Use Table 1 to calculate the profit per meter if Amir decides to get the amount of the cloth shown in Table 2 manufactured instead of buying it from suppliers. . How would Amir go about making this decision based on a differential/incremental profit basis? . What other financial and nonfinancial considerations should Amir consider in making this decision? . What course of action would you recommend?
TABLE 1: 2018 FINANCIAL PERFORMANCE OF STAR TEXTILES, GROUPED BY QUALITIES OF CLOTH SOLD Thread count (Colors) Sales (meters) Price (INR) Sales (INR) Purchased Total 70x60 76x64 80x72 76x64 80x80 (light) (light) (light) (dark) (dark) 540,000 460,000 280,000 210,000 230,000 1,720,000 86 102 120 115 132 46,440,000 46,920,000 33,600,000 24,150,000 30,360,000 181,470,000 Cost of Sales Allocation Basis Purchase price Cut piece* Meters Packaging Actual Freight in Actual Total Cost of Sales 42,120,000 41,860,000 29,680,000 21,420,000 26,450,000 161,530,000 1,026,000 874,000 532,000 399,000 437,000 3,268,000 540,000 460,000 280,000 210,000 230,000 1,720,000 520,000 430,000 260,000 202,000 220,000 1,632,000 44,206,000 43,624,000 30,752,000 22,231,000 27,337,000 168,150,000 2,234,000 3,296,000 2,848,000 1,919,000 3,023,000 13,320,000 Gross Profit Administrative Expenses Salaries Meters Rent Meters Sampling Actual Electricity Meters Telephone Meters Debt recovery Meters Maintenance Meters Porter Meters Miscellaneous Meters Total Administrative Expenses Net Profit 769,186 655,233 298,256 254,070 30,000 25,000 122,442 104,302 91,047 77,558 97,953 83,442 28,884 24,605 106,744 90,930 34,535 29,419 1,579,047 1,344,559 654,953 1,951,441 398,837 299,128 327,616 154,651 115,988 127,035 15,000 10,000 20,000 63,488 47,616 52,151 47,209 35,407 38,779 50,791 38,093 41,721 14,977 11,233 12,302 55,349 41,512 45,465 17,907 13,430 14,709 818,209 612,407 679,778 2,029,791 1,306,593 2,343,222 2,450,000 950,000 100,000 389,999 290,000 312,000 92,001 340,000 110,000 5,034,000 8,286,000 4.24 7.25 10.19 Profit per Meter 1.21 6.22 Note: Some numbers might not add exactly due to rounding. *Cut piece is the cost of odd-length cloth that needs to be disposed of because retailers wouldn't buy it. TABLE 1: 2018 FINANCIAL PERFORMANCE OF STAR TEXTILES, GROUPED BY QUALITIES OF CLOTH SOLD Thread count (Colors) Sales (meters) Price (INR) Sales (INR) Purchased Total 70x60 76x64 80x72 76x64 80x80 (light) (light) (light) (dark) (dark) 540,000 460,000 280,000 210,000 230,000 1,720,000 86 102 120 115 132 46,440,000 46,920,000 33,600,000 24,150,000 30,360,000 181,470,000 Cost of Sales Allocation Basis Purchase price Cut piece* Meters Packaging Actual Freight in Actual Total Cost of Sales 42,120,000 41,860,000 29,680,000 21,420,000 26,450,000 161,530,000 1,026,000 874,000 532,000 399,000 437,000 3,268,000 540,000 460,000 280,000 210,000 230,000 1,720,000 520,000 430,000 260,000 202,000 220,000 1,632,000 44,206,000 43,624,000 30,752,000 22,231,000 27,337,000 168,150,000 2,234,000 3,296,000 2,848,000 1,919,000 3,023,000 13,320,000 Gross Profit Administrative Expenses Salaries Meters Rent Meters Sampling Actual Electricity Meters Telephone Meters Debt recovery Meters Maintenance Meters Porter Meters Miscellaneous Meters Total Administrative Expenses Net Profit 769,186 655,233 298,256 254,070 30,000 25,000 122,442 104,302 91,047 77,558 97,953 83,442 28,884 24,605 106,744 90,930 34,535 29,419 1,579,047 1,344,559 654,953 1,951,441 398,837 299,128 327,616 154,651 115,988 127,035 15,000 10,000 20,000 63,488 47,616 52,151 47,209 35,407 38,779 50,791 38,093 41,721 14,977 11,233 12,302 55,349 41,512 45,465 17,907 13,430 14,709 818,209 612,407 679,778 2,029,791 1,306,593 2,343,222 2,450,000 950,000 100,000 389,999 290,000 312,000 92,001 340,000 110,000 5,034,000 8,286,000 4.24 7.25 10.19 Profit per Meter 1.21 6.22 Note: Some numbers might not add exactly due to rounding. *Cut piece is the cost of odd-length cloth that needs to be disposed of because retailers wouldn't buy it
