Sl.

No Cost Fixed/
. Name (Rs.) Variable Direct/Indirect Relevant/Irrelevant Sunk/Opportunity
Photocopy
Machine 35000 for 7000
1 (Refurbished) 5 years p.a. Fixed Direct Relevant NA
3500
2 Finance Cost 10% p.a. Fixed Direct Relevant NA
Repair & 1000
3 Maintainence p.a. Fixed Direct Relevant NA
1400
4 Drum & Fill p.a. Fixed Direct Relevant NA
Electricity bill 3000
5 of shop 250 x 12 p.a. Fixed Indirect Irrelevant Sunk cost
1200
6 Shop Rent 100 x 12 p.a. Fixed Indirect Irrelevant Sunk cost
0.20
7 Paper per unit Variable Direct Relevant NA
Power 0.04
8 Consumption per unit Variable Direct Relevant NA
0.032
9 Toner 800/25000 per unit Variable Direct Relevant NA
30000
10 Forgone Salary p.a. Opportunity cost
Name: Akshat Karulkar
Roll No.: 2022PGP036

Davey Brothers: Case Submission

Cost Information

Break-Even Analysis
(Assuming he buys refurbished machine)

Break even units= Fixed cost/ Contribution per unit

Contribution per unit= Sales revenue- variable cost

Selling Price (Re.) 1 0.75 0.5

Variable cost per unit (Re.) 0.272 0.272 0.272
Contribution per unit (Re.) 0.728 0.478 0.228
       
Fixed cost (Without OC) 12900
BE Units 17719.78 26987 56578.94737
       
Fixed cost (With OC) 42900
BE Units 58928.571 89749 188157.8947

C) If he borrows from Bank, how does it affect the Break Even?

If he borrows from bank,      

Finance cost @ 15% = 5250      
Selling Price 1 0.75 0.5
Variable cost per unit (Re.) 0.272 0.272 0.272
Contribution per unit (Re.) 0.728 0.478 0.228
        
Fixed cost (Without OC) 14650
BE Units 20123.626 30649 64254.38596
       
Fixed cost (With OC) 44650
BE Units 61332.418 93410 195833.3333

D) If he buys Brand new machine what would be the impact on his cost break- ‐even?

Selling Price    1 0.75 0.5

If he buys new machine,
50000 for 10
years = 5000
Photocopy machine p.a.      
No maintenance cost        
Finance cost @10% 5000      
         
Fixed cost (Without OC)   11400
BE Units   15659.341 23849 50000
         
Fixed cost (With OC)   41400
BE Units   56868.132 86611 181578.9474

E) If Ravinder targets profit of Rs. 2000/-‐ per month how many copies he should make at different prices?

If Ravinder targets profit of Rs. 2000      

Considering fixed cost is lowest,      
He buys machine @50000      
For making profit of Rs. 2000:
0.33
Selling Price  1 0.75 0.5
Fixed cost (Without OC) 11400
Profit 24000
Required number of units 48627 74059 155264 610345
       
Fixed cost (With OC) 41400
Profit 24000
Required number of units 89836 136821 286843 1127587

F) Ravinder could only manage business worth 60 copies per day at 75-‐paisa per page. What profit/ loss will he
make at this level of business?

Number of copies sold per annum      

60 copies @ 75 paisa per day 18000    
       
Total revenue 13500    
18000*0.75      
       
Considering he buys machine @50000      
Fixed cost (Without OC) 11400 Fixed cost (With OC) 41400
 Variable cost (for 18000
Variable cost (for 18000 copies) 4896 copies) 4896
Total cost 16296 Total cost 46296
       
Net profit/ loss -2796 Net profit/ loss -32796

G) If Ravinder does differential pricing. Re 1 for retail customer and Re 0.75 for institution customer and the
institutional business will account for 50% of his total business what will be new break even.

Differential pricing 50% Retail @1 & 50% Institutional @0.75

Average selling price per unit (Rs.) 0.875
Contribution per unit 0.603
   
  For new machine @50000
Fixed cost (Without OC) 11400
BE Units 18905.473
   
Fixed cost (With OC) 41400
BE Units 68656.716

H) If Ravinder offers doorstep service to Institutional customer he might have to make a visit each day and
would cost him Rs. 5/-‐. How does multiple cost drivers for variable cost affect the break-‐even? (Refer the text)

Average selling price per unit (Rs.)   0.875

Contribution per unit   0.603
Delivery charge 5 x 300 = 1500 p.a  
    For new machine @50000
Fixed cost with delivery cost (Without OC)   12900
BE Units   21393.035
     
Fixed cost with delivery cost (With OC)   42900
BE Units   71144.279

I) Ravinder hires an office boy to make deliveries and assist him in the business at Rs.1500/- ‐ pm. how does it
affect the break even.

As per the details in the question, Ravinder hires office boy at 1500 rupees per month. Accordingly, he will pay an
amount of Rs. 18000 to make deliveries and provide assistance in the business. But this is not dedicated to photocopy.
Henceforth, this is categorized in the sunk costs and therefore won't affect the break-in unit and its analysis. If he were
hired for the photocopy work only, an amount of 18000 per annum would come under the fixed costs.

J) Identify the cost and suggest the cost that would be relevant under following two decision situations. 1. Should
he do the photocopy business and how? 2. Deciding on which of the three businesses to focus on to maximize the
profits.

The number of breakeven units is greater than the expected number of daily photocopies for Ravinder. Thus, he should
not enter the photocopy business.
Further, if he plans to enter, he should buy a new machine (which would lead to lower break-even units). He might not
find the retail business on a scale to break even to maximize profits, he should cater to retail customers at Re.1 and
Institutions at Rs.0.75.