cost analysis and control Hyundai Motors India Limited (HMIL)20141.docx

CHAPTER-I INTRODUCTION

INTRODUCTION

COST:

Cost is essential in every walk of our life national, domestic and Business. A cost is prepared to have effective utilization of funds and for the realization of objective as efficiently as possible. Costing is a powerful tool to the management for performing its functions i.e., formulation plans, coordination activities and controlling operations etc., efficiently. For efficient and effective management planning and control are tow highly essential functions. Costing and cost control provide a set of basic techniques for planning and control.

A cost fixes a target in terms of rupees or quantities against which the actual performance is measured. A cost is closely related to both the management function as well as the accounting function of an organization.

As the size of the organization increases, the need for costing is correspondingly more because a cost is an effective tool of planning and control. Cost is helpful in coordinating the various activities (such as production, sales, purchase etc) of the organization with result that all the activities precede according to the objective. Costs are means of communication. Ideas of the top management are given the practical shape. As the activities of various department heads are coordinated at the much needed for the very success of an organization. Cost is necessary to future to motivate the staff associated, to coordinate the activities of different departments and to control the performance of various persons operating at different levels.

Costs may be divided into two basic classes. Capital and operating costs. Capital cost is directed towards proposed expenditure for new projects and often require special financing.

The operating costs are directed towards achieving short-term operational goals of the organization for instance, production or profit goals in a business firm. Operating costs may be sub-divided into various departmental of functional costs.

A process by which business decisions are analyzed. The benefits of a given situation or business-related action are summed and then the costs associated with taking that action are subtracted. Some consultants or analysts also build the model to put a dollar value on intangible items, such as the benefits and costs associated with living in a certain town. Most analysts will also factor opportunity cost into such equations. You may have been intensely creative in generating solutions to a problem, and rigorous in your selection of the best one available. This solution may still not be worth implementing, as you may invest a lot of time and money in solving a problem that is not worthy of this effort.Cost Benefit Analysis or cba is a relatively simple and widely used technique for deciding whether to make a change. As its name suggests, to use the technique simply add up the value of the benefits of a course of action, and subtract the costs associated with it.Costs are either one-off, or may be ongoing. Benefits are most often received over time. We build this effect of time into our analysis by calculating a payback period. This is the time it takes for the benefits of a change to repay its costs. Many companies look for payback over a specified period of time e.g. three years.In its simple form, cost-benefit analysis is carried out using only financial costs and financial benefits. For example, a simple cost/benefit analysis of a road scheme would measure the cost of building the road, and subtract this from the economic benefit of improving transport links. It would not measure either the cost of environmental damage or the benefit of quicker and easier travel to work.

NEED OF THE STUDY:The importance of cost reduction programs within a company cannot be overstated. Companies that are losing money, need to increase profits, or must become more competitive need to cut expenses in order to succeed. Knowing how to implement effective cost reduction strategies can be the determining factor in the survival of a business.When a company must generate more cash as fast as possible, management will have to decide which costs can be most effectively reduced. If the reduction is needed quickly, expenses cut first will normally be those that are not fixed or directly tied to production. It is not a good idea to drastically reduce expenses that produce the company product or service without careful evaluation. If your company understands the importance of cost reduction as a tool to increase profitability, the company will have a much better chance of remaining profitable no matter what stage of the economic cycle is occurring. That is because cost reduction is an effective tool that can be responsive to a company's need. Managing expenses is just as important as managing revenue. Keeping the competitive edge means keeping the company razor sharp. There is no room for laxness which dulls the ability of a company to be responsive to market trends. Changes can occur rapidly, and a company that cannot respond with new methods, new material usage, service efficiency changes, or technological adaptability will be quickly outperformed by other businesses. The importance of cost reduction strategies lies in its contribution to a company's honing of performance.

SCOPE OF THE STUDY:Since it will not be possible to conduct a micro level study of all type industries in Andhra Pradesh, the study is restricted to Hyundai Motors India Limited (HMIL)only.OBJECTIVES OF STUDYTHE STUDY HAS THE FOLLOWING: To provide the material frame work of cost and Cost Control Analysis

To describe the profit of the organization as a backdrop for undertaking a study of Cost Benefit Analysis.

To analyze the cost system in practice in Hyundai Motors India Limited (HMIL) with particular reference to their objectives and phases of organizational and re-appropriation.

In addition to the analysis of the conventional cost system in practice in Hyundai Motors India Limited (HMIL). The study aims at evaluation and modification to the current cost system with reference to the various types of costs. The scope in the formulation of performance cost is also studied.SOURCES OF DATA:

The data of Hyundai Motors India Limited (HMIL) have been collected mainly from secondary sources viz., Form the concerned officers of the Hyundai Motors India Limited (HMIL) Hyundai Motors India Limited (HMIL) journals. Accounting books, records. Key books of concerned title. Statistical records Hyundai Motors India Limited (HMIL) library.METHODOLOGY:The proposed study is carried with the help of both primary and secondary sources of data.PRIMARY DATA:The primary data is collected by interacting with the finance manager and other concerned executives at the administrative office of the company.SECONDARY DATA:All the secondary data used for the study has been extracted from the annual reports, manuals and other published material of the company.LIMITATIONS:

Estimates are used as basis for cost plan and estimates are based mostly on available facts and best managerial judgment Cost control cannot reduce the managerial function to a formula. It is only a managerial. Tool which increase effectiveness of managerial control. The use of cost may be to restricted use of resources. Costs an often taken as limits. Efforts may therefore not be made to exceed the performance beyond the cost targets. Frequent changes may be called for in costs due to first changing industrial climate. In order that a system may be successful, adequate costs education should be imparted at least through the formative period. Sufficient training programs should be arranged to make employees give positive response to cost activities. The study is the limited up to the date and information provided by Hyundai Motors India Limited (HMIL) and its annual reports.

CHAPTER-II

LITERATURE REVIEW

Costbenefit analysis (CBA), sometimes called benefitcost analysis (BCA), is a systematic process for calculating and comparing benefits and costs of a project, decision or government policy (hereafter, "project"). CBA has two purposes:1. To determine if it is a sound investment/decision (justification/feasibility),2. To provide a basis for comparing projects. It involves comparing the total expected cost of each option against the total expected benefits, to see whether the benefits outweigh the costs, and by how much. CBA is related to, but distinct from cost-effectiveness analysis. In CBA, benefits and costs are expressed in money terms, and are adjusted for the time value of money, so that all flows of benefits and flows of project costs over time (which tend to occur at different points in time) are expressed on a common basis in terms of their "net present value."Closely related, but slightly different, formal techniques include cost-effectiveness analysis, costutility analysis, economic impact analysis, fiscal impact analysis and Social return on investment (SROI) analysis.TheoryCostbenefit analysis is often used by governments and others, e.g. businesses, to evaluate the desirability of a given policy. It is an analysis of the expected balance of benefits and costs, including an account of foregone alternatives and the status quo, helping predict whether the benefits of a policy outweigh its costs, and by how much (i.e. one can rank alternate policies in terms of the ratio of costs and benefit). Altering the status quo by choosing the lowest cost-benefit ratio can improve pareto efficiency, in which no alternative policy can improve one group's situation without damaging another. Generally, accurate cost-benefit analysis identifies choices that increase welfare from a utilitarian perspective. Otherwise, cost-benefit analysis offers no guarantees of increased economic efficiency or increases of social welfare; generally positive microeconomic theory is moot when it comes to evaluating the impact on social welfare of a policy.

ProcessThe following is a list of steps that comprise a generic cost-benefit analysis. 1. List alternative projects/programs.2. List stakeholders.3. Select measurement(s) and measure all cost and benefits elements.4. Predict outcome of cost and benefits over relevant time period.5. Convert all costs and benefits into a common currency.6. Apply discount rate.7. Calculate net present value of project options.8. Perform sensitivity analysis.9. Adopt recommended choice.ValuationCBA attempts to measure the positive or negative consequences of a project, which may include:1. Effects on users or participants2. Effects on non-users or non-participants3. Externality effects4. Option value or other social benefitsA similar breakdown is employed in environmental analysis of total economic value. Both costs and benefits can be diverse. Financial costs tend to be most thoroughly represented in cost-benefit analyses due to relatively abundant market data. The net benefits of a project may incorporate cost savings or public willingness to pay compensation (implying the public has no legal right to the benefits of the policy) or willingness to accept compensation (implying the public has a right to the benefits of the policy) for the welfare change resulting from the policy. The guiding principle of evaluating benefits is to list all (categories of) parties affected by an intervention and add the (positive or negative) value, usually monetary, that they ascribe to its effect on their welfare.The actual compensation an individual would require to have their welfare unchanged by a policy is inexact at best. Surveys (stated preference techniques) or market behavior (revealed preference techniques) are often used to estimate the compensation associated with a policy, however survey respondents often have strong incentives to misreport their true preferences and market behavior does not provide any information about important non-market welfare impacts.One controversy is valuing a human life, e.g. when assessing road safety measures or life-saving medicines. However, this can sometimes be avoided by using the related technique of cost-utility analysis, in which benefits are expressed in non-monetary units such as quality-adjusted life years. For example, road safety can be measured in terms of cost per life saved, without formally placing a financial value on the life. However, such non-monetary metrics have limited usefulness for evaluating policies with substantially different outcomes. Additionally, many other benefits may accrue from the policy, and metrics such as 'cost per life saved' may lead to a substantially different ranking of alternatives than traditional cost-benefit analysis.Another controversy is valuing the environment, which in the 21st century is typically assessed by valuing ecosystem services to humans, such as air and water quality and pollution. Monetary values may also be assigned to other intangible effects such as business reputation, market penetration, or long-term enterprise strategy alignment.Time and DiscountingCBA usually tries to put all relevant costs and benefits on a common temporal footing using time value of money calculations. This is often done by converting the future expected streams of costs and benefits into a present value amount using a discount rate. Empirical studies and a technical framework suggest that in reality, people do discount the future like this.The choice of discount rate is subjective. A smaller rate values future generations equally with the current generation. Larger rates (e.g. a market rate of return) reflects humans' attraction to time inconsistencyvaluing money that they receive today more than money they get in the future. The choice makes a large difference in assessing interventions with long-term effects, such as those affecting climate change. One issue is the equity premium puzzle, in which long-term returns on equities may be rather higher than they should be. If so then arguably market rates of return should not be used to determine a discount rate, as doing so would have the effect of undervaluing the distant future (e.g. climate change).Risk and uncertaintyRisk associated with project outcomes is usually handled using probability theory. This can be factored into the discount rate (to have uncertainty increasing over time), but is usually considered separately. Particular consideration is often given to risk aversionthe irrational preference for avoiding loss over achieving gain. Expected return calculations does not account for the detrimental effect of uncertainty.Uncertainty in CBA parameters (as opposed to risk of project failure etc.) can be evaluated using a sensitivity analysis, which shows how results respond to parameter changes. Alternatively a more formal risk analysis can be undertaken using Monte Carlo simulations. HistoryThe concept of CBA dates back to an 1848 article by Jules Dupuit and was formalized in subsequent works by Alfred Marshall. The Corps of Engineers initiated the use of CBA in the US, after the Federal Navigation Act of 1936 effectively required costbenefit analysis for proposed federal waterway infrastructure. The Flood Control Act of 1939 was instrumental in establishing CBA as federal policy. It demanded that "the benefits to whomever they accrue in excess of the estimated costs.

Public PolicyThe application for broader public policy started from the work of Otto Eckstein, who in 1958 laid out a welfare economics foundation for CBA and its application for water resource development. Over the 1960s, CBA was applied in the US for water quality, recreation travel and land conservation. During this period, the concept of option value was developed to represent the non-tangible value of preserving resources such as national parks. CBA was later expanded to address both intangible and tangible benefits of public policies relating to mental illness, substance abuse, college education and chemical waste policies. In the US, the National Environmental Policy Act of 1969 first required the application of CBA for regulatory programs, and since then, other governments have enacted similar rules. Government guidebooks for the application of CBA to public policies include the Canadian guide for regulatory analysis, Australian guide for regulation and finance, US guide for health care programs, and US guide for emergency management programs. Transportation InvestmentCBA application for transport investment started in the UK, with the M1 motorway project in 1960. It was later applied on many projects including London Underground's Victoria Line. Later, the New Approach to Appraisal (NATA) was introduced by the then Department for Transport, Environment and the Regions. This presented costbenefit results and detailed environmental impact assessments in a balanced way. NATA was first applied to national road schemes in the 1998 Roads Review but subsequently rolled out to all transport modes. As of 2011 it was a cornerstone of transport appraisal in the UK and is maintained and developed by the Department for Transport. The EU's 'Developing Harmonised European Approaches for Transport Costing and Project Assessment' (HEATCO) project, part of its Sixth Framework Programme, reviewed transport appraisal guidance across EU member states and found that significant differences exist between countries. HEATCO's aim is to develop guidelines to harmonise transport appraisal practice across the EU.Transport Canada promoted the use of CBA for major transport investments with the 1994 issuance of its Guidebook. In the US, both federal and state transport departments commonly apply CBA, using a variety of available software tools including HERS, BCA.Net, StatBenCost, Cal-BC, and TREDIS. Guides are available from the Federal Highway Administration, Federal Aviation Administration, Minnesota Department of Transportation, California Department of Transportation (Caltrans), and the Transportation Research Board Transportation Economics Committee. AccuracyThe value of a costbenefit analysis depends on the accuracy of the individual cost and benefit estimates. Comparative studies indicate that such estimates are often flawed, preventing improvements in Pareto and Kaldor-Hicks efficiency.Causes of these inaccuracies include:1. Overreliance on data from past projects (often differing markedly in function or size and the skill levels of the team members)2. Use of subjective impressions by assessment team members3. Inappropriate use of heuristics to derive money cost of the intangible elements4. Confirmation bias among project supporters (looking for reasons to proceed)Reference class forecasting was developed to increase accuracy in estimates of costs and benefits. Interest groups may attempt to include or exclude significant costs from an analysis to influence the outcome.In the case of the Ford Pinto (where, because of design flaws, the Pinto was liable to burst into flames in a rear-impact collision), the company's decision was not to issue a recall. Ford's costbenefit analysis had estimated that based on the number of cars in use and the probable accident rate, deaths due to the design flaw would cost it about $49.5 million to settle wrongful death lawsuits versus recall costs of $137.5 million. Ford overlooked (or considered insignificant) the costs of the negative publicity that would result, which forced a recall and damaged sales. In health economics, some analysts think costbenefit analysis can be an inadequate measure because willingness-to-pay methods of determining the value of human life can be influenced by income level. They support use of variants such as costutility analysis and quality-adjusted life year to analyze the effects of health policies.In environmental and occupational health regulation, it has been argued that if modern cost-benefit analyses had been applied prospectively to decisions such as removing lead from gasoline, building Hoover Dam in the Grand Canyon and regulating workers' exposure to vinyl chloride, they would not have been implemented even though they are considered to be highly successful in retrospect. The Clean Air Act has been cited in retrospective studies as a case where benefits exceeded costs, but the knowledge of the benefits (attributable largely to the benefits of reducing particulate pollution) was not available until many years later.BackgroundCost-Benefit Analysis (CBA) estimates and totals up the equivalent money value of the benefits and costs to the community of projects to establish whether they are worthwhile. These projects may be dams and highways or can be training programs and health care systems. The idea of this economic accounting originated with Jules Dupuit, a French engineer whose 1848 article is still worth reading. The British economist, Alfred Marshall, formulated some of the formal concepts that are at the foundation of CBA. But the practical development of CBA came as a result of the impetus provided by the Federal Navigation Act of 1936. This act required that the U.S. Corps of Engineers carry out projects for the improvement of the waterway system when the total benefits of a project to whomsoever they accrue exceed the costs of that project. Thus, the Corps of Engineers had create systematic methods for measuring such benefits and costs. The engineers of the Corps did this without much, if any, assistance from the economics profession. It wasn't until about twenty years later in the 1950's that economists tried to provide a rigorous, consistent set of methods for measuring benefits and costs and deciding whether a project is worthwhile. Some technical issues of CBA have not been wholly resolved even now but the fundamental presented in the following are well established. Principles of Cost Benefit AnalysisOne of the problems of CBA is that the computation of many components of benefits and costs is intuitively obvious but that there are others for which intuition fails to suggest methods of measurement. Therefore some basic principles are needed as a guide. There Must Be a Common Unit of MeasurementIn order to reach a conclusion as to the desirability of a project all aspects of the project, positive and negative, must be expressed in terms of a common unit; i.e., there must be a "bottom line." The most convenient common unit is money. This means that all benefits and costs of a project should be measured in terms of their equivalent money value. A program may provide benefits which are not directly expressed in terms of dollars but there is some amount of money the recipients of the benefits would consider just as good as the project's benefits. For example, a project may provide for the elderly in an area a free monthly visit to a doctor. The value of that benefit to an elderly recipient is the minimum amount of money that that recipient would take instead of the medical care. This could be less than the market value of the medical care provided. It is assumed that more esoteric benefits such as from preserving open space or historic sites have a finite equivalent money value to the public. Not only do the benefits and costs of a project have to be expressed in terms of equivalent money value, but they have to be expressed in terms of dollars of a particular time. This is not just due to the differences in the value of dollars at different times because of inflation. A dollar available five years from now is not as good as a dollar available now. This is because a dollar available now can be invested and earn interest for five years and would be worth more than a dollar in five years. If the interest rate is r then a dollar invested for t years will grow to be (1+r)t. Therefore the amount of money that would have to be deposited now so that it would grow to be one dollar t years in the future is (1+r)-t. This called the discounted value or present value of a dollar available t years in the future. When the dollar value of benefits at some time in the future is multiplied by the discounted value of one dollar at that time in the future the result is discounted present value of that benefit of the project. The same thing applies to costs. The net benefit of the projects is just the sum of the present value of the benefits less the present value of the costs. The choice of the appropriate interest rate to use for the discounting is a separate issue that will be treated later in this paper. CBA Valuations Should Represent Consumers or ProducersValuations As Revealed by Their Actual BehaviorThe valuation of benefits and costs should reflect preferences revealed by choices which have been made. For example, improvements in transportation frequently involve saving time. The question is how to measure the money value of that time saved. The value should not be merely what transportation planners think time should be worth or even what people say their time is worth. The value of time should be that which the public reveals their time is worth through choices involving tradeoffs between time and money. If people have a choice of parking close to their destination for a fee of 50 cents or parking farther away and spending 5 minutes more walking and they always choose to spend the money and save the time and effort then they have revealed that their time is more valuable to them than 10 cents per minute. If they were indifferent between the two choices they would have revealed that the value of their time to them was exactly 10 cents per minute. The most challenging part of CBA is finding past choices which reveal the tradeoffs and equivalencies in preferences. For example, the valuation of the benefit of cleaner air could be established by finding how much less people paid for housing in more polluted areas which otherwise was identical in characteristics and location to housing in less polluted areas. Generally the value of cleaner air to people as revealed by the hard market choices seems to be less than their rhetorical valuation of clean air. Benefits Are Usually Measured by Market ChoicesWhen consumers make purchases at market prices they reveal that the things they buy are at least as beneficial to them as the money they relinquish. Consumers will increase their consumption of any commodity up to the point where the benefit of an additional unit (marginal benefit) is equal to the marginal cost to them of that unit, the market price. Therefore for any consumer buying some of a commodity, the marginal benefit is equal to the market price. The marginal benefit will decline with the amount consumed just as the market price has to decline to get consumers to consume a greater quantity of the commodity. The relationship between the market price and the quantity consumed is called the demand schedule. Thus the demand schedule provides the information about marginal benefit that is needed to place a money value on an increase in consumption. Gross Benefits of an Increase in Consumption is an Area Under the Demand CurveThe increase in benefits reulting from an increase in consumption is the sum of the marginal benefit times each incremental increase in consumption. As the incremental increases considered are taken as smaller and smaller the sum goes to the area under the marginal benefit curve. But the marginal benefit curve is the same as the demand curve so the increase in benefits is the area under the demand curve. As shown in Figure 1 the area is over the range from the lower limit of consumption before the increase to consumption after the increase.

Figure 1When the increase in consumption is small compared to the total consumption the gross benefit is adequately approximated, as is shown in a welfare analysis, by the market value of the increased consumption; i.e., market price times the increase in consumption. Some Measurements of Benefits Require the Valuation of Human LifeIt is sometimes necessary in CBA to evaluate the benefit of saving human lives. There is considerable antipathy in the general public to the idea of placing a dollar value on human life. Economists recognize that it is impossible to fund every project which promises to save a human life and that some rational basis is needed to select which projects are approved and which are turned down. The controversy is defused when it is recognized that the benefit of such projects is in reducing the risk of death. There are many cases in which people voluntarily accept increased risks in return for higher pay, such as in the oil fields or mining, or for time savings in higher speed in automobile travel. These choices can be used to estimate the personal cost people place on increased risk and thus the value to them of reduced risk. This computation is equivalent to placing an economic value on the expected number of lives saved. The Analysis of a Project Should Involve a With Versus Without ComparisonThe impact of a project is the difference between what the situation in the study area would be with and without the project. This that when a project is being evaluated the analysis must estimate not only what the situation would be with the project but also what it would be without the project. For example, in determining the impact of a fixed guideway rapid transit system such as the Bay Area Rapid Transit (BART) in the San Francisco Bay Area the number of rides that would have been taken on an expansion of the bus system should be deducted from the rides provided by BART and likewise the additional costs of such an expanded bus system would be deducted from the costs of BART. In other words, the alternative to the project must be explicitly specified and considered in the evaluation of the project. Note that the with-and-without comparison is not the same as a before-and-after comparison. Another example shows the importance of considering the impacts of a project and a with-and-without comparison. Suppose an irrigation project proposes to increase cotton production in Arizona. If the United States Department of Agriculture limits the cotton production in the U.S. by a system of quotas then expanded cotton production in Arizona might be offset by a reduction in the cotton production quota for Mississippi. Thus the impact of the project on cotton production in the U.S. might be zero rather than being the amount of cotton produced by the project. Cost Benefit Analysis Involves a Particular Study AreaThe impacts of a project are defined for a particular study area, be it a city, region, state, nation or the world. In the above example concerning cotton the impact of the project might be zero for the nation but still be a positive amount for Arizona. The nature of the study area is usually specified by the organization sponsoring the analysis. Many effects of a project may "net out" over one study area but not over a smaller one. The specification of the study area may be arbitrary but it may significantly affect the conclusions of the analysis. Double Counting of Benefits or Costs Must be AvoidedSometimes an impact of a project can be measured in two or more ways. For example, when an improved highway reduces travel time and the risk of injury the value of property in areas served by the highway will be enhanced. The increase in property values due to the project is a very good way, at least in principle, to measure the benefits of a project. But if the increased property values are included then it is unnecessary to include the value of the time and lives saved by the improvement in the highway. The property value went up because of the benefits of the time saving and the reduced risks. To include both the increase in property values and the time saving and risk reduction would involve double counting. Decision Criteria for ProjectsIf the discounted present value of the benefits exceeds the discounted present value of the costs then the project is worthwhile. This is equivalent to the condition that the net benefit must be positive. Another equivalent condition is that the ratio of the present value of the benefits to the present value of the costs must be greater than one. If there are more than one mutually exclusive projects that have positive net present value then there has to be further analysis. From the set of mutually exclusive projects the one that should be selected is the one with the highest net present value. If the funds required to carry out all of the projects with positive net present value are less than the funds available this means the discount rate used in computing the present values is too low and does not reflect the true cost of capital. The present values must be recomputed using a higher discount rate. It may take some trial and error to find a discount rate such that the funds required for the projects with a positive net present value is no more than the funds available. Sometimes as an alternative to this procedure people try to select the best projects on the basis of some measure of goodness such as the internal rate of return or the benefit/cost ratio. This is not valid for several reasons. The magnitude of the ratio of benefits to costs is to a degree arbritrary because some costs such as operating costs may be deducted from benefits and thus not be included in the cost figure. This is called netting out of operating costs. This netting out may be done for some projects and not for others. This manipulation of the benefits and costs will not affect the net benefits but it may change the benefit/cost ratio. However it will not raise the benefit cost ratio which is less than one to above one. For more on this topic see Benefit/ cost Ratio Magnitude. A cost benefit analysis is done to determine how well, or how poorly, a planned action will turn out. Although a cost benefit analysis can be used for almost anything, it is most commonly done on financial questions. Since the cost benefit analysis relies on the addition of positive factors and the subtraction of negative ones to determine a net result, it is also known as running the numbers. Cost Benefit AnalysisA cost benefit analysis finds, quantifies, and adds all the positive factors. These are the benefits. Then it identifies, quantifies, and subtracts all the negatives, the costs. The difference between the two indicates whether the planned action is advisable. The real trick to doing a cost benefit analysis well is making sure you include all the costs and all the benefits and properly quantify them. Should we hire an additional sales person or assign overtime? Is it a good idea to purchase the new stamping machine? Will we be better off putting our free cash flow into securities rather than investing in additional capital equipment? Each of these questions can be answered by doing a proper cost benefit analysis.

Example Cost Benefit AnalysisAs the Production Manager, you are proposing the purchase of a $1 Million stamping machine to increase output. Before you can present the proposal to the Vice President, you know you need some facts to support your suggestion, so you decide to run the numbers and do a cost benefit analysis. You itemize the benefits. With the new machine, you can produce 100 more units per hour. The three workers currently doing the stamping by hand can be replaced. The units will be higher quality because they will be more uniform. You are convinced these outweigh the costs. There is a cost to purchase the machine and it will consume some electricity. Any other costs would be insignificant. You calculate the selling price of the 100 additional units per hour multiplied by the number of production hours per month. Add to that two percent for the units that aren't rejected because of the quality of the machine output. You also add the monthly salaries of the three workers. That's a pretty good total benefit. Then you calculate the monthly cost of the machine, by dividing the purchase price by 12 months per year and divide that by the 10 years the machine should last. The manufacturer's specs tell you what the power consumption of the machine is and you can get power cost numbers from accounting so you figure the cost of electricity to run the machine and add the purchase cost to get a total cost figure. You subtract your total cost figure from your total benefit value and your analysis shows a healthy profit. All you have to do now is present it to the VP, right? Wrong. You've got the right idea, but you left out a lot of detail. Running The Numbers Means All The NumbersLets look at the benefits first. Don't use the selling price of the units to calculate the value. Sales price includes many additional factors that will unnecessarily complicate your analysis if you include them, not the least of which is profit margin. Instead, get the activity based value of the units from accounting and use that. You remembered to add the value of the increased quality by factoring in the average reject rate, but you may want to reduce that a little because even the machine won't always be perfect. Finally, when calculating the value of replacing three employees, in addition to their salaries, be sure to add their overhead costs, the costs of their benefits, etc., which can run 75-100% of their salary. Accounting can give you the exact number for the workers' "fully burdened" labor rates. In addition to properly quantifying the benefits, make sure you included all of them. For instance, you may be able to buy feed stock for the machine in large rolls instead of the individual sheets needed when the work is done by hand. This should lower the cost of material, another benefit. As for the cost of the machine, in addition to it's purchase price and any taxes you will have to pay on it, you must add the cost of interest on the money spent to purchase it. The company may purchase it on credit and incur interest charges, or it may buy it outright. However, even if it buys the machine outright, you will have to include interest charges equivalent to what the company could have collected in interest if it had not spent the money. Check with finance on the amortization period. Just because the machine may last 10 years, doesn't mean the company will keep it on the books that long. It may amortize the purchase over as little as 4 years if it is considered capital equipment. If the cost of the machine is not enough to qualify as capital, the full cost will be expensed in one year. Adjust your monthly purchase cost of the machine to reflect these issues. You have the electricity cost figured out but there are some cost you missed too. More CostsThe typical failure of a cost benefit analysis is not including all the costs. In the case of the stamping machine, here are some of the overlooked costs: Floor SpaceWill the machine fit in the same space currently occupied by the three workers? InstallationWhat will it cost to remove the manual stampers and install the new machine? Will you have to cut a hole in a wall to get it in or will it fit through the door? Will you need special rollers or machinists with special skills to install it? Operator?Somebody has to operate the machine. Does this person need special training? What will the operator's salary, including overhead, cost? * EnvironmentWill the new machine be so noisy that you have to build soundproofing around it? Will the new machine increase the insurance premiums for the company?Accurate Cost Benefit AnalysisOnce you have collected ALL the positive and negative factors and have quantified them you can put them together into an accurate cost benefit analysis. Some people like to total up all the positive factors (benefits), total up all the negative factors (costs), and find the difference between the two. I prefer to group the factors together. It makes it easier for you, and for anyone reviewing your work, to see that you have include all the factors on both sides of the issues that make up the cost benefit analysis. For the example above, our cost benefit analysis might look something like this: Cost Benefit Analysis - Purchase of New Stamping Machine(Costs shown are per month and amortized over four years) 1. Purchase of Machine .................... -$20,000includes interest and taxes 2. Installation of Machine ..................... -3,125including screens & removal of existing stampers 3. Increased Revenue .......................... 27,520net value of additional 100 units per hour, 1 shift/day, 5 days/week 4. Quality Increase Revenue ..................... 358calculated at 75% of current reject rate 5. Reduced material costs ...................... 1,128purchase of bulk supply reduces cost by $0.82 per hundred 6. Reduced Labor Costs ....................... 18,5853 operators salary plus labor o/h 7. New Operator ................................. -8,321salary plus overhead. Includes training8. Utilities ............................................ -250power consumption increase for new machine 9. Insurance ......................................... -180premiums increase 10. Square footage ...................................... 0no additional floor space is requiredNet Savings per Month ........................... $15,715 Your cost benefit analysis clearly shows the purchase of the stamping machine is justified. The machine will save your company over $15,000 per month, almost $190,000 a year. This is just one example of how you can use cost benefit analysis determine the advisability of a course of action and then to support it once you propose the action. OBJECTIVES OF COST:The primary objective of cost controls to help the management is systematic planning and in controlling the operations of the enterprise. The primary objective can be met only of there is proper communication and coordination amongst different within the organization. Thus the objectives can be stated as:

1. PLANNING:Businesses require planning to ensure efficient and maximum use of their resources. The first step in planning is to define the broad aims and objectives of the business. Then, strategies to achieve the desired goals are formulated and tentative schedule of eh proposed combinations of the various factors of production, which is the most profitable for the defined period. Cost influences strategies that need to be followed by the originations. It cultivates forced planning aiming managers.

2. CO-ORDINATION:Co-ordination is managerial functions under which all factors of production and all departmental activities are balanced and integrated achieve the objectives of the organization. Costing provides the basis for individual in all department to exchange ides on how best the organizations objectives can be realized. Executives are forced ot think of the relationship between their department and the company as a whole. This removes unconscious bases against other departments. It also helps to identify weaknesses in the organization structure.

3. COMMUNICATIONS:All people in the organization must know the objectives, policies and performances of the organizations. They must have a clear understanding of their part in the organizations goals. This is made possible by ensuring their participation in the costing process.

4. CONTROLS AND PERFORMANCE EVALUTION:Control ensures control by continuous comparison of actual performance with the costed performance. Variances are highlighted and corrective action can be initiated. Costs also from the basis of performance evaluation in an organization as they reflect realistic estimates of acceptable and expected performance.

COST, COSTING AND COST CONTROL:A cost is BLUE PRINT of a plan expressed in a quantitative terms. Costing is a technique for formulating costs. Cost control relates to the principles, procedures, and practice of achieving given objectives thorough costs.

From the above definitions we can differentiated the three terms as costs are the individuals objectives of a department, etc, where as costing may be said to be the act of building cost. Cost control embraces all and in addition includes the science of planning the costs to effect on overall management tool for the business planning and control.

ESSENTIALS OF COST:

The proper organization is essential for the successful preparation, maintenance and administration of costs. A cost committee is formed which comprises the departmental heads of various departments. All the functional heads are entrusted with the responsibility if ensuring proper implementation of their respective departmental costs.

The chief executive is the overall in charge of cost system. He constitutes a cost committee for preparing realistic costs. A cost officer is the convener of the cost committee who co-ordinates the costs of different departments. The managers of different departments are made responsible for their departmental costs.

COST OFFICER:The chief executive appoints cost officer. Such cost officer also called as cost controller or cost director. His rank should be equal to other functional managers.

The cost officer does not have the direct responsibility of preparing the costs. The various functional managers prepare the costs. His role is that of a supervisor. The cost officer has the specific duty of administering the cost. He is responsible for timely completion of costing activity by various departments and for co-ordination between them so the t there is a proper link between them. He is empowered to scrutinize the costs prepared by different functional heads and to make changes in them. If the situation so demands.

The cost officer works as a coordinator among different department. He continuously monitors the actual performance of different departments. He determines the deviations in the costs and takes necessary steps to rectify the deficiencies, if any. He also informs the top management about the performance of different department.

The cost officer will be able to carry out his work only if is conversant with the working of all the departments he must have technical knowledge of the business and should also possess accounting knowledge.

3. COST COMMITTEE:A cost committee is formed to assist the cost officer. The heads of the entire important departments are made members of this committee. The committee is responsible for preparation and execution of costs. The members of this committee put up the case of their respective departments and help the committee to take collective decisions, if necessary. The cost committee is responsible for reviewing the costs prepared by various functional heads. Co ordinate all the costs and approve the final costs, the cost officer acts as coordinator of this committee. All the functional heads are entrusted with the responsibility of ensuring proper of ensuring proper implementation of their respective final departmental costs. 4. COSTS CENTERS:A cost centers is that part of the organization for which the cost is prepared. A cost center may be a department, section of a department or any other part of the department. Ideally, the head of every center should be a member of the cost committee. However, it must be ensured that each cost center at least has an indirect representation in the cost committee.

The establishment of cost centers is essential for covering all parts of the organization becomes easy. When different centers are establishment. The cost centers are also necessary for cost control purposes.

5. COST MANUAL:a) A cost manual is a document that spells out the duties and responsible of the various executives concerned it specifies among various functional areas. A cost manual covers the following matters.b) A cost manual clearly defines the objectives of cost control system. It also gives the benefits and principles of this system.c) The duties and responsibilities of various persons dealing with preparation and exec ton of costs are also given in a cost manual. It enables the management to know the persons dealing with various aspects to costs and provides clarity on their duties and responsibilities,d) It gives information about the sanctioning authorities of various costs. The financial powers of different managers are given in the manual for enabling he spending amount on various expenses.e) A proper table for costs including the sending of performance reports is drawn so that every work starts in time and systematic control is exercise. f) The specimen forms and number of copies to be listed for cost repots is also stated. Cost involved should be clearly stated.g) The length of various cost periods and control points is clearly given.h) The procedure to the followed in the entire system is clearly stated.i) A method of accounting to be used for various expenditures is also stated in the manual.

The cost manual helps in documentation the role of every employee, his duties, responsibilities the ways of undertaking various tasks etc. thus it also in reducing ambiguity at any point of time.

6. COST PERIOD:A cost period is the length of time for which a cost is prepared. It depends upon a number of factors. The choice of a cost period depends upon the following considerations. The types of cost (long/short)

The nature of demand for the products. The timings for the availability of the finance. The economic situations of the cycles.

All the above mentioned factors are taken into account while fixing the period of costs. In this costing process the financial manager has to take the financial decision on the costs.

The financial manager usually responsible for organizing this cost, he must perform the following functions.

To decide the general policies and guidelines. To officer technical advice To suggest changes To receive and review individual cost estimates To reconcile divergent views To co-ordinate costing activities. To approve costs with or without revisions. To scrutinize control reports later on To scrutinize cost repots later on To disseminate these guide lines.

CONTINUOUS COSTING SYSTEM:A continuous costing system is a method of having two different cost periods with in the same cost. The purpose of having this system is to have greater control in terms of operational activities without losing sight is to have greater control in terms of it results in incorporating the effect of changes in the short term on the long-term targets of the organization.

DETERMINATION OF KEY FACTOR:The costs are prepared for all functional areas. These costs are interring dependent and inter-related. A proper co-ordination among different costs in necessary for cost control to be successful. The constraints on some costs may have an effect on other costs too. A factor which influences all other costs is known as key factor or principal factor.The key factor may not necessity remain the same. The raw materials supply may be limited at one time but it may be easily available at another time. Similarly, other factors may also improve at different times. The key factor highlights are limitations of the enterprise. This will enable the management to improve the working of these departments where scope for improvement exists.

REQUISITES FOR A SUCCESSFUL COST CONTROL SYSTEMFor making a cost control system successful requisites are required.1. CLARIFYING OBJECTIVES:The costs are used to realize objectives of the business. The objective must be clearly spelt out to that costs are properly prepared. In the absence of clear goals, the costs will also be unrealistic.

2. PROPER DELEGATION OF AUTHORITY AND RESPONSIBILITY:Cost preparation and control is done are every level of management. Even though costs are finalized at top level but involvement of persons from lower levels of management is essential for their success. This necessitates proper delegation of authority and responsibility.

3. PROPER COMMUNICATION SYSTEM:An effective system of communication is required for a successful cost control. The flow of information regarding costs should be quick so that these are implemented. The upward communication will help in knowing the difficulties in implementation of costs. The performance reports of various levels will help top management in cost control.

4. COST EDUCATION:The employees should be educated about the benefit of costing system. They should be the benefits of costing system they should be educating about their roles in the success of this system. Cost control may not be taken only as a control device by the employees but it should be used as a tool to improve their efficiency.

5. FLEXIBILITY:Flexibility in costs is required to make them suitable under changed circumstances. Costs are prepared for the future, which is always uncertain, even though costs are prepared by considering the future possibilities but still some adjustment. Flexibility makes the costs more appropriate and realistic.

6. MOTIVATION:Costs are to be implemented by human beings. Their successful implementation will depend upon the interest shown by the employees. All persons should be motivated to improve their working so that costing is successful. A proper system of motivation should be introduced for making this system a success.

TYPES OF COSTS:

1. LONG -TERM COSTS:

The long-term costs prepared for a long period of five to ten years. They are concerned with planning the operations of a firm over a considerably long period of time. The financial controller exclusively for the top management usually prepares long-term costs. These costs are very useful in terms of physical units (i.e. quantities) or percentages, since accrued values may be difficult to forecast over such long-period. Capital expenditure, research and development costs, etc, are examples of long-term costs.

2. SHORT TERM COSTS:

Short-term costs are costs prepared for a short period of one to two year. They are prepared for those activities the trend in which cannot be for seen easily over long periods. These costs are very useful in case of consumer goods industries such as sugar, cotton, textiles, etc. they are generally prepared in terms of physical units (i.e. quantities) as well as monetary units (i.e. values) materials cost. Each cost etc, are example of short-term cost. They are useful to lower level of management for control purpose.

3. CURRENT COSTS:Current cost is a cost, which is established for use over a short period of time and is related to current conditions. Thus current costs are essentially short term costs adjusted to current (i.e., present or prevailing) condition or circumstances. They are prepared for a very short period. Say, a quarter or a month. They related to current activities of the costs.

4. INTERIM COSTS:Interim costs are costs, which are prepared in between two cost periods. These costs may get integrated with the cost of the following period.

CLASSIFICATION OF COSTS ACCORDING TO CONTENT:Costs may be classified into costs in physical terms and into costs in monetary terms.

A) COSTS IN PHYSICAL TERMS:

Costs in physical terms are cost in terms quantities only. They do not include corresponding rupee value. Long-term costs are usually prepared in physical terms. Examples of such costs are production costs, material cost etc

B) COSTS IN MONETARY TERMS:Costs in monetary terms are costs that cost in terms of quantities as well as their corresponding rupee value, sales cost, purchase cost, etc are example of such costs. Costs such as cash cost, capital expenditure cost, etc that may not have physical quantities also from part of costs in monetary terms.

CLASSIFICATION OF COSTS ACCORDING TO FUNCTION:Costs can be classified into:1. operating costs2. financial costs3. master costs

1) OPERATING COST:These costs relate to different activities or operations of a firm. The number of such costs depends upon the size and nature of the business, the commonly used operating costs are:1) Sales costs2) Purchase costs3) Raw material costs4) Labor costs5) Factory utilization cost6) Manufacturing expenses or works overhead cost7) Administrative and selling expenses cost etc.

The operating cost for a firm may be constructed in terms of programmers or responsibility areas, and hence may consist of:Programmed costResponsibility cost

A) PROGRAMME COST:It consists of expected revenues and costs of various products or projects that are Termed as the major programmers of the firm, such a cost can be prepared for each product line or project showing revenues, cost and the relative profitability of the various in locating areas where efforts may be required to reduce costs and increase revenues. They are also useful in determining imbalance and inadequacies in programmers so that corrective action may be taken in future.

B) RESPONSIBILITY COSTS:

Where the operating cost of a firm is constructed in terms of responsibility Areas, such a cost show the plan in terms of persons responsible for achieving them. It is used by the management as a control them. It is used by the management as a control device to evaluate the performance of executives who are in charge of various cost centers. Their performance is compared to the targets (costs), set for them and proper action is taken for adverse results.Responsibility areas may be classified under three broad categories:Cost /expense centerProfit centerInvestment center

2) FINANACIAL COSTS:Financial costs are concerned with cash receipts and disbursements, working Capital, financial position and results of business operations. The commonly used financial costs include cash cost, working capital cost and income statement cost, statement of retained earnings cost, costed balance sheet or position statement cost.

3) MASTER COSTS:The master cost is the summary cost incorporating its functional costs. All The operational and financial costs are integrated into the master cost. The cost officer for the benefit of the top level management prepares this cost. This cost is used to coordinate the activities of various functional departments. It is also used as an effective control device.CLASSIFICATION ON THE BASIS OF FLEXIBILITY:A) FIXED COST:According to ICMA London a fixed cost is a cost which is designed to Remain unchanged irrespective of the level of activity actually attained it is based on a fixed volume of activity and shows one volume of output and related cost. It is not adjusted according to the actual level of activity attained.A fixed cost is useful only when the actual level of activity corresponds with the costed level of activity. But this generally does not happen as such a fixed costs is not useful for managerial purposes.

B) FLEXIBILE VARIABLE SLIDING SCALE OR CONTROL TYPE COSTS:According to ICMA London a flexible cost is a cost which is designed to Change in accordance with the level of activity actually attained. Thus a flexible cost changes according to the change in the level of activity. In other words it provides the costed costs at any level of activity.Business activity cannot be accurately predicted on account of uncertainties of Business environment. A flexible cost contains several estimates for different assumed circumstances instead of just one estimate, it provides for automatic adjustments with changes in the volume of activity. Hence, a situations operating in an unpredictable environment.

ZERO BASED COSTING:Zero-based costing is the latest technique of costing and it has increased use as a managerial tool. This technique was first used in America in 1962, by the former president America, Jimmy Carter.

As the name suggests, it is starting from a scratch, the normal technique of costing is to use previous years cost levels as a base for preparing this years cost. This method carries previous years inefficiencies to the present year because we taken last year because we taken last year as a guide, and decide what is to be done this year when this much was the performance of the last year.

In zero based costing every year is taken as a new year and previous year is not taken as a base, the cost for this year will have to be justified according to present situation, zero is taken as a base and likely future activities are decided according to present situations. In zero base costing a manager is to justify why he wants to spend. The performance of spending on various activities will depend upon their justification and priority for spending will have to be proved that an activity is essential and the amounts asked for are really reasonable taking into account the volume of activity.

COST AND COST SYSTEM IN ULTRA TECH CEMENTS.The costing process is used in the performance costing for the construction of phase. Which includes pre-commission activities. Besides meeting the essential requirements of managerial control. The costing exercise also covers the long-term capital costing, which is presented in the form of annual plan.

OBJECTIVES OF THE COST SYSTEM: To prepare annual costs in such a manner those managers at various levels in the organization carry out periodical exercise in respect of each contact or responsibility center for physical planning and matching resources broke up into monthly targets or cash flows. To introduce and operate responsible for achievement of specified targets with the resources allocated for the purpose. To bring about effective co-ordination of all activities of the organization of all activities of the organization and to gear up service divisions to meet effectively the requirement of projects.

COST PERIOD AND PHASING:The cost period or annual costs should correspond with the financial year. The cost should be drawn up for the ensuring financial year in the form of cost estimates financial year in the form of Revised Estimates (R.E) in addition, the cost are to be reviewed on monthly basis by project review teams, in the light of actual expenditure and projections in the cost period. Costs should indicate monthly phasing of expenditure and targets for the first and quarterly phasing for the second half of the year. At the time of review of the cost estimates to frame revised estimates the quarterly phasing should be broken up into monthly phasing.

While drawing up the actual cost in October every year, the long-term capital cost for ongoing and new schemes should be formulated as a part of the exercise for preparation of Annual plan. The long term capital cost should indicate for a period of six years following the cost period project wise annual phasing of the capital expenditure and physical schedules resource based network.

COST HEADS:For uniform accounting, it is essential that costs are collected for each system of the factory tough this may involve splitting up of payments against contracts which embrace more than one system. Allocation of the cost as system wise affords a sound basis for cost accounting, inter-firm comparisons and provides valuable inputs to data bank. Cost provisions are related to project estimated and monitoring of actual expenditure where as control cables for part control and instrumentation system.Factory piping which include pipelines, for ash water mains, compressed air system and civil works piping.Auxiliary pumps for water treatment plant and civil works system. If there are, any contracts not covered in the cost heads provision for such contracts should be shown against the appropriate system head by adding code number.5 TYPES OF COSTS IN ULTRA TECH CEMENTS:According to the nature expenditure cost are classified as under Direct capital outlay on works Technical consultancy Incident expenditure during construction Employee costOther establishment expenses: Training and recruitment Preliminary expenses Misc. brought-out assets Township cost

BRIEF EXPLANATION TO THE NATURE OF EXPENDITURE INCLUDED IN EACH COST INDICATED BELOW:These comprises of salaries, wages, allowance, contribution to PF and other funds and welfare expenses such as LIC, Medical reimbursement, canteen subsidy etc., and provision for areas of salary/D.A.

OFFICE AND OTHER EXPENSES:Expenses incidental to construction and capital works not traceable directly to incidental expenditure, during contribution equipments, vehicle running expense, office rent. Cost of drawings, traveling expenses, printing & stationery, communication expenses, advertisement for tenders etc., are major items in this category.

TRIANING RECRUITMENT & OTHER DEFFERED REVENUE EXPENDITURE: The first part of the cost consist of expenses for training executives, and non-executive trainees, rent for training halls and expenses for management development courses. The second part consists of expenses for recruitment such as advertisement for recruitment, interview expenses for to candidate etc., the third part combines preliminary expenses including share registration lees and research and development expenses.

MISCELLANEOUS BOUGHT OUT PASSESS:Vehicles, furniture and fixtures equipments, hospital and medical equipment, miscellaneous assesses town ship figure in this cost.

REVIEW OF PROJECT COST:

MONTHLY REVIEW:At monthly intervals, the costs should be reviewed by project review committee (PRC). Project cost should report actual expenditure against cost heads. Works heads and corporate cost by the 7th of the month following the reporting month. The monthly review should be examined by project review team (PRT), who should record reasons for any aviations and action proposed for expending works in the minutes of the meetings reasons for any variations in the case of cost heads exceeding 10% of the cost estimates revised estimates or whichever is lower Rs.5 lakhs should be analyzed and reported upon.

QUATERLY REVIEW:PRT should conduct a quarterly cost review with a view to projecting anticipated expenditure during the year against approved cost estimates/ revised estimates. As time is essence of such review, only a quick estimate of anticipated expenditure for individual cost heads involving provisions exceeding for individual cost heads involving provisions exceeding Rs 50 lakhs in each case should be made and reported upon in minutes of PRT. For this purpose, project cost should furnish all the relevant data to general manager (project) and planning and systems by the 10th of the month following the quarter project cost committee should review the actual expenditure and assess anticipated expenditure contract co ordination/engineers in charge the assessments of anticipated expenditure should be furnished by the project cost committee to general manager (project) by the 30th of the month following the quarter under review.

CHAPTER-IIIINDUSTRY PROFILE&COMPANY PROFILE

IntroductionThe automobile industry is one of Indias most vibrant and growing industries. This industry accounts for 22 per cent of the country's manufacturing gross domestic product (GDP). The auto sector is one of the biggest job creators, both directly and indirectly. It is estimated that every job created in an auto company leads to three to five indirect ancillary jobs.India's domestic market and its growth potential have been a big attraction for many global automakers. India is presently the world's third largest exporter of two-wheelers after China and Japan. According to a report by Standard Chartered Bank, India is likely to overtake Thailand in global auto-export market share by the year 2020.The next few years are projected to show solid but cautious growth due to improved affordability, rising incomes and untapped markets. With the governments backing, and trends in the international scenario such as the decline in prices of natural rubber, the Indian automobile industry is slated to witness some major growth.Market sizeThe cumulative foreign direct investment (FDI) inflows into the Indian automobile industry during the period April 2000 August 2014 was recorded at US$ 10,119.68 million, as per data by Department of Industrial Policy and Promotion (DIPP).Data from industry body Society of Indian Automobile Manufacturers (SIAM) showed that 137,873 passenger cars were sold in July 2014 compared to 131,257 units during the corresponding month of 2013. Among the auto makers, Maruti Suzuki, Hyundai Motor India and Honda Cars India emerged the top three gainers with sales growth of 15.45 per cent, 12 per cent and 11 per cent, respectively.The three-wheeler segment posted a 24 per cent growth to 51,461 units on the back of increased demands from the urban market. Total sales across different vehicle segments grew 12 per cent year on year (y-o-y) to 1,586,123 units.Scooter sales have jumped by 29 per cent in the ongoing fiscal, and now form 27 per cent of the total two-wheeler market from just 8 per cent a decade back. The ever-rising demand for scooters, which has far outstripped supply has prompted Honda to set up its first dedicated scooter plant in Ahmedabad.Tractor sales in the country is expected to grow at a compound annual growth rate (CAGR) of 89 per cent in the next five years making India a high-potential market for many international brands.InvestmentsTo match production with demand, many auto makers have started to invest heavily in various segments in the industry in the last few months. Some of the major investments and developments in the automobile sector in India are as follows: Ashok Leyland plans to invest Rs 450500 crore (US$ 73.5481.71 million) in India, by way of capital expenditure (capex) and investment during FY15. The company is required to manage Rs 6,000 crore (US$ 980.56 million) of assets in seven locations across the world, for which maintenance capex is needed. Honda Motors plans to set up the world's largest scooter plant in Gujarat to roll out 1.2 million units annually and achieve leadership position in the Indian two-wheeler market. The company plans to spend around Rs 1,100 crore (US$ 179.76 million) on the new plant in Ahmedabad, and expand its range with a few more offerings. Yamaha Motor Co has restructured its business in India. Now, Yamaha Motor India (YMI) will take care of its India operations. The restructuring is part of Yamahas mid-term plan aimed at improving organisational efficiency, as per Mr Hiroyuki Suzuki, Chief Executive and Managing Director. YMI would be responsible for corporate planning and strategy, business planning and business expansion, quality control, and regional control of Yamaha India Business. Tata Motors plans to use the 'hub-and-spoke' model in which India will be the key manufacturing base while it will have mini-hubs in overseas markets. The company also plans to set up mini hubs in potential markets like Africa, Middle-East and South East Asia. Hero Cycles through its unit OPM Global has acquired a majority stake in German bicycle company Mitteldeutsche Fahrradwerke AG (MIFA) for 15 million (US$ 19.11 million). The company plans to invest an additional 4 million (US$ 5.09 million) as capital expenses in restructuring the acquired company.

Government InitiativesThe Government of India encourages foreign investment in the automobile sector and allows 100 per cent FDI under the automatic route. To boost manufacturing, the government had lowered excise duty on small cars, motorcycles, scooters and commercial vehicles to eight per cent from 12 per cent, on sports utility vehicles to 24 per cent from 30 per cent, on mid-segment cars to 20 per cent from 24 per cent and on large-segment cars to 24 per cent from 27 per cent.The governments decision to resolve VAT disputes has also resulted in the top Indian auto makers namely, Volkswagen, Bajaj Auto, Mahindra & Mahindra and Tata Motors announcing an investment of around Rs 11,500 crore (US$ 1.87 billion) in Maharashtra.The Automobile Mission Plan for the period 20062016, designed by the government is aimed at accelerating and sustaining growth in this sector. Also, the well-established Regulatory Framework under the Ministry of Shipping, Road Transport and Highways, plays a part in providing a boost to this sector.The Government of India-appointed SIAM and Automotive Components Manufacturers Association (ACMA) are responsible in working for the development of the Indian automobile industry.Road AheadThe future of the auto industry depends on the positive sentiments and the demand for vehicles in the market. With the festival season coming up, the Indian auto sector will see a rise in demand which is expected to bring in major growth. An auto dealer survey by firm UBS suggested that the Indian auto industry, riding on trends like the upcoming festival season and decline in fuel price, will observe a 12 per cent y-o-y growth in FY15.Also, keeping up with international trends, there is expected to be a surge in the number of hybrid vehicles in the Indian auto sector in the years to come.

The growth story for the Indian automobile industry in 2014 rode on the two-wheeler segment and not on passenger cars or commercial vehicles, as high interest rates and a stuttering manufacturing industry kept a check on demand.

The year also saw Competition Commission of India (CCI) levying a penalty of Rs.2,544.65 crore ($415) on 14 car makers for their restrictive trade practices by preventing independent repairers coming into the market. Some of the leading car makers also had to recall some models over defective components.

When other segments like passenger cars and commercial vehicles logged negative growth, the two-wheeler makers registered around 13 percent growth between January and October. Riding on the two-wheeler sector's growth, the automotive industry grew 9.8 percent by volume year-on-year (YoY) between January and October.

"The two-wheeler segment is the only one that has clocked positive growth at 12.9 percent YoY (year-on-year) to reach sales of nearly 13.5 million units by October. This can be attributed to the low cost of two wheelers

in India," Vijay Kakade, vice president for automotive and transportation practice at Frost & Sullivan, told IANS.

He said the light commercial vehicle (LCV) segment has been the worst hit, with sales reducing to approximately 330,000 units -- an 18.9 percent YoY fall over 2013.

"The passenger car, medium and heavy commercial vehicle segments contracted by 0.8 and 6.5 percent respectively during the period, compared to 2013. The reduction in sales can be attributed to the slowdown and the high interest rates set by the RBI (Reserve Bank of India) reducing the availability of finance options to the public," Kakade added.

"These segments have shown positive signs over the past few months, which is expected to lead to growth in the next year."

"The year 2014 has been a year of stagnation, which is a positive sign as the decline has stopped. The industry has shown signs of growth, albeit slower than expected, over the past few months," Kakade remarked.P. Balendran, vice president, General Motors India, had similar views to share with IANS: "Of late, we have seen some movements in new entries driven by novelty factors and some select manufacturers have been getting the benefits too."He said the market has not shown any movement forward, despite the excise duty reduction, while the customer sentiment has not picked up due to sticky interest rates, which remain at high levels."Although fuel prices have started coming down significantly, the enquiry levels at showrooms have come down and conversions are not taking place at all. The sales of diesel vehicles are also tapering off because of the narrowing price gap vis-a-vis petrol," Balendran added.Expecting the government to continue with a lower excise duty regime for small/mid-sized/big cars and sports utility vehicles (SUV) till March 2015, Balendran said the rates should be continued till the Goods andServices Tax(GST) is introduced -- aiding the turnaround of the auto sector.

Terming 2014 a mixed bag for the automobile industry, Sumit Sawhney, chief executive and managing director of Renault India, told that while there has been a sea change in the consumer sentiment with a gradually improving economic climate in the country, the optimism has still to translate into sustained sales growth.

"The industry is looking forward to the budget for pro-business policies to reignite the automobile industry in India."

Highlights of India's automobile industry 2014:

* Overall growth was 9.8 percent by volume year-on-year (YoY) between January and October.* Two-wheeler sector grew 12.9 percemt* Passenger car, medium and heavy commercial vehicle segments contracted by 0.8 and 6.5 till October* LCV segment worst hit, with sales falling 18.9 percent YoY fall over 2013 till October* Excise duty reduction on automobiles* Competition Commission of India (CCI) fines 14 car-makers Rs.2,544.65 crore for restrictive trade practices.

Auto manufacturers have been trying to cope with economical rough patch in last two years. Trying to boost sales and implementing cost effective schemes just wasnt enough. They also had to cut many of their employees loose to stay somewhat balanced, in some cases. On a fashionable note, senior employees were asked to take voluntary retirement (not sure what voluntary is doing in that sentence).Tata Motors apart from giving customers attractive offers, gave 600 of their employees early retirement offers, last month. Ashok Leyland too offered 500 of their employees with irresistible retirement schemes, last year (pun intended).Sales of Cars, SUVs, Vans, pick-ups, and entire commercial vehicle segment went south, with passenger vehicle market encountering first decline in the decade. But what saved the overall scenario was the two-wheeler market. It took 7.31% hike with motorcycle sales going 3.91% up and scooter sales riding 23% north. Export sales figures also contributed to somewhat saving the year with rise of 7.21%.The downtrend left auto manufacturers with piled up inventory and stagnation. The interim budget announced in February, gave a minor boost as all vehicles prices were reduced marginally, but it hasnt exactly helped boost sales yet. Automakers are expecting aid from the governments new budget by way of further tax cuts.Sales figures of March 2014 shows 12.83% overall growth also by means of increased two-wheeler sales. Commercial Vehicles have further dipped compared to March 2013 and passenger cars stagnating below the graph. However, overall production has increased by 9.95% comparing March figures of both years, suggesting auto makers confidence in ongoing fiscal to make better.Launch of new A segment compact cars by various auto majors seems to be helpful in this economy, for customers as well as value chain entities. Maruti Suzuki finished top on podium with 42% share in overall car sales, followed by Hyundai with 15% share.Society of Indian Automobile Manufacturers (SIAM) expects a 6% growth over in the fiscal 2014-15, with boost in manufacturing sector, new investment and fresh capacities in the industry. Vikram Kirloskar, president of SIAM says, Whichever government comes inI am looking for stability in excise duty and some reduction in taxes. We are an over-taxed industry.

COMPANY PROFILEHISTORY:Hyundai Motor India Limited (HMIL) is a wholly owned subsidiary of Hyundai Motor Company (HMC). HMIL is the largest passenger car exporter and the second largest car manufacturer in India. It currently markets nine car models across segments - in the A2 segment it has the Eon, Santro, i10, Grand i10 and the i20, in the A3 segment the Verna, in the A4 segment the Elantra, in the A5 segment Sonata and in the SUV segment the Santa Fe.HMIL's fully integrated state-of-the-art manufacturing plant near Chennai boasts of advanced production, quality and testing capabilities. HMIL forms a critical part of HMC's global export hub, it touched 1.5 million in exports in March 2012. It currently exports to more than 120 countries across EU, Africa, Middle East, Latin America and the Asia Pacific. HMIL has been India's number one exporter for seven years in a row. To cater to rising demand the company commissioned its second plant in February 2008 having an installed capacity of 330,000 units per annum. To support its growth and expansion plans HMIL currently has 346 dealers and around 800 service points across India. In its commitment to provide customers with cutting-edge global technology, HMIL set up a modern multi-million dollar R&D facility in Hyderabad. The R&D centre endeavors to be a center of excellence in automobile engineering.

The Company is an authorized Dealer of Hyundai Motors India Limited (HMIL) for sale of its entire range of motor vehicles. It is also authorized to service & repair of all Hyundai cars and also deals in spare parts of Hyundai cars.Lakshmi Hyundai was established in the year 1998 in Himayathnagar with the launch of Hyundais first car in India- the evergreen SANTRO. The entire business is managed under the able leadership and guidance of the managing Director Shri K.Rama Mohana Rao.Soon after the Himayathnagar showroom, came up the state-of-art service facilities at Kukatpally, Banjarahills and L.B.Nagar. These service centers are well equipped to cater to the needs of valued customers. The management left no stone unturned to review, research and implement the latest of technologies and methodologies to improve on the sales, service on the customer satisfaction. Continuous up gradation of the facilities at the sales and service outlets and adding to the service agenda each time, add been sales graph go high by the yea

AWARDS: Mr. J.S Shin, Sr Director and Plant Head, HMIL and Mr. Rakesh Srivastava, Sr VP, Sales and Marketing, HMIL at ICOTY 2014 event. Mr. J.S Shin, Sr Director and Plant Head, HMIL and Mr. Rakesh Srivastava, Sr VP,Sales and Marketing, HMIL with the ICOTY Jury Mr. J.S Shin, Sr Director and Plant Head, HMIL and Mr. Rakesh Srivastava, Sr VP, Sales and Marketing, HMIL with the Grand Hyundai Grand wins NDTV Car and Bike 2014 Car of the Year Award

The awards received for Best in sales in south region, Best in finance , Top performer in 2005 and their technicians being awarded with a Gold Medal for standing No.1 in the world at World skill Olympics held at Korea-stand testimony to the recognition that received at the global level.According to the popular belief, a customer walking into LAKSHMI HYUNDAI is treated like an asset. His/her needs are assessed in the first stage and the customer is educated subsequently about the product line, service range, allied services, etc., ample information and time is given to the prospective buyer to make up his/her mind on which car to buy.Totally focused customer centric approach, unparalleled service motto, top-end facilities, bouquet of allied services, solid after sales backup, quality assurance, unconditional warranty promise and desire to excel through service are some of the threads which blend in effectively to give birth to the fabric called LAKSHMI HYUNDAI LAKSHMI HYUNDAIs success is just beginning and more to expect spectacular chapters in the preamble Winning Edges.

2014 Mr. B.S Seo- MD & CEO, HMIL, Mr. Rakesh Srivastava- Sr. VP, Sales & Marketing, HMIL receiving the coveted ICOTY 2015 for Elite i20 Mr. B.S Seo- MD & CEO, HMIL, Mr. Rakesh Srivastava- Sr. VP, Sales & Marketing, HMIL with ICOTY 2015 Jury Mr. J.S Shin, Sr Director and Plant Head, HMIL and Mr. Rakesh Srivastava, Sr VP, Sales and Marketing, HMIL at ICOTY 2014 event. Mr. J.S Shin, Sr Director and Plant Head, HMIL and Mr. Rakesh Srivastava, Sr VP,Sales and Marketing, HMIL with the ICOTY Jury Mr. J.S Shin, Sr Director and Plant Head, HMIL and Mr. Rakesh Srivastava, Sr VP, Sales and Marketing, HMIL with the Grand

2013 January 8, 2013: Elantra has been awarded the 'Car of the year', 'Design of the year' and 'Executive car of the year' by Car India and Bike India Awards. January 9, 2013: Elantra has been awarded the 'Saloon car of the year and Best deign & styling by Bloomberg UTV Autocar India Awards. January 11, 2013: Elantra has been awarded the 'Car of the year' and 'Executive Sedan of the year' by CNBC TV18 Overdrive Awards. January 24, 2013: Elantra has been awarded the Premium Sedan and Automotive design of year by ET Zigwheels Awards 2012. March 05, 2013: Hyundai Introduces Special Edition iTech i10. March 20, 2013: Elantra won the 'Sedan of the year 2012' by Autobild India and Carwale Awards - The Golden Steering Wheel Award. August 12, 2013: Hyundai introduces Santro 'Celebration Edition'. September 03, 2013: Launch of Hyundai Grand. October 17, 2013: Hyundai rolls out the 5th Millionth car. December 18, 2013: Hyundai Grand won the prestigious award 'Indian car of the year 2014'.

2012 January 5, 2012: The All New Sonata Launched at the New Delhi Auto Expo 2012 January 5, 2012: Eon has been awarded the prestigious 'Entry-Level Hatchback Of The Year' by ET Zigwheels Awards 2011 January 5, 2012: Verna has been awarded the prestigious 'Best Midsize Car 2012' and 'Best Car Manufacturer 2012' by Motor Vikatan'. January 6, 2012: Verna has been awarded the prestigious 'Sedan Of The Year' and HMIL has been awarded the 'Automotive Company Of The Year 2011' by Auto Bild Carwale. January 13, 2012: Verna has been awarded the prestigious 'Best Design and Styling' by Bloomberg UTV Autocar Awards 2012. January 24, 2012: Eon has been awarded the prestigious 'Micro Car Of The Year' and 'Reader's Choice Award' by Car India and Bike India Awards 2012. March 28, 2012: Launch of i-Gen i20. April 17, 2012: Hyundai Motor India Ltd wins the Auto India Best Brand Awards 2012- 'Best Customer Service' and 'Best Resale Value'. August 13, 2012:Launch of the neo fluidic Elantra. December 10, 2012:Elantra has been awarded the prestigious 'Saloon Car Of The Year 2012' by BBC Top Gear Magazine Awards 2012.LAKSHMI HYUNDAI MAN POWER:

DepartmentOwnContractTotal

Sales57057

Service12649175

Spaces15015

Finance & HR/Administration98098

Total29649345

RECRUITMENT PROCESS AT LAKSHMI HYUNDAI:

The recruitment process involves both internal and external methods. Internal methods namely are employee referrals, promotions, intercompany transfers. Employee referrals;This is the most common method of recruitment used by the organization. Last year the organization recruited 16 employees by employee referrals. PromotionsPosts falling vacant due to be filled will be notified within the division/office, giving educational qualifications and experience laid down for the post and the extent to which these will be relaxed for promotion and inviting applications from eligible employees in lower group, who have rendered the requisite qualifying service and who have requisite higher post. External methods of recruitment followed by the organization are employment exchange, paper advertisements and campus recruitment. . Employment Exchange: All vacancies are to be notified to the Local Employment Exchange. If employment exchanges are unable to sponsor the suitable candidates with in the prescribed time limits, the vacancies may be advertised in the press on a local/regional advertisement the vacancies may be advertised on India Basis. A minimum of two weeks notice is to given to the Local Employment Exchange for sponsoring suitable candidates. Paper advertisements:Of the external methods this method is mostly adopted by the organization. This method of recruitment involves advertising the requirements of personnel in two of the leading newspapers one being in English language and other being in regional language. For recruitments in Hyderabad, Eenadu and Deccan Chronicle are the two leading newspapers that the requirement of personnel is advertised.SELECTION PROCESS AT LAKSHMI HYUNDAI:After the recruitment process next step is the selection process in employing a suitable candidate into the organization. At Hindustan Aeronautics Limited the selection process mainly includes test/interviews. If a candidate passes through the different rounds of interviews/test then he is employed into the organization. The Personnel Department of each division or the corporate office will screen the applications received and categorize them to those that satisfy prescribed minimum educational qualification and experience and those do not .

Personal Manager Interview:This is the first round of interview for the candidate. The Personal manager checks the knowledge of the candidate in the applied field along with his positive attitude, communication skills and so on. On personal dissatisfaction the manager can call the candidate for another round of interview. He prepares an evaluation report on the candidates' performance in the interview.

Board Directors Interview:After the personal manager interview, the next in line is the Board Directors Interview. There are 4 directors who take the seat of interviewer. Questions about family background, health details, academic performance and activities, likes and dislikes, attitudes and capabilities etc. are all questioned. The interview conducted by the Board directors can take any shape from stress interview to formal or informal interview depending on the kind of department they are being recruited for. All the directors prepare an evaluation report individually on the candidates performance in relation to personality, intelligence, attitudes, skills and knowled