Instructions

Read the following caselet and choose the best alternative

 The BIG and Colourful Company

You are running "BIG and Colourful (BnC)" company that sells books to customers through three retail formats:

a. You can buy books from bookstores,
b. You can buy books from supermarket,
c. You can order books over the Internet (Online).

Your manager has an interesting way of classifying expenses: some of the expenses are classified in terms of size: Big, Small and Medium; and others are classified in terms of the colors, Red, Yellow, Green and Violet. The company has a history of categorizing overall costs into initial costs and additional costs. Additional costs are equal to the sum of Big, Small and Medium expenses. There are two types of margins, contribution (sales minus initial costs) and profit (contribution minus additional costs). Given below is the data about sales and costs of BnC:

Each of the Big, Small and Medium cost is categorized by the manager into Red, Yellow, Green and Violet costs. Breakdown of the additional costs under these headings is shown in the table below:


Red, Yellow, Green and Violet costs are allocated to different retail formats. These costs are apportioned in the ratio of number of units consumed by each retail format. The number of units consumed by each retail format is given in the table below:


Question 46

Which retail format is least profit making for BnC?

Solution

Sales from online = 50% of total sales = 50% of 60000 = 30000

The ratio of supermarket sales and book store sales is 1:2

Supermarket sales = (30000*1)/3 = 10000

Bookstore sales = (30000*2)/3 = 20000

Initial costs for online = 50% of total initial costs                              (Initial cost is allocated in ratio of sales)

                                  = 50% of 39000 = 19500

Initial costs for supermarket =  (19500*1)/3 = 6500                                                    (Initial cost is allocated in ratio of sales)

Initial costs for bookstore = (19500*2)/3 = 13000

For online:

Additional costs = Red + Yellow + Green + Violet               for online)     ....(1)

Total red costs = 5500

Red costs for online = 5500*(200/275) = 4000

Similarly,

Yellow costs for online = 3100*(52/100) =  1612

Green costs for online = 4800*(50/80) = 3000

Violets costs for online = 2400*(50/80) = 1500

Addition costs for online = 4000+1612+3000+1500 = 10112                    From (1)

Profit = Sales - Initial costs - Additional costs = 30000-19500- 10112 = 388

For Supermarket:

Additional costs = Red + Yellow + Green + Violet

                         = 5500*(65/275) + 3100*(20/100) +4800*(21/80)+2400*(21/80) = 3810

Profit = 10000-6500- 3810

         = -310

For Bookstore:

Additional costs = Red + Yellow + Green + Violet

                        = 5500*(10/275) + 3100*(30/100) +4800*(9/80)+2400*(9/80)

Profit = 20000-13000-1940 = 5060

Supermarket is making least profit for BnC.


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