DISTILLATION PROCESS 10000 mls.
S 10000 Kgs
AROMATIC ROOTS
DISTILLATION PROCESS ARO Cost
Alternative 1 Alternative 2 Alternative 3
Operate the Distillation Department with existing e Operate the Distillation Department with new equi Do not operate the Distillation Department
EISTING E!UIPMENT CONTRI"UTION #$%&2'(1%%%%&1)%%%%&*%%%%+C,ntri-. #$%&2'(1%%%%&1)%%% %&*%%%%+C,ntri-.ti,n ti,n /r,0 te -et alternativeA"C alternativeA"C C,ntri-.ti,n 4er .nit ,/ r,,t #-ai5 in4.t' R= 1$+C,ntri-.ti,n alternative "C R= 1> #in 5ae ,/ C' #in 5ae ,/ "' Relevant in5re0ental 67e8 5,t Relevant in5re0ental 67e8 5,t
$*%%% (Alternative 92%%% (Alternative
"REA: E;EN !UANTIT<
32%%
NEW E!UIPMENT CONTRI"UTION #$%&2'(1%%%%&1)%%%%&*%%%%+3%%%%+ #$%&2'(1%%%%&1)%%% %&*%%%%+3%%%%+C,ntri-.ti,n C,ntri-.ti,n /r,0 te -et alternativeA"C C,ntri-.ti,n 4er .nit ,/ r,,t #-ai5 in4.t'
R= 19+C,ntri-.ti,n alternative AC R= 1* #in 5ae ,/ C' #in 5ae ,/ A'
Relevant in5re0ental 67e8 5,t
$*%%% (Alternative
Relevant in5re0ental 67e8 5,t
92%%% (Alternative
"REA: E;EN !UANTIT<
2)))=))9
De5ii,n O4erate Ditillati,n De4art0ent ?it ne? 0a5ine i/ r,,t availa-le are 0,r 2))9 :@= D, n,t ,4erate Ditillati,n De4art0ent i/ r,,t availa-ilit i le tan 2))9 intallin@ te ne? 0a5ine' O4erate Ditillati,n De4art0ent i/ r,,t availa-ilit i 0,re tan 2))9 an8 le $$$$=$$ :@= An8 ell te ar,0ati5 ,il 8ire5tl in te 0arBet=
Final conclusions:
(1) The company should keep on manufacturing Sanjivani as the possible penalt
() !ith regards to adoption of the ne" process developed for the #$traction %epartment, it "ould b availability of roots is more than '''' gs. The company should not run the e$traction %epartment i
() *n similar lines, the firm should continue %istillation +rocess subject to minimum availability of alternative "ill be to run the %istillation %epartment and sell /romatic *il directly in the market. +r
(') The firms should install the ne" machine as incremental benefits are more than incremental cost of roots in the case of old machine. Therefore, by installing ne" machine, the firm can operate the di
RAJNIGANDH ETRACTION Ol8 Pr,5e Ne? Pr,5e
Rs. 40/ml
APNA
A88= C,t #Ne? Pr,5e'
ETRACTION PROCESS
ATIC OIL Rs. .40/ml
quipment ment
Alternative A Alternative " Alternative C
Operate the Extraction Depar Operate the Extraction Depar Do not operate the Extraction EISTING P
140000 r,0 -et
CONTRI"UTION #12=>&*'(2%%%%&>%%%&2>%%%&#>%%(2%' Oppurtunity cost of aromatic oil Oppurtunity cost of aromatic oil (per Kg of root)
r R= 2%=$ C,ntri-.ti,n 4er .nit ,/ r,,t #-ai5 in4.t' Contribution considering opportunity cost C) B)
NEW PR CONTRI"UTION #1>&*'(1*%%%&>%%%&2>%%%&#)%%(2%'&#%=2(1%%%%% Oppurtunity cost of aromatic oil Oppurtunity cost of aromatic oil (per Kg of root) C,ntri-.ti,n 4er .nit ,/ r,,t #-ai5 in4.t' Contribution considering opportunity cost 140000
Given te i@er a0,.nt ,/ C,ntri-.ti,n 4er .nit ,.l8 -e a8,4te8= r,0 -et "reaB Even !.antit r R= 23=$
"elevant #$e% cost "EP
C) B)
De5ii,n
FC/CM! &4000 $$$$=$$$
O4erate E7tra5ti,n De4art0ent ?it ne? 4r,5e
D, n,t ,4erate E7tra5ti,n De4art0ent i/ r,,t ava tan
@= #A/ter
tan
y for dumping it in the lake could be severe. Given these possibilities, the company sho
e beneficial to adopt the ne" process as contribution (per kg of roots) is higher for the f the availability of the roots is lo"er than '''' gs other"ise the firm "ill run into lo
- gs. of roots. f the availability of roots is less than - gs., the firm should n cessing of aromatic oil in the e$traction %epartment "ill be beneficial only if the avail
s. 0esides, installing ne" machine "ill result into higher level of contribution per kg o stillation %epartment subject to minimum availability of - gs. of roots.
PERFUMERIES PROCESS &0000 mls' 1*000 mls'
"s' 1&'/ml "s' 1/ml
"s' 0'&/ml of aromatic oil
MANORAMA
SANJI;INI RESIDUE ment with existing process ment with new process Department
D.04 int, LaBe
ROCESS 0000 10000 1 4
CESS '
+4000 10000 1 +'4 5.4
/ 5,traine8 re,.r5e #r,,t' ne? 4r,5e
We ave t, 4r,5e Sanivini a 8.04in a 4er0anent ,l.ti, 0,re evere 4enalti Tere/,re ? 5,nti0n.e ?it I 4 R= 2% 4er B@ ,/ San
i/ r,,t availa-le are 0,re tan $$$$=$$ :@=
ila-ilit i le tan $$$$=$$ :@=
uld not dump residue in the lake.
e" process compared to that in the case of old process.&urther, the company should run #$traction %ep ses.
t run %istillation %epartment. &or availability of roots more than - gs. and less than '''' gs., t bility of roots is more than '''' gs.
roots that "ill reduce the breakeven 2uantity for running the %istillation %epartment to - gs of r
Alternative 1 COSTS
Produce Sani!ini Ol8 Pr,5e Ne? Pr,5e 1%%%% :@ 10000 1&000 2%%%% :@ &0000 &4000
Alternative 2 COSTS R= 1$%%%
e 6-r,. rei8.e int, rei8.e int, te laBe i n,t n= "ei8e it 5an attra5t in /.t.re= 8,nt ave an 5,i5e -.t r,8.5ti,n 8e4ite ,/ a l, ,/ ivini=
Dump into the la"e P,i-le evere 4enalt CSR
artment only if the
e best possible
ots instead of 33 gs
In5re0ental Anali /,r P.r5anin@ N ,-,.,A ,-2.M-. ,ncremental 3epreciation per year
#ncremental $ene%ts& P' ,ncremental pro#t %ue to saving in variale cost (2avings "s' 50000) ,ncremental %epreciation net of ta$ savings (&0000 6 10000) Net in5reae in PAT #ea5 ear /,r ne7t 6ve ear' Alternative 1
DO NOT DISPOSE OFF THE OLD MACHINE #:EEP IT AND DEPR
INCREMENTAL PAT 0 000 000 000 000 000
TOTAL
Alternative 2
In5re0ental O.tla In5re0ental De4re5iati,n 6100000 &0000 &0000 &0000 &0000 &0000 %
T,tal C,t "ene6t 6100000 &000 &000 &000 &000 &000 2>%%%
SELL THE OLD MACHINE SALE OF MACHINE
"ealisale mar7et value Current oo7 value oss on sale of mac8ine (28ort6term Capital oss) .a$ savings on 28ort6term Capital oss (Assuming su9cient pro#t is avaialale to ta7e
TOTAL
INCREMENTAL PAT 0 000 000 000 000 000
In5re0ental In5re0ental O.tla 5a ,? In5re0ental avin@ ,n ale De4re5iati,n ,/ 0a5ine 6100000 &000 &0000 6000 &0000 6000 &0000 6000 &0000 6000 &0000 6000 % %
T,tal C,t "ene6t 6:000 &0000 &0000 &0000 &0000 &0000 2>%%%
It 0a -e n,te8 tat in -,t te alternative te 6nal re.lt re0ain inta5t= -ene6t an8 a,5iate8 5,t= In 5ae ?e 5,ni8er ti0e val.e ,/ 0,ne te
5,ni8erin@ a44r,4riate 8i5,.nt /a5t,r #5,t ,/ 5a4ital'= Te ti0e val.e ,/ it.ati,n=
e? E.i40ent 100000 &0000
1000 10000 >%%%
CIATE IN NET >
ta$ ene#t of loss)
0 0000 0000 &000
Ti ,55.r a ?e ave i@n,re8 te ti0e 8ieren5e tat e7it -et?een te 8e5ii,n t, 8i4,e&, ,l8 0a5ine ?ill -e 4re/erre8= H,?ever it i i04,rtant t,
