Executive Summary

The mobile vans used for selling fish in Akbarabad do not have the sales volumes necessary to
overcome their operating cost resulting in sales deficit in the mobile vans activity as seen in the
annual financial statements. The Governing Body expects a non-welfare activity such as this to
generate a surplus, and accordingly three alternatives have been suggested viz. ceasing
operations of vans 1 and 3, ceasing operations to one of the localities, and increasing the sales
margin. These alternatives have been evaluated against the criteria developed, and the second
alternative has been recommended as the best course of action.
Word Count: 100

Table of Contents
Sr. No.

Title

Page Number

1.

Situation Analysis

2.

The Problem Statement

3.

The Options

4.

Criteria For Evaluation

5.

Evaluation of Options

6.

The Recommendation

7.

Action Plan

8.

Exhibit 1

9.

Exhibit 2

10.

Exhibit 3

11.

Exhibit 4a

12.

Exhibit 4b

Situation Analysis
The revenue from Freshwater Fisheries was Rs 56 lakh with a deficit of Rs 11 lakh in 2009-10.
Since the mobile vans in Akbarabad account for 80% of those sales i.e. Rs 44.8 lakh, we can
assume that they also account for only 80% of the deficit i.e. Rs 8.8 lakh. The mobile-van sales
suffered a setback in 2004, when PAPFISH lost exclusive rights to fish at the Paschim Pradesh
dam sites, where, prior to 2004, it could fish for a nominal royalty of Rs 2 /kg of fish caught. In
2004, the government introduced auctioning of fishing rights at the dam sites and PAPFISH
could not win those rights. Without the availability of cheap fish from the dam sites to sell in
Akbarabad, the margins of PAPFISH fell from more than 100% to around 71% [Exhibit1-Note].
Thus, it can be inferred that the mobile vans started recording sales deficit from 2004 onwards
due to the huge fall in profit margin percentage in 2004.
The deficit of Rs 7.8 lakh [Exhibit 2-Row D] in 2009-10 from the operation of the mobile vans is
unacceptable for the mobile-van activity as the Governing Body expects that each project, such
as this one, which is not a welfare activity, should generate a surplus. It may be assumed that the
profit percentage expected from the mobile-van activity is 4.86% which is the profit percentage
of a shop in New Delhi engaged in a similar activity (10.21/(220-4.64)*100 = 4.86).
Vans 1 and 3 share two localities, say, Locality 1 and Locality 3, visiting each on alternate days.
Sales volume of each of the vans 1 and 3 is approximately half that of Van 2 [Exhibit1ColumnB]. So, it is possible that either each of the two localities contributes non-negligible sales
to each van or one of the two localities, say, Locality 1, contributes almost the entire sales
volume and the other contributes a negligible amount [Exhibit 3]. With Possibility 1, Location 2
is an outlier with respect to demand/day and with Possibilities 2 and 3, Location 1 or Location 3
are outliers respectively. Since each is equally likely, if we assume that one of Possibilities 2 and
3 is true, then the sales deficits seen for vans 1 and 3 are because of negligible demand from one
of

Location 1 and Location 3.

Problem Statement
The mobile-vans activity should generate a surplus from its operation with a profit percentage of
at least 4.86% as against the current loss percentage of -14.9% (7.86/(44.8-18.7+26.5)*100)
[Exhibit2] in 2009-10.
The Options
1) The annual margins from vans 1 and 3 are insufficient to sustain their operating costs
(Operating cost is Rs 8.85 lakh [Exhibit 2 Row B] and margin is Rs 4.67 lakh [Exhibit 1
Column J]). So, the operations of these two vans should be ceased, and only Van 2 operations
should be continued.
2) Assuming Possibility 2 or Possibility 3 [Exhibit 3] to be true, identify which location has
negligible demand and stop service to that location reducing the number of locations serviced
and vans required to 2. Cease operations of one of vans 1 and 3. The two vans will service the
two remaining locations full-time 6 days a week.
3) Profit margins on marine fish should be increased from Rs 48 to Rs 58 /kg. The raise of Rs 10
is based on the assumption that customers are willing to pay a premium of Rs 10 /kg as they
sometimes do while buying fish from other fish-selling vans.
Criteria for Evaluation
In descending order of priority:
a) The option must result in a profit percentage of at least 4.86% from mobile van activity.
b) Local retail activity and visibility of PAPFISH should be maintained.
c) PAPFISH policies must be adhered to.
d) It should be implementable in the face of any resistance from locals or employee unions.
Evaluation of Options

Option 1

a) Annual margin = 10.02 lakh [Exhibit 1 - Column J]

Cost of fish = Margin / Margin Percentage = 10.02/0.7164 = 14 lakh. [Exhibit1-Note]
Operating cost = Rs 8.85 lakh [Exhibit 2-Row B].

Total Cost = 14 + 8.85 = 22.85 lakh

Surplus = Margin Operating cost = 1.17 lakh
Profit Percentage = Surplus/(Total Cost)*100 = 5.12%

Option 2

a) Annual margin = 20.7 lakh [Exhibit 4a - Column J].

Cost of fish = Margin / Margin Percentage = 20.7 /0.7164 = 28.9 lakh. [Exhibit1-Note]
Operating cost = Rs 17.7 lakh [Exhibit 4b-Row B].
Total Cost = 28.9 + 17.7 = 46.5 lakh
Surplus = Margin Operating cost = 3 lakh
Profit Percentage = Surplus/(Total Cost)*100 = 6.45%.
Options 1 and 2 both satisfy Criterion(a) above and Criteria (b), (c) and (d) as follows:
- While local presence is reduced, it is still present through van 2 for Option 1 and through vans
1 and 3 for Option 2.
- PAPFISH margin policy is being adhered to.
- Resistance from employee unions due to loss of jobs can be tackled by transferring the affected
employees to another PAPFISH department as this is permissible under PAPFISH policy.

Option 3

a) Increasing margins may reduce the demand at the three locations. Still assuming sufficient
demand to facilitate the same daily average sale of 140 kg, the margin from the three vans will be
140*(0.45 * 35 + 0.55 * 58) = Rs 21.14 lakh giving a deficit of (21.14 26.5) = -5.36 lakh.
b) Local presence will be maintained.
c) PAPFISHs margin policies are being violated.
d) There will be no resistance from the locals or Union.
Recommendation
Options 1 and 2 satisfy all criteria, but profit percentage and visibility are better with option 2.
So, option 2 should be adopted.

Action Plan
1) Identify which of Location 1 and Location 3 is the outlier from Exhibit 3.
2) Cease operations in that location along with that of its van.
3) Transfer the affected PAPFISH staff to another department.
4) Operate only in the two locations remaining.
Report Word Count: 997

Exhibit 1: Daily and Annual Margins for Vans 1, 2 and 3.

A

Van

Avera
ge
Daily
Sales[1

Average
Daily Sale
of River
Fish (45%
of Total
Sales)(kg)

Average
Daily Sale
of Marine
Fish (55%
of Total
Sales)
(kg)

Margin/
kg
for
River
Fish

Margin/
kg
for
Marine
Fish

Margi
n
for
River
Fish
[C*E]
(Rs)

Margin
for
Marine
Fish
[D*F]
(Rs)

35

15.75

19.25

35

48

551.25

924

70

31.5

38.5

35

48

1102.5

1848

35
140

15.75

19.25

35

48

551.25
2205

924
3696

(kg)
Van1
Van2
Van3
Total
Van2[3]

75

33.75

41.25

35

48

1181.2
5

1980

J
Total
Total
Annual
Daily
Margin[2]
Margi
[317 *
n
Total
[G +
Daily
H]
Margin]
(Rs)
(Rs)
1475. 467654.2
25
5
2950.
5 935308.5
1475. 467654.2
25
5
5901 1870617
3161.
25

[1]

Average Daily Sales is the average of the range given in the case.

[2]

317 working days have been taken considering 48 Mondays in 2009-10.

[3]

Separate calculations for Van 2 taking average daily sales of 75 kg (upper limit from the case)

1002116
.25

Note: Margin Percentage for the 3 vans = Margin / Cost Of Fish = 18.7 lakh/(44.8 -18.7)=
71.64%. (44.8 lakh = 80% of total revenue of 56 lakh)

Exhibit 2: Annual Operating Cost of Vans 1, 2 and 3.

Cost Heads
Inspector
Driver
Cutter
Van diesel[1]
Van maintenance[1]
Miscellaneous
Ice
Wastage
A
Total cost per month per van
Annual Cost per van
B
[Total cost/month/van * 12]
C

Annual Cost for 3 vans

[Annual Cost per van * 3]

(Rs)
20043
15936
11727
7800
3000
3000
6000
6250
73756
885072
2655216

[2]

D
[1]
[2]

Surplus/Deficit of Margin over

Annual Cost for 3 vans

-784599

Total diesel and maintenance cost of Rs 32400 [23400 + 9000] is divided equally among the 3 vans.
Margin of Rs 1870617 for the 3 vans is taken from Exhibit 1-Column J.

Exhibit 3 - Possibilities for typical demand from the 3 locations.

Location 1
Location 2 Demand Location 3 Demand
Demand (kg/day)
(kg/day)
(kg/day)
Possibili
ty 1
30-40
65-75
30-40
Possibili
ty 2

60-80

65-75

Negligible

Possibili
ty 3

Negligible

65-75

60-80

Exhibit 4-a: Daily and Annual Margins for Vans 1 and 2 taking option 2.
A
B
C
D
E
F
G
H
I

Van

Van1
Van2
Tota
l

J
Total
Averag
Averag
Annua
e Daily
Margi
e Daily
Margi
Total
l
Sale of
n
Sale of
Margin/ Margin/ n
Daily Margi
Average
Marine
for
River
kg
kg
for
Margi n
Daily
Fish
Marin
Fish
for
for
River
n
[317 *
Sales[1][2]
(55%
e
(45%
River
Marine Fish
[G +
Total
(kg)
of
Fish
of Total
Fish
Fish
[C*E]
H]
Daily
Total
[D*F]
Sales)
(Rs)
(Rs)
Margi
Sales)
(Rs)
(kg)
n]
(kg)
(Rs)
106892
80
36
44
35
48
1260
2112
3372
4
1181.
3161. 100211
75
33.75
41.25
35
48
25
1980
25
6
2441.
25

155

[1]

Considering Possibility 2 in Exhibit 3-a.

[2]

Considering upper limits of ranges given in the case.

Exhibit 4-b: Margin Calculation for

Exhibit 4-a
A Annual Cost/Van [1] (Rs)
Annual Cost for Vans 1
and 2
B (Rs)
Annual Margin Amount
for
C Van 1 + Van 2 [2] (Rs)
D Net Profit [C - B] (Rs)
[1]

Exhibit 2- Row B

[2]

Exhibit 4a- Column J

885072
1770144
2071040
300896.
3

4092

6533.
25

20710
40