Mba Project

INTRODUCTION

Cost volume profit (CVP) analysis generally defined as a planning tool by which manages can evaluate the effect of a change(s) in price, volume, variable cost or fixed cost on profit. Additionally, CVP analysis is the basis for understanding contribution margin pricing, related short-run decisions, target costing and transfer pricing. In the marginal costing varies directly with the volume of production or output. On the other hand, fixed cost remains unaltered regardless of the volume of output. In net effects, if volume is changed, variable cost varies as per the changes in volume. In this case, selling price remains fixed, fixed remains fixed and then there is a change in profit. Cost – Volume profit Analysis is a logical extension of Marginal costing.

It is

based on the same principles of classifying the operating expenses into fixed and variable. Now-a-days it has become a powerful instrument in the hands of policy makers to maximum profits. There elements need to be related ion order to achieve the maximum profit. Apart from profit projection, the concept of cost volume profit is relevant the short run. The relationship among cost, revenue and profit at different levels may be expressed in graphs such as breakeven charts, profit volume graphs or in various statements forms. Earning of maximum profit is the ultimate goal of almost all business undertakings. The most important factors influencing the earning of profit is the level of production. (I.e. Volume of production).

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Profit depends on a large number of factors, most important of which are the cost of manufacturing and the volume of sales, volume of sales depends upon the volume of production and market forces which turns in related to costs. Management has no control over market. In order to achieve certain level of profitability, it has to exercise control and management of costs, mainly variable cost. This is because fixed cost is a non-controllable cost. It helps to find out the profitability of a product, department of division to have better product mix, for profit planning and to maximize the profit of a concern. These decisions can include such crucial areas as pricing policies, product mixes, market expansion or contractions, outsourcing contracts, idle plant usage, discretionary expenses planning and a variety of other important considerations in the planning process. Given the broad range of context in which cost volume profit can be used. In other words, it helps in locating the level of output which evenly breaks the cost and revenues used in its broader sense, it means that system of analysis which determine profit, cost and ales value at different levels of output. The cost Volume profit analysis establishes the relationship of cost, volume and profit. Thus cost volume profit furnishes the complete picture of the profit structure. In other word, cost volume profit is a management accounting tool that expresses relationship among sales, volume, cost and profit. The cost volume analysis uses the techniques of breakeven analysis, operating leverage, margin of safety and effect of changes on sales and contribution on margin and net operating income. The level of sales needed to achieve desired target profit, in order to predict changes in net operating income. The data are cost sheet and balance sheet collected from the company.

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COMPANY PROFILE

HI – TEK MACHINES Is one of the leading manufacturers, suppliers and exporters of manufactures of Machines Tools, gravity die casting, aluminum gravity die casting, aluminum permanent mold casting, cylinder heads, Radial Drills, Rotary Lever, flywheel housings, actuator cylinders, gearbox housings, switch gear components for engineering and automobile. Started as a private company, it later on changed to a public limited gaining enormous recognition worldwide.

The company was started in 2003. The company founder name is Mr. Srinivasa Rao. The location is extremely convenient for our freight companies, suppliers, clients and

employees.

And

the

site

is

suitable

for

future

expansion.

Products: Manufacturers, Suppliers and Exporters of aluminum die casting, gravity die casting, Radial Drills, Rotary Lever , aluminum permanent mold casting, cylinder heads, flywheel housings, actuator cylinders, gearbox housings, switch gear components for engineering and automobile are :- -Aluminum Die Casting -Gravity Die Casting -Aluminum Permanent Mold Casting -Engine Components :- .Cylinder Heads .Flywheel Housings .Manifolds -Gear Components :- .Gearbox Housings .Adaptor Housings .Extension Arms -Engineering and Electrical Components .Actuator Housings .Actuator Cylinders .Switch Gear Components.

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QUALITY POLICY: WE SHALL PRODUCE HIGHEST QUALITY CASTINGS TO THE DELIGHT OF OUR CUSTOMERS. OUR AIM IS TO ACHIEVE EXCELLENCE THROUGH CONTINUOUS IMPROVEMENT IN QUALITY, COST AND DELIVERY WITH THE INVOLVEMENT OF OUR EMPLOYEES, CUSTOMERS AND VENDORS. QUALITY OBJECTIVES: i.

Enhance quality awareness and performance of employees through training, motivation and involvement.

ii.

Control, monitor and continuously improve the methods and technology of casting processes to achieve higher quality of the cast products.

iii.

Continuous improvements in the design and manufacture of casting dies and manufacturing processes to improve productivity and to reduce product cost.

iv.

Continuous reduction of cost of poor quality due to rejections and recycles by propagating and adhering to "DO IT RIGHT FIRST TIME" principle.

v.

Ensure proper evaluation of customer requirements of products and delivery schedules and through integrated planning and implementation; improve ON-Time delivery performance towards 100%.

vi.

Minimize and eliminate vendor related quality and delivery problems through vendor development and guidance.

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ALLOY MAKING: •

Physical we have in-house alloy making facility with 1.0 Ton and 1.5 Ton fully rotary furnaces.

•

To test the alloy quality, in house Spectro Analyzer - fully automatic nondestructive testing equipment is available.

•

BHN Tester and UTL Testing machine for testing of properties

CORE MAKING: The success / accuracy of aluminum die-casting depend on core making. To meet the customer specs and close tolerances, we have: •

Shell core shooter (2 nos.) - a fully automatic machine with the capacity of 1500 cores per day in each machine.

•

Semi automatic manual machines -12 nos.

•

Co2 core making facility for large cores.

DIE AND CORE BOX MAKING: Since the accuracy of casting depends largely on the quality of die and core box making, we have in house facilities like: •

Designing & Programming with Pro-E, CAD, CAM facility with latest software and advanced computer.

•

CNC Die sinking machines with direct programmed transferring facility in all machines. CNC machines with OIM-MA Systems with look ahead capability for die and core box making. 5

•

Dedicated and fully equipped tool room with mould making facility.

•

In house CMM measuring to inspect 3D measurement of die, core and casting.

CASTINGS: To ensure the quality standards and process control, following features are available in the manufacturing facilities: •

All the dies have hydraulic movement and hydraulic clamping arrangement and are operated by continuously trained and skilled persons.

•

Oil fired tilting furnaces and electrical holding furnaces.

•

All the furnaces have molten metal treatment facility.

•

All the furnaces have continuous temperature monitoring and control system as standard equipment.

•

Systematic sample approval procedure with the help of highly skilled QC people with modern inspection facility.

•

Test bar casting, physical testing and spectro analysis before continuous and regular production.

•

Solution treatment fully automatic furnace.

FINISHING: •

Skilled and experienced operators to finish and inspect the casting with power tools.

•

Two-tier Inspection system to ensure quality of casting at all levels.

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HEAT TREATIMENT FACILITY: •

In-house solution treatment fully automatic furnace

•

Automatic aging furnace.

•

Pressure and Vacuum Impregnation with automatic control.

•

Well-equipped hardness testing, elongation and tensile testing facility.

•

Continuously trained Operators

MACHINING: Well-equipped machining facilities with the following machines: •

CNC Four Axis Machining Centres - 2 nos.

•

CNC Machining Centres -2 nos.

•

CNC Turning Centres - 2 nos.

•

All geared lathes - 5 nos.

•

Parts Cleaning System to clean up to 5 micron Millipore.

•

Millipore testing facility.

•

Leaking Testing Facility.

•

CMM Inspection & Air gauging facility.

AUXILIARY SUPPORT FACILITIES: •

Well-equipped and trained Maintenance Department.

•

2 nos. 250KVA Generator Sets for uninterrupted Power Supply.

7

•

Windmill at Muppanthal - 250 KVA for which equivalent amount of Power will be made available from the grid.

•

Compressor 400 CFM capacity as standby.

•

Centralized heating system for the total requirement of furnace oil.

•

Proposed Installation of environment friendly and ergonomic LPG/LNG heating system for furnaces.

All the above departments are committed to continuous improvement, monitoring and training.

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OBJECTIVES

PRIMARY OBJECTIVE: To analysis of the Cost Volume Profit and its impacts at HI- TEK MACHINES. SECONDARY OBJECTIVE: 1. To identify the effect of breakeven point for multiple products and ascertain which product is as advantages. 2. To study the level of sales need to achieve a desired target profit and identify Margin of safety and it’s significance. 3. To measure the degree of leverages. 4. To analyze the trend with regards to income, expenditure and profits.

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SCOPE OF THE STUDY This study is performed by using the cost sheet and balance sheet of HI – TEK MACHINES. The analysis done in the cost sheet are Breakeven analysis, profit volume, etc., these calculation cover the major areas like contribution margin, profit. This would be useful for company to make new strategy to compete in the market by adopting various controlling techniques in the process of manufacturing.

This study was conducted only on overall cost volume profit analysis and not on each and every variables. This study to help to forecast profit fairly and accurately as it is essential to know the relationship between profits and costs.

This study assists in evaluation of performance for the purpose of control and also assists in formulating policies by showing the effect of different price structure on costs and profits. This study predetermined overheads rates are related to a selected volume of production.

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REVIEW OF LITERATURE Cost volume profit analysis is one of the most hallowed, and yet one of the simplest, analytical tool in management accounting. In a general sense, it provides a sweeping financial overview of the planning process (Horngren et. Al., 1994). That overview allows managers to examine the possible impacts of a wide range of strategic decisions. These decisions can include such crucial areas as pricing policies, product mixes, market expansion or contractions, outsourcing contracts, idle plant usage, discretionary expenses planning and a variety of other important considerations in the planning process. Given the board range of context in which cost volume profit can be used. The basic simplicity of cost volume profit is quite remarkable. Armed with just three inputs of data – Sales price, variable cost per unit, and fixed cost – a managerial analyst can evaluate the effect of decision that potentially alter the basic nature of a firm.

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3.1 RESEARCH METHODOLOGY Research Methodology is a way to systematically analysis the research subject and it may be understood as a science of study how research at done scientifically. Research is common parlance refer to a research for knowledge. According to Redman and Mary, research is defined as “a systematized effort to gain new knowledge”. Research Methodology is a way to systematically solve the problem.

It may be

understood as a science of studying how research is done scientifically. The advanced learner’s dictionary lay down the meaning of research as a careful investigation or inquiry especially through search for new facts in any branch of knowledge. The secondary data is collected from the annual report of HI TEK MACHINES, Ambattur, Chennai for the financial year 2008-2009 and the various records maintained in the Finance Department. Also the data collected by interviewing the Finance Department employees is used in this study to understand the thing clearly. It is necessary for the research method, techniques but also the methodology.

RESEARCH DESIGN: Research Design is the conceptual structure within which the research is conducted,. A research is the arrangement of conditions for the collection and analysis of data in a manner that aims to combine the relevance to the research purpose with economy in procedures.

Research constitutes the blue print for the collection.

Measurement and analysis of data.

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ANALYTICAL AND DESCRIPTIVE RESEARCH DESIGN:

ANALYTICAL DESIGN: The researcher has to use facts or information already availability and analyze these to make a critical evaluation of the materials. DESCRIPTIVE RESEARCH: Descriptive research is those studies concerned with describing the characteristics of the state of affairs as it’s exist at present. The main purposes descriptive research study is to specify the objectives with sufficient precision to ensure that data collected are relevant. The data collected are examined collected the information.

The research

design is prepared keeping in view the objectives of the study the resources available. METHOD OF DATA COLLECTION; The base data has been collected as below SECONDARY DATA The secondary data is to be collected from the financial reviews of the company it consists of Balance and cost sheet which already been collected and analyzed by someone else the secondary data may either be published data or unpublished data. ANALYTICAL TOOL; The following were the various analytical tools applied.

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BREAKEVEN ANALYSIS; The breakeven analysis indicates at what level cost and revenue an in equilibrium. It is a simple and easily understandable method of presenting to management the effect of changes in volume on profit detailed analysis of breakeven data will reveal to management the effect alternative decision which reduce or increase cost and which increases sales volume and income. It is a device which portrays the effects of any type of future planning by evaluating alternative course of action. BREAKEVEN POINT;

Under this analysis at the breakeven point profit being zero, contribution is equal to the fixed cost. If the actual volume of sales is higher than the breakeven volume, there will be a profit.

Breakeven sales (in Rupees) =

Fixed Cost _____________________ Contribution Margin Ratio

Breakeven point (in units)

=

Fixed Cost _________________ Contribution units

MULTIPLE PRODUCTS IN BEP; There are multiple products with different has a direct effect on the fixed cost recovery and total profits of the firm. Different products have different profit volume ratio because of different selling price and variable cost. The total profit depend to some extent upon the proportion is the products are sold.

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P/V ratio

Sales – Variable Cost _____________________

=

* 100

Sales

B/E Sales

Fixed Cost _________________

=

* 100

Total Contribution MARGIN OF SAFETY; This is the difference between the sales and breakeven point. If the distance is relatively short it indicates that a small drop in production or sales will reduces profit considerably. If the distance is long it means that the businesses can still making profit even after a serious drop in production. It is important that there should be a reasonable margin of safety otherwise reduces level of production may prove dangerous. Margin of Safety

Margin of Safety

=

Sales – BES

=

Margin of Safety _____________________ * 100 Sales

DESIRED TARGET PROFIT; The management faces two decisions (i)

To increases sales volume through reduction in selling price (ii) To increase selling price in case the profit volume ratio is low, with the

expectation that the higher profit will be earned. If reduction is selling price does not increase the sales volume the price reduction will result only in lower profits. If the profit makes only small contribution, then a reduction in selling price makes it all the more difficult to recover the fixed cost and to earn profit.

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Required sales in units

Fixed expenses + Target Profit ___________________________

=

Unit Contribution Margin

Required sales value

=

Fixed expenses + Target Profit ____________________________ Contribution Margin Ratio

PROFIT FROM GIVEN SALES: It can be appropriately used to solve most of the problems of cost volume profit analysis. Profit is different from the contribution which is net margin increasing after reducing fixed expenses from the total contribution profit can be ascertained as given below

Contribution

=

Sales

-

P/V ratio

Profit

=

Contribution -

Fixed Cost

DEGREE OF OPERATING LEVERAGE: Operating leverage is determined by the firm’s sales revenue and its earnings before interest and tax (EBIT). The earnings before interest and taxes are called as operating profit ( EBIT), while financial leverage can be quite significant for the earning available to ordinary shareholders.

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Financial Leverage

EBIT ____________

=

Profit

Operating Leverage

Contribution ____________

=

EBIT

Combined Leverage

Contribution _________________

=

EBT

CONTRIBUTION MARGIN RATIO: The P/V ratio which establishes the relationship between contribution and sales is of vital importance for studying the profitability of operation of a business. It reveals the effects on profit of changes the volume. The profit volume ratio is also called the contribution ratio or Marginal ratio.

Contribution

=

Contribution Margin ratio

=

Sales – Variable Cost

Contribution ________________ Sale

17

* 100

TREND ANALYSIS: Trend is the long term movement of a time series. It helps to ascertain the growth factor. If a trend can be ascertained and tentative estimates concerning future is made accordingly. The equation for the straight lines used to describe the linear relationship between independent variable and the dependent variables. Y = a + b(x)

COMPARATIVE INCOME STATEMENT: The income statement discloses net profit or net loss on account of operations. A comparative income statement will show the absolute figures for two or more periods. The absolute change from one period to another and if desired. The change in terms of percentages. Since, the figures for two or more periods are shown side by side; the reader can quickly ascertain whether sales have increased or decreased, whether cost of sales has increased or decreased etc.

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ANALYSIS AND INTERPRETATION

i ) Contribution Margin Ratio:

Table showing Contribution Margin Ration of Radial Drills:

Particulars

2007

2008

2009

Sales

2,41,702

2,61,115

2,35,175

(-) Variable Cost

1,27,168 _________

1,46,892 ________

1,28,760 ________

Contribution

1,14,534

1,14,223

1,06,415

Contribution Margin Ratio

47.4

43.8

45.24

Contribution

Contribution Margin Ratio

=

Sales – Variable Cost

=

Contribution __________________ Sales

19

* 100

FINDINGS: It is found that a sale reduces from 07 to 08 in Radial Drills Contribution Margin Ratio in the year 07 – 47.4%, 08 – 43.8%, 09 – 45.24%.

INFERENCE: Contribution Margin of the Radial Drills has increased to 45.24 compared to the previous year.

Chart showing Contribution Margin Ration of Radial Drills:

20

Table showing Contribution Margin Ration of Rotary levers:

Particulars

2007

2008

2009

Sales

2,79,615

2,74,715

2,41,795

(-) Variable Cost

1,37,439 _________

1,38,558 ________

1,25,000 ________

Contribution

1,42,176

1,36,176

1,16,795

Contribution Margin Ratio

50.8

49.56

48.3

FINDINGS: It is found that sales reduce from 07 to 08 in Rotary Levers Contribution Margin Ratio in the year 07 – 50.8%, 08 – 49.56%, 09 – 48.3%. INFERENCE:

Previous year, the contribution Margin Ratio has declined in 08 – 49.56% and also shown negative trend in 09 – 48.3% of Rotary Levers.

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Chart showing Contribution Margin Ration of Rotary levers:

(II) BREAKEVEN SALES: RADIAL DRILLS: Table showing Breakeven Sales:

Year

Fixed Cost

Contribution Margin Ratio

22

Breakeven sales (Rs)

2006 - 2007

53,038

47.4

1118.9

2007 - 2008

55,276

43.8

1262

2008 - 2009

52,970

45.24

1170.86

Breakeven sales

=

Fixed Cost _____________________ Contribution Margin Ratio

FINDINGS: It is found that the Breakeven Sales Value of Radial Drills for the 2006-2007 are 1118.9 and 2007-2008 are 1262 and 2008-2009 are 1170.86. INFERENCE: The breakeven sales values of Radial Drills are decline from Rs.1262 to Rs.1170.86 MT. It shows decline trend.

( i ) Chart showing Breakeven Sales of year 2007:

23

( ii ) Chart showing breakeven sales of 2008:

24

( iii ) Chart showing Breakeven Sales of 2009:

25

ROTARY LEVER:

26

(i)

Table showing Breakeven Sales:

Year

Fixed Cost

Contribution Margin Ratio

Breakeven sales (Rs)

2006 - 2007

62,003

50.8

1220.5

2007 - 2008

60,986

49.56

1230.5

2008 -2009

58,485

48.3

1210.86

FINDINGS: It is found that the Breakeven Sales Value of Rotary Levers for the 2006-2007 are 1220.5 and 2007-2008 are 1230.5 and 2008-2009 are 1210.86. INFERENCE: The breakeven sales values of Rotary Lever are decline from Rs.1230.5 to Rs.1230.86 MT. It shows decline trend.

( i ) CHART SHOWING BREAKEVEN SALES OF 2007:

27

( ii ) Chart showing Breakeven Sales of 2008:

28

( iii ) Chart Showing Breakeven Sales of 2009:

29

(ii) BREAKEVEN POINT:

30

RADIAL DRILLS: Table showing Breakeven Point:

Year

Fixed Cost

Contribution

Breakeven Point (units)

2006 - 2007

53,038

11.4

4652.45

2007 - 2008

55,276

11.4

4848.77

2008 - 2009

52,970

10.6

4997.16

Breakeven point

=

Fixed Cost _________________ Contribution per unit

FINDINGS: For 2007, when the output is at 4652 units revenue equal cost i.e. it reaches the critical point of no profit/ no loss. Radial Drills sales increases the level there shall not be loss of the company. In 2008, the Breakeven Points is increases and shown positive trend and in 09, the Breakeven points increases and there shall be profit of the company.

INFERENCE:

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The breakeven Points in which in units for Radial Drills has increased in 2008 – 2009 and show positive trend.

Chart showing breakeven point

ROTARY LEVER:

32

Table showing Breakeven Points:

Year

Fixed Cost

Contribution

Breakeven Points (units)

2006 - 2007

62,003

14.2

4366

2007 - 2008

60,986

13.6

4484.2

2008 - 2009

58,485

11.6

5041.81

FINDINGS: For 2007, when the output is at 4366 units revenue equal cost i.e. it reaches the critical point of no profit/ no loss. Rotary Levers sales increases the level there shall not be loss of the company. In 2008, the Breakeven Points is increases and shown positive trend and in 09, the Breakeven points increases and there shall be profit of the company.

INFERENCE:

The breakeven Points in which in units for Rotary Levers has increased in 2008 – 2009 and show positive trend.

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Chart showing breakeven point.

34

(iii) MULTIPLE PRODUCTS BREAKEVEN POINTS:

. Table showing the cumulative Sales and Cumulative Contribution in the year of 2007:

Sales

Cumulative Sales

P/V Ratio

Contributio n

Cumulative contribution

RD

2,41,702

2,41,702

47.4

1,14,534

1,14,534

RL

2,79,615

5,21,317

50.8

1,42,176

2,56,710

Product

P/V Ratio

Sales – Variable Cost ____________________

=

Sales

BREAKEVEN Sales

=

Fixed Cost _____________________

* Total Sales

Total Contribution

=

1, 29,458 ___________ 2, 56,710

=

Rs.2, 62,898

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* 5, 21,317

FINDINGS: It is found that the profit Volume ratio of Radial Drills is 47.4% and Rotary Lever is 50.8%. The Rotary Lever Sales and Contribution is high. INFERENCE: In the year 07, best product is Rotary Lever the Profit Volume Ratio also high. In the Breakeven is Rs. 2, 62,898.

( i ) Chart showing Multiple Product Breakeven Point of 2007.

36

Table showing the cumulative Sales and Cumulative Contribution in the year 2008:

Sales

Cumulative Sales

P/V Ratio

Contributio n

Cumulative contribution

RD

2,61,115

2,61,115

43.8

1,14,223

1,14,223

RL

2,74,715

5,35,830

49.56

1,36,157

2,50,380

Product

BREAKEVEN Sales

=

Fixed Cost _____________________

* Total Sales

Total Contribution

=

1, 35,138 ___________

* 5, 35,830

2, 50,380 =

Rs.2, 89,204

FINDINGS: It is found that the profit Volume ratio of Radial Drills is 43.8% and Rotary Lever is 49.56%. The Rotary Lever Sales and Contribution is high

INFERENCE:

37

In the year 08, best product is Rotary Lever the Profit Volume Ratio also high. In the Breakeven is Rs. 289204.

(ii) Chart showing multiple product breakeven point of 2008

38

(iii) Table showing the cumulative Sales and Cumulative Contribution in the year 2009:

Sales

Cumulative Sales

P/V Ratio

Contributio n

Cumulative contribution

RD

2,35,175

2,35,175

45.24

1,06,415

1,06,415

RL

2,41,795

4,76,970

48.3

1,16,795

2,23,210

Product

BREAKEVEN Sales

=

Fixed Cost _____________________

* Total Sales

Total Contribution

=

1, 32,580 ___________

* 4, 76,970

2, 23,210 =

Rs.2, 83,305

FINDINGS: It is found that the profit Volume ratio of Radial Drills is 45.24% and Rotary Lever is 48.3%. The Rotary Lever Sales and Contribution is high.

INFERENCE:

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In the year 2009, best product is Rotary Lever the Profit Volume Ratio also high. In the Breakeven is Rs. 2, 83,305.

(iii) Chart showing Multiple Product Breakeven Point of 2009

(IV) MARGIN OF SAFETY:

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RADIAL DRILLS: Table showing Margin of Safety

Year

Breakeven Sales

Sales

Margin of Safety

Ratio %

2006 - 2007

1118.9

2,41,902

2,40,584

99.53

2007 - 2008

1262

2,01,115

2,59,853

99.51

2008 - 2009

1270

2,35,175

2,34,005

99.5

Margin of Safety

=

Margin of Safety Ratio =

Sales – Breakeven Sales

Margin of Safety ________________ * 100 Sale

FINDINGS: It is found that the Margin of Safety ratio in the Year 07 – 99.53%, 08 – 99.51%, 09 – 99.5%. It is kept on constant for the three years. It is the strength of the business INFERENCE: The large Margin of Safety that the business is sound in Radial drills.

41

Chart Showing Margin of Safety.

ROTARY LEVERS Table showing Margin of Safety

42

Year

Breakeven Sales

Sales

Margin of Safety

Ratio %

2006 - 2007

1220.5

2,79,615

2,78,395

99.56

2007 - 2008

1230.5

2,74,715

2,73,485

99.55

2008 - 2009

1210.86

2,41,795

2,40,585

99.50

FINDINGS: It is found that the Margin of Safety ratio in the Year 07 – 99.56%, 08 – 99.55%, 09 – 99.50%. It is kept on constant for the three years. It is the strength of the business. INFERENCE: The large Margin of Safety that the business is sound in Rotary Lever.

Chart Showing margin of Safety.

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(V) DESIRED TARGET PROFIT: The contribution Margin Method can be used to find the number of units that must be sold to attain a target profit. In the case of the contribution Margin Method, the Formulas are Required sale in units

=

Fixed Expenses + Target Profits ________________________ Units contribution Margin

=

52,970 + 162.27 _______________ 10.6

=

5012.47 units

44

In rupees

=

Fixed cost + target profits __________________________ Contribution Margin Ratio

=

52,970 + 162.27 _______________ 45.24

=

Rs. 1174.4

FINDINGS: It is found that to achieve desired Target profit required sales in units 5012 and the required sales value is Rs. 1174.

INFERENCE: The target profit of Rs. 162.27 lakhs the units to be sold is 5012 units and the sales to be achieved is Rs. 1174.45 lakhs. (VI) PROFIT FROM GIVEN SALE RADIAL DRILLS: . Table showing Profit from given Sales:

Year

Fixed Cost

Contribution

45

Profit

2006 - 2007

1,14,534

55,038

59,496

2007 - 2008

1,14,223

55,276

58,947

2008 - 2009

1,06,415

52,970

53,445

Contribution

=

Profit

=

Sales

-

P/V ratio

Contribution -

Fixed Cost

FINDINGS: It is found that the profit from given sales of Radial for the 2006 -2007 are 59,496 and 2007 – 2008 are 58,947 and 2008 – 2009 are 53,443.

INFERENCE: The Profit from given sales of Radial Drills are decline from Rs. 59,496 to Rs. 53,443. It shows decline trend. Chart showing Profit from given Sales:

46

ROTARY LEVER: Table showing Profit from given Sales:

Year

Contribution

Fixed Cost

Profit

2006 - 2007

1,42,176

62,003

80,173

2007 - 2008

1,36,176

60,986

75,190

2008 - 2009

1,16,795

58,485

58,310

FINDINGS: It is found that the profit from given sales of Rotary Lever for the 2006 -2007 are 80,173 and 2007 – 2008 are 75,190 and 2008 – 2009 are 58,310. 47

INFERENCE: The Profit from given sales of Rotary Levers are decline from Rs. 80,173 to Rs. 58,310. It shows decline trend.

Chart showing Profit from given Sales:

48

(VII) DEGREE OF OPERATING LEVERAGES: Table showing Degree Operating Leverages:

Particulars

2007

2008

2009

Sales

2,62,175

2,69,115

2,39,185

(-) Variable Cost

1,33,734 ___________

1,49,992 ___________

1,27,403 _________

Contribution

1,28,441

1,19,123

1,11,782

(-) Fixed Cost

58,941 __________

57,889 ___________

57,662 _________

EBIT

69,500

61,234

54,120

(-) Interest

14,747

14,099

33,564

49

Financial Leverage

=

EBIT ____________ Profit

Operating Leverage

=

Contribution ________________ EBIT

Combined Leverage

=

Contribution _______________ EBT

Table Showing the Leverages:

Year

Financial Leverage

Operating Leverage

Combined Leverage

2007

1.27

1.85

2.35

2008

1.29

1.95

2.53

50

2009

1.61

2.07

3.33

CALCULATION: For 2007 Financial Leverage

69,500 ______________

=

54,753 =

Operating Leverage

1.27 1, 28,441 ____________

=

69,500 =

Combined Leverage

1.85 1, 28,441 __________

=

54,753 For 2008 Financial Leverage

61,234 ______________

=

47,134 =

Operating Leverage

1.29

1, 19,123 ____________

=

51

61,234 =

Combined Leverage

1.95 1, 19,123 __________

=

47,135 =

2.53

For 2009 Financial Leverage

54,120 ______________

=

33,564 =

Operating Leverage

1.61 1, 11,782 ____________

=

54,120 2.07

=

Combined Leverage

1, 11,782 __________

=

33,564 =

3.33

FINDINGS: It is found that Financial Leverage is in 2007 – 1.27 increasing 1.29 - 2008 the increase 1.61 - 2009 the increase and operating Leverage is in is in 2007 – 1.85

52

increasing 1.95 - 2008 the increase 2.07 - 2009 the increasing and Combined Leverage is in 2007 – 2.35 increasing 2.53 - 2008 the increase 3.33 - 2009 the increased

INFERENCE:

High Operating Leverage is good since the revenue is increasing every year. Positive Financial Leverage is seen of indicates that the ratio on investment. On amount was more than fixed cost of their use.

Chart Showing the Degree of Leverages:

53

(VIII) TREND ANALYSIS:

54

Table showing trend analysis on Expenditure:

Year

Y

X=x-04

X2

XY

2005

1,52,485

-2

4

-3,04,970

2006

1,12,750

-1

1

-1,12,750

2007

1,34,000

0

0

0

2008

1,68,785

1

1

1,68,785

2009

1,79,115

2

4

3,58,230

________ 10

______________ 1,09,295

_____________ 7,47,135

A =

Σy _________ n

=

7, 47,135 _________ 5

=

1, 49,427

Σxy ____________ Σx2

b =

1, 09,295 __________ 10

=

=

X = 2009

55

1, 09, 29.5

Y=a+bX 2009

=

1, 49,427 + 10,929.5(3)

=

1, 82,215.5

2010

=

1, 49,427 + 10,929.5(4)

=

1, 93,145

2011

=

1, 49,427 + 10,929.5(5)

=

2, 04,074.5

2012

=

1, 49,427 + 10,929.5(6)

=

2, 15,004

2013

=

1, 49,427 + 10,929.5(7)

=

2, 25,933.5

FINDINGS: It is found that an expense for the next five year is trend analysis. The expenses keep in increasing in the year 2009 – 1, 82,215, 2010 – 1, 93,145, 2011 – 2, 04,074, 2012 – 2, 15,004, 2013 – 2, 25,933.

INFERENCE It is inferred that trend projected for the expenses of HI TEK MACHINES to be increased to a great extent. The company takes the step to control its expenditure.

Chart showing Trend analysis on Expenditure 56

Table showing trend analysis on Income:

57

Year

Y

X=x-04

X2

XY

2005

1,62,175

-2

4

-3,24,350

2006

1,51,785

-1

1

-1,51,785

2007

1,79,385

0

0

0

2008

1,93,785

1

1

1,93,785

2009

1,98,145

2

4

3,96,290

________ 10

______________ 1,13,940

_____________ 8,85,275

A =

Σy _________ n

=

8, 85,275 _________ 5

=

1, 77,055

Σxy ____________ Σx2

b =

1, 13,940 __________ 10

=

=

X = 2009

58

11,394

Y = a+bX 2009

= 1, 77,055 + 11,394(3)

=

2, 11,237

2010

= 1, 77,055+ 11,394(4)

=

2, 22,631

2011

= 1, 77,055 + 11,394(5)

=

2, 34,025

2012

= 1, 77,055 + 11,394(6)

=

2, 45,419

2013

= 1, 77,055 + 11,394(7)

=

2, 56,813

FINDINGS:

It is found that income for the next five year is trend analysis of HI TEK MACHINES. The incomes for the year 2009 are found to be projected as Rs. 2, 11,237 where as it is found to be Rs. 2, 56,813 for 2013. INFERENCE:

It is inferred that income of M/s HI TEK MACHINES to be increased. So the company is making profit

Chart showing Trend analysis on Income.

59

60

Table showing trend analysis on Profit

Year

Y

X=x-04

X2

XY

2005

3,12,82

-2

4

-62,564

2006

3,51,86

-1

1

-35,186

2007

3,81,72

0

0

0

2008

4,18,60

1

1

41,860

2009

4,57,60

2

4

91,520

________ 10

______________ 35,630

____________ _ 1,92,260

A =

Σy _________ n

=

1, 92,260 _________ 5

=

38,452

Σxy ____________ Σx2

b =

=

=

61

35,630 __________ 10 3563

X = 2009 Y = a+bX 2009

=

38,452 + 3563(3)

=

49,141

2010

=

38,452+ 3563(4)

=

52,704

2011

=

38,452 + 3563(5)

=

56,267

2012

=

38,452+ 3563(6)

=

59,830

2013

=

38,452 + 3563(7)

=

63,393

FINDINGS: It is found that income for the next five year is trend analysis of HI TEK MACHINES. The profit for the year 2009 is found to be projected as Rs. 49,141 where as it is found to be Rs. 63,393 for 2013. INFERENCE: It is inferred that income of M/s HI TEK MACHINES to be increased. So the company is making profit

62

Chart showing Trend Analysis on Profit.

63

. STATEMENT SHOWING COMPRATIVE PROFITBILITY OF RADIAL DRILL AND ROTARY LEVER OF 2006 - 2007 UNIT S

PARTICULARS A. Sale Value of Production

RADIAL DRILLS

ROTARY LEVER

UNITS

TOTAL 5,21,31 2,79,615 7

241

2,41,702

266

Raw Materials

75

75,145

81

85,131

Variable Over Heads

44

44,369

54

57,045

119

1,19,514

135

1,42,176

122

1,22,188

130

1,37,439

VARIABLE COST

B. Variable Cost

1,60,27 6 1,05,85 0 2,61,69 0

CONTRIBUTION C.CONTRIBUTION LESS: FIXED COST

2,61,69 0 97,250 1,62,37 7

Profit

Working Notes: Radial Drills = 50,000 Rotary Lever = 47,250

=

1000*50

=

1050*45 ______ _ 97,25 0

FINDINGS: It is found that Comparative profitability of Radial Drills and Rotary Lever is sale Value of production is Rs. 5,21,317 and variable cost is 2,61,680 and after reduction from

64

Sale 2,61,690 and less the fixed cost is 97,250. The profit of the both products is Rs. 1, 62,377.

INFERENCE: The profit of the radial Drills and Rotary Lever has positive trends in the year of 2006 – 2007.

3.2.19.STATEMENT SHOWING COMPRATIVE PROFITBILITY OF RADIAL DRILL AND ROTARY LEVER OF 2007 – 2008 UNIT S

PARTICULARS A. Sale Value of Production

RADIAL DRILLS

ROTARY LEVER

UNITS

TOTAL 5,35,83 2,74,716 1

261

2,61,115

261

78 39

75,145 39,078

79 51

83,152 53,605

114

1,14,223

129

1,36,157

VARIABLE COST Raw Materials Variable Over Heads B. Variable Cost

1,58,29 7 92,683 2,50,96 0

CONTRIBUTION

LESS: FIXED COST

2,84,87 1 1,02,40 0

PROFIT

1,82,4 71

C.CONTRIBUTION

147

146,892

132

Working Notes: Radial Drills 52,000 Rotary Lever 50,400

=

1000*52

=

=

1050*48

=

65

1,38,559

_______ 1,02,400

FINDINGS: It is found that Comparative profitability of Radial Drills and Rotary Lever is sale Value of production is Rs. 5, 35,181 and variable cost is 2,50,960 and after reduction from Sale 2,84,871 and less the fixed cost is 1,02,400. The profit of the both products is Rs. 1, 82,471.

INFERENCE: The profit of the radial Drills and Rotary Lever has positive trends in the year of 2007 – 2008. STATEMENT SHOWING COMPRATIVE PROFITBILITY OF RADIAL DRILL AND ROTARY LEVER OF 2008 - 2009

PARTICULARS A. Sale Value of Production

UNIT S 248

RADIAL DRILLS 235,175

ROTARY LEVER

UNITS 264

TOTAL 4,16,89 241,795 0

VARIABLE COST Raw Materials Variable Over Heads B. Variable Cost

78 39

72,136 37,429

78 56

70,180 50,275

115

1,09,559

133

1,20,435

133

1,25,615

136

1,21,340

1,42,31 0 87,704 2,30,01 4

CONTRIBUTION C.CONTRIBUTION LESS: FIXED COST PROFIT

1,86,87 6 107,400 79,476

66

Working Notes: Radial Drills 57,000 Rotary Lever 50,400

=

950*60

=

=

900*56

=

_______ 1,07,400

FINDINGS: It is found that Comparative profitability of Radial Drills and Rotary Lever is sale Value of production is Rs. 4,16,890 and variable cost is 2,30,014 and after reduction from Sale 1,86,876 and less the fixed cost is 1,07,400. The profit of the both products is Rs. 79,476.

INFERENCE: The profit of the radial Drills and Rotary Lever has positive trends in the year of 2008 - 2009.

Chart showing the Comparative profitability of Radial Drills and Rotary Lever:

67

FINDINGS 1. Contribution Margin of the Radial Drills and Rotary Lever has shown Positive trend. 2. The Break even sales values of Radial Drills have shown a decline trend which is the positive indicators.

68

3. The Break even points in units for Radial Drills have shown a decline trend. 4. The Best Product during the three years 2006 – 2009 in Rotary Lever. This Product show high profit volume ratio when compared to Radial Drills Multi products of Break even charts are very useful for the costs and profit planning and growth of both products. 5. The target profit of Rs. 162.27 lakhs the units to be sold is 5012 units and the sales to be achieved in Rs. 1174.27 lakhs. 6. The Profit from given sales of Rotary Levers are decline from Rs. 80,173 to Rs. 58,310. It shows decline trend. 7. The large Margin of Safety indicates that the business is sound in Radial Drills. 8. High Leverage is good since the revenue are increasing positive financial Leverage is seen 2008 indicates that the return on investment on asset was more than fixed cost of their use. In 2009, this is negative which indicates that the return on investment a financial asset is less than the funds cost. 9. The profit for the both the Radial Drills and Rotary Lever have decline trend. 10. It is inferred that trend project for the expenses of M/s HI TEK MACHINES to be increased to a great extent.

The company takes the step to control its

expenditure.

SUGGESTIONS

1. It is beneficial to growth of the company if it maintain the break even points are multiple products.

69

2. Trend analysis shows that the expenditure is likely to increase for the next five year. If this state continues the expenditure may overcome the income which will unproductive for the company. So the company should give more attention to its expenses. 3. From the regression line of production on sales, sales variables can be obtained for the any value of production variable. Thus, this method can be used by the company to easily achieve its target sale. 4. The company can maintain the fixed cost and long as it brings some profit to the company. 5. Break even points for radial drills and rotary lever through has come down in 2008 – 2009. This has to be maintained as there is found to be an increase in the year 2007 – 2008. 6. Low financial leverage in 2009 indicates that the company must concentrate on fixed cost involve in usage of assets.

CONCLUSION

The study was done at HI TEK MACHINES to find out the cost volume profit stability of the company with the help of cost sheet for three years. After an extensive

70

and exhaustive analysis, it was found that the company should maintain fixed cost as long as it brings some profit. The total cost of productions should be reduced in order to increase net operating income. Although the Margin of Safety was found to be high. The leverage, it indicates that the return on investment a financial asset is less than the funds cost. It is found that trend project for the expenses of the company to be increased to a great extent. The company should focus on improving its costs. Margin is forth coming years. Also it will be beneficial to the growth of the company, if it maintain breakeven point is multiple products. High operating leverage is good since the revenue is increasing. Low financial leverage indicates that the company must concentrates on fixed involve is usage of assets. The company can maintain the fixed cost and long as it brings some profit to the company. We conclude of this analysis, Company or management enables to predict the profit as a wide range of volume and to determine the price of the products very carefully. Through the analysis, the manager can easily take decision showing in its reports how utilization of available capacity will lead to increase in profit.

BIBLIOGRAPHY SOURCES:

71

1. V.K SAXENA and C.D.VARSHID – Basic of Cost and Management Accounting, Sultan Chand & Son, 3rd Edition New Delhi-2005. 2. BHABATOR and BANERJEE – Cost Accounting Theory & Practice, Prentice Hell of India Private Ltd, 12th Edition New Delhi -2006. 3. M Y KHAN and P K JAIN – Basic Financial Management, Tata Me Graw Hill Publishing Company Ltd, 2nd Edition New Delhi -2005 4. G C BERI – Statistics for Management, Tata Me Graw Hill Publishing Company Ltd, 2nd Edition New Delhi -2003 5. C R KOTHARI – Research Methodology & Techniques, Wishwa Prakashan, 2 nd Edition New Delhi -2002 JOURNALS: Journals of the financial Management Association International, Volume – 43, No.4 December 2008. Published by the University of Washington. Journals of Financial and Quantitative Analysis, Volume – 37, Issue 4 winter 2008. Sponsors: Vanderbilt University and University of South Florida. WEBSITE: Web site: www.businessfinancemag.com

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