹12 per packet (urad dal ₹6, spices ₹1, packaging ₹2, labour ₹2, power ₹1). Fixed costs are ₹30,000 per month (rent ₹8,000, supervisor ₹12,000, depreciation ₹5,000, insurance and misc ₹5,000). A local canteen offers to buy 4,000 packets next month at ₹14 per packet, provided the group supplies a different label. The group would need one extra worker for ₹6,000 for the month and a label printing plate for ₹3,000. The wholesale price of urad dal is expected to rise by 20% next month. The group president wants to accept the canteen order because 'any price above ₹12 is profit'.
1. Calculate the current break-even quantity and profit at 8,000 packets. Use the result to evaluate the president's statement.
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Contribution per packet = ₹18 − ₹12 = ₹6. Break-even = fixed cost ÷ contribution = ₹30,000 ÷ ₹6 = 5,000 packets/month. At 8,000 packets, total contribution = 8,000 × ₹6 = ₹48,000; profit = ₹48,000 − ₹30,000 = ₹18,000. The statement 'any price above ₹12 is profit' is wrong because it ignores fixed costs and the need to recover them; ₹12 is only the variable cost. However, once fixed costs are covered, an order priced above variable cost adds something to profit, provided it does not displace full-price sales.
2. Decide whether the canteen order should be accepted before the urad dal price rise. Show the incremental calculation. Then recalculate after the 20% rise.
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Before rise: extra fixed cost = ₹6,000 worker + ₹3,000 plate = ₹9,000. Contribution per canteen packet = ₹14 − ₹12 = ₹2; total = 4,000 × ₹2 = ₹8,000. Incremental loss = ₹8,000 − ₹9,000 = −₹1,000. Reject at ₹14 unless the plate is reusable and its cost is spread over more orders. After a 20% rise in urad dal: dal rises from ₹6 to ₹7.20, so variable cost = ₹13.20; contribution at ₹14 = ₹0.80; total = 4,000 × ₹0.80 = ₹3,200, still below ₹9,000. Minimum acceptable price = ₹13.20 + (₹9,000 ÷ 4,000) = ₹13.20 + ₹2.25 = ₹15.45, so quote at least ₹16.
3. If the group wants to maintain the current monthly profit of ₹18,000 after the dal price rise without changing the ₹18 wholesale price, calculate the sales volume needed and give one alternative.
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New variable cost = ₹13.20; contribution = ₹18 − ₹13.20 = ₹4.80. Required contribution to cover fixed cost ₹30,000 and profit ₹18,000 = ₹48,000. Required volume = ₹48,000 ÷ ₹4.80 = 10,000 packets, which is within the 12,000 capacity but 2,000 more than current sales. Alternative: cut fixed costs by ₹9,600 to ₹20,400 (then 8,000 × ₹4.80 = ₹38,400 covers fixed costs and leaves ₹18,000), or raise price to ₹19.20 if the market accepts it. Increasing volume requires confirmed demand, not just capacity.