Dhoni’s Sports Bar

Virat has just become product manager for Dhoni’s Sports Bar. (DSB)
§  DSB sold cricket bats (CB) at Rs.1200 thru distributors and specialty retailers. Ret
These margins are mark-up and calculated on their purchase price
§  DSB has only its (CB) in its product range but will soon launch more products
§  DSB and its direct competitors sell a total of 2 million (CB) annually; DSB has 24%
§  Variable manufacturing costs for DSB’s (CB) are Rs.400 /bat.
§  Investment in manufacturing facility is Rs.900,000.
§  The advertising budget for all DSB (CB) is Rs.50 lakhs and 40% of this expense is
with the intent that sooner or later more products would be launched

§  Virat’s Salary is Rs.12 lakhs per annum.

§  All the sales executives work on commission basis at 10% of revenue calculated o
§  Opex for office, warehouse, insurance and non-sales staff was Rs.1.5 lakhs per m

1.    What is the unit contribution for DSB (CB)?

2.    What is DSB CBs break-even point?
3.    What market share does DSB CB need to break even?
4.    What is DSB CB’s profit?

5.    Industry demand is expected to increase to 3 million units next year.

a.      Virat is considering raising his advertising budget to Rs.10 million and th

·     If the advertising budget is raised, how many units will DSB CB

·         How many units will DSB CB have to sell in order to achieve th

·         What will DSB CB market share have to be next year for its pro

6.    Upon reflection, Virat decides not to increase advertising budget. Instead, he

·         If retailer margins are raised to 40% next year, how many units

·         How many units will DSB CB have to sell to achieve the same p

·         What would DSB CB’s market share have to be for its profit to

·         What would DSB CB market share have to be for it to generate

d specialty retailers. Retail margins on the product are 33%, while distributors earn 12% margin.

nch more products

) annually; DSB has 24% of this market.

40% of this expense is specific to promote (CB) and rest is to promote DSB company
e launched

of revenue calculated on MRP basis

was Rs.1.5 lakhs per month

units next year.

et to Rs.10 million and the entire amount is increased for CB advertisement

w many units will DSB CB have to sell to break even?

ell in order to achieve the same profit that it did this year?

o be next year for its profit to be the same as this year?

sing budget. Instead, he thinks he might give retailers an incentive to promote DSB CB by raising their margins from 33% to

ext year, how many units will DSB CB have to sell to break even?

ell to achieve the same profit next year as it did this year?

ve to be for its profit to remain at this year's level?

e to be for it to generate additional profit impact of Rs.350, 000?

ir margins from 33% to 40%. The margin increase would be accomplished by lowering the price of the product to retailers.
he product to retailers. Distributor margin would remain at 12%.
 Basic Data for
Variable Cost per Bat ( Rs.) 400

Total Bat Sales ( units) 2000000

Dhoni Market share 24%
Dhoni Bat sales ( Units) 480000

Capex ( Rs.) 900000

Total Advertising ( Rs.) 5000000

40% of advertising towards cricket Bat ( Rs.) 2000000

Commission at 10% applied on price to Distributor 80.56

Total VC 480.56

Salary To Virat ( Rs.) 1200000

Fixed Cost ( salary + Advertising) 3200000

Analysis and answers to q

1 Unit Contribution = (Price per unit-Variable cost per unit) 325.03

2 Break Even for fixed cost recovery (Fixed/contribution margin per unit) 9845

3 Market share for BE quantity for fixed cost recovery (BE vol/total vol) 0.49%
BE for capex and Fixed cost recovery (Fixed+capex)/contribution) 12614
Market share for BE quantity for fixed cost recovery 0.63%
4 DSB's profit ( annual) (Total contribution-Fixed cost) 152812889
15.2 cr

Profit= Total Revenue-Total Cost= (qty*contri

Total Revenue= Quantity sold(units) * price p
Total cost= Fixed cost + Variable cost
Variable cost= variable cost per unit * quantit

Break even volume= Fixed/contribution marg

Total cost= Fixed cost + Variable cost
Variable cost= variable cost per unit * quantit

Break even volume= Fixed/contribution marg

Contribution margin=Price per unit-Variable c
 Basic Data for DSB
Rs.
MRP of DSB (Bat) 1200
Retail Margin % 33%
Retail Margin ( Rs.) 297.7
Price to Retail 902.3
Distributor Margin % 12%
Distributor Margin ( Rs. 96.7
Company Price to Distributor 805.6

Next year
Advertising budget 6000000
Advertising budget for CB (20+10 million) 3000000

Salary To Virat ( Rs.) 1200000

Fixed Cost ( salary + Advertising) 4200000

Analysis and answers to questions

Next Year
Industry Demand increased to 3000000
Advertising is raised to Rs.10 million and assume entire incremental is
for cricket bat 3000000
Break Even for fixed cost recovery 12922.0
Sales Required for same profit as last year (profit=qty*contri-TC) 457232.7
Required Market share (qty/total market 15%

qty*contribution-total cost)
s) * price per unit
st
it * quantity produced

ution margin per unit

st
it * quantity produced

ution margin per unit

t-Variable cost per unit
 Rs.
MRP of DSB (Bat) 1200
Retail Margin % 40%
Retail Margin ( Rs.) 342.9
Price to Retail 857.1
Distributor Margin % 12%
Distributor Margin ( Rs. 91.8
Company Price to Distributor 765.3 price

Variable Cost per Bat ( Rs.) 400

Commission at 10% applied on price to Distributor 76.53
Total VC 476.53

RM at 40%
Unit Contribution (Price per unit-Variable cost per unit) 288.78

BE for fixed cost recovery 11081.2721

Profit in preceding year 152812889
BE for profit recovery 529175.377
MS for same profit 17.6%
•Variable costs vary based on the amount of output produced. 
•Variable costs may include labor, commissions, and raw materi

•Fixed costs remain the same regardless of production o

•Fixed costs remain constant for a specific period.
•These costs are often time-related, such as the lease, monthly s
 output produced. 
ons, and raw materials. 

s of production output. 

he lease, monthly salaries, insurance, interest payment etc.