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1
Marginal Cost Analysis of Britannia
Presented By:Shraddha Bhatt (A024)
Jincey Jose (A009)Richa Tupsakhare (A022)
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CONTENTS• Britannia Industry• Basic Definitions• Elements of Cost• Treatment of stock• Cost Sheet• Cost Sheet Analysis• Conclusion• Reference
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BRITANNIA INDUSTRIES • Britannia Industries Limited is an Indian food-
products corporation based in Kolkata.
• It is one of India’s best known brands and also one of the most admired Food Brand in the country.
• It is the largest company in the food processing industry whose product range also includes breads and cakes.
• Britannia has a basketful of goodies with biscuits like – NiceTime, Tiger, Marie Gold, 50 50, Maska Chaska, Milk Bikis,
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Basic Definitions• Cost: It means the amount of expenditure incurred on
a particular thing.
• Costing: It means the process of ascertainment of costs.
• Cost Accounting :It is broader than costing. Cost accounting can be defined as the technique of recording, classification, allocation, reporting and control of costs.
Thus : Cost Accounting = Costing + Cost Reporting + Cost Control
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Elements of Cost
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COST
MATERIALS
DIRECT
INDIREC
T
LABOUR
DIRECT
INDIREC
T
OTHER EXPENSES
DIRECT
INDIREC
T
OVERHEADS (OH)
FACTORY & WORKS OH
OFFICE & ADMINISTRAION
OH
SELLING & DISTRIBUTIO
N OH
Functional Classification of Indirect Overheads
Factory overheads •The indirect expenses (overheads) incurred within the factory area
•E.g. Lubricants, Oil, works manager’s salary, factory rent, lighting. etc.
Administration or office Overheads
•The indirect expenses (OH) incurred within the administrative area•E.g. Printing & stationery, accountant’s salary, office rent, office
insurance. Etc.
Selling & distribution Overheads
•The indirect expenses (OH) incurred in relation to the sales activities or for the distribution of the product or services.
•E.g. Packing materials, printing & stationery, salesman’s salary, advertising, showroom rent, logistics, manager salary bad debts. etc.
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Treatment of Stock
Raw Materials
Work In Progress (WIP)
Finished Goods
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What is Cost Sheet??• It is a statement
which shows various components of total cost of product.
• It classifies and analyses the components of cost of a products.
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Division of costs
DIRECT LABOUR
PRIME COST
DIRECT EXPENSES
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TOTAL COST
(COST OF SALES)
OFFICE (ADMINIST
RATIONS OVERHEAD
S)
FACTORY COST
FACTORY (WORKS
OVERHEAD)
FACTORY (WORKS
COST)
OFFICE COST
(COST OF PRODUCTIO
N)
OFFICE COST
SELLING(DISTRIBU
TION OVERHEAD
S)
PRIME COST
Cost Sheet for the Period: ……………Production:……………. Units
Particulars Total cost
Cost per Unit
(a) Direct Materials
Opening Inventory **********
Add: Purchase of Raw Materials **********
Less: Purchase Return **********
Less: Purchase Allowance **********
Less: Purchase Discount **********
Add: Freight **********
Direct Materials Available fo
r Consumption**********
Less: Ending Inventory **********
Direct Materials Consumed **********
(b) Direct Labour **********
Direct Expenses **********
Prime Cost**********
********** 11
(c) Factory OH or Manufacturing OH
Indirect Materials **********
Indirect Labour **********
Rents and Rates (Factory) **********
Lighting and Heating (Factory) **********
Power and Fuel **********
Repairs and Maintenance **********
Depreciation of Factory Plants **********
Works Stationery **********
Payroll Taxes **********
Work Manager’s salaries **********
General Factory Overhead **********
Total Factory Overhead Cost **********
Total MFG Cost ********** **********
Add: Work in Process (Opening) **********
Less: Add: Work in Process (Ending)
**********
Cost of Goods Manufactured
********** **********
Add: Finished Goods Inventory (Opening)
**********
Cost of Goods Available for Sale
********** **********
Less: Finished Goods Inventory (Ending)
**********
Cost of Goods Sold ********** **********
Add: Administrative Overhead Cost
**********
Add: Selling and Distribution Overhead
Cost**********
Total Cost or Cost of Sales
********** **********
Add: Profit (Loss) **********
Sales 12
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COST SHEET OF BRITANNIA BREAD
580500
14
580500
12400
24150
617050
12200
67500
5204
5890
2820
3850
56780
15
154244
771294
2810
5850
89002570
2190
3123
294
25737
16
797031
705001000012798
5700
98998
896029
1039711000000
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CVP Analysis • Profit of business firms results from: • 1) Selling Prices, 2) Volume of Sales 3) Unit
Variable Cost 4) Total Fixed Cost
• A cost volume profit analysis is useful to management in knowing how profit is influenced by sales volume, sales price, variable expenses and fixed expenses.
• CVP analysis uses the techniques of 1. Break-even analysis2. Profit volume (P/V) analysis
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Profit/volume ratio• It is the ratio of contribution over sales.• It measures the profitability of the firm. P/V ratio = Contribution Sales• Contribution itself is a profit since it
contributes to recover the fixed cost thus we use contribution by volume and not profit by volume.
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Calculation of P/V ratio• Contribution margin = Sales – Variable cost = 1000000- 810969
=189031
• P/V ratio = Contribution * 100 Sales = 189031*100 1000000 = 18.903 %
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Break Even Analysis:
• It indicates at what level cost and revenue are equal and there is no profit and no loss.
• It will reveal the management, various effects of alternative decisions to reduce or increase price and which will increase sales volume and income
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Calculation of Break Even Sales
Break even sales (Units) = Fixed cost = 85060 P/V ratio 18.903 % = Rs. 449981.48
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Margin of safety• This is the difference between sales and
break even point
• If the difference is relatively short, it indicates that a small drop in production/sales will reduce profits considerably and vice versa
• There should be reasonable MOS, otherwise the level of production may prove dangerous.
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Calculation of margin of safety• Margin of safety = Profit P/V ratio
• Margin of safety = Sales – BEP sales = 1000000 –
449981.48 = Rs. 550018.52
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OverviewParticulars F.Y. 2011-12 F.Y. 2010-11
Fixed Cost 85060 80000
Variable Cost 810969 8,03,900
Contribution 189031 166100
Sales 1000000 970000
PV Ratio = Cont./Sales*100
18.903 % 17.124 %
BEP (in Rs.) = FC/PV Ratio
Rs. 449981.48 Rs, 467180.56
MOS= Total Sales – BEP Sales
Rs. 550018.52 Rs. 502819.44
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CVP Analysis for year 2011 & 2012
• The % profit increase seen on year to year whereas the sales have increased, without considerable increase in expenses which indicates that the company has achieved economies of scale.
• With the increase in sales, the margin of safety also increased in the consecutive year so the risk factor for the company decreased because the business can still make profits even after a drop in production
• With the increase in contribution the P/V ratio increased for the consecutive year.
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Limitations of CVP Analysis• Difficult to classify fixed and variable
cost accurately.• Contribution cant be a guide if there
is some other limiting factor.• Undue Importance to marginal costs
can lead to low profit & loss.• Multiproduct had different
contribution margins and costs.
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Conclusion– Britannia Bread is easily available due to
its excellent distribution channels. Britannia has acquired almost 50% stake in the daily bread market.
–With improving P/V ratio and other parameters , the company can maintain its trend and economy.
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