MAKE OR BUY DECISION

S.NO SEED DEMAND YIELD/ACRE COP/ACRE SALE PRICE CONTRACT PRICE

1 BHENDI 300 T 3T 15000 50/Kg 4500/ton

2 TOMATO 50 T 0.5 T 25000 200/Kg 15000/ton

3 BRINJAL 50 T 0.5 T 20000 150/kg 10000/ton

4 CHILLY 100 T 2T 20000 150/kg 8000/ton

1. 100% make and 0% buy

Bhendi:

Sales price : 300t*50*1000=1, 50, 00,000

COP for 100 acres : 15000*100= 15, 00,000

…………………………………

Profit : 1, 35, 00,000/-

 Tomato:

Sales price : 200t*50*1000=1, 00, 00,000

COP for 100 acres : 25000*100= 25, 00,000

…………………………………

Profit : 75, 00,000/-

Brinjal:

Sales price : 150t*50*1000= 75, 00,000

COP for 100 acres : 20000*100= 20, 00,000

…………………………………

Profit : 55, 00,000/-

Chilly (here only 50 acres of land is enough)

Sales price : 150t*100*1000=1, 50, 00,000

COP for 100 acres : 20000*50= 10, 00,000

…………………………………

Profit : 1, 40, 00,000/-

2. 100% buy & 0% make

Bhendi:

Sales price : 150t*100*1000=1, 50, 00,000

Contract cost for 300t : 4500*300t= 13, 50,000

…………………………………

Profit : 1, 36, 50,000/-

Tomato:

Sales price : 200t*50*1000=1, 00, 00,000

Contract cost for 50t : 15000*50t= 7, 50,000

…………………………………

Profit : 92, 50,000

Brinjal:

Sales price : 150t*50*1000= 75, 00,000

Contract cost for 50t : 10000*50t= 5, 00,000

…………………………………

Profit : 70, 00,000/-

 Chilly:

Sales price : 150t*100*1000=1, 50, 00,000

Contract cost for 100t : 8000*100t= 8, 00,000

…………………………………

Profit : 1, 42, 00,000/-

Table for 100% make & 0% buy

Crop Bhendi Tomato Brinjal Chilly

Sales 1,50,00,000 1,00,00,000 75,00,000 1,50,00,000
COP 15,00,000 25,00,000 20,00,000 10,00,000
Profit 1,35,00,000 75,00,000 55,00,000 1,40,00,000

Table for 100% buy & 0% make

Crop Bhendi Tomato Brinjal Chilly

Sales 1,50,00,000 1,00,00,000 75,00,000 1,50,00,000
COP 13,50,000 7,50,000 5,00,000 8,00,000
Profit 1,36,50,000 92,50,000 70,00,000 1,42,00,000
Alternative decisions:

1. By analyzing above 2 tables it is better to go for buying (contract) for all crops and we

can give that land to contractors for cultivation so we can reduce the price per tonne

from contractor, we will get more profits.

Crop Revenue Cost of /purchase profit

Bhendi 1,50,00,000 13,50,000 1,36,50,000

Tomato 1,00,00,000 7,50,000 92,50,000

Brinjal 75,00,000 5,00,000 70,00,000

Chilly 1,50,00,000 8,00,000 1,42,00,000

Total profit in this case is = Rs. 4, 41, 00,000/-

2. If we want to cultivate 100 acres land ,we should compare individual crop cost of

production & purchase with respect to Make or Buy

(The Revenue (demand*sale price /kg) will be same in both make and buy)
 Cost of production (or) purchase comparison table:

Crop 100%make(cost) 100%buy(cost) Difference

Bhendi 15,00,000/100 acres 13,50,000/300t 1,50,000/100ac

Tomato 25,00,000/100 acres 7,50,000/50t 17,50,000/100ac

Brinjal 20,00,000/100 acres 5,00,000/50t 15,00,000/100ac

Chilly 10,00,000/50acres 8,00,000/100t 2,00,000/50ac

1. From the above figures we can analyze that the difference in cost of production & purchase

is very less for Bhendi (1, 50,000/100acres) followed by chilly (2, 00,000/50 acres)

2. But in case of chilly profit is more i.e. 1,40,00,000(Make ) and 1,42,00,000(Buy) compare to

Bhendi 1,35,00,000(Make) and 1,36,50,000(Buy)

 Also after meeting chilly market demand (50 acres*2ton/acre=100 ton) another 50

acres of land will be available for other crops.

3. Bhendi market demand is 300 t and productivity is 3t/ac

In 50 acres land we can produce 150 t i.e. 50% of market demand

4. It is not worth of cultivating Tomato [25, 00,000(Make) and 7, 50,000(Buy)] &

Brinjal [20, 00,000(Make) and 5, 00,000(Buy)],

Buying of these two is very economical.

So the recommended combination is

Chilly 100% (Make) +Bhendi 50% (Make) +Bhendi 50% (Buy) +Tomato 100%

(Buy) + Brinjal100% (Buy)

Crop Revenue Cost of production/purchase profit

Bhendi 1,50,00,000 7,50,000(Make)+6,75,000(Buy) 1,35,75,000

Tomato 1,00,00,000 7,50,000(Buy) 92,50,000

Brinjal 75,00,000 5,00,000(Buy) 70,00,000

Chilly 1,50,00,000 10,00,000(Make) 1,40,00,000

Total profit in this case is Rs 4, 38, 25,000