Project_CVP analysis

Cost Volume Profit analysis at BAMUL Executive Summary The Bangalore Milk Union Ltd., (Bamul) was established during 1975 under Operation Flood II by keeping “Amul” as its Role Model. At present Bamul has Bangalore Urban, Bangalore Rural & Ramanagaram Districts of Karnataka State as its area of operation for Milk Procurement and selling Milk in part of Bruhath Bangalore Mahanagara Palika (BBMP) area. Since its inception the Union is constantly striving further for dairy development and marketing activities in its milk shed area. The strategy of Bangalore Milk Union is “Procure More, Sell More & Serve More” and reaping the benefits of economies of scale. In order to realize this strategy, the Union has implemented the following projects so that more and more milk can be procured and processed. This will help us to serve our producer members by passing on the maximum benefits; we are consciously adopting the growth-oriented strategy of helping our producers to grow by ourselves growing constantly. CVP analysis is a system used for checking how changes in the volume of production affect the costs and thus the profits. It is an expanded form of break-even analysis, which simply identifies the breakeven point. CVP analysis is somewhat simplified and relies on some assumptions that do not hold in reality, meaning it is best used for simple "big picture" analysis rather than detailed examination. Breakeven analysis takes account of the fact that production incurs both fixed and variable costs. Fixed costs include machinery, factory real estate and, to some extent, marketing. Variable costs include labor and raw materials; more of these resources are used as more products are made. The break-even point is calculated as the fixed costs divided by the contribution per unit. The contribution per unit is the price the company sells the product at, minus the specific variable costs associated with producing that individual unit.

CVP Analysis at Bamul Focuses mainly on Factors Like Sales, Net profit ,Break even sales , P/V ratio ,Margin of safety and Variations in variable costs Break even Sales and the Margin of safety are the important Factors in Cost Control which is the main objective of the Company. The Data collected is Secondary Data by interaction with Finance Manager and Balance sheet of the Last 5 years. The main Limitation the study is Study is conducted for the period of 10 weeks. This is not sufficient to Collect All the data. The study Reveals facts that net Profit of the company is highest in the year 2006 and Low in the year 2009. And Variation in the other factors Like breakeven sales which is decreasing and P/V Ratio is also decreasing

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Cost Volume Profit analysis at BAMUL 1) INDUSTRY PROFILE 1.1) Milk Industry in India The highest milk producer in the entire globe – India boasts of that status. India is otherwise known as the ‘Oyster’ of the global dairy industry, with opportunities galore to the entrepreneurs globally. Anyone might want to capitalize on the largest and fastest growing milk and milk products' market. The dairy industry in India has been witnessing rapid growth. The liberalized economy provides more opportunities for MNCs and foreign investors to release the full potential of this industry. The main aim of the Indian dairy industry is only to better manage the national resources to enhance milk production and upgrade milk processing using innovative technologies.

1.2) Potential for investment in the dairy industry Some areas of Indian dairy industry can be toned up by the evocation of differentiated technologies and equipment from overseas. These include: 1. Raw milk handling: The raw milk handling needs to be elevated in terms of

physicochemical and microbiological properties of the milk in a combined manner. The use of clarification and bactofugation in raw milk processing can aid better the quality of the milk products. 2. Milk processing: Better operational ratios are required to amend the yields and abridge

wastage, lessen fat/protein losses during processing, control production costs, save energy and broaden shelf life. The adoption of GMP (Good Manufacturing Practices) and HACCP (Hazard Analysis Critical Control Points) would help produce milk products adapting to the international standards. 3. Packaging: Another area that can be improved is the range of packing machines for the

manufacture of butter, cheese and alike. Better packaging can assist in retaining the nutritive value of products packed and thus broaden the shelf life. A cold chain distribution system is required for proper storage and transfer of dairy products. 4. Value-added products: There's vast scope for value-added products like desserts,

puddings, custards, sauces, mousse, stirred yoghurt, nectars and sherbets to capture the dairy market in India. The Indian dairy industry has aimed at better management of the national resources to enhance milk production and upgrade milk processing involving new innovative technologies. Multinational dairy giants can also make their foray in the Indian dairy market in this challenging scenario and create a win-win situation for both.

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Cost Volume Profit analysis at BAMUL 1.3) India's Milk Product Mix Fluid Milk

46.0%

Ghee

27.5%

Butter

6.5%

Curd

7.0%

Khoa (Partially Dehydrated Condensed Milk)

6.5%

Milk Powders, including IMF

3.5%

Paneer & Chhana (Cottage Cheese)

2.0%

Others, including Cream, Ice Cream

1.0%

Table 1 - India's Milk Product Mix

1.4) Dairy Industry Profile, Facts and Figures •

Human population: 953 million (70 million dairy farmers)

•

Milk production : 74.3 million tonnes (203.5 million lpd)

•

Average annual growth rate (1995-2000): 5.6%

•

Per capita milk availability: 214 g/day or 78 kg/year

•

Milch animals: 57 million cows; 39 million buffaloes

•

Milk yield per breedable bovine in-milk: 1,250 kg

•

Cattle feed production (organized sector): 1.5 million tonnes

•

Turnover of veterinary pharmaceuticals: Rs. 550 crores

•

Dairy plants throughput: 20 mlpd

•

Throughput as percentage of total milk output: 10

•

Value of output of milk group (1994-95)*: Rs. 50,051 crores

1.5) Overview of the Indian Dairy Sector BNMIT School Of Management Studies

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Cost Volume Profit analysis at BAMUL •

The country is the largest milk producer all over the world, around 100 million MT

•

Value of output amounted to Rs. 1179 billion (in 2004-05) (Approximately equals combined output of paddy and wheat!!)

•

1/5thof the world bovine population

•

Milch animals (45% indigenous cattle, 55 % buffaloes, and 10% cross bred cows)

•

Immensely low productivity, around 1000 kg/year (world average 2038 kg/year)

•

Large no. of unproductive animals, low genetic potency, poor nutrition and lack of services are the main factors for the low productivity

•

There are different regions – developed, average, below average (eastern states of Orissa, Bihar and NE region) in the dairy industry.

1.6) Milk Industry in Karnataka The dairy industry in Karnataka is booming. The Karnataka Milk Federation (KMF), the second largest government-run cooperative milk federation in the country after Gujarat Cooperative Milk Marketing Federation, is spearheading the campaign by procuring lakhs of litres milk from in and around Karnataka on daily basis.

The boom has taken place after the price of milk was increased by Rs 3 a litre in the state. Of late KMF has witnessed growth in its production. After it increased procurement price (varies from Rs. 2.50 to 3.50 per litre in different areas) the production is upbeat. Thousands of farmers from across the state flock to pour more milk to the federation.

Last March, KMF witnessed all time low production: 31 lakh litres milk production per day. But just after three months KMF regained its momentum by producing 41,80,000 litres milk per day. According to industry experts, this is all time record compared to the last highest milk production of 40.41 lakh litres per day in June 2009. The federation has more than 22 lakh farmer members attached to 10,600 milk cooperative societies across Karnataka. Besides, it has 13 Milk Unions throughout the state that procure milk from Primary Dairy Cooperative Societies (DCS) and distribute milk to the consumers in various urban and rural markets in Karnataka.

Almost every district in Karnataka has milk producing co-operatives. The milk is collected from farmers, processed and sold in the market by the brand of Nandini. Even milk giant Amul purchases some 50,000 litres per day from KMF. The federation was able to achieve the historic target because of price rise and government support. KMF managing director BNMIT School Of Management Studies

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Cost Volume Profit analysis at BAMUL A.S. Premanath said: 'We are exporting milk not only to the neighbouring states but even to Singapore.

Karnataka Milk Federation (KMF) is the largest cooperative dairy Federation in South India, owned and managed by milk producers of Karnataka State. KMF has over 2 million milk producers in over 10500 Dairy Cooperative Societies at village level, functioning under 13 District Cooperative Milk Unions in Karnataka State. The mission of the federation is to usher rural prosperity through dairy development. During the last four decades of cooperative dairy development by KMF, the dairy industry in Karnataka has progressed from a situation of milk-scarcity to that of milk-surplus.

2) Company Profile 2.1) Back ground and Inception Of the company The Bangalore Milk Union Ltd., (Bamul) was established during 1975 under Operation Flood II by keeping “Amul” as its Roll Model. At present Bamul has Bangalore Urban, Bangalore Rural & Ramanagaram Districts of Karnataka State as its area of operation for Milk Procurement and selling Milk in part of Bruhath Bangalore Mahanagara Palika (BBMP) area. Since its inception the Union is constantly striving further for dairy development and marketing activities in its milk shed area.

OBJECTIVES • • • • •

To organize Dairy Co-operative Societies at Village level and dissemination of information like good dairy animal husbandry and breeding practices & Clean Milk Production through Extension Services. To provide assured market & remunerative price for the milk produced by the farmer members of the co-operative societies. To provide technical input services like veterinary services, artificial insemination, supply of balanced cattle feed & Fodder seed materials etc., to milk producers. To facilitate rural development by providing opportunities for self-employment at village level, thereby preventing migration to urban areas, introducing cash economy & opportunity for steady income. To provide quality Milk and milk products to urban consumers at competitive prices.

BACKGROUND On January 1st 1958 a pilot scheme to cater the Bangalore Milk Market, Department of Animal Husbandry, Government of Karnataka was started Milk processing facilities & Veterinary Hospitals at National Dairy Research Institute (NDRI). Later in 1962, The Bangalore Milk Supply Scheme came into existence as an independent body. With the great efforts by the then BNMIT School Of Management Studies

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Cost Volume Profit analysis at BAMUL Hon’ble Minister for Revenue & Dairying, Government of Mysore Sri M V Krishnappa, A joint venture of UNICEF, Government of India & Government of Mysore was dedicated Bangalore Dairy to the people of Karnataka State on 23rd January 1965 by the then Hon’ble Prime Minister Late Sri Lal Bahadhur Shastriji. The Bangalore Dairy scattering over an area of 52 Acres of land, the Dairy had an initial capacity to process 50,000 liters of milk per day. Bangalore Dairy underwent a structural change in December 1975, handed over to Karnataka Dairy Development Corporation (KDDC). Rural Milk Scheme of Mysore, Hassan & Kudige Districts was started under Operation Flood-II and then transferred to Karnataka Milk Federation (KMF) in May 1984 as a successor of KDDC. To cater to the growing demand for milk by the consumers of Bangalore City, the capacity was increased to 1.5 lakh liters per day under the Operation FloodII during 1981 and later increased to 3.5 lakh liters per day under Operation Flood-III during 1994.

As per the policies of the National Dairy Development Board (NDDB), Bangalore Dairy was handed over to Bangalore Milk Union Ltd., (Bamul) on 1st September 1988. The Union is capable of processing the entire milk procured, by timely implementation of several infrastructure projects like commissioning of New Mega Dairy state-of-the-art technology with a processing Capacity of 6.0 Lakh liters per day, new chilling centers, renovation of product block etc.,

The milk shed area of Bamul comprises of 2611 revenue villages. As of now the Union has organized 1803 Dairy Co-operative Societies (DCS) in 2,225 villages, thereby covering 85 % of the total villages in these two districts. In these DCSs, there are 3,31,544 milk producer members. Among them 105804 members are women and 59,235 members belong to Schedule Caste and Schedule Tribes.

The philosophy of this co-operative milk producers’ organization is to eliminate middlemen and organize institutions owned and managed by milk producers, by employing professionals. Achieve economies of scale of rural milk producers by ensuring maximum returns and at the same time providing wholesome milk at reasonable price to urban consumers. Ultimately, the complex network of co-operative organization should build a strong bridge between masses of rural producers and millions of urban consumers & achieve a socio-economic revolution in the village community.

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Cost Volume Profit analysis at BAMUL Bamul has been registered under MMPO by Central Registration Authority. Today, the Union has become the biggest Milk Co-operative Union in Southern India. Bamul has been certified for ISO 22000:2005 & ISO 9001-2000 for quality management and Food Safety Systems.

2.2) Nature Of business Carried MILK PROCUREMENT The Milk produced by 89789 farmers at village level will be collected every day morning and Evening at DCS. Under Clean Milk Production programme, to maintain the freshness & quality of the milk 85 Bulk Milk Coolers covering 376 DCS of Total Capacity 1,45,000 Lts were installed at DCS level. During the year the Unions daily average milk procurement is 8.29 Lakh Kgs, which works out to be 485 kgs per day per DCS. The milk procurement has increased by 13.59 % when compared to the last year.

Graph 1 – Avg.Milk Procurement (Kgs per Day)

Bamul is offering the most remunerative milk procurement price to member producers. The operational efficiency is reflected on procurement prices paid to the member producers. The average milk procurement price paid during the year was Rs. 14.24 for every Kg of Milk supplied to the Union. Which is 80% of total cost of production. Graph 2 – Break up structure of Expenses at Bamul Milk collected at DCS will be transported to Chilling Centers, through 94 Milk Procurement Can Routes, by traveling 16,416 KM’s every day. 23 Bulk Milk Cooler (BMC) Routes are also in operation, which collects milk from 85 BMC centers of 376 DCS directly transported to Bangalore Dairy through insulated tankers. BNMIT School Of Management Studies

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Cost Volume Profit analysis at BAMUL LIQUID MILK MARKETING The Bangalore Milk Union is marketing milk and milk products in the brand name of “Nandini” through 1090 retailers, 39 Franchisee Outlets, 25 Milk Parlors, 19 Whole sale Dealers, 14 Transporter Cum Distributors being served by 214 distribution routes. The key success factor of Bamul in becoming a market leader is the narrow price spread maintained between purchase & sales, marketing higher volumes of milk. The volume of sales plays a critical role in determining costs. Hence, the market strategy of Bangalore Milk Union is to regard selling of market milk as its core marketing activity and to concentrate its efforts in this direction to increase the volume of milk sales. The impressive growth in the sale of milk by Bamul over the years is due to the persistent efforts to maintain timely supply, maintaining quality and attending to the complaints of consumers and agents with prompt follow-up action.

Graph 3– Total Milk Sales Bamul is also organizing Consumer Awareness Programme as a part of Market Development to create awareness of “Nandini” Milk through personal contacts, Door to Door campaigns, Organizational Meetings, School Children Mega Dairy Plant visit etc., are conducting regularly.

2.3)Vision , Mission and Quality Policy

Vision •

To march forward with a missionary zeal which will make KMF a trailblazer of exemplary performance and achievements beckoning other Milk Federations in the country in pursuit of total emulation of its good deeds.

•

To ensure prosperity of the rural Milk producers who are ultimate owners of the Federation.

•

To promote producer oriented viable cooperative society to impart an impetus to the rural income, dairy productivity and rural employment.

•

To abridge the gap between price of milk procurement and sale price.

•

To develop business acumen in marketing and trading disciplines so as to serve consumers with quality milk, give a fillip to the income of milk producers.

•

To compete with MNCs and Private Dairies with better quality of milk and milk products and in the process sustain invincibility of cooperatives.

Mission BNMIT School Of Management Studies

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Cost Volume Profit analysis at BAMUL Heralding economic, social and cultural prosperity in the lives of our milk producer members by promoting vibrant, self-sustaining and holistic cooperative dairy development in Karnataka State.

Quality Policy and Objectives KMF is a Cooperative Apex Body in the State of Karnataka representing organisations of milk producers' and implementing alround dairy development activities to achieve the following objectives: •

To ensure assured and remunerative market round the year for the milk produced by the farmer members.

•

To make available quality milk and other premier dairy products to urban consumers.

•

To build & develop village level institutions as cooperative model units to manage the dairy activities.

•

To ensure provision of inputs for milk production, processing facilities and dissemination of know how.

•

To facilitate rural development by providing opportunities for self employment at village level, preventing migration to urban areas,introducing cash economy and opportunity for a sustained income.

The philosophy of dairy development is to eliminate middlemen and organise institutions to be owned and managed by the milk producers themselves, employing professionals. To sum it up, every activity of KMF revolves around meeting one basic objective: 'Achieve economies of scale to ensure maximum returns to the milk producers, at the same time facilitate wholesome milk at reasonable price to urban consumers'. Ultimately, the complex network of cooperative organisation should build a bridge between masses of rural producers and millions of urban consumers and in the process achieve a socio-economic revolution in every hinterland of the State.

2.4)Products Profile 1)

nandini Toned Milk

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Cost Volume Profit analysis at BAMUL

Fig-1 nandini Toned Milk Karnataka's most favorite milk, Nandini Toned Milk. Fresh and Pure milk containing 3.0% fat and 8.5% SNF. Available in 500ml and 1ltr & 6 Ltr packs. Better to use within a day from the date of pack. 2)

nandini

Homogenised COW Milk

Nandini Homogenized Milk is pure milk containing 3.5% Fat & 8.5% SNF. Which is homogenized and pasteurized. Consistent right through, it gives you more cups of tea or coffee and is easily digestible. Available in 500 ml packets.

3)

nandini Full Cream Milk

Fig-2 nandini Full cream Milk Nandini Full Cream Milk. Containing 6% Fat and 9 % SNF. A rich, creamier and tastier milk, Ideal for preparing home-made sweets & savouries. Available in 500ml and 1ltr packs. Apart from the Milk, the different Milk Products are Curds, Butter, Ghee, Peda, Paneer, Set Curds & Spiced Butter Milk are also sold.

Graph-4 Full Cream Milk sales

4)

nandini Curd

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Cost Volume Profit analysis at BAMUL

Fig-3 nandini Curd Nandini Curd made from pure milk. It's thick and delicious. Giving you all the goodness of homemade curds. Available in 200 gms and 500 grms & 1 Kg packs. Nandini Butter Rich, smooth and delicious. Nandini Butter is made out of fresh pasteurized cream. Rich taste, smooth texture and the rich purity of cow's milk, makes any preparation a delicious treat. Available in 100 gms, 200 gms and 500gms cartons both salted and unsalted.

5)

nandini Ghee

Fig-4 nandini Ghee

A taste of purity. Nandini Ghee, made from pure butter. It is fresh and pure with a delicious flavour. Hygienically manufactured and packed in a special pack to retain the goodness of pure ghee. Shelf life of 6 months at ambient temperatures. Available in 200ml, 500ml, 1000ml sachets & 15.0 kg tins.

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Cost Volume Profit analysis at BAMUL

6)

nandini Butter

Fig-5 nandini Butter Rich, smooth and delicious. Nandini Butter is made out of fresh pasturised cream. Rich taste, smooth texture and the rich purity of cow's milk, makes any preparation a delicious treat. Available in 100 gms (salted), 200 gms and 500gms cartons both salted and unsalted.

7)

nandini Butter Milk

Fig-6 Nandini Butter Milk Nandini spiced Butter Milk is a refreshing health drink. It is made from quality curds and is blended with fresh green chillies, green coriander leaves, asafoetida and fresh ginger. Nandini spiced butter promotes health and easy digestion. It is available in 200ml packs and is priced at most competitive rates, so that it is affordable to all sections of people.

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Cost Volume Profit analysis at BAMUL 8)

nandini Peda

No matter what you are celebrating! Made from pure milk, Nandini Peda is a delicious treat for the family. Store at room temperature approximately 7 days. Available in 250gms pack containing 10 pieces each.

Area Of operation

2.5

Main Dairy

i. Milk Processing capacity was 60,000 Liters per day (LPD) at the time of establishment of the dairy on 23rd January 1965.

ii. Milk Processing capacity was expanded to 1.5 lakh LPD on 1st February 1981. iii. Milk Processing capacity was expanded to 3.5 lakh LPD during 1994. iv. Milk Condensing plant 3 Metric Tons per day. v. Spray Drying plant 5 Metric Tons per day.

vi. Milk Processing capacity of 6,00,000 Liters per day (LPD) fully automated Mega Dairy started functioning from 17th December 2000. vii. Converted the old building as a Product Block during 2002.

a.

Anekal Chilling Center

i.

Anekal Chilling Center was started on 12th September 1964 with a milk chilling capacity of 20,000 LPD.

ii.

Later the milk chilling capacity was expanded to 60,000 LPD on 28th February 1999.

a.

Byrapatna Chilling Center

i.

Byrapatna Chilling Center was started on 19th May 1962 with a milk chilling capacity of 20,000 LPD.

ii.

Later the milk chilling capacity was expanded to 60,000 LPD

a.

Doddaballapur Chilling Center

i.

Doddaballapur Chilling Center was started on 5th January 1967 with a milk chilling capacity of 20,000 LPD.

ii.

Later the milk chilling capacity was expanded to 60,000 LPD

a.

Vijayapura Chilling Center

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Cost Volume Profit analysis at BAMUL i.

Vijayapura CC was established on 1st February 1995 with a milk chilling capacity of 1 lakh LPD.

a.

Solur Chilling Center

i.

Solur Chilling Center was established on 31st January 1999 with a milk chilling capacity of 60,000 LPD.

f. Hoskote Chilling Center i. Hoskote Chilling Center was commissioned on 29th March 2000 with a milk chilling capacity of 1.5 lakh LPD. h. Kanakapura Chilling Center

i. Kanakapura Chilling Center was commissioned on 1st October 2004 with milk chilling capacity of 60,000 LPD.

2.5 )

Infrastructural Facilities.

INFRASTRUCTURE DEVELOPMENT:

The strategy of Bangalore Milk Union is “Procure More, Sell More & Serve More” and reaping the benefits of economies of scale. In order to realize this strategy, the Union has implemented the following projects so that more and more milk can be procured and processed. This will help us to serve our producer members by passing on the maximum benefits, we are consciously adopting the growth-oriented strategy of helping our producers to grow by ourselves growing constantly.

Mega Dairy with a capacity to process 6 lakh litres of milk per day expandable to 10 llpd has been built by investing Rs. 38.70 crores obtained as term loan from National BNMIT School Of Management Studies

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Cost Volume Profit analysis at BAMUL Dairy Development Board. The Mega Dairy, has latest state-of-the-art technological facilities in dairy processing Fig-7 Bangalore Dairy and the Union will have the ability to manufacture milk and milk products to world class standards. Although Bamul sets standards for its products for better serve to customers, it was not possible to keep the standards stability due to manual operations. In designing mega dairy, Bamul looked towards an automated system that would allow it to achieve consistent quality parameters for each product. Energy and manpower would also be more effectively optimised and controlled and all plant equipment would be integrated.

NEW Projects: Bamul has planned to convert Hosakote Chilling Center into a 2.0.LLPD Capacity Dairy with an investment of Rs.2427.00 Lakh and a New Product Block at Bangalore Dairy Premises with an investment of Rs. 2033.00 Lakhs by the end of 2010.

Bamul has SEVEN Chilling Centers geographically located around Bangalore and 85 Bulk Milk Coolers at DCS Level. Milk Product Block within the campus to manufacture Butter, Ghee, Peda, Flavoured Milk, Spiced Butter Milk, Paneer, Set Curds etc.

FINANCE The Union had an approximate turnover of Rs. 508.24 crores in the year 2008-09 as against Rs. 452.05 Crores for the year 2007-08. Union has earned a approximate Net profit of Rs. 1.59 Crores for the year 2008-09 as against Rs. 3.44 Crores during 2007-08. This decline in Net Profit is due to increase in Milk Procurement Price to Milk Producers.

Graph-5 Share Capital

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Cost Volume Profit analysis at BAMUL Graph-6 Annual Turn-over

Graph-7 Net Profits

TECHNICAL INPUT SERVICES: Bangalore Milk Union is providing various Technical Input & Extension Services to the milk producer members & their Dairy animals through ELEVEN Camp Offices situated in each Taluk i.e., Anekal, Bangalore Head Office (Bangalore South), Yelahanka (Bangalore North), Channapattana, Devanahalli, Doddaballapura, Hosakote, Kanakapura, Solur (Magadi), Nelamangala & Ramanagara. From these camps the Technical Input services like Weekly Mobile Veterinary Service, Emergency Veterinary Service, Artificial Insemination Service, Periodical Vaccinations, Balanced Cattle Feed Sales, Mineral Mixture Sales, Fodder development and Fodder Seed Production, Clean Milk Production practices, Extension Services for Cattle Feeding, breeding, insurance and milk production etc., will be carried over.

ANIMAL HEALTH AND OTHER ACTIVITIES ANIMAL HEALTH The Union is taking special care to promote the health of the cattle of member milk producers. Veterinary facilities have been extended to all the DCS. Mobile veterinary routes, emergency veterinary routes, Health camps, vaccination against foot & mouth disease and thaileriosis diseases, etc., are being regularly done. Regularly Deworming is also done for the cattle. There is also a backup of First Aid Services to needy DCS’s.

Particulars

2005-06

2006-07

2007-08

2008-09

2009-10

MVR Cases Treated

151221

Health Camp cases Treated

81545

128174

149565

166198

118307

Emergency Cases Treated

68616

63818

70735

70420

74773

F& M Vaccination

468461

377654

430431

373107

352176

Rakshavac

20052

13675

13395

18094

26227

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Cost Volume Profit analysis at BAMUL

Table-2 Animal Health

ARTIFICIAL INSEMINATION Artificial Insemination (AI) has been the main functional tool in dictating this upsurge of development of Dairying in Bamul. Farmers have taken up cross-breeding from way back in 1962. The Union has surveyed and appropriately located AI centers based on cattle population. It is also popularized the idea of cluster AI centers and replace the Single AI centers in a phased manner. The use of progeny tested semen from “Nandini Sperm Station” is also giving a further Particulars No. of Single AI Centers

No. of AI Done No. of Cluster AI Centers No. of AI Done Total AI Done

2004-05

2005-06

2006-07

353

2007-08

2008-09

2009-10

251

259

259

320

248

1,88,768

1,66,614

1,27,320

1,11,536

1,12,740

1,16,002

52

64

89

94

96

101

96,760

1,38,895

1,69,950

1,69,185

1,92,207

1,97,645

2,85,528

3,05,509

2,97,270

2,80,721

3,04,947

313647

boost to the breeding activities.

Table-3 Artificial Insemination To reduce infertility in cattle, a frontal attack has been continuously attempted by conducting Special Infertility Camps under the expert guidance and by the use of infertility connected drugs. During 1999-2000, a Vertical Silo of 10,000 liter capacity for storing Liquid Nitrogen has been installed under TMDD program in collaboration with National Dairy Development Board and Karnataka Milk Federation. In addition this facility is being used for supplying liquid nitrogen to neighboring Unions and also to Department of Animal Husbandry. This has helped in protecting the quality of semen straws, thereby considerably increasing the probability of conception during artificial insemination of cattle. BNMIT School Of Management Studies

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Cost Volume Profit analysis at BAMUL

CATTLE FEED & FODDER DEVELOPMNET The Union is implementing several programs to increase milk production and also to reduce the cost of milk production in the milk shed area. Balanced cattle feed is being procured from the Cattle Feed Plants of KMF for distribution among member producers. Fodder seeds are distributed to member producers at subsidized rates. In addition to this, technical advice, Silage Demonstrations, Azzolla Demonstrations and Straw Treatment Demonstrations are also being conducted at DCS level. Chaff Cutters are supplied at subsidized rates.

Cattle Feed Sales:

Particulars

CF Sales (in MT’s)

200405

200506

200607

200708

200809

200910

20380

28515

29813

33359

37691

40529

Table-4 Cattle feed sales A Seed Processing plant was commissioned at Rajankunte by investing Rs. 41 lakhs. The Union is catering to the Seed production needs of many Unions in Karnataka and also of Southern India.

YASHASVINI HEALTH INSURANCE:

Yashasvini Health Insurance Scheme was muted by Government of Karnataka during the year 2001-02. This scheme was implemented by Coperative department, Members of Co-operative Societies and their family members are the beneficiaries of this scheme. The annual premium is Rs. 120/- per beneficiary. All major hospitals are adopted for this scheme, all types of surgery BNMIT School Of Management Studies

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Cost Volume Profit analysis at BAMUL will be covered under this health scheme. Bangalore Milk union has covered 1.50 Lakh beneficiaries under this scheme by contributing Rs 30/- towards premium per beneficiary.

CATTLE INSURANCE:

Bangalore Milk Union is providing Insurance Coverage to the Dairy animals in collaboration with United India Insurance Ltd., 40,238 animals are covered under this Insurance. The annual premium is 2.22% of the value of the animal. 50% of the annual premium of Rs. 122.99 Lakh was borne by bamul.

IN THIS MILLENNIUM We want to become not only the largest Union, but also become one amongst the best-run milk unions in the country. The Union is aware of the challenges of the new private entrants, who are mainly thriving on unfair trade practices. They procure milk at least cost, without bothering about the welfare of the producers and without extending any technical inputs for improving milk production. They market milk by resorting to unhealthy and unethical practices deceiving the unsuspecting consumers. The Union wants to counter this in a positive manner by trying to improve its efficiency of operation and market promotion. It wants to become well trenched in the market as market leader. It wants to follow the strategy of cost-competitiveness, which is hard to match by the competitors.

2.6 Organization Structure

Fig-8 Organization Structure at Bamul

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Cost Volume Profit analysis at BAMUL

2.7

Work Flow Model

Fig-9 Work Flow model at BAMUL

2.8 Competitors Information List of Major Competitors 1) Gokul Dairy Farm Bangalore. 2) Heritage Foods (India) Ltd Bangalore.

2.10) PROGRESS AND ACHIEVEMENT OF THE UNION SINCE ITS INCEPTION 1. Establishment of the Union:

• Bangalore Co-operative Milk Producers’ Societies Union Ltd. was established on 16th November 1976.

• After the bifurcation of the above Union, into two separate union for Bangalore Districts (Urban and Rural) and Kolar District, Bangalore Urban and Rural District Co-operative Milk Producers’ Societies Union Ltd. (BAMUL) on 23rd March 1987.

• Bangalore Dairy was took over by BAMUL on 1st September 1988. • Bangalore Mega Dairy started functioning on 17th December 2000 •

MMPO-1992 Registration No 42/R.MMPO/93

• Bangalore Dairy ISO 22000-2005 & ISO 9001-2000 Certified by Standard Australia International (SAI) Global Ltd., a reputed Australian based company during 2006.

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Cost Volume Profit analysis at BAMUL

3) The McKinsey 7S Framework

Fig – 10 McKinsey 7S Framework

The Seven Elements: The McKinsey 7S model involves seven interdependent factors which are categorized as either “hard” or “soft” elements: Hard Elements

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Soft Elements

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Cost Volume Profit analysis at BAMUL Strategy Structure Systems

Shared Values Skills Style Staff Table-5 Hard and Soft elements of Mckinsey 7s Framework

Strategy: •

To serve as an instrument of the national to achieve self reliance in the design, development and Quality Production of NANDINI Products to meet the customer’s changing and growing needs with special emphasis on military requirements.

•

In fulfillment as this objectives, the company shall regard itself fundamentally responsible design and developments, relying however on such relevant facilities as are available in other National institution but always holding itself basically responsible for the growth.

•

To conduct its business economically and efficiently that it contribute its due share to the National Efforts to active self reliance and self generating economy.

•

Towards this end to develop, maintain an organization which will rapidly respond to and adopt the changing Matrix as socio economic relationship and where in a climate as growing technical competence. Self discipline, mutual understanding deep commitment and sense of belongingness will be fostered and each employee will be encouraged to grow with accordance to his potential for the furtherance as organizational goals.

System: BAMUL Follows following Systems 1) Computerized Information system 2) Milk Quality Testing System 3) Automatic Packaging System 4) Codex System The stores Department in BAMUL follow the Codex system BNMIT School Of Management Studies

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Cost Volume Profit analysis at BAMUL (Coded Control System). A card is maintained for each item and a number is allotted. The card is attached to each article consists of amount balance, date of issue, purchase etc. this is later recorded in separate ledger book. The inventories are of different kind ranging from mechanical, spares, packing items to animal drugs etc. This department has the following services: • •

It tries to maintain maximum and minimum level of inventory Ordinary and locally available commodities are maintained at Minimum possible level.

Staffing: Kind Of staff

Number Of personnel

Finance Manager

1

Assistant Manager

5

Accounts Officer

1

Accounts Assistant Grade -1

7

Marketing , Production and Testing

220

Table -6 Kind of Staff The staff deals with the various personnel policies followed by the organization. Below are given the personnel policies followed by the organization. Personnel policies: There are around 240 employees working. There are various policies followed. The Administrative department forms the policies.

Recruitment and Selection: Due to registration, termination, retirement and transfers the concerned department head will give the manpower requirements along with the job description. The manpower sourcing is done through advertisement, manpower, consultant, and employment exchanges and personnel reference.

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Cost Volume Profit analysis at BAMUL Skills: Bamul mainly Focus on Following Key Skills 1) Employee Training Program 2)Production Planning 3) Marketing and Sales.

These are the distinctive competencies that are present in the organization it is the design and development of products quality and service or viability of product. The employees in this organization also have all the distinctive skills that are required for the undertakings of research and development activities. The KMF is improving the employee’s skills and techniques through motivating them and giving proper training to them also through giving proper working condition.

Style: a) Karnataka Milk Federation has top to bottom or top down style system. b) The style of organization is authoritarian. It means management cadre follows authoritative. The indicators of the style are: • •

Follows rules and orders Reliable and dependable

Shared Values: The core or fundamental values that are widely share in the organization and

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Cost Volume Profit analysis at BAMUL serve as guidelines that are important, these values have great meaning because they focus attention and provide broader since of purpose. The values of the organizations are: 1) Customer Satisfaction 2) Commitment to total quality 3) Cost and time consciousness 4) Innovative and creative 5) Trust and team spirit 6) Respect for individually 7) Integrity

4) Financial statement Analysis. BANGALORE URBAN, BANGALORE RURAL & RAMANGARA DISTRICT MILK PRODUCERS SOCIETIES UNION LTD. BALANCE SHEET AS ON 31st March 2009-10

2008-09

2007-08

2006-07

2005-06

AMOUNT

AMOUNT

AMOUNT

AMOUNT

AMOUNT

PAID UP SHARE CAPITAL

1278940 00

1175000 00

1158170 00

1156510 00

1157110 00

NOMINAL MEMBERSHIP

320900

305600

290100

272800

259400

SHARE SUSPENSE

838030

958800

959800

963030

768336

RESERVES & SURPLUS

2488319 88

2203223 07

2066697 31

1701151 33

1675672 34

LOAN LIABILITY

2316554 60

2821817 60

3290340 26

3461183 84

3438457 91

CURRENT LIABILITIES PROVISIONS

4487532 60

3135397 78

4092523 13

2949730 54

2754803 59

PROFIT & LOSS A/C

4645899 7

5290646 4

6712792 5

6847905 8

4086051 4

GRAND TOTAL

1104752

9877147

1129150

9965724

9444926

PARTICULARS SOURCES OF FUNDS

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Cost Volume Profit analysis at BAMUL 635

08

895

58

33

5478500 47

5679007 94

5745676 11

5600164 65

5616916 99 1979224 3

APPLICATION OF FUNDS FIXED ASSETS WORK IN PROGRESS

2796794

1041455

3104237

2083936 2

DEFERRED REVENUE EXPENDITURE

1523634 0

2157768 1

5681528

7575371

7400951

INVESTMENTS

1822915 2

1822915 2

1717315 2

1267315 2

1117315 2

5841123 32

6087490 82

6005265 28

6011043 51

6000580 46

INVENTORY

6337770 5

9878565 3

1131709 97

6639268 0

6936887 0

SUNDRY DEBTORS

1058264 08

7153509 9

7892956 4

9282971 2

8190680 6

CASH & BANK BALANCES

3017769 56

1656079 14

2932424 34

1854963 32

1469642 65

LOANS & ADVANCES

1337422 3

1643457 9

2378403 1

3116312 6

2464971 1

SERVICE DEPOSITS

1890102 8

1896262 8

1823561 4

1893694 6

1717173 3

OTHERS

1738398 2

7639753

1261728

649311

4373203

A+B+C+D+E+F: SUB TOTAL(70)

5206403 03

3789656 26

5286243 67

3954681 07

3444345 88

GRAND TOTAL(2+4)

1104752 635

9877147 08

1129150 895

9965724 58

9444926 33

CURRENT LIABILITIES PROVISIONS

4487532 60

3135397 78

4092523 13

2949730 54

2754803 59

CURRENT ASSETS-LOANS-ADVANCES

5206403 03

3789656 26

5286243 67

3954681 07

3444345 88

SUB TOTAL (2) CURRENT ASSETS-LOANS-ADVANCES

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Cost Volume Profit analysis at BAMUL WORKING CAPITAL

7188704 3

6542584 8

1193720 54

1004950 53

6895422 9

BANGALORE URBAN, BANGALORE RURAL & RAMANGARA DISTRICT MILK PRODUCERS SOCIETIES UNION LTD. MANUFACTURING- PROFIT & LOSS A/C FOR THE YEAR 2009-10

2008-09

2007-08

2006-07

2005-06

AMOUNT

AMOUNT

AMOUNT

AMOUNT

AMOUNT

OPENING STOCK

6158900 2

7440507 5

3083929 4

2997142 6

1331904 31

OPENING STOCK-P&I

1377820 7

1398104 7

1394592 8

1146258 5

8243635

PURCHASES

4099411 445

3769669 336

3332557 451

2880669 262

2758110 358

PURCHASES-P&I

3979207 38

3236931 30

2514730 30

2150970 44

2277675 10

PROCUREMENT TRANS CONTRACT EXP.

1363189 38

1270637 75

1219638 46

1353456 84

1603195 30

PROCESSING & CONVERSION EXP

4422025 28

4039795 65

3641448 64

3437356 86

3884829 21

5151220 859

4712791 928

4114924 412

3616281 687

3676114 385

STAFF EXPENSES

2920327 05

2600273 38

2742978 41

1983444 00

1914745 42

ADMINISTRATIVE EXPENSES

8246448 9

4384272 2

6375312 4

4320927 7

3147363 1

RATES &TAXES

2782736

2840694

1306881

1685707

5223033

SELLING & DISTRIBUTION

7769650 5

6804227 5

6041340 1

5635989 5

7499219 9

INTEREST & BANK CHARGES

1954006 6

1761692 8

2113819 9

2193461 0

2523268 4

PARTICULARS MANUFACTURING : DIRECT EXPENSES

SUB TOTAL-1 PROFIT & LOSS A/C : EXPENSES

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Cost Volume Profit analysis at BAMUL PROCUREMENT & INPUT EXPENSES

5564441 6

5510354 7

3896480 7

2320995 4

3152334 3

DEPRECIATION

4469257 0

4358805 3

4178683 1

3817098 4

3721927 6

SUB TOTAL -2

5748534 87

4910615 57

5016610 83

3829148 27

3971387 08

EXPENSES TOTAL -(1+2)

5726074 345

5203853 484

4616585 496

3999196 513

4073253 092

SALES

5277613 491

4772405 713

4268688 335

3745223 706

3802055 899

SALES -P&I

3857494 11

3211500 63

2519691 35

2136828 73

2354024 55

CLOSING STOCK

1750505 4

6158900 2

7440507 5

3083929 4

2997142 7

CLOSING STOCK-P&I

1591950 8

1377820 7

1398104 7

1394592 8

1146258 5

5696787 464

5168922 985

4609043 592

4003691 801

4078892 365

OTHER INCOME

2717772 3

2579612 7

2335600 5

1504250 6

1348031 7

OTHER INCOME-P&I

2129280 3

1309879 4

6446123

3157182

3988214

INTEREST ON DEPOSITS & STAFF LOANS

7565379

1166032 3

7473433

6505871

5820969

GRANTS

1183231

2901998

4646064

3547358

6802079

SUB TOTAL - 4

5721913 6

5345724 2

4192162 5

2825291 7

3009157 9

INCOME TOTAL -(3+4)

5754006 600

5222380 227

4650965 217

4031944 717

4108983 944

GROSS PROFIT- (1-3)

5455666 05

4561310 57

4941191 80

3874101 14

4027779 80

SALES INCOME

SUB TOTAL -3 OTHER INCOME

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Cost Volume Profit analysis at BAMUL 2793225 5

NET PROFIT -

1852674 3

3437972 1

3274820 4

3573085 2

Financial parameters Analysis.

Particulars

2010

2009

Net Profit ( Rs)

27932255

18526743

Sales (Rs)

5277613491

4772405713

P/V Ratio

13.33

15.25

Table-7 Financial Parameters Net Profit: - Net Profit of the Company in the year 2010 is 27932255, and the net profit of the company in the year 2009 is 18526743. Net Profit of the Company is increased Compared to year 2009. This shows good financial health of the company.

Sales: - Sales of the Company in the year 2010 is 5277613491 and Sales of the company in the year 2009 is 4772405713. Sales of the company have increased compare to the year 2009. This shows Customer base of the company has increased

P/V Ratio:-P/V Ratio of the Company in the year 2010 is 13.33. And P/V ratio of the company in the year 2009 is 15.25 P/V Ratio of the company has decreased compare to year 2009.

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Cost Volume Profit analysis at BAMUL

5) SWOT ANALYSIS Strengths • • • • • •

Automated Computerized Plant Maximum Capacity Utilization Support & Encouragement by Management Electricity Express Feeder Line Efficient Boilers Automatic Correction Power Factor Unit • Installation of Energy Meters. • Regularly attending the customer • NANDINI brand has got very good reputation all over India • NANDINI good life milk has been exported to other countries such as Singapore, Malaysia etc.

Weakness •

The company should pay its attention to its advertising and strategy though NANDINI enjoys marketable share and should be ready to face competition. Non availability of Own Water Source Batch type of Powder Plant Excess man power. Lack of Awareness

• • • •

Opportunities • • •

Monitoring the Processing & Packing Revision of Electricity Contract Demand Utilization of Treated Water Rain Water Harvesting.

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Cost Volume Profit analysis at BAMUL •

Management of Steam & Cold Store Leakages

Threats • •

Liberalization of Milk industry. Irregular Power Shut Downs

6) Learning Experience The main objective of undergoing this training is to get the practical exposure of the functional department of the organization such as marketing, human resources, production department etc… and how to know the theoretical knowledge is practically applied in different departments of the organization

Experience: The project work has given insights about the practical orientation of the functions of the various departments of the company. The application of theoretical concepts into business decisions in the organizations is the major value addition from this work. Cost Volume profit analysis is a very crucial issue for any company as it determines the cost Control in the company which, if not managed at the right levels would adversely affect the profitability position of the company. The exposure in BAMUL has made clear how the current assets and liabilities are managed effectively and at the same time ensure high profitability. Apart from the subjective knowledge about the project, I understood the aspects of delegation of authority, responsibility, co-ordination and team work. I have gained all round view of management operations.

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Cost Volume Profit analysis at BAMUL

7) General Introduction. 7.1)

Statement of problem :Study on Analysis of Cost Volume and profit of Bangalore Dairy (BAMUL)

The Bangalore Milk Union Ltd., (Bamul) was established during 1975 under Operation Flood II by keeping “Amul” as its Role Model. At present Bamul has Bangalore Urban, Bangalore Rural & Ramanagaram Districts of Karnataka State as its area of operation for Milk Procurement and selling Milk in part of Bruhath Bangalore Mahanagara Palika (BBMP) area. Since its inception the Union is constantly striving further for dairy development and marketing activities in its milk shed area. At Bangalore Dairy Cost of production has been varying Continuously over the year. Thus It is required to study Reason for increase in cost of production. And suggest Cost control Measures . To keep the cost of production under Control so as to fix Competitive Price in the market.

7.2) Objectives Of the study:1.

To ascertain Cost Volume profit of the Company for The past 4 years.

2.

To know the Cost Structure Of the Company Related to Production Department. To know The Products value Produced by the Company. To predict the Income and Growth Prospects of the Company.

3. 4.

7.3) Scope of the Study:The scope of this Project is to analyze Cost and Volume of different Components Manufactured By the company.

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Cost Volume Profit analysis at BAMUL The study of this project based on 4 years performance of the company from 2006-2010. 7.4)

Methodology for the study:Research Methodology is a Systematic way for solving any research problem. It studies the various steps that are generally adopted by the researcher in studying research problem. The methodology Adopted for the study includes the following steps Detailed discussion with the officials and other personnel of financial departments to obtain the clear picture about the working of department. Study of various years annual reports to make comparison of the Company’s Cost Volume and profit. In the words of Heiser “ The Most Significant single Factor in profit planning of average business is the relationship between the volume of business , costs and profit. When volumes of output increases unit cost of production decreases, and vice versa ; because the fixed cost remains unaffected . When Output Increases , the fixed Cost Per unit decreases. Therefore profit will be more, When sales price remains Constant. Generally Costs may not change in direct proportion to the volume . thus small change in volume will affect the profit. The management is always interested in knowing that which product or product mix is most profitable, what effect a change in volume of output will have on the cost of production and profit etc. all these problems are solved with the help of Cost-Volume-Profit analysis.

7.5) Limitations of study

1) The study is based on secondary data from the Annual reports of the company. 2) The data collected and interpreted may not reflect the true picture of the company. 3) Limitations of time i.e..the study are carried out for academic purpose for a limited span of 8 weeks. The time constraint did not allow for the in depth study regarding the performance of the company. 4) This study does not take in to account the sales mix analysis which is a part of the cost volume profit analysis. 5) Inference are drawn based on the data collect the company where manufacturing of milk is done. 6) Inferences based on the data collected by the company. 7) The information provided in financial statements is not an end itself and has no meaningful conclusions can be drawn from these statements alone. BNMIT School Of Management Studies

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Cost Volume Profit analysis at BAMUL 8) The CVP analysis is based on the past financial statements is not the indicators of the future. 9) Since some facts and business secrets maintained strictly confidential , it is not possible to collect all the information. 10) As it is an external study conclusion and suggestion are not ultimate and are based on personal judgment and the ability of the researcher to understand the concept.

7.6) Tools for Data collection. To know the cost Volume profit relationship, a study of the following is essential. 1) Marginal Cost formulae; 2) Break-even Analysis; 3) Profit Volume Ratio; 4) Profit graph; 5) Key factor; The data have been collected from the Company’s published Annual Reports of 4 years.

Sources Of data: Primary Data: The primary data is the data, which is to be collected through Interviews like interaction with the Finance executive and manager.

Secondary data: The secondary data to study is Collected through the Records , Annual Reports, Company News , Manuals of the Company and maintained by the Organizations.

Plan of analysis. Analysis of data was done using the four years Financial statements. Cost Volume profits for past 4 years were Compared and computed and graphs also Used for analysis.

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Cost Volume Profit analysis at BAMUL

Basic assumptions of CVP analysis. A number of assumptions underlie cost-volume-profit (CVP) analysis: These cost volume profit analysis assumptions are as follows: 1. Selling price is constant. The price of a product or service will not change as volume changes. 2. Costs are linear and can be accurately divided into variable and fixed elements. The variable element is constant per unit, and the fixed element is constant in total over the relevant range. 3. In multi-product companies, the sales mix is constant. 4. In manufacturing companies, inventories do not change. The number of units produced equals the number of units sold. While some of these assumptions may be violated in practice, the violations are usually not serious enough to call into question the basic validity of CVP analysis. For example, in most multi-product companies, the sales mix is constant enough so that the result of CVP analysis are reasonably valid. Perhaps the greatest danger lies in relying on simple CVP analysis when a manager is contemplating a large change in volume that lies outside of the relevant range. For example, a manager might contemplate increasing the level of sales far beyond what the company has ever experienced before. However, even in these situations a manager can adjust the model as we have done in this chapter to take into account anticipated changes in selling price, fixed costs, and the sales mix that would otherwise violate the cost volume profit assumptions.

7.7) Theoretical definitions for the data interpretation. Marginal Cost equations. Sales = variable cost + Fixed Cost Sales- Variable Cost = Fixed Cost + Profit or Loss Sales – Variable Cost = Contribution Contribution = Fixed Cost + profit

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Cost Volume Profit analysis at BAMUL From the above equation we can understand that in order to earn the profit , the contribution must be more than the Fixed cost.. To avoid any loss , the contribution must be equal to fixed cost.

7.7.1) Contribution Contribution is the difference between sales and marginal cost of sales. Contribution enables to meet Fixed costs and add to the profit . Contribution is also known as gross margin Fixed cost are covered by contribution; and the balance amount is an addition to the net profit .

Marginal Cost = prime cost + Variable overhead. Contribution = Sales – marginal cost. Contribution = sales – variable cost. Contribution = Fixed cost + Profit or loss Profit = Contribution – fixed cost Sales – variable cost = Fixed cost + Profit Or C = S-V C= F+P S-V = F+P C= Contribution; S= sales, V= Variable Cost P= Profit, F= Fixed Cost

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Cost Volume Profit analysis at BAMUL

7.7.2) Break even analysis In economics & business, specifically cost accounting, the break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even". A profit or a loss has not been made, although opportunity costs have been paid, and capital has received the risk-adjusted, expected return. For example, if a business sells fewer than 200 tables each month, it will make a loss, if it sells more, it will be a profit. With this information, the business managers will then need to see if they expect to be able to make and sell 200 tables per month. If they think they cannot sell that many, to ensure viability they could: 1. Try to reduce the fixed costs (by renegotiating rent for example, or keeping better control of telephone bills or other costs) 2. Try to reduce variable costs (the price it pays for the tables by finding a new supplier) 3. Increase the selling price of their tables. Any of these would reduce the breakeven point. In other words, the business would not need to sell so many tables to make sure it could pay its fixed costs. In the linear Cost-Volume-Profit Analysis model, the break-even point (in terms of Unit Sales (X)) can be directly computed in terms of Total Revenue (TR) and Total Costs (TC) as:

Where: •

TFC is Total Fixed Costs,

•

P is Unit Sale Price, and

•

V is Unit Variable Cost.

The quantity is of interest in its own right, and is called the Unit Contribution Margin (C): it is the marginal profit per unit, or alternatively the portion of each sale that contributes to Fixed Costs. Thus the break-even point can be more simply computed as the point where Total Contribution = Total Fixed Cost. BNMIT School Of Management Studies

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Cost Volume Profit analysis at BAMUL In currency units (sales proceeds) to reach break-even, one can use the above calculation and multiply by Price, or equivalently use the Contribution Margin Ratio (Unit Contribution Margin over Price) to compute it as:

R=C Where R is revenue generated C is cost incurred i.e. Fixed costs + Variable Costs or Q X P(Price per unit)=FCT + Q X VC(Price per unit) Q X P - Q X VC=FC Q (P-VC)=FC or Break Even Analysis Q=FC/P-VC=Break Even

7.7.3) Margin of Safety Margin of safety represents the strength of the business. It enables a business to know what the exact amount it has gained or lost is and whether they are over or below the breakeven point. Margin of safety = (current output - breakeven output) Margin of safety% = (current output - breakeven output)/current output x 100 If P/V ratio is given then profit/ PV ratio = In unit Break Even = FC / (SP − VC) Where FC is Fixed Cost, SP is Selling Price and VC is Variable Cost

7.7.4) Break Even Analysis chart By inserting different prices into the formula, you will obtain a number of break even points, one for each possible price charged. If the firm changes the selling price for its product, from $2 to $2.30, in the example above, then it would have to sell only (1000/(2.3 - 0.6))= 589 units to break even, rather than 715.

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Cost Volume Profit analysis at BAMUL

Graph-8 Break-even Analysis chart To make the results clearer, they can be graphed. To do this, you draw the total cost curve (TC in the diagram) which shows the total cost associated with each possible level of output, the fixed cost curve (FC) which shows the costs that do not vary with output level, and finally the various total revenue lines (R1, R2, and R3) which show the total amount of revenue received at each output level, given the price you will be charging. The break even points (A,B,C) are the points of intersection between the total cost curve (TC) and a total revenue curve (R1, R2, or R3). The break even quantity at each selling price can be read off the horizontal axis and the breakeven price at each selling price can be read off the vertical axis. The total cost, total revenue, and fixed cost curves can each be constructed with simple formulae. For example, the total revenue curve is simply the product of selling price times quantity for each output quantity. The data used in these formulae come either from accounting records or from various estimation techniques such as regression analysis. The break-even point is one of the simplest yet least used analytical tools in management. It helps to provide a dynamic view of the relationships between sales, costs and profits. A better understanding of break-even, for example, is expressing break-even sales as a percentage of actual sales—can give managers a chance to understand when to expect to break even (by linking the percent to when in the week/month this percent of sales might occur). The break-even point is a special case of Target Income Sales, where Target Income is 0 (breaking even).

Limitations of break even analysis •

Break-even analysis is only a supply side (i.e. costs only) analysis, as it tells you nothing about what sales are actually likely to be for the product at these various prices.

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Cost Volume Profit analysis at BAMUL •

It assumes that fixed costs (FC) are constant. Although, this is true in the short run, an increase in the scale of production is likely to cause fixed costs to rise.

•

It assumes average variable costs are constant per unit of output, at least in the range of likely quantities of sales. (i.e. linearity)

•

It assumes that the quantity of goods produced is equal to the quantity of goods sold (i.e., there is no change in the quantity of goods held in inventory at the beginning of the period and the quantity of goods held in inventory at the end of the period).

•

In multi-product companies, it assumes that the relative proportions of each product sold and produced are constant (i.e., the sales mix is constant).

8) Data Analysis and Interpretation. 8.1) P/V Ratio introduction P/V Ratio is very important in decision making. It can be used for the Calculation of B.E.P and in problems Regarding Profit and sales Relationship.

B.E.P = Fixed Cost P/V Ratio Fixed Cost =BEP X P/V Ratio. Contribution = Sales X P/V Ratio BNMIT School Of Management Studies

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Cost Volume Profit analysis at BAMUL Variable Costs = Sales (1-P/V Ratio)

8.2) Contribution = Sales – Variable Cost

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Cost Volume Profit analysis at BAMUL Years

Sales

Variable Costs

Contribution

2010

5277613491

4701831189

575782302

2009

4772405713

4185978176

586427537

2008

4268688335

3659741003

608947332

2007

3745223706

3152459037

592764669

2006

3802055899

3204633348

597422551

Table 8 – Contribution from years 2006 to 2010

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Cost Volume Profit analysis at BAMUL

Graph showing the contribution.

Graph-9 Contribution

Interpretation The graph clearly depicts the increasing trend of contribution level for the first 3 years this suggests that increasing level of profitability of the company. And for next 2 years the contribution is decreasing the company is losing the profitability. So in order to gain or maintain the steady level of profit the company has only 2 choices

1) Increase the sales 2) Decrease the variable costs.

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Cost Volume Profit analysis at BAMUL 8.3) Break – Even Analysis BEP = Fixed Cost P/V Ratio P/V Ratio = Contribution Sales

Years

Break-even sales

2010

4107140623

2009

3723251056

2008

3103456785

2007

2265434515

2006

2345673452

Table 9 - break even sales of the company

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Cost Volume Profit analysis at BAMUL

Graph showing breakeven sales.

Graph 10- Breakeven sales

Interpretation The above graph depicts the break even sales of the company over the past 5 years. The break even sales achieved by the company is volatile this shows that the company is not maintaining the constant sales level over the years and so the company is striving hard to achieve the break even sales.

8.4) Profit Volume ratio. P/V ratio is very important in decision making it can be used for the calculation of B.E.P and in problems regarding the profit sales relationship.

P/V ratio = Fixed Cost B.E.P

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Cost Volume Profit analysis at BAMUL

Years

P/V ratio

2010

13.33

2009

15.25

2007

18.51

2006

24.72

2005

23.94

Table 10 – P/V Ratio of the company

Graph showing P/V Ratio

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Cost Volume Profit analysis at BAMUL Graph -11 P/V Ratios

INTERPRETATION The profit Volume ratio can be called as the mirror of the company as the higher P/V ratio indicates higher profit and vice versa. The above graph depicts clearly the decreasing ratio of the company says that the profit of the company has been decreasing over the years. The company has enjoyed higher profit in 2006 when compared to 2010.

8.5) Margin of safety Margin of safety = Actual Sales – BEP Sales

Years

Margin of safety

2010

1170472868

2009

1049154657

2008

1165231550

2007

1479789191

2006

1456382447

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Cost Volume Profit analysis at BAMUL

Graph showing Margin of safety

Graph-12 Margin of Safety

Interpretation The margin of safety serve as a guide is a reliable indicator of the business strength and soundness. The higher the margin higher is the soundness of business. The above graph shows that margin of safety of the Company for past 5 years the company has enjoyed a higher profit margin in 2006 and in 2007.It has been drastically decreased to very minimum level in 2009.

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Cost Volume Profit analysis at BAMUL

Table 12- Overview of sales, variable cost and fixed cost and Margin of safety

Years

Sales

Variable Cost

Fixed Cost

Margin of safety

2010

527761349 1

4701831189

547850047

1170472868

2009

477240571 3

4185978176

567900794

1049154657

2008

426868833 5

3659741003

574567611

1165231550

2007

374522370 6

3152459037

560016465

1479789191

2006

380205589 9

3204633348

561691699

1456382447

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Cost Volume Profit analysis at BAMUL

8.6) Sales from the year 2006 to 2010

Years

Sales

2010

5277613491

2009

4772405713

2008

4268688335

2007

3745223706

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Cost Volume Profit analysis at BAMUL 2006

3802055899

Table 13 - Sales

Graph Showing Sales

Graph 13 – Sales

Interpretation From the above chart it is observed sales have increased from 2007 to 2010. But sales has decreased in year 2007 when compared to year 2006.but overall company maintained increased trend in sales which shows that company has succeeded in maintaining the customer base.

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Cost Volume Profit analysis at BAMUL

8.7)

Variable Costs from the year 2006 – 2010 Year

Variable Costs

2010

4701831189

2009

4185978176

2008

3659741003

2007

3152459037

2006

3204633348

Table 14 – Variable Costs

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Cost Volume Profit analysis at BAMUL

Graph Showing Variable Costs

Graph – 14 Variable costs

Interpretation The variable costs of the company vary with no of units produced. The graph shows increasing variable costs from 2006 to 2010.

8.8) Net Profit of the company

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Cost Volume Profit analysis at BAMUL year

Net profit

2010

27932255

2009

18526743

2008

34379721

2007

32748204

2006

35730852

Table15 Net

profits

Graph showing net Profits of the company

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Cost Volume Profit analysis at BAMUL Graph-15 Net Profits Analysis of the Company

Interpretation The graph shows that profitability of the company for last 5 years. It is observed from the graph that the profitability of the company is highest in the year 2006. And the profitability of the company is lower in the year 2009. Profit is the important factor for the company to grow.

9)

Findings

1) The sales of the company are increasing over a period of 5 years. Sales are

highest in the year 2010. 2) Profit level of the company is volatile. The profit is highest in the year 2006.

And the profit has been decreased and lowest in the year 2009. Again profit level is high in the year 2010

3) Margin of safety has decreased compared to previous years. 4) P/V ratio of the company has decreased compared to previous years. 5) Variable costs of the company are increasing over the period from 2006 to

2010. 6) Break- even sales of the company were increasing over the period from 2006 to 2010. 7) All the departments in the company are computerized.

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Cost Volume Profit analysis at BAMUL 8) The debtors have been reduced over the years which indicate the improvement in the paying capacity of the company. 9) Over all the status of the company in monetary terms has increased when

compared to earlier years.

10)Suggestions 1) Variances should be recorded on a continuous basis, may be weekly

,fortnightly or monthly 2) Reasons should be ascertained for variances of each of the above 3) Module wise / Department wise responsibility to be fixed to monitor

variances 4) Corrective / Remedial measured should be taken and same should be

reported to concerned. 5) Areas where cost to be controlled at all levels are to be fixed, because costs can be controlled best at the point which they are incurred. 6) Review of costs to be controlled should be discussed in the meeting regularly. 7) The sales should be increased by increasing the customer base. 8) The profits should be kept in check to maintain the stability.

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Cost Volume Profit analysis at BAMUL

Conclusion Profitability analysis involves examining the relationship between revenues , Costs and profits. Cost-Volume-Profit analysis , a traditional approach to profitability analysis , considers only unit-level activity cost drivers. In CVP analysis , “volume refers to a single unit-level cost driver, such as units sold , that is assumed to correlate with changes in revenues , costs and profits. Because Cost-Volume-Profit analysis provides a framework for discussing planning issues and organizing relevant data , it is widely used in early stages of planning to enhance their usefulness , cost-Volume-Profit relationships are summarized in Graphs or in contribution income statements that classify costs according to behavior (variable or fixed) and emphasize the contribution margin that goes toward covering fixed cost and providing a profit. When applied to a single product , service or event when a single cost driver drives costs , the use of a single independent variable appears reasonable. Although CVP analysis is often used to develop an understanding of the overall operation of an organization or business segment , accuracy decreases as the scope of operations being analyzed increases. A major limitation of cost-Volume-profit analysis and related Contribution income statement is the use of a single unit-level activity cost driver. Even when multiple products are considered. The CVP approach restates volume either in terms of an average unit or in terms of a dollar of sales volume. This limitation can be addressed with a multi-level contribution income statement that includes unit and non unit cost drivers. A multi-level contribution income statement has several measures of contribution , one for each level of costs that contributes to a higher level of costs and profits.

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Cost Volume Profit analysis at BAMUL In developing multi-level contribution income statements , it is important to remember that cost classification schemes should be designed to fit the organization and user needs. While formatting issues can seem mundane and routine , format is important because the way information is presented encourages certain types of questions while discouraging others. Standards may be refixed taking past performance in to consideration and also industry average productivity of the employees should be increased by boosting morale , in turn more production can be achieved , which paves way for cost control in turn cost of production can be reduced substitutes may be found out which leads to cost control and quality and quality improvement .machines should be modernized optimum utilization of men, machinery ,Materials and Money should be achieved.

BIBLIOGRAPHY Sources 1) Cost and Financial Analysis : Shashi K.Gupta 2) Cost and Management Accounting: S.N.Maheshwari 3) Management Accounting : R.K.Sharma Websites referred 1)

www.indiadairy.com

2)

www.Bamul.co.in

3)

www.indiadairyasso.org

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