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Agenda

Loss of 3500 Crores

Case Analysis

Viability/Pricing of Qatar Market

Marketing Strategies

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Loss of 3500 Crore

Units Sold 5,00,000 cars

Sale Price Rs. 5,00,000 / car

Total Sale Revenue Rs. 25,000 cr

Variable Cost Rs. 2,00,000 / car

Total Variable Cost Rs. 10,000 cr

Fixed Cost Rs. 16000 cr

Selling & Admin Cost Rs. 2500 cr

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Loss of 3500 Crore

Value (in Rs.) (in Crore)

Total Sales Revenue 25000

LESS: Variable Cost 10000

Contribution 15000

LESS: Fixed Cost 16000

Profit (1000)

LESS: Selling & Distribution Cost 2500

Total Profit (3500)

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Director Production - Suggestion

Unit Produced 10,00,000 cars

Units Sold 5,00,000 cars

Units kept for other markets 5,00,000 cars

Sale Price Rs. 5,00,000 / car

Total Sale Revenue Rs. 25,000 cr

Variable Cost Rs. 2,00,000 / car

Total Variable Cost Rs. 10,000 cr

Fixed Cost Rs. 16000 cr

Selling & Admin Cost Rs. 2500 cr

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Director Production - Suggestion

(For 5.00.000 sold cars) Value (in Rs.) (in Crore)

Total Sales Revenue 25000

LESS: Variable Cost 10000

Contribution 15000

LESS: Fixed Cost 8000Profit 7000

LESS: Selling & Distribution Cost 2500

Total Profit 4500

Inventory Valuation (at VariableCost of Rs. 2,00,000 / unit X

5,00,000 inv)

10000

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Director Production - Suggestion

We do not agree with this allocating half of the

Manufacturing (Fixed) to Inventory

Reason - as per the variable / marginal costing

method the fixed cost can not be divide unit wise

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Qatar Market

Unit Produced 10,00,000 cars

Units Sold 10,00,000 cars

Sale Price 5,00,000 / car

Total Sale Revenue Rs. 50,000 cr

Variable Cost Rs. 2,00,000 / car

Total Variable Cost Rs. 20,000 cr

Fixed Cost Rs. 16000 cr

Selling & Admin Cost Rs. 2500 cr

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Qatar Market

(For 5,00,000 cars sold in Qatar) Value (in Rs.) (in Crore)

Total Sales Revenue 50000

LESS: Variable Cost 20000

Contribution 30000

LESS: Fixed Cost 16000

Profit 14000

LESS: Selling & Distribution Cost 2500

Total Profit 11500

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Break Even

Value (in Rs.) (in Crore)

Fixed Cost 16000

Selling & Distribution Cost 2500

Total Fixed Cost 18500

Contribution Per Unit 0.03

Break Even Units 616667 Units

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Qatar MarketMinimum Price

Break Even 616667 Units

Units Produces 1000000 Units

Units Sold in Local market 500000 Units

We can spread the loss of 3500 cr

over 5,00,000 Units that can besold in Qatar (CM)

(3500 cr / 5,00,000) = Rs. 70,000

Hence the rock bottom price that

can be charged in Qatar market is

70,000 + VC / car i.e 2,00,000

Rs. 2,70,000

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Marketing Strategy

3 years / 1,00,000 KM free service

So total free services would be 20

Cost for per service / per 5000 KM Rs. 2000

Total cost for servicing Rs (20 X 2000) Rs. 40000

We assume that this cost include

Purchase and Procurement of Spare parts

Cost of Labour

Servicing Over Head

So we will increase the price even if by Rs 50,000 we will

still profit ofRs.10,000

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Marketing Strategy - Benefits

Customer will feel this as a intangible benefit

The one time cost which we are charging from the

customer would be spread over 3 years period or 1

Lakh KM

We assume that all the customer would not be

running a car upto 1 lakh KM in 3 years So

company would be saving the cost charged already

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