CASE DETAILS
GIVEN
AMIKO GARMENTS PVT. LTD.
(AMIKO), IS A GARMENT
MANUFACTURING UNIT.
MULTIPLE COSTS WERE INCURRED
IN ITS ESTABLISHMENT SUCH AS
MACHINERY, FURNITURE, WAGES
AND RENTED BUILDING
ON JUNE 25TH 2015, THE COMPANY
RECEIVED AN ADDITIONAL ORDER
FOR 18,000 DENIM JEANS PER WEEK
(WITH SCOPE OF REPEAT ORDERS IN
FUTURE)
HOWEVER, THE INSTALLED
1
CAPACITY OF AMIKO DOES NOT
TO FIND
SEGREGATION OF COSTS IN EXHIBIT
1 INTO FIXED AND VARIABLE COSTS
FROM EXHIBIT 2, DERIVE TOTAL
VARIABLE COST, MARGINAL COST,
AVERAGE FIXED COST, AVERAGE
VARIABLE COST, AVERAGE COST;
AND THEIR RELATIONSHIP
TO DECIDE
WHETHER THE ORDER SHOULD BE
ACCEPTED OR NOT
AMIKO’S BREAK EVEN POINT IN
VALUE AND VOLUME TERMS
FIXED VARIABLE COST
COST
Component Cost
Variable Cost Amount
Sewing machines 120000
Cutting machine 50000 Electricity 1000000
Finishing Machines 40000 Wages 2600000
Washing machines 300000 Logistics 1800000
Finishing machine 150000
Consumables 311000
Miscellaneous Costs
(furniture chair etc) 200000
Establishment 300000
   
Annual Maintenance
Costs 100000
Electricty 3000000
Rent 600000
Depreciation 289000
Salary 16200000
Interest on borrowed
capital 600000
Transportation of
Employee 500000
Employee welfare 1000000
EXHIBIT-2 SHORT RUN COST
ANALYSIS
Units of
Production TFC AFC TVC AVC TC ATC SMC Total revenue Profits
1 209 209.0 42.0 42.0 251.0 251.0 60 -191
2 209 104.5 97.0 48.5 306.0 153.0 55 120 -186
3 209 69.7 142.0 47.3 351.0 117.0 45 180 -171
4 209 52.3 176.0 44.0 385.0 96.3 34 240 -145
5 209 41.8 205.0 41.0 414.0 82.8 29 300 -114
6 209 34.8 232.0 38.7 441.0 73.5 27 360 -81
7 209 29.9 256.0 36.6 465.0 66.4 24 420 -45
8 209 26.1 279.0 34.9 488.0 61.0 23 480 -8
9 209 23.2 295.0 32.8 504.0 56.0 16 540 36
10 209 20.9 311.0 31.1 520.0 52.0 16 600 80
11 209 19.0 334.0 30.4 543.0 49.4 23 660 117
12 209 17.4 367.0 30.6 576.0 48.0 33 720 144
13 209 16.1 415.0 31.9 624.0 48.0 48 780 156
14 209 14.9 477.0 34.1 686.0 49.0 62 840 154
15 209 13.9 567.0 37.8 776.0 51.7 90 900 124
EXHIBIT-2 SHORT RUN COST ANALYSIS
Chart Title Chart Title
Units of Production TFC AVC ATC SMC
TVC TC
300.0
900
800 250.0

700
200.0
600
500 150.0
400
100.0
300
200
50.0
100

0 0.0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Chart Title
AVC SMC

100.0
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
SHOULD AMIT TAKE UP THE ADDITIONAL ORDER OF 3,000 DENIMS
PER DAY
In order to accommodate additional 3000 denims per day, the production of the factory must be increased.
Working for 3x Capacity in a day to increase production capacity.

Fixed Cost 1x Capacity 3x Capacity

Electricity 1000000 3000000
Rent 600000 600000
Depreciation 289000 867000
Salary 16200000 48600000
Transportation 500000 1500000
Interest on borrowed capital 600000 600000
AMC 200000 600000
Employee welfare 1000000 3000000
Misc 200000 200000
Establishments 300000 300000
Total 20889000 59267000
SHORT RUN ANALYIS FOR 3X CAPACITY
Units of Total
Production TFC AFC TVC AVC TC ATC SMC revenue Profit
1 592 592.0 42.0 42.0 634.0 634.0 60 -574
2 592 296.0 97.0 48.5 689.0 344.5 55 120 -569
3 592 197.3 142.0 47.3 734.0 244.7 45 180 -554
4 592 148.0 176.0 44.0 768.0 192.0 34 240 -528
5 592 118.4 205.0 41.0 797.0 159.4 29 300 -497
6 592 98.7 232.0 38.7 824.0 137.3 27 360 -464
7 592 84.6 256.0 36.6 848.0 121.1 24 420 -428
8 592 74.0 279.0 34.9 871.0 108.9 23 480 -391
9 592 65.8 295.0 32.8 887.0 98.6 16 540 -347
10 592 59.2 311.0 31.1 903.0 90.3 16 600 -303
11 592 53.8 334.0 30.4 926.0 84.2 23 660 -266
12 592 49.3 367.0 30.6 959.0 79.9 33 720 -239
13 592 45.5 415.0 31.9 1007.0 77.5 48 780 -227
14 592 42.3 477.0 34.1 1069.0 76.4 62 840 -229
15 592 39.5 567.0 37.8 1159.0 77.3 90 900 -259
 Units of
Production ATC 1x Capacity ATC 3x Capacity
Chart Title
1 251 634
ATC 1 Shift ATC 3 shifts
2 153 344.5
700
3 117 244.67
600
4 96.25 192
500
5 82.8 159.4
400
6 73.5 137.33
300
7 66.43 121.14
8 61 108.88 200

9 56 98.56 100

10 52 90.3 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
11 49.4 84.18
12 48 79.92
13 48 77.46
14 49 76.36
15 51.73 77.27

Decision:
 BREAK-EVEN
Units of Total ANALYSIS
Total Profit
From the Table we can observe that Profit is realized
Production Cost revenue when the quantity produced is between 80,000 and
90,000 units per year.
1 251 60 -191
2 306 120 -186 Assuming a linear trend, calculating the exact units of
3 351 180 -171 production for Break-even point
4 385 240 -145
80,000 + 8 x 10,000/ (36+8)
5 414 300 -114 =81,818.18 units
6 441 360 -81
7 465 420 -45 Corresponding Total Cost = 490 Lakh approx
8 488 480 -8 Chart Title
9 504 540 36 1000
900
10 520 600 80 800
700
11 543 660 117 600
500
12 576 720 144 400
300
13 624 780 156 200
100
14 686 840 154 0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
15 776 900 124 Units of Production Total Cost Total revenue
THANK YOU