c.v.p analysis of nishat mills
TRANSCRIPT
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ESHA MARYAM 13030046-020
MARYAM KHAN 13029046-002
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INTRODUCTION TO C.V.P
What is C.V.P? C.V.P (cost volume profit analysis) it is used to
determine how changes in costs and volume affect a company's operating income and net income.
Its include Contribution margin . contribution margin ratio. Breakeven analysis. Margin of safety. Target Profit.
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Cost-Volume-Profit Analysis
Why CVP analysis is important for business?
To have a strong and successful business, you need to have a clear understanding of the financial impact that your most basic business
decisions may have.
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FORMULAS USED IN C.V.P ANALYSIS
Break-even point (BEP): The level of activity, in units or dollars, at which total
revenues equal total costs.
In unit: Total Fixed Cost
Contribution Margin Per Units
Contribution Margin Per Units = sale price per unit - variable cost per units
Break-even in Sales Revenue: In Dollars: Total Fixed Cost
Contribution Margin Ratio
Contribution Margin Ratio = Contribution / sale*100
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Margin Of Safety In Percentage
Budgeted sales - Break-even sales *100 Budgeted sales
Target ProfitOne of the key uses of CVP analysis is called target profit analysis In target profit analysis, we estimate what sales volume is needed to achieve a specific target profit Fixed Cost + Target Profit
Contribution Margin Per Unit
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EQUATION METHOD OF BREAKEVENTotal revenue – total variable costs – total fixed costs = Profit(USP x Q) – (UVC x Q) – FC = P (50Q) – (30Q) – 200,000 = PIn breakeven profit is equal to zero so,(50Q) – (30Q) – 200,000 = 020Q – 200,000 = 020Q = 200,000Q = 10,000 units.
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ASSUPMTIONS In performing this analysis, there are several
assumptions made, including: Sales price per unit is constant. Variable costs per unit are constant. Total fixed costs are constant. In multi-product companies, the sales mix
is constant. In manufacturing companies, inventories do not
change. The number of units produced equals the number of units sold.
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Nishat mills limited is the flagship company of nishat group.It was establish in 1951.
It is one of the most modern, largest vertically integrated textile company in Pakistan with annual turnover of $575 million.
Due to the application of prudent management policies, consolidation of operation a strong balance sheet.
An effective marketing strategy the growth trend is expected to continue in the year to come
INTRODUCTION
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After almost half a century of undaunted success, Nishat group is among the leading business houses of country . the four main business of Nishat mill is; Textile Power generation Banking Cement
The textile business is further subdivided into -textile division: (Nishat Chunian)
(Nishat Faisalabad)
(Nishat Sheikhupura)
(Nishat Lahore)
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TextileThe textile capacity of the group is the largest in the country. 20,000 new spindles, 100 new air jet looms and new dyeing plants has increased the existing capacity of 242,000 spindles, 740 looms and dyeing and finishing capacity of 5 million meters. The largest exporters of textile products from Pakistan, for more then decade.
The company also has the most modern textile dyeing and processing units, 2 stitching units for home textile , one stitching unit for garments and power generation facilities.
The company’s production facilities comprise of: Spinning processing Weaving Stitching Power generation
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Graphic Presentation
Consider the following information for Hap Bikes:
Income 300 units
Income 400 units
Income 500 units
Sales 150,000$ 200,000$ 250,000$Less: variable expenses 90,000 120,000 150,000 Contribution margin 60,000$ 80,000$ 100,000$Less: fixed expenses 80,000 80,000 80,000 Net income (loss) (20,000)$ -$ 20,000$
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-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
- 100 200 300 400 500 600 700 800
Volume per period (X)
Dol
lars
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-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
- 100 200 300 400 500 600 700 800
Break-even point
Dol
lars
Volume per period (X)
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HORIZONTAL ANALYSIS YEAR 2013 2012 2011 2010 2009 2008
SALES 268% 229% 248% 161% 122% 100%
Cost of sale 259% 227% 243% 152% 116% 100%
Gross profit 322% 241% 279% 213% 155% 100%
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NISHAT MILL C.V.P ANALYSIS
Year 2010 2011 2012 2013
Cost of good sold 25555462 40718697 38134910 43381545
Distribution expenses 1714598 2190496 2555327 2529455
Admin expenses 545166 656756 731740 870269
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NISHAT MILL C.V.P ANALYSISDetails 2010 2011 2012 2013
Sales 31,535,647 48,565,144 44,924,101 52,426,030
Variable Cost 26,490,261 41,956,723 39,506,648 44,575,420
Contribution 5,045,386 6,608,421 5,417,453 7,850,610
Contribution To Sale Ratio
0.16 0.14 0.12 0.15
Breakeven 8281552.63 11826168.15 15882819.14 14730562.60
Variable Cost/Sales
0.84 0.86 0.88 0.85
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High Low Method
Cost of highest activity –cost of lowest activity
Highest Sale-Lowest Sale
46,781,269 - 27,815,226
52,426,030 – 31,535,647
=0.91
=91.0%
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Uses• analysis is used to determine how changes
in costs and volume affect a company's operating income and net income. In performing this analysis, there are several assumptions made, including