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1.1.

Business Description
The ABC Pharmaceuticals is a healthcare company dedicated to the manufacturing of quality pharmaceutical products. We will accomplish this by using high quality manufacturing and research, a creative marketing program, and a comprehensive distribution network using both national and international distribution network, internet presence, and a consumer catalogue. The Product that the company will offer will be based on research of Japanese Pharmaceuticals giant Takeda, with Head Office Located at XXX, XXX Building Dubai. The office is approximately 400 square feet. An additional 800 square feet of office space can be made available within the building. Keeping in view the desirable space needed for plant, accessibility and demographic shifts the Manufacturing plant will be located at Abu Dhabi, UAE. The Business will be organized at international level with sales office located at XXX, Liverpool, UK, and xxxx, Tokyo Japan. By utilizing this multi-channel approach we will be able to reach the niche market for quality personal health products rapidly and efficiently. The ABC Pharmaceuticals is organized as a Sole proprietorship Business, and it is 100% owned by M/S XYZ. The Total Capital of the Organization will be provided by M/S XYZ and he will not full share the Profit and losses of the organization with anyone.

1.2. Business Type


It will be a Manufacturing Business with plant located at 123, the XYZ, AbuDhabi, UAE. The Head office of the Organization will be located at XXX, XXX Building, Dubai.

1.2.1. Products Offered: ABC Pharmaceuticals will offer different types of product to the market, which includes. o o Mefanemic Acid Diclofenac Sodium

The company will launch different brand in other categories including Cardiovascular, Hypertension, Antibiotic, etc in the Future.

1.2.2.

The Industry

ABC Pharmaceuticals will occupy a unique market position. No other brand offers a specialty line that includes analgesic, antibiotic and antihistamine. However, within

each category significant brands do exist. Quality and price vary widely within each group. ABC Pharmaceuticals will be positioned as a quality brand. The Pharmaceutical market has seen large annual growth rates over the past decade. Last year alone, the market grew by 37%. Clear divisions between traditional categories are becoming blurred and new lines are also emerging, creating new openings for profit. In pharmaceutical fitness apparel and accessories there is a tremendous opportunity since the antibiotic, antihistamine and analgesic segments have been grossly overlooked. ABC Pharmaceuticals is the only company that will develop a line of analgesic, antibiotic and antihistamine that will be distributed in UAE, UK, and Japan. Early sales for the brands will be generated in UAE and then the Company will pursue the Market Development strategy by exporting Products to UK and Japan.

1.3. Organization Structure:


ABC Pharmaceuticals have a traditional management style i.e. functional departments are present to perform various organization activities. A list of these functional departments grouped on products offered is shown in organogram.

It should be noted that the hierarchy will be the same for all the department. For the Sake of space only one department have been elaborated.

1.4. Raw Material Used in Production


Major Raw Material used in the production of MEFANAMIC ACID is as follow: 1. 2. 3. 4. 5. Mefanamic Acid Lactose SD Magnesium Stearate Avicel pH 102 Aerosil

Major Raw Material used in the production of Product 2 DICLOFENAC SODIUM 10 MG TABLETS 1. 2. 3. 4. 5. 6. Diclofenac Sodium Avicel pH 102 Lactose Magnesium Stearate Primogel Talcum Powder

1.5. Labor Cost


The Human Resource philosophy of ABC Pharmaceuticals is to locate, nurture and develop a team that is talented, committed and understands the concept of brand. The company will come up with an incentive programs that will assist in inspiring our people to "walk the walk," and reward performance. ABC Pharmaceuticals will pay its employees on monthly basis without regard of output. i.e. ABC Pharmaceuticals pay for time. Employee Bonuses and profit sharing programs will be available at all levels. For the manufacturing of above mentioned products, we need following types of labor. 1. Manager Production & Quality Control ( To assist and manage Production activities) 2. Assistant Manager Production Pharmacist ( To organize and manages the work of workers. ) 3. Assistant Manager Dispensing Pharmacist ( To dispense the required Raw materials ) 4. Assistant Manager Packing Pharmacists ( To manage packing and related activities ) 5. Assistant Manager Quality Assurance ( To ensure policy and procedures implementation. ) 6. Assistant Manager Quality Control ( To manage QC Labs. ) 7. Quality Control Analyst ( To conduct analytical methods to ensure product quality. ) 8. Finish Goods Store Incharge (To manage the finished goods stores.) 9. Workers ( To perform actual works. )

10.Coding Section Workers. ( To make coding into UCs and MCs)

1.6. Facilities Needed:


All of above product is produced in company own Manufacturing Plant situated at Abu Dhabi, having the following facilities. 1. Tablet Section 2. Capsule Section 3. Dry Suspension Section 4. Liquid Section Our product will be produce using various pharmaceutical techniques such as wet mixing, dry mixing, geometrical mixing, direct compression etc. While performing such techniques different machines are used such as ZP 33, Blisters, Filling, sorting and recapping machines.

2.1. Material Cost


2.1.1.Product 1: Mefanamic Acid:

The following raw Materials are needed to produce this product: 1. Mefanamic Acid 2. Lactose SD 3. Magnesium Stearate 4. Avicel pH 102 5. Aerosil 6. Iso Propyl alcohol 7. DI Water 8. Methylene 9. Chlorides 10.Castor Oils The first five of the above mentioned material are Direct Material while the last 4 mentioned (Iso Propyl alcohol, DI Water, Methylene, Chlorides, and Castor Oils) are indirect Material 2.1.2.Product 2 DICLOFENAC SODIUM 10 MG TABLETS The following raw Materials are needed to produce this product: 1. 2. 3. 4. 5. 6. 7. Diclofenac Sodium Avicel pH 102 Lactose Magnesium Stearate Primogel Talcum Powder Iso Propyl alcohol

8. DI Water 9. Methylene 10.Chlorides 11.Castor Oils

2.1.3.

The first six of the above mentioned material are Direct Material while the last Five mentioned (Iso Propyl alcohol, DI Water, Methylene, Chlorides, and Castor Oils) are indirect Material. These raw Materials will be purchased from the following different sources.

Source of Material

Item

Mefanamic Acid Lactose SD Magnesium Stearate Avicel pH 102 Aerosil Diclofenac Sodium Primogel

Imported From
China China Germany China China India UK

2.1.4. Material Cost of Mefanemic Acid: For the sake of material cost standard component vendor quotes may be used as quoted by Thomas Register of American Manufacturers is used. According the cost of 500,000 Batch of Mefanemic Acid is as follow:

Item
Mefanamic Acid Lactose SD Magnesium Stearate Avicel pH 102 Aerosil

Cost (on a Batch of 500,000 tables) AED


348000 2500 2000 2200 2000

Total Direct Material Cost


Talcum Powder Iso Propyl alcohol DI Water Methylene Chlorides Castor Oils 150 200 150 200 200 200

356700

Total Indirect Material Cost

1100

Hence the total Estimated Per Unit Cost will be: o Material Cost = 356700/50000 = 7.134 o Indirect material Cost (to be added to Manufacturing Overhead) 1100/50000 = 0.022 2.1.5. Material Cost on Diclofenac Sodium 10 mg

Item
Diclofenac Sodium Avicel pH 102 Lactose Magnesium Stearate Primogel

Cost (on a Batch of 500,000 tables) AED


424000 12500 2500 2000 1800

Total Direct Material Cost


Talcum Powder Iso Propyl alcohol DI Water Methylene Chlorides Castor Oils 150 400 150 300 200 300

442800

Total Indirect Material Cost

1600

Hence the total Estimated Per Unit Cost will be: Material Cost = 442800/50000 = 8.856 Indirect material Cost (to be added to Manufacturing Overhead) 1600/50000 = 0.032

2.2. Labor Cost:


Monthly Salaries Paid to Different Individual is planned as follow: Position Manager Production & Quality Control Asstt. Managers QC Analyst FG Store Incharge Coding Section Workers Workers No. Of Individual 1 5 1 1 3 20 Salary (AED Per Month) 5000 4000 3000 2000 1500 1200

Of the above the last two are termed as Direct Labor, as its costs can be easily and conveniently traced to a product. On the other hand the First Four mentioned in the list is termed as Indict Labor, and will be charged to Production Overhead, as it cannot be easily and conveniently traced to a particular product. The Labor Cost Division on Monthly basis will be as follow:

Direct Labor ost Workers 20@1200 Coding Section Workers 3@1500 Total Direct Labor Cost Indirect Labor (Manufacturing Overhead)Cost: Quality Control Manager 1@5000 Asstt Manager 5@4000 QC Analyst 1@3000 FG Store Incharge 1@2000 Total Direct Labor Cost

= = =

24000 4500 28500

= = = = =

5000 20000 3000 2000 30000

The Organization planned to produced total 15 Batches of 5,00,000 tablets each. So the Direct Labor Cost Per Strip (1strip =10 Tablets) Direct Labor Cost Divided By No. Of Strip Produced during a Month o 28500/(15*50000) = 0.038 Per Strip

While the Indirect Labor Cost on Per Unit Basis will be: o 30000/(15*50000) = -0.040 Per Strip

All the payments to management and worker will be done on monthly basis. The employees of Foreign Sales Branches will be paid a straight commission of 15% of the Sales. ABC Pharmaceuticals own all these facilities. The list of these machines is as under. 1. ZP 33 Compression Machine (For Compression) 2. Digital Weighing Balances (300Kg, 120Kg, 100Kg, 50Kg, 10Kg) For Weighing. 3. Blistering Machines (Alu-Alu) For Blistering. 4. Liquid Filtering Machines- For liquid Filtering 5. Liquid Filling Machines- For liquid Filling 6. Blister Sorting Machines- For sorting rejected Blisters. 7. Capsule Filling Machines For Capsules Filling 8. Rotary, V Type and Ribbon Mixers For Powder Mixing. 9. Mixing Cones For Mixing 10.Driers (Fluid Bed, tray)- For drying of Powders.

2.3.

Manufacturing Overhead

The Organization will produced its products at the state of the art plant that will established at Abu Dhabi. The Organization will buy various assets that are needed to produce various products listed in 1.6 above. The Cost of the product for the

Organization is Depreciation Cost, Repair & Maintenance Cost. The Depreciation cost is calculated on straight Line method of Depreciation while for the sake of Repair and Maintenance cost the expenses are based on the estimates quoted by Thomas Register of American Manufacturers. The following Table portrays the Depreciation, Repair Maintenance Cost Per Month. Facility Depreciation Cost (Per Month AED) Repair & Maintenance Cost (Per Month AED) 1000 500 200

Building 2000 ZP 33 Compression Machine 1000 Blistering Machines (Alu-Alu) For 1200 Blistering Liquid Filtering Machines 800 150 Liquid Filling Machines 2000 200 Blister Sorting Machines 100 20 Capsule Filling Machines 2000 150 Rotary, V Type and Ribbon Mixers 1300 100 Mixing Cones 1000 40 Driers (Fluid Bed, tray) 1000 100 Total Cost 12400 2460 The Manufacturing Overhead Expenses will be spread uniformly on the number of batches produced by the Organization. If the Organization produce 15 Batches of 500,000 tablets the total Depreciation and Maintenance expenses on Per Unit Base will be: o 12400+2560/(15*50000) = 0.019813

The Total Manufacturing Overhead expenses are thus: Item Indirect Material Indirect Labor Other (Dep. Repair & maintenance) Per Unit 0.02200 0.04000 0.01981

Per Strip Manufacturing Overhead

0.08181

The Total Manufacturing Overhead Expenses for the Year will be: o o 15 Batches Per Month * 12 = 180 Per Annum. One Batch is composed of 500,000 Tablets (50000 Strips as One Strip contain 10 Tablets) Hence Total products produced will be: 180*50000 = 9,000,000. Total Manufacturing Overhead Per Annum = Per Unit Overhead Cost * Total Products produced per Annum =9,000,000 * 0.08181 = 736,317

2.6. Sales Price of Mefanemic Acid


Manufacturing of Mefanemic Cost is as follow: Direct Material Cost Per Unit (AED) = Direct Labor Cost Per Unit (AED) = Manufacturing Overhead Cost per Unit (AED) = Total Manufacturing Cost will be (AED) = 7.13400 0.03800 0.08181 7.25381

The Company Plan to sell Mefanemic Acid at 35 per Strip. 30% of the Sales Price will cover the Sales & Marketing Expense(Including Sales & marketing Staff Salaries& Commission, and Promotion Expenses), while 7% of the Sales Price will cover the Admin Cost, and the Distribution Margin will be 25%. Thus the Income statement on Per Unit basis for Mefanemic Acid will be as follow: Sales Price = -Total Manufacturing Exp = Gross Margin Per Unit = -Admn Cost = -Sales & Marketing = -Distribution Expenses = Total Indirect Expenses = Earnings Before Taxes = 35.0000 (7.25381) 27.74619 2.45 10.50 8.75 (21.70) 6.04619

2.6.2.

Sales Price of Diclofenac Sodium

Diclofenac Sodium Cost is as follow: Direct Material Cost Per Unit (AED) = Direct Labor Cost Per Unit (AED) = Manufacturing Overhead Cost per Unit (AED) = Total Manufacturing Cost will be (AED) = 8.8560 0.0380 0.0818 8.9758

The Company Plan to sell Diclofenac Sodium 10 mg at 37 per Strip. 30% of the Sales Price will cover the Sales & Marketing Expense, while 7% of the Sales Price will cover the Admin Cost, and the Distribution Margin will be 25%. Thus the Income statement on Per Unit basis for Mefanemic Acid will be as follow: Sales Price = -Total Manufacturing Exp = Gross Margin Per Unit = -Admn Cost = -Sales & Marketing = -Distribution Expenses = Total Indirect Expenses = Earnings Before Taxes = 37.0000 (8.9758) 28.0242 2.59 11.1 9.25 (22.94) 5.0842

Calculate the contribution margin for each of your two products.. Mefenamic Acid 315000000 260584290 54415710 Diclofenac Sodium 333000000 287242200 45757800

Sales Less Variable Expenses Contribution Margin

Calculate the breakeven volume and sales for each of your two products on an annualized basis. Sales = Variable expenses + Fixed expenses + Profits Mefenamic Acid Diclofenac Sodium 35Q=28.95381Q+736317 37Q=31.9851Q+736317 6.04619Q=736317 5.0842Q=736317 Q=121782 Q=144825 Decide for each product how many units you intend to sell in a year (first stage of setting a budget) Mefenamic Acid Diclofenac Sodium The organization must sell above 121782 strips for Mefanamic Acid and 144825 for Diclofenac Sodium to achieve a profit. Q=121782 Q=144825

Calculate the annualized breakeven sales mix volume and dollars for your company.
Mefanamic Acid Sales Var. exp. Contrib. margin Fixed exp. $ 315,000,000 100 % 83% 17% Diclofenac Sodium $ 333,000,000 100 % 86% 14% Total $ 648,000,0 00 547, 826,490 315, 015,000

100.0 % 57.5% 42.5%

260584290
$ 54,415,710

287242200
$ 45,757,800

736317
$ 314,278,6 83 48.6 $ 51.3 $ 100.0

Net operating income Sales $

mix

315,000,000

2%

333,000,000

8%

648,000,0 00