Question

Sitcom Technology Case

Case Study: Cost Concept and Cost Sheet

Sitcom Technology was founded by two IIT graduates Rehan and Nixit in the year 2016 with the objective of providing IT solutions to various companies. They launched their FinTech start-up after getting funded Rs 25,00,000 by Business Ventures, one of the FinTech Angel investors. This was in the form of a loan at a 12% rate of interest.

Rehan utilized his unused two bedrooms flat in Bannerghatta, Karnataka worth Rs 60,00,000 for the office. Although he could get Rs 20,000 per month as rent for the same in the market, he rented it out to his start-up at Rs 15,000 per month and also decided to waive off the security deposit of Rs 100,0000 (going rate).

The other assets bought for their enterprise were four computers and a server (Rs. 200,000), two printers come scanner (Rs 18,000), two cordless phones & four mobiles (Rs 62,000), modem for wifi and other internet accessories (Rs 6000)and office furniture (Rs 1,70,000). After purchasing the furniture, they realized that Rs 20,000 invested in panel doors couldn’t be used. There was no return or refund for that. With no other option in hand, they sold these doors as scrap for Rs 8,000. Besides these purchases, they also invested Rs 40,000 in annual licenses for a lot of software.

Nixit picked up two of his juniors as Programmer and Visualizer come graphic designer after negotiating heavily on their hourly remuneration of 1,000 per hour on a freelancing basis. Depending on the number of hours invested in the development of a particular software/ERP/IT Solution, they were paid. In the month of April 2019, Sitcom Technology paid them Rs 84,000 for 42 hours of work put in by each one of them.

In addition to these two, a telephone operator and a data entry staff were also hired at Rs 13,000 and Rs 17,000 per month respectively. The monthly expenses of Sitcom Technology in April 2019 were:

Expenses	Amount(Rs.)
Salaries	30,000
Rent	15,000
Wages(peon)	10,000
Electricity	5,000
Telephone and internet charges	12,000
Office stationery	4,000
Trade Magazines	500
Conveyances	8,000
Advertising charges	1,000
Tours and travel	16,000
Snacks	6,000
Miscellaneous	5,000

In April 2019, Sitcom Technology received two big project orders from a leading private bank and one small programming work outsourced by a major IT company in Electronic City. The work was completed in the same month with all four of them putting in a lot of hours. The revenue generated from these three projects was Rs 4,10,000.

Question to discuss:

1. Identify different types of costs discussed in the case and provide one more example of each. Is there an example of opportunity cost or sunk cost in the case?

Answer 1

1. Sunk cost/ Historical cost

Computers and servers - Rs. 2,00,000/-

Printers, scanners - Rs. 18,000/-

Phones - Rs. 62,000/-

Office furniture - Rs. 1,70,000/-

2. Marginal cost - aggregate of variable costs

Remuneration to professionals - Rs. 84,000/-

3. Fixed costs

Salaries - Rs. 30,000/-

Rent - Rs. 15,000/-

Opportunity cost is the value of alternatives forgone by opting for a particular strategy rather than going for the other alternative. Opportunity cost does not arise for the start-up, but for Rehan who could have earned a monthly rent of Rs. 20,000/- had he not let the space to be used for the start-up where he charges only Rs. 15,000/-.