Financial influence of leather grading with example

To give an example of how leather grading may influence the profit or loss of a clicking room of factory, complete the following exercise.

A complete delivery of locally finished leather has been delivered to the factory,

Quantity = 500 sft

Price = Tk 300 per sft

On receipt of the leather, the leather grader regrade the delivery into the following graded:

• 1^st grade = 20 sft.
• 2^nd grade = 110 sft.
• 3^rd grade = 95 sft.
• 4^th grade = 165 sft.
• 5^th grade = 110 sft.

In leather grading price fixing, it is normal practice to allow 5% between grades.
The buyer price, that is the price paid buy the factory for the shipment would be the middle grade price (300 Tk) per  sft.
All grades above this middle grade would increase by 5% in price and all grades bellow the middle grade would reduce by 5% in price.
To calculate the value of the leather shipment multiply the graded amount by the price per grade then subtract the graded price from the actual price paid to the tannery. This would show a buying loss.

Table

Grade	Price variation	Price per sft	Quantity in sft	Total Value
1st	+10%	330	20	6600.00
2nd	+5%	315	110	34650.00
3rd	0%	300	95	28500.00
4th	-5%	285	165	47025.00
5th	-10%	270	110	29700.00
		Gross total	500	146475.00

Actual price paid to the tannery= 500*300= 150000.00
Subtract the graded value from the actual price paid.
Loss= 150000.00- 145475.00= 3525.00
% loss= 3525.oo/150000.oo*100= 2.35
Ans. 2.35% loss.