Case 17-2

Lipman Bottle Company

1)
Market: Albany
Bottle Size
Order Size
Avg. Order Size
Set-up Time
Hours/1,000 bottles
Operating Time/1,000 bottles
Total Time/1,000 bottles
Operating Cost/1,000 bottles
Cost/1,000 Passes
Direct Cost to Manufacturer
Scrap Cost/1,000 Bottles
Shipping Cost/1,000 Bottles
Total Direct Cost/1,000 bottles

Market: Albany
Bottle Size
Order Size
Avg. Order Size
Set-up Time
Hours/1,000 bottles
Operating Time/1,000 bottles
Total Time/1,000 bottles
Operating Cost/1,000 bottles
Cost/1,000 Passes
Direct Cost to Manufacturer
Scrap Cost/1,000 Bottles
Shipping Cost/1,000 Bottles
Total Direct Cost/1,000 bottles

Market: New York - New Jersey

Bottle Size
Order Size
Avg. Order Size
Set-up Time
Hours/1,000 bottles
Operating Time/1,000 bottles
Total Time/1,000 bottles
Operating Cost/1,000 bottles
Cost/1,000 Passes
Direct Cost to Manufacturer

One Seperation:
Round
0-1
5,000-9,999
7,500
2
0.27
1
1.27
18.53
2.63
21.16
1.4

UoM
oz
Nos
Nos
Hrs
Hrs
Hrs
Hrs
$
$
$
$
$
$

22.56

One Seperation:
Round
17-32
5,000-9,999
7,500
2
0.27
1
1.27
18.53
2.63
21.16
2.9

UoM
oz
Nos
Nos
Hrs
Hrs
Hrs
Hrs
$
$
$
$
$
$

UoM
oz
Nos
Nos
Hrs
Hrs
Hrs
Hrs
$
$
$

24.06

One Seperation:
Round
0-1
5,000-9,999
7,500
2
0.27
1
1.27
18.53
2.63
21.16

Scrap Cost/1,000 Bottles

Scrap Cost/1,000 Bottles
Shipping Cost/1,000 Bottles

Market: New York - New Jersey

Bottle Size
Order Size
Avg. Order Size
Set-up Time
Hours/1,000 bottles
Operating Time/1,000 bottles
Total Time/1,000 bottles
Operating Cost/1,000 bottles
Cost/1,000 Passes
Direct Cost to Manufacturer
Scrap Cost/1,000 Bottles
Scrap Cost/1,000 Bottles
Shipping Cost/1,000 Bottles

$
$
$

UoM
oz
Nos
Nos
Hrs
Hrs
Hrs
Hrs
$
$
$
$
$
$

1.06
22.22

One Seperation:
Round
17-32
5,000-9,999
7,500
2
0.27
1
1.27
18.53
2.63
21.16
26.19
47.35

Two Seperation:
Round
0-1
5,000-9,999
7,500
4
0.53
2.4
2.93
42.92
5.26
48.18
3.3
-

Two Seperation:
Oval
0-1
5,000-9,999
7,500
4
0.53
1.76
2.29
33.55
5.26
38.81
3.3
-

51.48

42.11

Two Seperation:
Round
17-32
5,000-9,999
7,500
4
0.53
2.4
2.93
42.92
5.26
48.18
6.3

Two Seperation:
Oval
17-32
5,000-9,999
7,500
4
0.53
1.76
2.29
33.55
5.26
38.81
6.3

54.48

45.11

Two Seperation:
Round
0-1
5,000-9,999
7,500
4
0.53
2.4
2.93
42.92
5.26
48.18

Two Seperation:
Oval
0-1
5,000-9,999
7,500
4
0.53
1.76
2.29
33.55
5.26
38.81

Market: Albany
Bottle Size
Order Size
Avg. Order Size
Set-up Time
Hours/1,000 bottles
Operating Time/1,000 bottles
Total Time/1,000 bottles
Operating Cost/1,000 bottles
Cost/1,000 Passes
Direct Cost to Manufacturer
Scrap Cost/1,000 Bottles
Shipping Cost/1,000 Bottles
Total Direct Cost/1,000 bottles

Market: Albany
Bottle Size
Order Size
Avg. Order Size
Set-up Time
Hours/1,000 bottles
Operating Time/1,000 bottles
Total Time/1,000 bottles
Operating Cost/1,000 bottles
Cost/1,000 Passes
Direct Cost to Manufacturer
Scrap Cost/1,000 Bottles
Shipping Cost/1,000 Bottles
Total Direct Cost/1,000 bottles

Market: New York - New Jersey

Bottle Size
Order Size
Avg. Order Size
Set-up Time
Hours/1,000 bottles
Operating Time/1,000 bottles
Total Time/1,000 bottles
Operating Cost/1,000 bottles
Cost/1,000 Passes
Direct Cost to Manufacturer

1.06
49.24

1.06
39.87

Two Seperation:
Round
17-32
5,000-9,999
7,500
4
0.53
2.4
2.93
42.92
5.26
48.18
26.19
74.37

Two Seperation:
Oval
17-32
5,000-9,999
7,500
4
0.53
1.76
2.29
33.55
5.26
38.81
26.19
65.00

Scrap Cost/1,000 Bottles

Scrap Cost/1,000 Bottles
Shipping Cost/1,000 Bottles

Market: New York - New Jersey

Bottle Size
Order Size
Avg. Order Size
Set-up Time
Hours/1,000 bottles
Operating Time/1,000 bottles
Total Time/1,000 bottles
Operating Cost/1,000 bottles
Cost/1,000 Passes
Direct Cost to Manufacturer
Scrap Cost/1,000 Bottles
Scrap Cost/1,000 Bottles
Shipping Cost/1,000 Bottles

UoM
oz
Nos
Nos
Hrs
Hrs
Hrs
Hrs
$
$
$
$
$
$

UoM
oz
Nos
Nos
Hrs
Hrs
Hrs
Hrs
$
$
$
$
$
$

UoM
oz
Nos
Nos
Hrs
Hrs
Hrs
Hrs
$
$
$

One Seperation:
Two Seperation:
Two Seperation:
Round
Round
Oval
0-1
0-1
0-1
100,000-249,999
100,000-249,999
100,000-249,999
175,000
175,000
175,000
2
4
4
0.01
0.02
0.02
1
2.4
1.76
1.01
2.42
1.78
14.80
35.45
26.08
2.63
5.26
5.26
17.43
40.71
31.34
1.4
3.3
3.3
18.83
44.01
34.64

One Seperation:
Two Seperation:
Two Seperation:
Round
Round
Oval
17-32
17-32
17-32
100,000-249,999
100,000-249,999
100,000-249,999
175,000
175,000
175,000
2
4
4
0.01
0.02
0.02
1
2.4
1.76
1.01
2.42
1.78
14.80
35.45
26.08
2.63
5.26
5.26
17.43
40.71
31.34
2.9
6.3
6.3
20.33
47.01
37.64

One Seperation:
Two Seperation:
Round
Round
0-1
0-1
100,000-249,999
100,000-249,999
175,000
175,000
2
4
0.01
0.02
1
2.4
1.01
2.42
14.80
35.45
2.63
5.26
17.43
40.71

Two Seperation:
Oval
0-1
100,000-249,999
175,000
4
0.02
1.76
1.78
26.08
5.26
31.34

$
$
$

UoM
oz
Nos
Nos
Hrs
Hrs
Hrs
Hrs
$
$
$
$
$
$

1.06
18.49

1.06
41.77

1.06
32.40

One Seperation:
Two Seperation:
Round
Round
17-32
17-32
100,000-249,999
100,000-249,999
175,000
175,000
2
4
0.01
0.02
1
2.4
1.01
2.42
14.80
35.45
2.63
5.26
17.43
40.71
26.19
26.19
43.62
66.90

Two Seperation:
Oval
17-32
100,000-249,999
175,000
4
0.02
1.76
1.78
26.08
5.26
31.34
26.19
57.53

Variable Cost per machine hour (in $)

Cost per thousand passes (in $)
Set-up time per Seperation (in Hrs)

14.63
2.63
2

Case 17-2
2)

Lipman Bottle Company

Particulars

UoM

Total Fixed Cost

Total machine hours

Hrs

Fixed Cost/Machine Hour

$/Hrs

Profit Margin

Bottle Size:
oz
Order Size: 5,0009,999
Bottle Size:
32 oz
Bottle Size:
oz
Order Size:
100,000-249,999 Bottle Size:
32 oz

16,000
6.684
30%

One Round

Two Round

Two Oval

22.56

51.48

42.11

24.06

54.48

45.11

18.83

44.01

34.64

20.33

47.01

37.64

0-1
170-1
17-

Profit Margin: New YorkNew Jersey

Bottle Size:
oz
Order Size: 5,0009,999
Bottle Size:
32 oz
Bottle Size:
oz
Order Size:
100,000-249,999 Bottle Size:
32 oz

106,944

Direct Cost/1,000 Bottles (in $)

Pricing List for Albany

3)

Amount

Direct Cost/1,000 Bottles (in $)

One Round

Two Round

Two Oval

22.22

49.24

39.87

47.35

74.37

65.00

18.49

41.77

32.40

43.62

66.90

57.53

0-1
170-1
17-

From the above table it can be seen that though the profit margin is higher for larger bo
Though the gross margin of profit is higher for two seperation round>two seperation ova
The profit margin computed over each machine hours is higers for one seperation round
Hence, Lipman should consider selling bottle sizes of 17-32 oz and one seperation round

Machine Hours/1,000 Bottles (in Hrs)

Break Even Cost/1,000 Bottles (in $)

One Round

Two Round

Two Oval

One Round

Two Round

Two Oval

1.27

2.93

2.29

31.03

71.08

57.44

1.27

2.93

2.29

32.53

74.08

60.44

1.01

2.42

1.78

25.59

60.20

46.56

1.01

2.42

1.78

27.09

63.20

49.56

Machine Hours/1,000 Bottles (in Hrs)

Break Even Cost/1,000 Bottles (in $)

One Round

Two Round

Two Oval

One Round

Two Round

Two Oval

1.27

2.93

2.29

30.69

68.84

55.20

1.27

2.93

2.29

55.82

93.97

80.33

1.01

2.42

1.78

25.25

57.96

44.32

1.01

2.42

1.78

50.38

83.09

69.45

gin is higher for larger bottle sizes and larger order sizes.
ound>two seperation oval>one seperation round for each unit.
for one seperation round>two seperation oval>two seperation round
and one seperation round in New York and New Jersey.

Selling Price/1,000 Bottles (in $)

One Round

Two Round

Two Oval

44.33

101.55

82.06

46.47

105.83

86.34

36.55

86.00

66.51

38.70

90.29

70.80

Gross Margin/1,000 Bottles (in $)

Gross Margin/Machine Hours (in $)

One Round

Two Round

Two Oval One Round Two Round Two Oval

13.15

29.50

23.66

10.38

10.06

10.32

23.92

40.27

34.43

18.89

13.73

15.01

10.82

24.84

18.99

10.70

10.25

10.65

21.59

35.61

29.76

21.35

14.70

16.69

International Software Solution

1)
Resource Plan
Resource Location
Client Premises
Offshore
Client Premises
Offshore
Client Premises
Offshore
Client Premises
Offshore
Client Premises
Offshore
Total FTE months

Band
E
E
D
D
C
C
B
B
A
A
4248.6

Hourly Labour Rate (in Rs.)

Resource Allocation
Band
Client Premises
E
Offshore
E
Client Premises
D
Offshore
D
Client Premises
C
Offshore
C
Client Premises
B
Offshore
B
Client Premises
A
Offshore
A

FY1
97.6
33
56.5
59
143.8
54.9
13.4
344.7
35
85.4
923.3

FY2
50.2
34.5
44.5
48.5
150.4
46.8
17.3
447
0
113.3
952.5

FY1
1621.5
1347.8
1213.3
1006.3
968.3
798.1
752.1
580.8
558.9
422.1

FY2
1694.5
1419.2
1267.8
1059.6
1011.9
840.4
785.9
611.5
584.1
444.4

2)
Spilt Labour Hours (in Hrs.)
Location
FY1
Client Premises
55,408
Offshore
103,860
Total
159,268

FY2
41,984
124,218
166,202

FY3
48,720
128,520
177,240

Infrastructure expenses will be incurred for the offshore resources by ISS.

Hence, it is a variable cost, divided yearly based on the labour hours at offshore.
Travel expenses will be incurred for off shore resources to travel to client premises.
Hence, it is a varibale cost, and will be divided yearly based on the total labour hours at Offs
Other Expenses are to be treated as fixed cost and would be divided equally through the yea

3)

Full Cost of Project (in Rs.)

Total

FY1

FY2

Labour Costs
Project Specific Costs
Total Full Costs

625,808,801 132,415,065 132,570,146

5,025,294
958,895
1,133,164
###
###
###

Profit Margin

69,165,905

4)
Labour Cost (in Rs.) for Nearshore Model
Resource Location
Band
FY1
Client Premises
E
25,321,344
Offshore
E
9,206,822
Client Premises
D
10,968,232
Offshore
D
12,289,942
Client Premises
C
22,278,646
Offshore
C
9,069,848
Client Premises
B
1,612,502
Offshore
B
41,441,764
Client Premises
A
3,129,840
Offshore
A
7,461,799
Total Labour Hours
###
###

FY2
13,610,224
10,058,453
9,026,736
10,557,373
24,350,362
8,079,599
2,175,371
56,159,181
0
10,345,033
###

Considering a 10% reduction in Travel Expense for the nearshore model,

And the revised hourly charges for labor,
The profit margin in the near shore model drops to Rs. 17,738764
from a profit margin of Rs. 69,165,905 in the Offshore Model
Hence, the Nearshore Model is not a profitable one.

5)
Revised Labour Hours (in Hrs.)
Resource Location
Band
Client Premises
E
Offshore
E
Client Premises
D
Offshore
D
Client Premises
C
Offshore
C
Client Premises
B
Offshore
B
Client Premises
A
Offshore
A

FY1
14,054
5,346
8,136
9,558
23,008
9,882
3,706
62,640
6,504
16,434

FY2
7,229
5,589
6,408
7,857
24,064
8,424
3,571
81,081
712
21,267

Total Labour Hours

740,472

159,268

166,202

Spilt Labour Hours (in Hrs.)

Location
FY1
Client Premises
55,408
Offshore
103,860
Total
159,268

FY2
41,984
124,218
166,202

FY3
48,720
128,520
177,240

Profitability increases by Rs.

11,931,135
The profit margin increases to Rs.81,097,040 from Rs.69,165,905.

FY3
50.2
34.5
70.6
49.3
166.4
46.8
17.3
470.1
0
113.3
1018.5

FY3
1770.7
1494.5
1324.9
1115.7
1057.4
884.9
821.3
643.9
610.3
468

FY4
41,280
119,106
160,386

FY4
45.9
31.5
58.1
51.9
138.1
46.7
15.9
419.2
0
112.4
919.7

FY4
1850.4
1573.7
1384.5
1174.9
1105
931.8
858.3
678.1
637.8
492.8

FY5
6,816
70,560
77,376

FY5
27.6
15
1
53
6
38.6
8
223.2
0
62.2
434.6

FY5
1933.7
1657.1
1446.8
1237.1
1154.7
981.2
896.9
714
666.5
518.9

Total
194,208
546,264
740,472

urces by ISS.
ur hours at offshore.
vel to client premises.
on the total labour hours at Offshore.
divided equally through the years.

FY3

FY4

FY5

Labour Hours (in Hrs.)

Resource Location
Client Premises
Offshore
Client Premises
Offshore
Client Premises
Offshore
Client Premises
Offshore
Client Premises
Offshore
Total Labour Hours

Band
E
E
D
D
C
C
B
B
A
A
740,472

Labour Cost (in Rs.)

Resource Location
Client Premises
Offshore
Client Premises
Offshore
Client Premises
Offshore
Client Premises
Offshore
Client Premises
Offshore
Total Labour Hours

Band
E
E
D
D
C
C
B
B
A
A
###

Project Specific Costs (in Rs.)

Total
Infrastructure Expenses
286,520
Travel Expenses
4,389,614
Other Expenses
349,160
Total
5,025,294

150,279,795 141,927,794 68,616,001

1,169,990
1,089,404
673,840
###
###
###

FY3
14,222,262
10,511,083
14,966,070
11,214,433
28,152,218
8,443,181
2,273,358
61,719,129
0
10,810,560
###

FY4
FY5
13,589,338 8,539,219
10,028,944 4,990,594
12,870,312
231,488
12,337,127 13,165,545
24,416,080 1,108,512
8,804,271 7,604,666
2,183,515 1,148,032
57,513,143 32,000,466
0
0
11,207,297 6,480,988
###
###

Hourly Labour Rate (in Rs.) for Near Shore Mode

Resource Allocation
Band
Client Premises
E
Nearshore
E
Client Premises
D
Nearshore
D
Client Premises
C
Nearshore
C
Client Premises
B
Nearshore
B
Client Premises
A
Nearshore
A

Project Specific Costs (in Rs.) for Nearshore Mo

Total
Infrastructure Expenses
286,520
Travel Expenses
3,950,653
Other Expenses
349,160
Total
4,586,333

hore model,

Full Cost of Project (in Rs.) for Nearshore Model

Total
Labour Costs
677,674,903
Project Specific Costs
4,586,333
Total Full Costs
###
Profit Margin

FY3
7,229
5,589
10,166
7,987
26,624
8,424
3,571
85,239
1,130
21,281

FY4
6,610
5,103
8,366
8,408
22,096
8,406
3,278
76,023
930
21,166

FY5
3,974
2,430
144
8,586
960
6,948
1,722
40,446
16
12,150

17,738,764

Labour Cost (in Rs.) for Revised Resources

Resource Location
Band
Client Premises
E
Offshore
E
Client Premises
D
Offshore
D
Client Premises
C
Offshore
C
Client Premises
B
Offshore
B
Client Premises
A
Offshore
A

177,240

FY4
41,280
119,106
160,386

160,386

FY5
6,816
70,560
77,376

77,376

Total
194,208
546,264
740,472

Total Labour Hours

###

Project Specific Costs (in Rs.) for Nearshore Mo

Total
Infrastructure Expenses
286,520
Travel Expenses
4,389,614
Other Expenses
349,160
Total
5,025,294

Full Cost of Project (in Rs.) for Nearshore Model

Total
Labour Costs
613,877,666
Project Specific Costs
5,025,294
Total Full Costs
###
Profit Margin

81,097,040

FY1
15,616
5,940
9,040
10,620
23,008
9,882
2,144
62,046
5,600
15,372
159,268

FY2
8,032
6,210
7,120
8,730
24,064
8,424
2,768
80,460
0
20,394
166,202

FY3
8,032
6,210
11,296
8,874
26,624
8,424
2,768
84,618
0
20,394
177,240

FY4
7,344
5,670
9,296
9,342
22,096
8,406
2,544
75,456
0
20,232
160,386

FY5
4,416
2,700
160
9,540
960
6,948
1,280
40,176
0
11,196
77,376

FY1
25,321,344
8,005,932
10,968,232
10,686,906
22,278,646
7,886,824
1,612,502
36,036,317
3,129,840
6,488,521
###

FY2
13,610,224
8,813,232
9,026,736
9,250,308
24,350,362
7,079,530
2,175,371
49,201,290
0
9,063,094
###

FY3
14,222,262
9,280,845
14,966,070
9,900,722
28,152,218
7,454,398
2,273,358
54,485,530
0
9,544,392
###

FY4
FY5
13,589,338 8,539,219
8,922,879 4,474,170
12,870,312
231,488
10,975,916 11,801,934
24,416,080 1,108,512
7,832,711 6,817,378
2,183,515 1,148,032
51,166,714 28,685,664
0
0
9,970,330 5,809,604
###
###

FY1
54,475
834,588
69,832
958,895

FY2
65,153
998,179
69,832
1,133,164

FY3
67,410
1,032,748
69,832
1,169,990

FY4
62,472
957,100
69,832
1,089,404

FY5
37,009
566,999
69,832
673,840

or Near Shore Model

FY1
1621.5
1550.0
1213.3
1157.2
968.3
917.8
752.1
667.9
558.9
485.4

for Nearshore Model

FY1
54,475
751,129
69,832
875,437

FY2
1694.5
1619.7
1267.8
1209.3
1011.9
959.1
785.9
698.0
584.1
507.3

FY2
65,153
898,361
69,832
1,033,346

FY3
1770.7
1692.6
1324.9
1263.7
1057.4
1002.3
821.3
729.4
610.3
530.1

FY3
67,410
929,473
69,832
1,066,715

FY4
1850.4
1768.8
1384.5
1320.6
1105.0
1047.4
858.3
762.2
637.8
553.9

FY4
62,472
861,390
69,832
993,694

FY5
1933.7
1848.4
1446.8
1380.0
1154.7
1094.5
896.9
796.5
666.5
578.9

FY5
37,009
510,299
69,832
617,140

r Nearshore Model
FY1
FY2
FY3
FY4
FY5
142,780,740 144,362,332 162,312,294 152,950,027 75,269,510
875,437
1,033,346
1,066,715
993,694
617,140
###
###
###
###
###

ed Resources
FY1
22,789,210
7,205,339
9,871,409
9,618,215
22,278,646
7,886,824
2,786,982
36,381,312
3,635,086
6,936,791

FY2
12,249,202
7,931,909
8,124,062
8,325,277
24,350,362
7,079,530
2,806,606
49,581,032
415,879
9,451,055

FY3
12,800,036
8,352,761
13,469,463
8,910,650
28,152,218
7,454,398
2,933,027
54,885,392
689,395
9,959,695

FY4
FY5
12,230,404 7,685,297
8,030,591 4,026,753
11,583,281
208,339
9,878,324 10,621,741
24,416,080 1,108,512
7,832,711 6,817,378
2,813,851 1,544,103
51,551,196 28,878,444
592,899
10,664
10,430,703 6,304,635

###
for Nearshore Model
FY1
54,475
834,588
69,832
958,895

###

###

###

###

FY2
65,153
998,179
69,832
1,133,164

FY3
67,410
1,032,748
69,832
1,169,990

FY4
62,472
957,100
69,832
1,089,404

FY5
37,009
566,999
69,832
673,840

r Nearshore Model
FY1
FY2
FY3
FY4
FY5
129,389,814 130,314,913 147,607,034 139,360,040 67,205,866
958,895
1,133,164
1,169,990
1,089,404
673,840
###
###
###
###
###