Planning The Product Mix at Panchtantra Corporation Mr Ganesh, Project Director for the Kapadkunj Intensive Handloom Development

(IHD) project of the Panchtantra Handloom Development Corporation was preparing the production plan for his project for the next month. The IHD project produced two types of handloom products - 60 x 40 lungis and 40 x 40 shirting. Every month, Mr Ganesh had to decide on the quantities of each of the products to be produced after taking into account the loom capacity available in the project, the availability of 40s and 60s yarn (both of which were procured and supplied to the project by the Corporation's centralized purchasing department) and information regarding sales from the Sales Department. Mr Ganesh expected around 3000 loom days of production capacity to be available to his project next month. Mr Kapasi, the purchase manager, had indicated that due to stringent market conditions, at the most 480kgs of 60s yarn and 2400kgs of 40s yarn would be available to the Kapadkunj project next month.The sales department of the Corporation had piled up adequate stocks of finished goods. Hence, the Sales Manager, Mr Bazari, did not want the production quantity to exceed the normal sales level of 11000 metres of lungis and 22000 metres of shirting. So far, Mr Ganesh, had aimed at producing as much of lungis as possible (he had found the order booking for lungis by the sales department the main limitation to the quantity of lungis produced) and had allocated the remaining loom capacity to the production of shirting. He had adopted this strategy since he knew that the contribution (in Rs per metre) was higher for lungis than for shirting. (See Exhibit- I). However, at the last meeting of all Project Directors of the Panchtantra Corporation. Mr Ganapathy, Project Director for the Laxmikantha IHD Project, had told Mr Ganesh that he could improve the profitability of his project by producing more of shirting material and less of lungi . Mr Ganapathy had argued that even-though lungis fetched a higher a contribution per metre, the higher production rate for shirting would offset its lower contribution, thus, making it more profitable to produce. Mr Ganesh was intrigued by the concept which Mr Ganapathy had suggested. On returning to his Project Office, he decided to assemble all data on production cost, contribution, yarn consumption, production rates relating to each of the products before deciding the product mix to be produced next month. The figure Mr Ganesh collected are shown in Exhibit-1. Questions 1. Given the production capacity, yarn availability and sales constraints that Mr Ganesh is faced With, what product mix would you suggest to him for the next month in order that he may maximize his profits. What is the increase in profits that this product mix would generate compared to the product mix that Mr Ganesh would have arrived at had he used his previous production planning rule? 2. Mr Ganesh feels that one of the objectives of the IHD Project is also to ensure adequate earnings to the weavers. He feels that he is even willing to sacrifice to some extent, the profitability of his project in order to ensure that, on an average, the production pays as wages to the weavers at least Rs 20.50 per loom day. Would you recommend to him a different product mix in order that he may fulfil this objective? How much extra remuneration is provided to weavers by this plan over the plan you suggested under (1) above? 3. The Finance Manager, Mr Rokado, informed Mr Ganesh that the production plan arrived at could not be supported with the money available to Panchtantra. He indicated that not more than Rs 1.50 lakhs could be available for the next month. What should be the production plan in light of this new information? (The wages and the yarn cost have to be paid for in cash). Exhibit-1 Planning Product Mix at Panchtantra Corporation No. 1. 2. 3. 4. 5. Parameter Selling Price (Rs per metre) Variable costs: a)Wages paid to weavers (Rs per metre) b)Yarn cost (Rs per metre) Contribution (Rs per metre) Production rate: No. of metre per loom day Yarn consumption: (in gms per metre) a) 40s yarn b) 60s yarn 60 x 40 lungis Rs 10.90 Rs 4.50 Rs 5.50 Rs 0.90 5 m. 60 gms 40 gms 40 x 40 shirting Rs 6.60 Rs 1.50 Rs 4.50 Rs 0.60 12 m. 100 gms ----