Question

‘Freshju’ is a trading company, selling bottled juices made by other manufacturers. Now, it planned to sell its juices across India. For this, ‘Freshju’ decided to enter into ‘Juice manufacturing’. It also has ambitious plans to export its juices to other countries in the future. To meet anticipated higher demand in future, the company set-up a larger manufacturing unit. The Chief Executive Officer, Ravinder, ordered automatic juice-filling and bottling machines to increase speed, improve hygiene and for consistency in production. Since the investment was huge, instead of buying all new machinery ‘Freshju’ took some expensive machines on lease. They also collaborated with a nearby packaging unit to use their packing machines during peak-season. This helped ‘Freshju’ to manage seasonal surges in demand without investing in additional equipment that would remain underutilized during off season. Quoting lines from the above, identify and explain any four factors that will affect the fixed capital requirements of ‘Freshju’.

Hint:

Remember: Look for direct quotes that show a change in what they do (Nature), how big they are (Scale), how they pay (Leasing), and who they work with (Collaboration).

Answer 1

Correct Answer: 4

Step 1: Concept
Factors affecting Fixed Capital Requirements.

Step 2: Meaning
Fixed capital refers to investment in long-term assets. The requirement for fixed capital depends on various operational, strategic, and financial factors of the business.

Step 3: Analysis

• Nature of Business: A manufacturing company requires more fixed capital than a trading company.
Quote: "...'Freshju' is a trading company... decided to enter into 'Juice manufacturing'."

• Scale of Operations: A larger organization operating on a massive scale requires higher fixed capital compared to a small-scale organization.
Quote: "To meet anticipated higher demand in future, the company set-up a larger manufacturing unit."

• Financing Alternatives: Availability of leasing facilities can significantly reduce the immediate need for fixed capital compared to purchasing assets outright.
Quote: "...instead of buying all new machinery 'Freshju' took some expensive machines on lease."

• Level of Collaboration: Sharing facilities with other organizations reduces the need for individual investment in fixed assets.
Quote: "They also collaborated with a nearby packaging unit to use their packing machines during peak-season."


Step 4: Conclusion
By strategically managing its nature of business, scale, financing alternatives, and collaborations, 'Freshju' navigated its massive fixed capital requirements efficiently.