Agroindustrial project analysi

104 AGROINDUSTRIAL PROJECT ANALYSISTable 3-7. Sensitivity Analysis of Salesand Raw Material Costs(U.S. dollars)Costs rise10 percentHistorical Raw material Revenues andtrend costs rise fall revenues fallItem holds 10 percent 10 percent 10 percentRevenues 500,000 500,000 450,000 450,000Costs 300,000 325,000 300,000 325,000Profits 200,000 175,000 150,000 125,000Change inprofits (percent) -12.5 -25 -37.5raw material's cost is reasonable. The analyst should therefore considerthe following questions in examining the cost of the procurementsystem.How do supply and demand affect the cost of raw material?* Strength of demand from competing users?* Effect of project on demand and prices?* Availability of supply at different prices?What are the farmers' opportunity costs?* Alternative uses of land?* Relative profitability of alternative uses?How do structural factors affect costs?* Margins of middlemen?* Cost and feasibility of factory's performing these functions?How do logistical services affect raw material costs?* Existing transport charges?- Contribution of transport to prices?How does governmental involvement affect raw material costs?* Price supports?* Import or service subsidies?Should spot prices be used?* Prevailing spot prices?* Variability during and across years?* Competitors' buying practices?