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Page 1 Project Report on “A study of Leverage & Cost Behavior analysis in Vidarbha Liquor Corporation For the FINANCIAL YEAR (2007-08 & 2008-09)” Submitted to Rashtrasant Tukdoji Maharaj Nagpur University Partial fulfillment of Degree of Master of Business Management For the academic year 2009-2010 Submitted By Ashish Wasudeorao Burde (Enroll no.NU/A5/19810) Under The Guidance of Prof. Ms. Lata G. Bhutada
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Page 1: Project Report On

Page 1

Project Report on

“A study of Leverage & Cost Behavior

analysis in

Vidarbha Liquor Corporation

For the FINANCIAL YEAR

(2007-08 & 2008-09)”Submitted to

Rashtrasant Tukdoji Maharaj Nagpur University

Partial fulfillment ofDegree of Master of Business Management

For the academic year 2009-2010

Submitted By

Ashish Wasudeorao Burde

(Enroll no.NU/A5/19810)

Under The Guidance of

Prof. Ms. Lata G. Bhutada

Dhantoli, Katol,Nagpur, Mharashtra-India

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Certificate

This is certify to that the project report submitted by

Ashish Wasudeorao Burde

on

“A study of Leverage & Cost Behavior

analysis in

VIDARBHA LIQUOR CORPORATION

For the financial year 2007-08 & 2008-09”

In partial fulfillment of two year full time Degree of

Master of Business administration

By Rashtra Sant Tukdoji Maharaj Nagpur Univercity.

Nagpur

This original work carried out under our supervision

and guidance and He has undergone the requisites hours

of practical prescribe by the university for project work

during Academic session 2009-2010.

College Guide Head of Department Ms. Lata Bhutada Dr. K. S. Kadu

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PrincipalMr. A.S. Meena

Department of Management Studies

NABIRA MAHAVIDYALAYA (Katol)

2009-2010

Acknowledgements

A MBA Final Sem. Training Programme is a golden opportunity for learning

and self development. I consider myself very lucky and honored to have so many wonderful

people lead me through in completion of this project.

My grateful thanks to Prof. Ms. Lata Bhutada Madam who in spite of

being extraordinarily busy with her/his duties, took time out to hear, guide and keep me on

the correct path. I do not know where I would have been without her/him. A humble ‘Thank

you Madam’.

Dr. K.S. Kadu Sir (HOD), DMS Nabira Mahavidyalaya, Katol, Nagpur.

monitored my progress and arranged all facilities to make life easier. I choose this moment to

acknowledge his contribution gratefully.

Mr. Pradeep Mahajan Sir whose patience I have probably tested to the

limit. She was always so involved in the entire process, shared her knowledge, and

encouraged me to think. Thank you, Dear Madam.

I would like to thanks Mr. Atul Charade Sir & Mr. Atul Daware Sir, for

his efforts and help provided to me to get such an excellent opportunity.

I would also like to thank my family and friends for their support as

this project could not be completed without their support and encouragement. I am

very much thankful to them.

Last but not the least there were so many who shared valuable information

that helped in the successful completion of this project.

Ashish W. BurdeMBA IV Sem., DMS Nabira

Mahavidyalaya, Katol,

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Nagpur.

DECLARATION

I ASHISH WASUDEORAO

BURDE hereby declare that the Project

report submitted for R.T.M.N.U. Nagpur,

Examination of Summer M.B.A. SEM IV

project entitled

“A study of Leverage &Cost Behavior analysis in

VIDARBHA LIQUOR CORPORATION

For the year (2007-08 & 2008-09)”

is the outcome of my own preliminary

analytical work based on personal study and

has not been submitted by me previously for

award of any degree or diploma to this

university or another university.

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Place:- Ashish W. Burde

Date: - / / 2009

INDEXINDEX

SR NO. CHAPTERS PAGE NO.

1. Executive Summary

6-8

2. Introduction to topic

A. Introduction to Topic

09-28

B. Introduction to Company

Profile 29-33

C.Aims & Objectives of study

31

D. Hypothesis of study

32

E.Limitations of study

32

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3. Research Methodology

33-35

4. Analysis and Findings of the study

36-53

5. Conclusions and Recommendations

of the study

54-55

6. Suggestion to company

56-57

7. Appendices

58-62

Bibliography

63

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EXECUTIVE SUMMARY

Executive Summary

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Leverage Analysis

In finance, leverage or leveraging refers to the use of debt to supplement

investment. Companies usually leverage to increase returns to stock, as

this practice can maximize gain (and losses). The easy but high risk

increases in a stock prices due to leveraging at US banks has been blamed

for the usually high rate of pay for top executives during the recent

banking crisis, since gains in stock are often rewarded regardless of

method. Delivering in the action of reducing borrowings. In

microeconomics, a key ensure of leverage is debt to GDP ratio.

There are three types of leverage

1. Operating leverage

2. Financial Leverage

3. Combined Leverage

Cost Behavior

Separating Mixed Costs into their variable and fixed elements.

Mixed costs are common to a wide range of firms. Examples of mixed

costs include sales compensation, repairs and maintenance, and factory

overhead in general. Mixed costs must be separated into the variable and

fixed elements in order to be included in a variety of business planning

analyses such as Cost-Volume-Profit (CVP) Analysis.

The way a specific cost reacts to changes in activity levels is called cost

behavior. Costs may stay the same or may change proportionately in

response to a change in activity. Knowing how a cost reacts to a change in

the level of activity makes it easier to create a budget, prepare a forecast,

determine how much profit a new product will generate, and determine

which of two alternatives should be selected.

Fixed costs

Fixed costs are those that stay the same in total regardless of the number

of units produced or sold. Although total fixed costs are the same, fixed

costs per unit changes as fewer or more units are produced. Straight-line

Depreciation is an example of a fixed cost. It does not matter whether the

machine is used to produce 1,000 units or 10,000,000 units in a month;

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the depreciation expense is the same because it is based on the number

of years the machine will be in service.

Variable costs

Variable costs are the costs that change in total each time an additional

unit is produced or sold. With a variable cost, the per unit cost stays the

same, but the more units produced or sold, the higher the total cost. A

direct material is a variable cost. If it takes one yard of fabric at a cost of

$5 per yard to make one chair, the total materials cost for one chair is $5.

The total cost for 10 chairs is $50 (10 chairs × $5 per chair) and the total

cost for 100 chairs is $500 (100 chairs × $5 per chair).

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INTRODUCTION

INRODUCTION OF THE TOPIC

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LEVERAGE

A company can raise the fund required for investment either by

increasing owner’s claims or the creditor’s claim or both. The claims

of the owner’s increases when the company raises the fund by

issuing equity shares or ploughs back its earnings. The claims of the

creditors increase when the funds are raised by borrowings. The

various means used to raise the funds represent the financial or the

capital structure of the company.

The financing or capital structure decision is of tremendous

significance for the management, since it influences the debt-equity

mix of the company, which ultimately affect shareholder’s return

and risk. In case the borrowed funds are more as compared to the

owner’s funds, it result in increase in shareholder’s earning together

with increase in their risk. This is because the cost of borrowed fund

is less than that of shareholder’s fund on account of the cost of

borrowed fund being allowable as a deduction for income tax

purpose. But at the same time, the borrowed fund carry a fixed

interest, which has to be paid whether the company is earning profit

or not. Thus, The risk of the shareholders increase in case there is

high proportion of borrowed funds in the total capital structure of

the company. In a situation where the proportion of the

shareholder’s fund is more that the proportion of the borrowed fund,

the return as well as the risk of shareholders will be much less.

MEANING OF LEVERAGES

The dictionary meaning of the term leverage refers to “an increased

means of accomplishing some purpose.” For example, leverages

helps us in lifting heavy objects, which may not be otherwise

possible. However in the area of finance, the term leverage has

special meaning. It is used to describe the firm’s ability to use fixed

cost asset or funds to magnify the return to its owners.

James Horne has defined leverage as “ The employment of an asset

or funds on which the firm pays a fixed cost or fixed return”. Thus,

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according to him, leverage is the result of the firm employing an

asset or a source of fund which has a fixed cost or return is the

fulcrum of leverage. If a firm is not required to pay fixed cost or

fixed return, there will be no leverage.

Since fixed cost or return has to be paid or incurred irrespective of

the volume of output or sales, the size of such cost or return has

considerable influence over the amounts of profit available for the

shareholders. When the volume of sales changes, leverage helps in

quantifying such influence. It may, therefore, be defined as the

relative change profit due to change in sales. A high degree of

leverage implies that there will be a large change in profit due to

relatively small change in sales and vice-versa. Thus, higher the

leverage, higher is the risk and higher is the expected return.

TYPES OF LEVERAGES

Leverages are of three types:

1. Operating leverage

2. Financial leverage

3. Composite leverage/Combined leverage

1. Operating Leverage

Operating leverage may be defined as the tendency of the

operating profit to vary disproportionately with sales. It is said o

exist when a firm has to pay the fixed cost regardless of volume of

output or sales. The firm is said to have a high degree of operating

leverage if it employs a greater amount of fixed cost and a smaller

amount of variable costs. On the other hand, a firm will have a low

operating leverage when it employs a greater amount of variable

costs and smaller amount of fixed cost. On the other hand, a firm

will have a low operating leverage when it employ a greater amount

of variable cost and a smaller amount of fixed costs. Thus, the

degree of operating leverage depends upon the amount of fixed

element in cost structure.

Operating leverage in a firm is a function of the following three

factors:

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1. The amount of fixed cost

2. The contribution margin

3. The volume of sales

Of course, there will be no operating leverage, if there are no fixed

operating costs.

The operating leverage can be calculated by following formula:

Contribution C

Operating Leverage = or

Operating Leverage OP

Operating profit here means “Earnings before interest & tax” (EBIT).

Operating leverage may be favorable or unfavorable. In case the

contribution (i.e. sales less variable cost) exceeds the fixed cost,

there is favorable operating leverage. In a reverse case, the

operating leverage will be termed as unfavorable.

Degree of Operating Leverage

The degree of operating leverage may be defined as percentage

change in the profits resulting from a percentage change in the

sales. It may be put in the form of following formula:

Percentage change in profit

Operating Leverage =

Percentage change in sales

Utility

Operating leverage indicates the impact of change in sales of

operating income. If a firm has high degree of operating leverage,

small changes in sales will have large effect on operating income, In

other words, the operating profit (EBIT) of such a firm will increase

at a faster rate than the increase in sales. Similarly the operating

profit of such a firm will suffer a greater loss as compared to

reduction in its sales.

Generally, the firm does not like to operate under condition of high

degree of operating leverage. This is a very risky situation Can be

excessively damaging to the firm’s effort to achieve profitability.

2. Financial Leverage

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Financial leverage may be defined as the tendency residual net

income to very disproportionately with operating profit. It indicates

the change that takes place in the taxable income as a change of

result in operating income. It signifies the existence of fixed interest

/fixed dividend bearing securities in the total capital structure of the

company. Thus, the use of fixed interest/dividend bearing securities

such as debt & preference capital along with the owner’s equity in

the total capital structure of the company, the fixed

interest/dividend bearing securities are greater as compared to the

equity capital, the leverage is said to be larger. In a reverse case

the leverage will be said to be smaller.

Favourable and unfavourable Financial Leverage

Financial leverage may be favourable or unfavourable depending

upon whether the earning made by the use of fixed interest or

dividend-bearing securities exceed or not the explicit fixed cost, the

firm has to pay for the employment of such funds. The leverage will

be considered to be favourable so long the firm earns more on

assets purchased with the fund than the fixed cost of their use.

Unfavourable or negative leverage occurs when the firm does not

earn much as the fund cost.

Computation

Computation of Financial leverage can be done according to

following methods:

(i) Where capital structure consist of equity shares and debt. In

such a case Financial leverage can be calculated a according to

the following formula:

OP

Operating leverage =

PBT

Where,

OP = Operating profit or Earnings before interest & tax(EBIT)

PBT = Profit before tax but after interest

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(ii) Where the capital structure consist of preference shares and

equity shares. The formula for computation of financial leverage

can also be applied to a financial plan having preference shares.

Of course, the amount of preference dividend will have to be

grossed up (as per the tax rate applicable to the company) and

deducted from the earnings before interest and tax.

Degree of Financial leverage

Degree of financial leverage may be defined as he percentage

change in “taxable profit” as a result of percent change “operating

profit”.

This may be put in the form of following equation:

Percentage change in Taxable income

Degree of Financial leverage=

Percentage change in operating income

Alternative definition of Financial Leverage

One of the objective of planning an appropriate capital structure is

to maximize the return on equity share holder’s funds or maximize

the earning per shares(EPS).Some authorities have used the term

‘Financial Leverage’ in the context that it defines the relationship

between EBIT & EPS. According to Gitman, Financial leverage is ‘The

ability of a firm to use fixed financial charges to magnify the effects

of changes in EBIT on the firm’s earnings per share. The financial

leverage, therefore, indicate the percentage change in earning per

share in relation to a percentage change in EBIT.

Percentage change in EPS

Degree of Financial leverage=

Percentage change in EBIT

Utility

Financial leverage helps the financial manager considerably while

devising the capital structure of the company. A high financial

leverage means high fixed financial cost and high financial risk. A

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Financial manager must plan the capital structure in a way that the

firm is in a position to meet its fixed financial costs. Increase in the

fixed financial cost requires necessary increase in EBIT level. In the

event of failure to do so, the company may be technically forced

into liquidation.

3. Composite Leverage

As explained in the preceding pages, operating leverage measures

percentage changes in operating profit due to percentage changes

in sales. It explains the degree of operating risk. Financial leverage

measures the percentage change in taxable profit (or EPS) on

account of percentage change operating profit (i.e., EBIT). Thus, it

explains the degree of financial risk. Both these leverages are

closely concerned with the firm’s capacity to meet its fixed costs

(both operating & financial). In case both the leverage are

combined, the result obtained will disclosed the effect of change in

sales over change in taxable profit (or EPS).

Composite leverage thus expresses the relationship between

revenue on account of sales (i.e., contribution or sales less variable

cost) and the taxable income. It helps in findings out the resulting

percentage change in taxable income on account of percentage

change in sales. This can be computed as follows:

Composite Leverage = Operating Leverage * Financial Leverage

= (C / OP) * (OP / PBT) = C / PBT

Where,

C = Contribution (i.e., Sales – Variable cost)

OP = Operating profit or Earnings before interest & tax

PBT = Profit before tax but after Interest

SIGNIFICANCE OF LEVERAGE

Operating leverage and financial leverage are the two quantitative

tools used by the financial expert to measure the returns to the

owners (viz., EPS) and the market price of the equity shares. The

financial leverage is considered to be the superior of these tools,

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since it focuses the attention on the market price of the shares

which the management always tries to increase by increasing the

Net worth of the Firm. The management for this purpose resorts to

trading on equity because when there is increase in EBIT then there

I corresponding increase in the price of equity shares. However a

firm cannot go on indefinitely raising the debt content in the total

capital structure of the company. If a firm goes on employing

greater proportion of debt capital, the marginal cost of debt will also

go on increasing because the subsequent lenders will demand

higher rate of interest. The company’s inability to offer the

subsequent assets as security will also stand in the way of further

employment on debt capital. Moreover, a firm with widely

fluctuating cannot afford to employ a high degree of financial

leverage.

A company should try to have balance of the two leverages because

they have got tremendous acceleration deceleration effect on EBIT

and EPS. It may be noted that a right combination of these

leverages is a very big challenge for the management. A proper

combination of both operating & financial leverages is a blessing’s

for firm’s growth, while an improper combination may prove to be

curse.

A high degree of operating leverage makes the position of firm very

risky. This is because on the one hand on the one hand it is

employing excessively assets for which it has to pay fixed cost and

at the same time it is using a large amount of debt capital. The fixed

cost towards using assets and fixed interest charges bring a greater

risk to the firm. In case the earning falls, the firm may not be in a

position to meet its fixed cost. Moreover, greater fluctuation in

earnings is likely to occur on account of the existence of a high

degree of operating leverage. Earnings to the equity share holders

will also fluctuate widely on account of existence of a high degree of

financial leverage. The existence of a high degree of operating

leverage will result in a more than proportionate change in EPS even

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on account of small changes in EBIT. Thus, a firm has high degree of

financial leverage and high degree of operating leverage has to face

the problems of inadequate liquidity or insolvency in one or the

other year. It does not, however, mean that a firm should opt for low

degree of operating & financial leverage. Of course, such lower

leverages indicate the caution policy of the management. But the

firm will be losing many profit earnings opportunities. A firm should,

therefore, make all possible efforts to combine operating & financial

leverage in a way that suits the risk bearing capacity of the firm.

It may be observed that the firm with the high operating leverage should

not have a high financial leverage. Similarly, a firm having low operating

leverage will stand to gain by having a high financial leverage provided it

is enough profitable opportunities for the employment of borrowed fund.

However, low operating leverage is considered to be an ideal situation for

the maximization of profit with minimum of risk.

COST BEHAVIOR

Cost behavior is the measure of how a cost responds to changes

in the level of business activity. Understanding of how costs behave in a

particular situation is crucial for decision-making process in an

organization. Thus the production performance results reported on the

income statement.

Cost behavior information allows managers:

To prepare budgets

To predict cash flows

To plan dividend payments

To establish selling prices

Depending on the cost behaviors, there are four common cost

types, which are variable, fixed, mixed, and step-variable costs.

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Main Features of marginal Costing

1. Marginal costing is technique or working of costing, which is used in

conjunction with other method of costing.

2. Fixed & variable cost is kept separate at every stage. Semi-variable

cost is also separated into fixed & variable.

3. As fixed is period cost. They are excluded from product cost or cost

of production or cost of sales. Only variable cost is considered as

the cost of the product.

4. When evaluation of finished goods and work-in-progress are taken

into account, they will be only variable cost.

5. As fixed cost is period cost, they are charged to profit and loss

account during the period in which they are incurred. They tar not

carried forward to the next year’s income.

6. Marginal income or marginal contribution known as income or the

profit.

7. The difference between the contribution & fixed cost is the net

profit or loss.

8. Fixed cost remains constant irrespective of level of activity.

9. Sales price and variable cost per unit remains the same.

10.Cost-volume-profit relationship is fully employed to revel the state

of profitability at various level of activity.

Advantages of cost behavior analysis

1. Constant in nature: - Variable cost fluctuates from time to

time, but in the long run, marginal cost is stable. Marginal cost remains

the same, irrespective of volume of production.

2. Effective cost control: - It divides cost into fixed & variable.

Fixed cost is excluded from product. As such, management can control

marginal cost effectively.

3. Treatment of overhead simplified: - It reduces degree of over

or under recovery of overhead due to the separation of fixed overhead

from production cost.

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4. Uniform & realistic valuation: - As fixed overhead cost are

excluded from product cost, the valuation of work-in-progress and finished

goods become more realistic.

5. Helpful to management: - It enables management to start a

new line of production which is advantageous. It is helpful in determining

which is profitable –whether to buy or manufacture a product. The

management can take decision regarding pricing & tendering.

6. Help in production planning: - It shows amount of profit at

every level of output with the help of cost volume profit relationship. Here

the break-even chart is made use of.

7. Better result: - When used with standard costing, it gives

better result.

8. Fixation of selling price: - The differentiation between cost &

variable cost is very helpful in determining the selling price of product or

services. Sometimes, different prices are charged for the same article in

different market to meet varying degree of competition.

9. Help in budgetary control: - The classification of expenses is

very helpful in budgeting and flexible budget for various levels of

activities.

10. Preparing tenders: - Many business enterprises have to

complete in the market in quoting the lowest price. Total variable cost,

when separately calculated, becomes the “floor price”. Any price above

this floor price may be quoted to increase the total contribution.

11.”Make or Buy” Decision: - Some time a decision has to be

made whether to manufacture a component or a product to buy it

readymade from the market. The decision to purchase it would to be taken

if the price paid recovers some of the fixed expenses.

12. Better presentation: - The statement & graphs prepared

under marginal costing are better understood by management executives.

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The break-even-analysis presents the behavior of cost, sales, contribution

etc. in terms of chart & graphs. And, the result can easily be grasped.

Disadvantages of cost behavior analysis

1. Difficulty to analyze overhead: - Separation of cost into fixed

& variable is a difficult problem. In marginal costing, semi-variable & semi-

fixed cost is not considered.

2. Time element ignored: - Fixed cost and variable costs are

different in the short run; but in the long run, all cost are variable. In the

long run all cost change at varying level of operation. When new plant &

equipment are introduced, fixed cost & variable cost will vary.

3. Unrealistic assumption: - Assumption of the sale price will

remain the same at different levels of operation. In real life, they may

change & give unrealistic result.

4. Difficulty in fixation of price: - Under marginal costing, selling

price is fixed on the basis of contribution. In case of cost plus contract, it is

very difficult to fix price.

5. Complete information not given: - It does not explain the

reason for increase in production or sale.

6. Significance lost: - In capital-intensive industry, fixed cost

occupy major portion in the total cost. But marginal cost only covers

variable cost. As such, it loses its significance in capital industry.

7. Problem of variable overhead: - marginal costing overcomes

the problem of over and under-absorption of fixed overhead. Yet there is

the problem in the case of variable overhead.

8. Sales-oriented: - Successful business has to go in a balanced

way in respect of selling production function. But marginal costing is

criticized on account of its attaching over-importance to selling function.

Thus it is said to be sales-oriented. Production function is given less

importance.

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9. Unrealistic Stock valuation: - Under marginal costing stock of

work in progress & finished stock is valued at variable cost only. No

portion of fixed cost is added to the value of stock. Profit, determined,

under this method, is depressed.

10. Claim for loss of stock: - Insurance claim for loss or damage

of stock on the basis of such a valuation will be unfavorable to business.

11. Automation: - Now-a-days increasing automation is leading to

increase in fixed costs. If such increasing fixed cost is ignored, the costing

system cannot be effective and dependable.

Marginal costing, if applied alone, will not be much in use, unless it

is combined with other techniques like standard costing & budgetary

control.

MARGINAL COSTING

In marginal costing, only variable cost is charged to production. The

Institute of cost & management accountants (U.K.) defines it as, “the

practice of charging all cost, both variable & fixed to operation, process or

product.” This explains why this technique is also called full costing.

Administrative, selling & Distribution overhead as much from part of total

cost as prime cost & factory burden.

Cost-Volume-Profit Analysis

As the term itself suggest, the cost-volume-profit (CVP) analysis is

the analysis of three variables, viz., cost, volume and profit. In CVP

analysis, an attempt is made to measure variation of cost and profit with

volume. Profit as variable in the reflection of number of internal and

external condition which exert influence on sales revenue and costs.

The CVP analysis helps or assists the management in the profit

planning. In order to increase the profit, a concern must increase the

output. When the output is at maximum, within the installed capacity, it

adds to the contribution. The CVP analysis is relationship among the cost,

Volume and profit. When volume of output increases, the fixed cost per

unit decreases. Therefore, profit will be more, when sales price remains

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constant. Generally, cost may not change in direct proportion to the

volume. Thus, a small change in the volume will affect the profit.

The management is always interesting in knowing that which

product or product mix to most profitable, what effect a change in the

volume of output will have on cost of production & profit etc. All these

problems are solved with the help of CVP analysis.

To know the cost volume profit relationship, a study of following is

essential.

1. Marginal cost formulae:

2. Break–even-analysis:

3. Profit volume ratio:

Marginal Cost Equations

Sales = Variable Cost + Fixed Cost + Profit or Loss

Sales –Variable cost = Fixed Cost + Profit or Loss

Sales –Variable cost = Contribution

Contribution = Fixed Cost + Profit

Contribution

Contribution is the difference between sales & marginal cost of

sales. Contribution Enables to meet fixed cost and adds to the profit.

Contribution is also known as Gross margin. Fixed cost is covered by the

contribution; and the balance amount in 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 Loss

(or) C = S – V

C = F + P

S – V = F + P

C= Contribution, S= Sales, V= Variable cost,

P= Profit, F= Fixed Cost.

Break-Even Analysis

The Break-Even point Break-Even chart is two by-product of Break-

Even analysis. In a narrow sense, it is concerned with break-even chart.

Break-even analysis is also known as CVP analysis. The analysis is a tool of

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financial analysis whereby impact on profit of changes in volume, price,

costs and mix can be estimated with reasonable accuracy. Break-even

point is equilibrium point or is a point where the income is exactly equal to

expenditure.

Break even point. Break-even point is a point where the total

sales are equal to total cost. In this point there is no profit or no loss in the

volume of sales. The formula to calculate break-even point is:

Total Fixed cost

B.E.P. (in unit) =

Contribution per unit

Total Fixed cost

B.E.P. (in sales) =

Profit Volume ratio

Profit Volume Ratio

Profit volume ratio, which is popularly known as P/V ratio; express

the relationship of contribution to sales. Another name for this ratio is

contribution sales ratio or marginal-income ratio or variable-profit ratio.

The ratio, expressed as a percentage, indicate the relative profitability of

different product.

The formula for computing the P/V ratio is given below:

Contribution

P/V Ratio =

Sales

Or Fixed Cost + Profit

=

Sales

Or Sales - Variable Cost

=

Sales

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It can also be expressed in percentage. Normally, this ratio

expressed in percentage. When we know the P/V ratio, B.E.P. can be

calculated by using the formula

Total Fixed cost F

B.E.P. (in Sales) = (or)

Profit Volume ratio P/V ratio

The profit of a business can be increased by improving P/V ratio. As

such management will make effort to improve the ratio. A higher ratio

means greater profitability and vice-versa. So management will increase

the P/V ratio:

(a) By sales price per unit

(b) By decreasing variable cost

(c) By increasing the production of product which is having high

P/V ratio and vice-versa

P/V ratio is very important in decision making. It can be used for

The calculation of B.P.E. and in problem regarding profit sales relationship.

Margin of Safety

Margin of Safety is an important concept in marginal costing

approach. Total sales minus the sales at break-even point are known as

“Margin of safety (M/S).” That is, margin of safety is the excess of normal

or actual sales over sales at B.E.P. In other words, sales over & above

break-even sales are known as margin of safety. The Margin of safety

refers to the amount by which sales revenue can fall before a loss is

incurred. That is, it is the difference between the actual sales and sales at

break-even point. Break-even point can be compared to a Red Signal

point. If the margin of safety is large, it is a sign of soundness of the

business and vice versa. The margin of safety serves as a guide is a

reliable indicator of business strength & soundness. Margin of safety can

be expressed in absolute sales amount in percentage.

High Margin of safety indicates the soundness of a business

because even substantial fall in sale or fall in production, some profit shall

be made. Small margin of safety on the other hand is an indicator of weak

position of the business and even a small reduction in sale or production

will adversely affect the profit position of the business.

Margin of safety can be increased by:

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a) Decreasing the fixed cost

b) Decreasing the variable cost

c) Increasing the selling price

d) Increasing the output & sales

e) Changing to a product mix that improve P/V ratio

Margin of Safety = Actual Sales – Sales at BEP

Profit

Or =

P/V ratio

Profit

Or =

Contribution

FUNCTIONAL AND CONTRIBUTION MARGIN INCOME STATEMENTS

Up until now, we have been using the functional, or traditional, or

conventional income statement format that you learned in financial

accounting. But managers are better aided in their decision making by a

contribution margin or variable costing income statement.

A traditional, functional income statement is required for

external financial statements. It separates costs by their function: product

costs or period costs. Product costs (COGS) are subtracted from sales to

show gross margin (gross profit). All period costs (selling, general, and

administrative) are then subtracted to show operating income.

Sales

` Less Cost of goods sold (including DM, DL, VOH, and FOH)

Gross margin

Less operating expenses

Variable selling, general, and administrative expenses

Fixed selling, general, and administrative expenses

Net operating income

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The contribution margin income statement is preferable for

management purposes. It separates costs by their behavior: variable costs

and fixed costs. It also works very well with CVP analysis. All variable

costs, both product and period, are subtracted from sales to show

contribution margin. All fixed costs, both fixed overhead (a product cost)

and fixed period costs, are then subtracted to show operating income.

Fixed overhead is subtracted in total regardless of how many are

produced or sold.

Sales

Less variable cost

Variable cost of goods sold (including DM, DL, and VOH)

Variable selling, general, and administrative expenses

Contribution margin

Less fixed costs

Fixed overhead

Fixed selling, general, and administrative expenses

Net operating income

If all units produced are also sold, the operating income will be the

same regardless of the type of income statement produced.

On the contribution margin income statement, note that everything,

including sales, direct materials, direct labor, variable overhead, variable

selling/general/administrative, and contribution margin will vary in direct

relationship to the number of units sold. The fixed costs, both fixed

overhead and fixed selling/general/administrative, remain the same

whether we sell any number of units or no units. We’ll find this concept

very helpful when we analyze the relationships among costs, volume, and

profit.

The way a specific cost reacts to changes in activity levels is

called cost behavior. Costs may stay the same or may change

proportionately in response to a change in activity. Knowing how a cost

reacts to a change in the level of activity makes it easier to create a

budget, prepare a forecast, determine how much profit a new product

will generate, and determine which of two alternatives should be

selected.

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1. Variable Cost – varies proportionately in total but remains constant on a

per unit basis.

a. True variable costs – proportionately variable (ex. Raw material)

amount used directly increases as production increases by the

same percentage.

b. Step variable costs – costs obtainable in large segments (ex.

Labor costs of maintenance workers) and that increase or decrease

in response to fairly wide changes in activity levels.

costs are constant for a certain activity level (relevant range) and

then vary in a step like fashion as volume increases.

2. Fixed Costs – remain constant in total but vary inversely on a per unit

basis (if production increases, then per unit cost decreases; if production

decreases, then per unit cost increases)

a. Committed fixed costs – relate to the investment in plant,

equipment and the basic organizational structure of the firm (ex.

Depreciation of building and equipment, real estate taxes,

insurance, management salaries, etc.)

- are long term in nature

- cannot be reduced immediately over a short period of time

without seriously impairing either the profitability or the long run

goals of a firm.

b. Discretionary Fixed Costs (Managed Fixed Costs)

- arise from annual decisions by management to spend in

certain fixed costs areas (ex. Advertising, research,

management development programs)

- Short term in nature, usually a single year

- Possible to cut back on certain costs for short periods of

time with minimum disruptions to long term goals.

c. Semi variable or Mixed Costs – contains both variable and fixed

costs elements

- At certain levels of activity mixed costs display the same

Characteristics as a fixed cost

- At certain levels they display same characteristic as a

variable cost

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- (examples: electricity, heat, telephone, maintenance, car

rental, copy machine rental)

INRODUCTION TO COMPANY PROFILE

The VIDARBHA LIQUOR CORPORATION is situated in the Heart of

Nagpur City. The company is the member of VIDARBHA INDUSTRIAL

ASSOCIATION(VIA).The company is famous across all the vidarbha

region as a leading liquor provider. The company is not only providing

liquor to the Nagpur District but also the near Districts of the Nagpur. The

distribution of company is to Madhya Pradesh also. The company is also

deals in the Foreign Brands .The Manufacturing unit & Administrative

office is situated at same location. The Company is influencing most of all

on local brands.

INFORMATION OF COMPANY :-

1. Name of Company :- “M/S. VIDARBH LIQUOR CORPORATION”

2. Owner of Company :- 1. Mr. RAMESH JESWANI

2. JAL SALASAR TRADERS PVT. LTD.

3. Address :- 30/30,NEW COTTON MARKET LAY OUT

NEAR S.T. STAND, NAGPUR-440018.

4. Product :- COUNTRY & FOREIGN LIQUOR

5. PAN :- AADFV – 8562- H

6. STATUS :- REGD. FIRM

7. TYPE OF FIRM :- PARTNERSHIP FIRM

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SHARES OF PARTNERS

PARTNERS SHARE PERCENTAGE

Ramesh Jaiswani 60%

Jal Salasar Traders Pvt. Ltd. 40%

Following books of accounts are maintained at the company.

Cash Book

Ledgers Book

Bank Book

Journal

The company is using the Mercantile system of Accounting. The valuation

of the closing stock is employed at cost or net realizable value whichever

is lower.

ADDRESS OF COMPANY

Vidarbha Liquor Corporation.

30/30, NEW COTTON MARKET LAY OUT

NEAR S.T. STAND, NAGPUR-440018.

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AIMS & OBJECTIVES OF STUDY

The objectives of Leverage & cost behavior analysis are as follows:-

Analysis of Operating, Financial & Combined Leverage.

To understand the Degree of Operating, Financial & Combined

Leverage.

To check change in the profit from income statement using the

contribution format.

To study thy profit volume analysis.

To study the Break-Even analysis of company.

To understand how the fixed & variable cost behave with respect to

the sale & how it is used to predict cost.

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HYPOTHESIS OF STUDY

The Hypothesis for cost behavior analysis are as follows :-

The changes in the level of various revenue and cost arise only

because of the changes in the number of product (or service) units

produced & sold.

Total cost can be divided into a fixed component and a component

i.e., variable with respect to the level of output.

There is linear relationship between revenue & cost.

All revenue and cost can be added and compared without taking

into account the time value of money.

LIMITATIONS OF STUDY

The limitations for study are as follows:-

Inventories are valued at variable cost & fixed cost is treated as

period cost. Therefore, closing stock carried over to the next

financial year does not contain any component of fixed cost.

Inventory would be valued at full cost in reality.

The study is limited for two years statement of accounts VIDARBHA

LIQUOR CORPORATION.

The scope & duration of study is limited.

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RESEARCH METHODOLOGY

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RESEARCH METHODOLOGY

Research in common parlance refers to a search for knowledge.

Research can also be defined as a scientific and system search for

pertinent information on specific topic. We can also say research as an art

of scientific investigation.

In analytical research, the researcher has to use facts or information

already available, and analyze these to make a critical evaluation of the

material.

Descriptive research includes surveys and fact – finding enquiries of

different kinds. The major purpose of descriptive research is description of

the state of affairs, as it exists at present.

Other method used is the observational and interactive method which is

used to observe the working of the company

Step 1: Research Objectives

To find out the various cost involved in operation of Vidarbha

Liquor

Corporation.

To check that how these cost behave as per the change in the

level

of production.

To analyze the cost-volume-profit.

Find out the Break Even Point & Margin of Safety for company.

To study the Accounting operation involved in the Organization.

Analysis of operating, financial & combined leverage.

To understand the degree of operating, financial & combined

leverage.

Step 2: Develop the Research Plan

A: Data sources

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Primary data :-

The data has been collected by the discussion with the renowned

Company guide on successfully relating to company profile &

Accounting operation with relation to mine.

Secondary data :-

The data has been collected from the Annual reports of company

for 2007-08 & 2008-09.

B: Research Approaches

Analytical Research: - It is best suited for Financial

Analysis .Uses Fact or information already available and analyzes to

make a critical evaluation.

Descriptive Research: - Survey & fact finding enquiries, State

of affairs as it exists, No control over variables, try to discover

cause.

C: Research Instrument

Primary data collection instrument:

Company Project guides Mr. Yogesh Bangale.

Secondary data collection instrument:

Balance Sheet of VIDARBHA LIQUOR CORPORATION

Profit & Loss Account of VIDRBHA LIQUOR

CORPORATION

Internal (company journals, manuals)

Step 3: Collect the Information

Our primaries are collected from personal interview

and desk research and the material that we received collected

secondary data from other sources.

Step 4: Analyze the Information

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Here we tabulate all data and use tables, charts, pie

charts and some advance statically techniques to analyze the raw

data and convert those data into some meaningful information.

Step 5: Present the Findings

We have presented our analysis in verbal form,

tabular form as well as graphical form.

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Analysis & Findings of Study

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INCOME STATEMENT FOR THE YEAR 2008-2009

PARTICULARS AMOUNT

Sales 100940319.00

Less Variable Cost 53237939.58

Contribution 47702379.42

Less Fixed Cost 435869.00

Net Operating Profit(EBIT) 47266510.42

Less Interest 1023137.36

Profit Before Tax(PBT) 46243373.06

Less Tax Paid 42411.00

Profit after tax or net profit 46200962.06

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Calculation of variable Cost

PARTICULARS AMOUNT

1. Consumption P. Material 47624207.10

2. Consumption of R. Material 40126507.40

3. Direct expenses 3265294.00

4. Building repairs & maintenance 69711.00

5. Charity & Donation 10401.00

6. Conveyance 874481.00

7. Electricity 172812.00

8. Employee state insurance 27977.00

9. Finance charges 99084.00

10. Generator Fuel & rent 147855.00

11. Insurance 52338.00

12. License & other fee expenses 2084050.00

13. Machinery repairs & maintenance 56671.00

14. Maharashtra state labour welfare fund 30000.00

15. Miscellaneous expenses 5996.64

16. N.I.T. Ground rent 20804.00

17. Postage 5906.00

18. Printing & stationary 13648.00

19. Provident fund 153178.00

20. Repair & maintenance 69187.00

21. Sample & chemical analysis 109599.00

22. State Ex. Escort charges 87469.00

23. State Excise charges 263691.00

24. Sundry Expenses 266878.66

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25. Telephone expenses 35455.00

26. Transportation expenses 95029.00

27. Travelling expenses 155225.00

28. Vehicle maintenance 163674.78

29. Weight & Measure 12610.00

Total 53237939.58

Calculation of Fixed Cost

PARTICULARS AMOUNT

1. Advertisement expenses 10456.00

2. Salary 413413.00

3. Sales promotion 12000.00

Total 435869.00

Calculation of Total Interest

PARTICULARS AMOUNT

1. Bank Commission Interest & charges 58718.36

2. Bank Interest 862713.00

3. Interest 61079.00

4. Interest on VAT 40627.00

Total 1023137.36

Calculation of Tax Paid

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PARTICULARS AMOUNT

1. Corporation tax 25278.00

2. Sales Tax 17133.00

Total 42411.00

INCOME STATEMENT FOR THE YEAR 2007-2008

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PARTICULARS AMOUNT

Sales 71442096.00

Less Variable Cost 66173933.28

Contribution 5268162.72

Less Fixed Cost 319086.00

Net Operating Profit(EBIT) 4949077.72

Less Interest 1400578.00

Profit Before Tax 3548499.72

Less Tax Paid 25534.00

Profit after tax on net profit 3522965.72

Calculation of variable Cost

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PARTICULARS AMOUNT

1. Consumption of P. material 36364088.30

2. Consumption of R. material 22136758.98

3. Direct Expenses 3213217.00

4. Computer maintenance 6020.00

5. Electricity 102230.00

6. Insurance 46324.00

7. Legal fees 86534.00

8. License & others 1891650.00

9. Machinery repairs & maintenance 9207.00

10. Postage 8470.00

11. Maharashtra state labour welfare fund 1056.00

12. Printing & stationary 60744.00

13. Sample & chemical analysis 80670.00

14. Commission on sale 104800.00

15. State Excise escort charges 94085.00

16. Travelling 95216.00

17. Charity & Donations 7572.00

18. Consultancy expenses 84000.00

19. Diesel & Oil 636268.00

20. Transportation 257064.00

21. Maharashtra Pollution control 4200.00

22. Loading & unloading expenses 3670.00

23. Employee state insurance 27627.00

24. Ganging Expenses 10000.00

24. NIT ground rent 5526.00

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25. Provident fund 291986.00

26. Repair & maintenance of building 17561.00

27. Security charges 59204.00

28. State Excise charges 333295.00

29. Sundry expenses 48435.00

30. Vehicle maintenance 79605.00

31. Brokerage 6850.00

Total 66173933.23

Calculation of Fixed Cost

PARTICULARS AMOUNT

1. Advertisement expenses 10586.00

2. Salary 308500.00

Total 319086.00

Calculation of Total Interest

PARTICULARS AMOUNT

1. Bank Commission Interest & charges 87053.00

2. Bank Interest 976442.00

3. Interest on Tanker loan 80873.00

4. Interest 256210.00

Total 1400578.00

Calculation of Tax Paid

PARTICULARS AMOUNT

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1. Corporation tax 25534.00

Total 25534.00

Calculation of Operating LeverageThe formula for computing the Operating leverage is given below:

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Contribution

Operating leverage =

Operating profit

FOR THE YEAR CALCULATION RESULT

2007-2008 5268162.72/4949077.72 1.064

2008-2009 47702379.42/47266510.42 1.009

RESULT :-

In the year 2007-08 the company is having the Operating Leverage 1.064

& in 2008-09 it is lowered down to 1.009 this is due to behavior of the

variable cost with respect to fixed cost.

Calculation of Degree of Operating Leverage

The formula for computing the Degree of Operating leverage is given

below:

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Percentage Change in profit

Degree of operating leverage =

Percentage Change in sales

Percentage change in Operating profit =

= [47266510.42 – 4949077.72] = 855.06%

4949077.72

Percentage change in Sales =

= [100940319.00 – 71442096.00] = 41.29%

71442096.00

855.06

Degree of operating leverage =

41.29

= 20.71

RESULT :-

The Degree of Operating Leverage is lowered down due decrease in

operating leverage i.e., 20.71 .

Calculation of Financial LeverageThe formula for computing the Financial leverage is given below:

Operating Profit

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Financial leverage =

Profit Before tax

FOR THE YEAR CALCULATION RESULT

2007-2008 4949077.72/3548499.72 1.395

2008-2009 47266510.42/46243373.06 1.022

RESULT :-

In the year 2007-08 the company is having the Operating Leverage 1.395

& in 2008-09 it is lowered down to 1.022 this is due to increase in the

fixed cost.

Calculation of Degree of Financial Leverage

The formula for computing the Degree of Operating leverage is given

below:

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Percentage Change in Taxable income

Degree of Financial leverage =

Percentage Change in Operating

income

Percentage change in Taxable income=

= [46200963.06-3522965.00] = 1211.42%

3522965.00

Percentage change in Operating income =

= [47266510.42 – 4949077.72] = 855.06%

4949077.72

1211.42

Degree of operating leverage =

855.06

= 1.42

RESULT :-

Degree of Financial Leverage is Exists & favourable for the company as it

is above one i.e., 1.42 .

Calculation of Combined LeverageThe formula for computing the Combined Leverage is given below:

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Contribution

Combined Leverage =

Profit Before tax

FOR THE YEAR CALCULATION RESULT

2007-2008 5268162.72/3548499.72 1.485

2008-2009 47702379.42/46243373.06 1.032

RESULT :-

In the year 2007-08 the company is having the Combined Leverage 1.485

& in 2008-09 it is lowered down to 1.032 this gives how the risk bearing

for the company is lowered down.

Calculation of Profit Volume RatioThe formula for computing the P/V ratio is given below:

Contribution

P/V Ratio =

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Sales

FOR THE YEAR CALCULATION RESULT

2007-2008 5268162.72/71442096.00 0.0737 OR 7.37%

2008-2009 47702379.42/100940319.00 0.4726 OR 47.26%

RESULT :-

As comparing the PVR of the year 2007-08, it is found that the PVR is

highly increased in the year 2008-09 the reason behind this high increase

in sales volume.

Calculation of Break-Even-Point (in sales)

The formula for computing the Break-Even Point is given below:

Total Fixed cost

B.E.P. (in sales) =

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Profit Volume ratio

FOR THE YEAR CALCULATION RESULT

2007-2008 319086.00/0.0737 4329525.10

2008-2009 435869.00/0.4726 922278.88

*Can not calculate BEP in unit as annual production is not available.

RESULT :-

As comparing the BEP of the year 2007-08, it is found that the BEP is

decreased in the year 2008-09 These is due to Increase in fixed cost.

Calculation of Margin of Safety The formula for computing Margin of safety is given below:

Margin of Safety = Actual Sales – Sales at BEP

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FOR THE YEAR CALCULATION RESULT

2007-2008 71442096.00 - 4329525.10 67112570.90

2008-2009 100940319.00 - 922278.88 100018040.12

RESULT :-

As comparing the Margin of safety of the year 2007-08, it is found that the

Margin of safety is increased in the year 2008-09 as the sale is increasing.

Profit Percent of Sales

FOR THE YEAR CALCULATION RESULT

2007-2008 (3522965.72/71442096.00)*100 4.93%

2008-2009 (46200962.06/100940319.00)*100 45.77%

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RESULT :-

As comparing the Profit percentage with sale of the year 2007-08, it is

found that the Profit is increased in the year 2008-09 this due to increase

in the output.

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Conclusion & Recommendations of Study

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CONCLUSIONS & RECOMMENDATIONS OF STUDY

From the above study we bring the following conclusions:-

The Operating leverage of the company is under favaourable

condition as the degree of the operating leverage is lowered this

defines that the risk of the company is low. As the Degree of

operating Leverage is high then the small change in the sales will

have large effect on operating income.

The financial leverage of the company is exists as more than one.

The Financial leverage is lowered down therefore the financial risk is

also low. Also the company is not earning the interest so the

Financially company is under favourable condition.

Composite Leverage also at the better position as it is providing

good relationship between revenue on account of sale.

The output of the production at each level is increasing every year

that is the reason behind increase in the profit of every year.

Output growth is more than the increase the fixed cost that is also

one of the reasons for increase in profit every year.

Profit Volume Ration of the company is increasing every year

increase in profit.

Break-Even Point is act as the Red Signal Point. Break-Even Point of

company is also increasing every year due to

o Increase in the output.

o Increase in the profit.

Margin of safety of the company is at the good position as it is

increasing at every year.

All the Cost analysis for company is states that the company is at

good position.

The company has greater future prospective for expansion.

Company profitability providing good return to their owners.

The profit generated by company profit is effectively invested in the

company in order to expand business.

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SUGGETIONS TO COMPANY

Suggestions to Company

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From the above study we bring the following suggestions:-

The Profit should maintain along with the sale so that the risk

associated to that can be identified.

The company should increase the investment.

The assets of company should be increased.

The financial stability should be attained so the company should not

have to take loan from others.

The company should apply the automated networking structure at

mine level that may help to give effective & faster work.

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APPENDICES

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Manufacturing & Profit & Loss Account for the year ended 2007-08

M/S VIDARBHA LIQUOR CORPORATION

MANUFACTURING TRADING ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2008

PARTICULARS AMOUNT AMOUNT PARTICULARS AMOUNT AMOUNTTo Opening stock of finished goodsTo CONSUMPTION P.MATERIALOpening stockAdd: Purchase

Less: Discount

Less: Closing stock

To CONSUMPTION R. MATERIALOpening stockAdd: Purchase

Less: Closing stock

To DIRECT EXPENSESFreight/Octroi/LoadingTransport & SubsidySalary & wagesWater charges

To Gross profit--------------------------Carried Forward

1413542.6236335879.1237749421.74

9.0037749412.741385324.44

204617.3822437903.0022642520.38

505761.40

1718033.001131500.00332144.0031540.00

0.00

36364088.30

22136758.98

3213217.00

10325751.72

By SalesLess: Ex. Duty collectedLess: sales tax collectedLess: TCS collected

Less: Discount Allowed

By Closing stock----------------------Finished Goods

228616133.00

118038960.00

37896209.001238868.0071442096.00

0.0071442096.00

597720.00

TOTALRS. 72039816.00 TOTAL RS. 72039816.00

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M/S VIDARBHA LIQUOR CORPORATION

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2008

PARTICULARS AMOUNT AMOUNT PARTICULARS AMOUNT AMOUNTTo advertisementTo Bank Commi. & Int. ChargesTo comp. maintenanceTo corporation taxTo electricityTo InsuranceTo InterestTo legal feesTo license & othersTo machinery repairs & maintenanceTo postageTo Mah. Labour wel.f.To printing & stationaryTo samp. & chem.. anaTo Commi. On saleTo state Ex. Escort chargesTo bank interestTo travellingTo charity & donationTo consultancy exp.To diesel & oilTo transportationTo Mah. Poll. Cont.To loading/unloading expensesTo emp. State insurance a/cTo Interest on tanker loanTo VAT ganging exp.To NIT ground rentTo PF a/cTo regional office exp.To repair & maint.To salary a/cTo security chargesTo state Ex. ChargesTo sundry exp.To vehicle exp.To Brokerage

To depreciationTo Net profit

10586.00

87053.406020.00

25534.00102230.0046324.00

256210.1486534.00

1891650.00

9207.008470.001056.00

60744.0080670.00

104800.00

94085.00

976442.0095216.007572.00

84000.00636268.00257064.00

4200.00

3670.00

27627.00

80873.74

10000.005526.00

291986.000.00

17561.00308500.0059204.00

333295.0048435.0979605.006850.00

690262.003430421.35

By Gross Profit---------------------- Brought downBy discount on tankerBy interest on FDRBy sales tax refund

10325751.72

TOTAL RS. 10325751.72 TOTAL RS. 10325751.72

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Manufacturing & Profit & Loss Account for the year ended 2008-09

M/S VIDARBHA LIQUOR CORPORATION

MANUFACTURING TRADING ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2009

PARTICULARS AMOUNT AMOUNT PARTICULAR AMOUNT AMOUNTTo Opening stock of finished goodsTo CONSUMPTION P.MATERIALOpening stockAdd: Purchase

Less: Closing stock

To CONSUMPTION R. MATERIALOpening stockAdd: Purchase

Less: Closing stock

To DIRECT EXPENSESFreight/Octroi/LoadingSalary & wagesWater charges

To Gross profit--------------------------Carried Forward

1385324.4449024146.6650409471.102785264.00

505761.4040502375.0041008136.40

881629.00

2918564.00297406.0049324.00

597720.00

47624207.10

40126507.40

3265294.00

10004365.50

By SalesLess: Ex. Duty collectedLess: sales tax collectedLess: TCS collected

Scrap sale

By Closing stock----------------------Finished Goods

310350333.00

156439237.00

51446872.00

1669097.00

145192.00100940319.00

677775.00

TOTAL RS.

101618094.00 TOTAL RS. 101618094.00

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M/S VIDARBHA LIQUOR CORPORATION

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2008

PARTICULARS AMOUNT AMOUNT PARTICULARS AMOUNT AMOUNTTo advertisementTo Bank Commi. & Int. ChargesTo Bank InterestTo Buil. Repair & maint.To charity & donationTo conveyanceTo corporation taxTo electricityTo emp. State insurance a/cTo Financial chargesTo generator fuel, rentTo insuranceTo InterestTo Interest on VATTo license & othersTo machinery repairs & maintenanceTo Mah. Labour wel.f.To Misc. ExpensesTo NIT ground rentTo postageTo printing & stationaryTo PF a/cTo repairs & maint.To salary a/cTo sales promotionTo sales taxTo samp. & chem..anaTo state Ex. Escort chargesTo state Ex. ChargesTo sundry exp.To telephone exp.To transportationTo travellingTo vehicle exp.To weight & measure

To depreciationTo Net profit

10456.0058718.36

862713.0069711.0010401.00

874481.0025278.00

172810.0027977.0099084.52

147855.0052338.0061079.0040627.62

2084050.00

By Gross Profit---------------------- Brought downBy discount on tankerBy interest on FDRBy sales tax refund

10325751.72

TOTAL RS. 10325751.72 TOTAL RS. 10325751.72

Page 64: Project Report On

Page 64

BIBLIOGRAPHY

BOOKS :-

o Essentials of Management Accounting

By Dr. P.N. Reddy

o Corporate Accounting

By K.S. Raman

o Management Accounting

By R.S.N. Pillai & Bhagawati V.

o Research Methodology

By V.S. Dessai

o Annual report of MOIL 2006-07

o Corporate Finance of YCMOU

o Annual report of MOIL 2007-08

o Annual report of MOIL 2006-09

WEB-SITES :-

o www.google.com

o www.bing.com

o www.wikipedia.com

o www.moil.org.in

o www.investopedia.com

o www.schandgroup.com

o www.yahooanswers.com