Maize trading at Chinsapo Market: true cost and pricing judgement
A vegetable and maize trader at Chinsapo Market in Lilongwe buys 8 bags of maize. Each bag is labelled 50 kg and costs MWK 30,000. She pays MWK 4,000 per bag for transport from the farm and a fixed market entry fee of MWK 10,000. She also rents a stall for the day at MWK 3,000. After drying and cleaning, 4% of the maize mass is lost as husks and moisture. She packs the remaining maize into 1 kg bags, which cost MWK 40 each (one bag per kilogram). She plans to sell at MWK 900 per kg. Her neighbour sells at MWK 850 per kg and advises her to match that price to clear stock quickly. The trader wants to know her true cost per kilogram, her likely profit, and whether matching the neighbour is financially sensible.
1. Calculate the total cost incurred and the cost per kilogram of saleable maize. State any assumption about rounding or costs not included.
Read the worked answer
Step 1 - mass and saleable mass. Purchased mass = 8 × 50 = 400 kg. After 4% loss, saleable mass = 0.96 × 400 = 384 kg.
Step 2 - costs. Maize = 8 × 30,000 = MWK 240,000. Transport = 8 × 4,000 = MWK 32,000. Entry fee = MWK 10,000. Stall = MWK 3,000. Bags = 384 × 40 = MWK 15,360. Total = 240,000 + 32,000 + 10,000 + 3,000 + 15,360 = MWK 300,360.
Step 3 - unit cost. Cost per kg = 300,360 ÷ 384 = MWK 782.19 (2 d.p.). Assumption: her own labour and any unsold stock are ignored; all 384 kg is sold.
2. At MWK 900 per kg, calculate the revenue, profit and percentage profit on total cost.
Read the worked answer
Revenue = 384 × 900 = MWK 345,600.
Profit = 345,600 − 300,360 = MWK 45,240.
Percentage profit on total cost = (45,240 ÷ 300,360) × 100 = 15.06% (2 d.p.).
Since the margin is positive, the plan is viable at MWK 900/kg, but the return is modest for the work involved.
3. Find the minimum price per kg that gives at least 20% profit. Then evaluate the neighbour's suggestion of MWK 850 per kg.
Read the worked answer
Required revenue for 20% profit = 300,360 × 1.20 = MWK 360,432.
Required price = 360,432 ÷ 384 = MWK 938.625, so she must charge at least MWK 939/kg. Round up: MWK 938 would give slightly below 20%.
At MWK 850: revenue = 384 × 850 = MWK 326,400; profit = 326,400 − 300,360 = MWK 26,040; percentage = 26,040 ÷ 300,360 × 100 = 8.67%.
Judgement: matching MWK 850 still covers costs and may be sensible if the maize is at risk of spoiling, but it falls well short of the 20% target. She should not describe it as meeting her profit aim.