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Davey Brothers Case: Total 0.272

Davey Brothers is considering four scenarios for their photocopy business: 1. Current prices with expected sales of 9000 copies per year would result in a loss. 2. Increasing prices 10% would further reduce expected sales and still result in a loss. 3. Decreasing prices 10% could increase sales enough to break even. 4. A contract to sell 30,000 copies to a school at a lower price of Rs. 0.85 per copy would cover fixed costs and generate a small profit. Additional retail sales of 37,033 copies at the regular price would be required to achieve the target pre-tax profit of Rs. 30,000.

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Bhavik Lodha
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52 views6 pages

Davey Brothers Case: Total 0.272

Davey Brothers is considering four scenarios for their photocopy business: 1. Current prices with expected sales of 9000 copies per year would result in a loss. 2. Increasing prices 10% would further reduce expected sales and still result in a loss. 3. Decreasing prices 10% could increase sales enough to break even. 4. A contract to sell 30,000 copies to a school at a lower price of Rs. 0.85 per copy would cover fixed costs and generate a small profit. Additional retail sales of 37,033 copies at the regular price would be required to achieve the target pre-tax profit of Rs. 30,000.

Uploaded by

Bhavik Lodha
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Davey Brother

Scenario 1-Equipment cost of 50,000 for 7 years Hence depreciation(considering SLM) =50000/7= Interest for loan(10% for 5 years) Cosnisering S.P per copy Variable cost Cost of paper Toner Power Total Contribution 0.2 0.032 0.04 0.272 0.728 7142.857 5000 1

Production Overhead Consumables 1400 Mantenance 1000 Depreciation 7142.857143 Interest 5000 Electricity+rent 1400 Total 15942.85714 Break even numbers for attaining no profit x 21899.52904 Since he is expecting to sell only 9000 per year in retail at Re 1 and the variable cost contributin in less he can think of giving disounts to boost sales Scenario 3-SP decreased by 10%

Selling price per copy

0.9

Variable cost Cost of paper Toner Power Total Contribution Production Overhead Consumables Mantenance Depreciation 0.2 0.032 0.04 0.272 0.628

1400 1000 7000

Interest Electricity+rent Total

3500 1400 14300

Break even numbers for attaining no profit x 22770.70064 Since he is decreasing his price there is a chance that he can get more sales than what he expects.This might be a good strategy

Davey Brothers Case


Scenario 2-SP increased by 10%

Selling price per copy

1.1

Variable cost Cost of paper Toner Power Total Contribution Production Overhead Consumables Mantenance Depreciation Interest Electricity+rent Total Break even numbers for attaining no profit x 1400 1000 7000 3500 1400 14300 0.2 0.032 0.04 0.272 0.828

17270.5314

Since he is expecting to sell only 9000 per year in retail at Re 1 and if he increases the price his sales are going to go down further.hence A sales price increase will deter his sales Scenario 4-School tieup for 30,000 copies School Sales Selling price per copy Contribution from one copy Contribution from 30000 copies Production Overhead Consumables Mantenance Depreciation Interest Electricity+rent Total 1400 1000 7000 3500 1400 14300

0.85 0.578 17340

Hence he can recover his fixed overheads by selling at 0.85 to the school and attain profit of 3040

Now considering he wants to attain a pret tax profit =30000

Retail sales required for break even= x

(Pretax profit+overhead-school contri)/retail contribution 37032.96703

enario 2-SP increased by 10%

o 4-School tieup for 30,000 copies

.85 to the school and attain profit of 3040

(Pretax profit+overhead-school contri)/retail contribution

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