Water was added to the mix to form a paste after which the mixture was transferred to mould fitted in a hydraulic/mechanical process. The bricks were later dried in the open for one or two days and then cured using water. A process outline for manufacturing fly ash bricks is given in exhibit 1: Fly Ash Lime Gypsum Sand Mixer Conveyor Brick Making Machine (press) Transportation Dry Curing V Wet Curing Drying Inspection Sorging Dispatch Exhibit 1 Market potential: The annual demand for clay bricks for construction purpose was estimated to be 180 billion tones that required almost 340 billion tones of clay annually. Production of clay bricks required clay that resulted in leeching the fertility of the land in the long run. With construction progressing at very fast pace, the government was keen to develop a regular supply of bricks without causing damage to the soil. The use of fly ash in such circumstances was a priority. The quality and durability of fly ash bricks were considered very suitable for application in various construction projects. A large quantity of fly ash was available as waste material from thermal power plants. The government was encouraging manufacturing of fly ash bricks, and various concessions were given to such manufacturing. Further, these bricks were factory-made by mixing the ingredients with water without consuming thermal energy. Manufacturers of construction materials had also begun to note the importance and application of fly ash bricks. They knew that with an increase in construction activities, there will be an equally rising demand for bricks. The housing sector was predicted to experience a shortage of 20 million to 70 million home units, which presented a ripe market for the use of cheap fly ash as a raw material in construction On the basis of such preliminary analysis, Radi AlShamsi decided to set up a plant that would have the capacity to manufacturing four million bricks. He presented the calculations for discussion Investment required: Radi AlShamsi said we require 8 million Dh as initial investment in fixed assets. Here, take a look at the costing. According to my estimate, the major expenses would be in transport vehicles and machinery. The building modifications will require approximately 1.40 million Dh. The water supply arrangements will be another minor expense (see exhibit 2 for estimated expenses) Estimated investment costs (in Dh) Building modifications Water supply arrangements Machinery Trucks Payload machine Total Exhibit 2 1,400,000 100,000 2,000,000 3,000,000 1,500,000 8,000,000 In addition to the above investments costs, I have estimated the working capital requirements, which are expected to be approximately 2 million Dh. Other routine expenses are estimated as in exhibit 3: Routine expenses per moth Building rent Dh 50,000 Administrative costs 10,000 Office supplies 5,000 Electricity (for lighting) 10,000 Miscellaneous 20,000 Total 95,000 Exhibit 3 By the way, there would be the other expenses related to the volume of production. These are essentially the raw materials, energy, and labor would be Dh 900,000 (See Exhibit 4) Expenses related to volume of production (for 0.20 million bricks) Fly ash Dh 250,000 Gypsum 250,000 Lime 300.000 Sand 40,000 Electricity 10,000 Labor 50,000 Total 900,000 Exhibit 4 Radi AlShamsi also estimated the manpower costs as in exhibit 5. In addition, Radi AlShamsi himself would work as a production manager, since hiring another person for the post would cost them Dh 50,000. Ali Jabr (the other partner) was puzzled and wanted to ascertain more clearly the feasibility of the project. They agreed to consult expert to evaluate their business plan. Personnel costs per month Workers Dh 100,000 Office assistant 20,000 Watchman 15,000 Drivers 25,000 Total 160,000 Exhibit 5 Final Decision: A detailed discussion followed the conversation. Although the proposed plant had the capacity to produce four million bricks per year, actual production would depend on market demand. Further, output would decline in case of any breakdowns of plant and equipment. Finally, the partners estimated that a sales volume of 2.4 million bricks could be sold per year at an average price of Dh 7,000 per 1000 bricks (1000 bricks is the unit of production). The initial investment would cost Dh 10 million, out of which Dh 6 million would be invested by partners from their own resources. A local bank had agreed to provide a loan for the balance (Dh 4 million) at an interest rate of 12% per year. Radi AlShamsi would work full time in the business and would draw a salary of Dh 50,000 per month. The life of the project was estimated to be five years. The salvage value of the plant and equipment at the end of the project life would be nothing (no scrap value). However, investment in the working capital would be recovered in full Discussion Questions: 1-Analyze various expenses into annual fixed cost, variable cost, and initial investment 2-Find the breakeven point 3. How many bricks need to be sold so as to earn a targeted income of Dh 2 million per year 4-What advice can be given to the owners