SOP Exhibits

Title:

Comparative Cost Analysis Between Remilling and Selling at Regular Price Versus Reduced Price on an "As is, Where is" Basis

SOP Number : GM-G012

Annex I

Comparative Cost Analysis Between Remilling
and Selling at Regular Price Versus Reduced
Price on an "As is, Where is" Basis
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Hypothetical Case:

As of June 1997, NCR's old imported rice stocks stands at 47,943 bags. Their ages range from seven months to more than two (2) years. Due to age factor, NCR's old rice stocks are in near advance stages of quallity deterioration. Majority of these old rice stocks are found out to be with sllight sacklike taste and odor and creamy white in appearance based on laboratory evaluation per LARs.

While fumigation is regularly undertaken, re-infestation is recurring with regular consistency and in short intervals. This is due to the fact that said stocks are not being remilled after fumigation in the absence of demand that will ensure disposition of remilled stocks. Potential loss arising fromdamage is certain to incrrease with the continuous slow/now-movement of subject stocks.

On this account, the local branch has considered two (2) options to dispose said stocks, as follows:

1. Remill/Recondition the stocks and sell at regular selling price, and

2. Request for price reduction on "as is, where is" basis.

Cost Computation

Option 1 - Remilling and Selling at the Regular Selling Price:

Cost Items P50 kg/bag output

Selling Price of IMR P600.00
Add: Handling - out (2 moves) 1.10
_______

Rice Equivalent at 93% remilling recovery ^1/ 646.34
Add: Remilling fee ^2/ 25.00
Handling-in (2 moves) 1.10
Less: Potential revenue from the sale of by products ^3/ ( 15.00)
_______
Total Cost 657.44
Existing Selling Price for Remilled IMR 600.00
________
Estimated Loss ( P 57.44)
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^1/ Considers 50-kg remilling output based on the average remilling recovery

^2/ Based on the lowest prevailing fee in the area

^3/ 6% recovery per 50-kg bag output; prevailing selling price for DKA at P5.00/kg.




Option 2 - Sale on an "As is, Where Is" basis at Reduced Selling Price

Cost Items P50 kg/bag output

Selling Price of IMR P600.00
Proposed Selling Price (P11.50/kg) 575.00
Estimated Loss (P 25.00)
=======
Comparative Loss

Option # 1 P 57.44/bag
Option # 2 25.00/bag

Difference P 32.44/bag
===========
Total Net Difference for the whole lot
P32.44 x 47,943 bags) P1,555,270.92
============
Cost Analysis:

Based on the above cost computation, Option # 2 proves to be more advantageous to the
Agency because it will entail lesser cost for the whole lot of 32.44/bag or P1,555,270.92.

The most logical move therefore is to sell the stocks on an "as is, where is" basis at a reduced price of P575.00 per bag.