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 non-

destructive 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.

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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.

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.

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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.

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.

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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.

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.

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4. To analyze the trend with regards to income, expenditure and profits.

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.

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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.

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.

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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.

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;

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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.

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.

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Fixed Cost Breakeven sales (in Rupees) = _____________________

Contribution Margin Ratio

Fixed Cost Breakeven point (in units) = _________________

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.

Sales – Variable Cost P/V ratio = _____________________ * 100 Sales

Fixed Cost B/E Sales = _________________ * 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.

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Margin of Safety = Sales – BES

Margin of Safety 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.

Fixed expenses + Target Profit Required sales in units = ___________________________

Unit Contribution Margin

Fixed expenses + Target Profit Required sales value = ____________________________


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

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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.

EBIT Financial Leverage = ____________

Profit

Contribution Operating Leverage = ____________

EBIT

Contribution Combined Leverage = _________________

EBT

CONTRIBUTION MARGIN RATIO:

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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 = Sales – Variable Cost

Contribution Contribution Margin ratio = ________________ * 100

Sale

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

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can quickly ascertain whether sales have increased or decreased, whether cost of sales has

increased or decreased etc.

ANALYSIS AND INTERPRETATION

i ) Contribution Margin Ratio:

Table showing Contribution Margin Ration of Radial Drills:

Particulars 2007 2008 2009

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Sales

(-) Variable Cost

Contribution

Contribution MarginRatio

2,41,702

1,27,168_________

1,14,534

47.4

2,61,115

1,46,892________

1,14,223

43.8

2,35,175

1,28,760________

1,06,415

45.24

Contribution = Sales – Variable Cost

Contribution Contribution Margin Ratio = __________________ * 100

Sales

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.

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Chart showing Contribution Margin Ration of Radial Drills:

Table showing Contribution Margin Ration of Rotary levers:


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Sales

(-) Variable Cost

Contribution

Contribution MarginRatio

2,79,615

1,37,439_________

1,42,176

50.8

2,74,715

1,38,558________

1,36,176

49.56

2,41,795

1,25,000________

1,16,795

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.

Chart showing Contribution Margin Ration of Rotary levers:

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(II) BREAKEVEN SALES:

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RADIAL DRILLS:

Table showing Breakeven Sales:

Year Fixed Cost


Breakevensales (Rs)

2006 - 2007

2007 - 2008

2008 - 2009

53,038

55,276

52,970

47.4

43.8

45.24

1118.9

1262

1170.86

Fixed Cost Breakeven sales = _____________________


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:

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( ii ) Chart showing breakeven sales of 2008:

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( iii ) Chart showing Breakeven Sales of 2009:

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ROTARY LEVER:

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(i) Table showing Breakeven Sales:

YearFixed Cost


Breakevensales (Rs)

2006 - 2007

2007 - 2008

2008 -2009

62,003

60,986

58,485

50.8

49.56

48.3

1220.5

1230.5

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:

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( ii ) Chart showing Breakeven Sales of 2008:

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( iii ) Chart Showing Breakeven Sales of 2009:

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(ii) BREAKEVEN POINT:

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RADIAL DRILLS:

Table showing Breakeven Point:

YearFixed Cost

ContributionBreakeven

Point (units)

2006 - 2007

2007 - 2008

2008 - 2009

53,038

55,276

52,970

11.4

11.4

10.6

4652.45

4848.77

4997.16

Fixed Cost Breakeven point = _________________

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:

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Table showing Breakeven Points:

YearFixed Cost

ContributionBreakeven

Points (units)

2006 - 2007

2007 - 2008

2008 - 2009

62,003

60,986

58,485

14.2

13.6

11.6

4366

4484.2

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.

(iii) MULTIPLE PRODUCTS BREAKEVEN POINTS:

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

ProductSales

CumulativeSales

P/V RatioContributio

nCumulative contribution

RD

RL

2,41,702

2,79,615

2,41,702

5,21,317

47.4

50.8

1,14,534

1,42,176

1,14,534

2,56,710

Sales – Variable Cost P/V Ratio = ____________________

Sales

Fixed Cost BREAKEVEN Sales = _____________________ * Total Sales

Total Contribution

1, 29,458 = ___________ * 5, 21,317

2, 56,710

= Rs.2, 62,898

FINDINGS:

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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.

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

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ProductSales

CumulativeSales



RD

RL

2,61,115

2,74,715

2,61,115

5,35,830

43.8

49.56

1,14,223

1,36,157

1,14,223

2,50,380


Total Contribution

1, 35,138 = ___________ * 5, 35,830

2, 50,380

= Rs.2, 89,204

FINDINGS:


Lever is 49.56%. The Rotary Lever Sales and Contribution is high

INFERENCE:

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

the Breakeven is Rs. 289204.

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(ii) Chart showing multiple product breakeven point of 2008

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

ProductSales

CumulativeSales



RD

RL

2,35,175

2,41,795

2,35,175

4,76,970

45.24

48.3

1,06,415

1,16,795

1,06,415

2,23,210


Total Contribution

1, 32,580 = ___________ * 4, 76,970

2, 23,210

= Rs.2, 83,305

FINDINGS:


Lever is 48.3%. The Rotary Lever Sales and Contribution is high.

INFERENCE:

In the year 2009, best product is Rotary Lever the Profit Volume Ratio also high.

In the Breakeven is Rs. 2, 83,305.

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(iii) Chart showing Multiple Product Breakeven Point of 2009

(IV) MARGIN OF SAFETY:

RADIAL DRILLS:

Table showing Margin of Safety

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YearBreakeven

Sales SalesMargin

of SafetyRatio

%

2006 - 2007

2007 - 2008

2008 - 2009

1118.9

1262

1270

2,41,902

2,01,115

2,35,175

2,40,584

2,59,853

2,34,005

99.53

99.51

99.5

Margin of Safety = Sales – Breakeven Sales

Margin of Safety Margin of Safety Ratio = ________________ * 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.

Chart Showing Margin of Safety.

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ROTARY LEVERS

Table showing Margin of Safety

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YearBreakeven

Sales SalesMargin

of SafetyRatio

%

2006 - 2007

2007 - 2008

2008 - 2009

1220.5

1230.5

1210.86

2,79,615

2,74,715

2,41,795

2,78,395

2,73,485

2,40,585

99.56

99.55

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:

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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

Fixed Expenses + Target Profits Required sale in units = ________________________

Units contribution Margin

52,970 + 162.27 = _______________

10.6 = 5012.47 units

Fixed cost + target profits In rupees = __________________________


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:

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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:

YearContribution

Fixed CostProfit

2006 - 2007

2007 - 2008

2008 - 2009

1,14,534

1,14,223

1,06,415

55,038

55,276

52,970

59,496

58,947

53,445

Contribution = Sales - P/V ratio

Profit = 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:

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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:

ROTARY LEVER:

Table showing Profit from given Sales:

YearContribution

Fixed CostProfit

2006 - 2007

2007 - 2008

2008 - 2009

1,42,176

1,36,176

1,16,795

62,003

60,986

58,485

80,173

75,190

58,310

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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.

INFERENCE:

The Profit from given sales of Rotary Levers are decline from Rs. 80,173 to Rs.


Chart showing Profit from given Sales:

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(VII) DEGREE OF OPERATING LEVERAGES:

Table showing Degree Operating Leverages:

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Sales

(-) Variable Cost

Contribution

(-) Fixed Cost

EBIT

(-) Interest

2,62,175

1,33,734___________

1,28,441

58,941__________

69,500

14,747

2,69,115

1,49,992___________

1,19,123

57,889___________

61,234

14,099

2,39,185

1,27,403_________

1,11,782

57,662_________

54,120

33,564

EBIT Financial Leverage = ____________

Profit

Contribution Operating Leverage = ________________ EBIT

Contribution Combined Leverage = _______________ EBT

Table Showing the Leverages:

Year Financial Leverage

Operating Leverage

Combined Leverage

51

2007

2008

2009

1.27

1.29

1.61

1.85

1.95

2.07

2.35

2.53

3.33

CALCULATION:

For 2007 69,500

Financial Leverage = ______________

54,753

= 1.27

1, 28,441 Operating Leverage = ____________ 69,500

= 1.85

1, 28,441 Combined Leverage = __________

54,753

For 2008 61,234 Financial Leverage = ______________

47,134

= 1.29

52

1, 19,123 Operating Leverage = ____________

61,234

= 1.95


47,135

= 2.53 For 2009

54,120 Financial Leverage = ______________

33,564

= 1.61

1, 11,782 Operating Leverage = ____________

54,120 = 2.07


33,564 = 3.33

53

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

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:

54

(VIII) TREND ANALYSIS:

55

Table showing trend analysis on Expenditure:

Year Y X=x-04 X2 XY

2005

2006

2007

2008

2009

1,52,485

1,12,750

1,34,000

1,68,785

1,79,115

_____________7,47,135

-2

-1

0

1

2

4

1

0

1

4

________10

-3,04,970

-1,12,750

0

1,68,785

3,58,230

______________1,09,295

Σy ΣxyA = _________ b = ____________ n Σx2

7, 47,135 1, 09,295 = _________ = __________ 5 10

= 1, 49,427 = 1, 09, 29.5

X = 2009

56

Y = a + b X

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

57

Table showing trend analysis on Income:

58

YearY X=x-04 X2 XY

2005

2006

2007

2008

2009

1,62,175

1,51,785

1,79,385

1,93,785

1,98,145

_____________8,85,275

-2

-1

0

1

2

4

1

0

1

4

________10

-3,24,350

-1,51,785

0

1,93,785

3,96,290

______________1,13,940

Σy ΣxyA = _________ b = ____________ n Σx2

8, 85,275 1, 13,940 = _________ = __________ 5 10 = 1, 77,055 = 11,394

X = 2009

59

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.

60

Table showing trend analysis on Profit

61

YearY X=x-04 X2 XY

2005

2006

2007

2008

2009

3,12,82

3,51,86

3,81,72

4,18,60

4,57,60

_____________1,92,260

-2

-1

0

1

2

4

1

0

1

4

________10

-62,564

-35,186

0

41,860

91,520

______________35,630

Σy ΣxyA = _________ b = ____________ n Σx2

1, 92,260 35,630 = _________ = __________ 5 10 = 38,452 = 3563

X = 2009

62

Y = a + b X

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

Chart showing Trend Analysis on Profit.

63

64

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

PARTICULARS UNITSRADIAL DRILLS UNITS

ROTARY LEVER TOTAL

A. Sale Value of Production 241 2,41,702 266 2,79,615 5,21,317

VARIABLE COSTRaw Materials 75 75,145 81 85,131 1,60,276Variable Over Heads 44 44,369 54 57,045 1,05,850B. Variable Cost 119 1,19,514 135 1,42,176 2,61,690 CONTRIBUTIONC.CONTRIBUTION 122 1,22,188 130 1,37,439 2,61,690LESS: FIXED COST 97,250

Profit 1,62,377

Working Notes:

Radial Drills = 1000*50 = 50,000Rotary Lever = 1050*45 = 47,250

_______ 97,250

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

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.

65

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


ROTARY LEVER TOTAL

A. Sale Value of Production 261 2,61,115 261 2,74,716 5,35,831

VARIABLE COSTRaw Materials 78 75,145 79 83,152 1,58,297Variable Over Heads 39 39,078 51 53,605 92,683B. Variable Cost 114 1,14,223 129 1,36,157 2,50,960 CONTRIBUTIONC.CONTRIBUTION 147 146,892 132 1,38,559 2,84,871LESS: FIXED COST 1,02,400

PROFIT 1,82,471

Working Notes:


_______ 1,02,400

FINDINGS:


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:

66

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


ROTARY LEVER TOTAL

A. Sale Value of Production 248 235,175 264 241,795 4,16,890

VARIABLE COSTRaw Materials 78 72,136 78 70,180 1,42,310Variable Over Heads 39 37,429 56 50,275 87,704B. Variable Cost 115 1,09,559 133 1,20,435 2,30,014 CONTRIBUTIONC.CONTRIBUTION 133 1,25,615 136 1,21,340 1,86,876LESS: FIXED COST 107,400

PROFIT 79,476

Working Notes:


_______ 1,07,400

FINDINGS:


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:

67

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:

FINDINGS

68

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.

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.


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

69

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

multiple products.

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

70

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

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.

71

BIBLIOGRAPHY

SOURCES:

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, 2nd

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

72

http://www.businessfinancemag.com/

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