Work Group Members: - WG – AD1

21F514 MR. ANURAG PANDEY

21F523 MR. DURGA SAI TEJA KOKA
21F528 MS. ISHWIN KAUR
21F560 MS. VIDUSHI CHAPLOT
21F561 MR. VINAY KUMAR AKHILESH PANDEY

SMA-3
Marketing Mix that spells Arokya
Arokya Milk procures 10 lakh kgs of milk per day. At 11% solids this translates to 110 tons of milk solids. The procurement cost was Rs.20 per kg of milk
solids.

The milk solids when converted to milk products would yield 40 tons of Ghee and 70 tons of Skimmed milk powder.

Product Mix Options

Option: 1

Arokya can sell 100 tons of milk solids liquid milk (with 3% fat and 7% Solid non-fat) milk solids and
balance 10 tons fat as ghee

Option 2: Sell 40 tons Ghee and 70 tons SMP

Option 3: Sell 88 tons of milk solids as flavoured milk (1% fat and 7% SNF) and balance 22 tons as
ghee

Option 4: Create several combinations of selling all the products

The constraint in terms of what maximum they can sell of any product needs to be factored. The
table below gives the processing and marketing costs and the MRP for each product
 Quantity, Cost and price data
Product Processing Channel Promotional MRP (Rs. Working capital Maximum
plus margin cost per month per Kg cost plus returns Quantity that
packaging distributor Rs. lakhs of solid) % on MRP can be sold per
plus (% of MRP) (irrespective of day (Tons)
transportati sale quantity)
on
Rs. per kg of
solid
Liquid Milk 20 5 1 350 0 70
Ghee 50 15 25 400 5% 40
Skimmed 40 15 50 300 3% 70
Milk Powder
Flavored Milk 30 25 50 600 10% 60

If no sale is planned of a product, there is no requirement to spend on promotion

1. What is the Contribution per unit for each product?

Processing Working Working
Promotional Cost
plus capital capital Unit
cost per of Milk Variable Distributo Contribution
MRP packaging cost cost Revenu
month per Solid Cost r Margin Margin
Product plus plus plus e
(Fixed Cost) per kg
transportation returns returns
Rs. Per % on Rs. Per Rs per Rs. Per Rs. Per
kg Rs per day Rs. Per kg MRP kg kg kg % kg Rs. Per kg
₹
Liquid Milk
₹ 350 ₹ 3,333.33 ₹ 20 0% ₹ 0 181.82 ₹ 202 5% ₹ 333 ₹ 131
Ghee ₹ 400 ₹ 83,333.33 ₹ 50 5% ₹ 20 ₹ 7.27 ₹ 77 15% ₹ 340 ₹ 263
Skimmed Milk ₹ ₹
Powder ₹ 300 1,66,666.67 ₹ 40 3% ₹9 12.73 ₹ 62 15% ₹ 255 ₹ 193
₹ ₹
Flavored Milk
₹ 600 1,66,666.67 ₹ 30 10% ₹ 60 181.82 ₹ 272 25% ₹ 450 ₹ 178
 2. Determine the optimum product mix for maximize contribution in the short-term?

Units of Product being sold Fixed Cost Variable Cost Revenue Profit
Skimme
Option Liquid Flavoured
Ghee d Milk
Milk Milk
Powder
3636.363 ₹ ₹ ₹
Option 1
100000 6     86,666.67 2,04,62,810 3,64,54,545 ₹ 1,59,05,069
₹
Option 2 14545.45 44585.9 2,50,000.0 ₹
  5 9   0 ₹ 38,76,138 1,91,93,978 ₹ 1,50,67,840
₹
Option 3 2,50,000.0 ₹ ₹
  8000   90000 0 2,50,81,818 5,72,00,000 ₹ 3,18,68,182
₹
Option 4 4,16,666.6 ₹ ₹
  40000 70000 50868.55 7 2,12,38,817 6,75,21,135 ₹ 4,58,65,651

We can see that the fourth option is the best solution.

3. What is the net profit for the optimum product mix you derived?
The net profit for optimum mix is ₹ 4,58,65,651

4. How will the product mix decision change if liquid milk MRP drops to Rs.200 per Kg of milk solids?

There will be no change as the optimum mix does not include liquid milk.