DR.D.

VEERENDRA HEGGADE
INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH
VIDYAGIRI, DHARWAD - 580 004

A STUDY ON COST-BENEFIT ANALYSIS

AT FASTENERS AND ALLIED PRODUCTS Pvt Ltd, HUBLI

Presented by:

Mr. Isaac W Kalpal MBA11010016

INDUSTRY PROFILE
The Overview of Nuts and Bolts Industry
1. Bolts and nuts are one group of industrial fasteners extensively used in all branches of production activities. They are used in the production of all types of physical products especially made from metal and wood. 2. Bolts and nuts are mostly made from mild steel, but in small quantities they can also be made from other ferrous and non-ferrous metals. Bolts and nuts have different sizes, shapes and can be made for different fastening purposes. They can be manufactured either by cold or hot process 3. During the last four years average annual imports of nuts and bolts were 40,000 tons. This quantity alone can justify the establishment of a bolts and nuts producing plant. With increasing demand for these products, there is increasing need for such a plant.

COMPANY PROFILE
NAME OF THE ORGANIZATION TYPE OF FIRM OFFICE & MANUFACTURING PLANT FASTENERS AND ALLIED PRODUCTS PVT. LTD Private Limited. M-3, Industrial Estate, Gokul Road (Karnataka), India Phone : 2330062 / 2330132 Fax:(0836) 2330431 E- mail: sales@fappl.com

YEAR OF ESTABLISHMENT
SSI REGISTRATION NO. FACTORY LICENCE NO ECC NO. SALES TAX REGISTRATION NO. INCOME TAX PAN NO.

1975
08/09/00830/PMT/SSI Dt:25.05.1976 MY/DWR/773 AABCP-1893Q-XM001 TIN NO.29690002591 CST 4035604-5 Dt 25.02.1975 AABCP-19-1893Q

NSIC REGISTRATION NO
BANKERS

NSIC/KAR/GP/RS/KT/F/36/2005
State Bank of India Commercial Branch Station Road

PRODUCT PROFILE
Products and Services offered by company
The FAPPL Company produces different types of fasteners products they are as follows: 1. Hex & Square head bolts 2. Adjusting Bolts 3. Roto Cap Assembly 4. Threaded Rods and Tie Rods 5. U Turn Bolts 6. Fully Thread Stud Bolts 7. Special Fasteners 8. Industrial Valve Spindles (Stems) 9. Available Coatings 10. Screws 11. Stud Bolts 12. Double ended studs 13. Hex & Square nuts 14. Special Fasteners as per customer requirements 15. Precision Engineering sub assembles for automobile and other sectors 16. Industrial valve components i.e., Stems & Yoke Sleeves & Nuts.

TRENGTHS

SWOT ANALYSIS

1. 2. 3. 4. 5. 6.

Committed service levels. Attention to customer urgency. Good product line. Capacity to meet OEMs requirements. Dedicated team to take up challenging work. Reliable source of vendors.

EAKNESSES

1. 2.

small industry Some time failing to deliver customer wants

Internal factors

O
1. 2. 3. 4.

PPORTUNITIES

Potential market for spare parts is growing high. Export order received is greater than what they are able to produce so opportunity to increase production capacity for which ready market is available. International Customers shows more interest to buy FAPPL products. They have excellent infrastructure facility to workers

HREAT

There is a threat of new entrants in these type of industry.

External factors

Negative
Positive

RESEARCH DESIGN
NEED FOR THE STUDY: The major need for the study was to explore and experience the real time applications of Cost to Benefit Analysis in FAPPL. And to understand the organizations framework and their work culture. PROBLEM AREA OF THE STUDY: Area of the study is cost-benefit analysis at FASTENERS AND ALLIED PRODUCT PVT LTD. METODS OF DATA COLLECTION: 1. Primary data. 2. Secondary data. Area of research HUBLI Research design Duration of the study : FASTENERS AND ALLIED PRODUCT PVT LTD

: Exploratory research : 2months/ 8 weeks.

OBJECTIVES OF THE STUDY

Following are the prime objectives of the project study:
1) To know organization culture, method of production and operations in the company. 2) To study and examine historical and current costing condition of the firm.

3) To know how company is managing and implementing costing methods.

4) To balance cost and benefit, so as to maximize operational efficiency of the organization. 5) To observe the operational results by means of costing tools & techniques.

SCOPE AND LIMITATIONS

SCOPE OF THE STUDY: Scope of the study is limited to only one organization. It is exclusively conducted at Fasteners and Allied Products Private Ltd Hubli. It covers a study on four years analysis of balance sheet of FAPPL. This study also covers in detail about the industry in general and about cost-benefit analysis. Finally findings and suggestions are made a part of this project. LIMITATIONS OF THE STUDY: The main limitations faced by the researcher in the preparation of this report are: 1. Data collected are limited to this organization only. 2. Several aspects are not covered due to time limitation.

3. Unable to provide certain information in this project report as they were held to be confidential matter of the company.
4. The accuracy of the information provided in the report depends upon the information given by the company.

ANALYSIS AND INTERPRETATION

ANALYSIS FACTORY EXPENSES OR FACTORY OVERHEADS TO NET SALES:
Analysis of Factory Overheads =Factory Expense or Overheads*100 sales
YEARS FACTORY OVERHEADS 2008-09 2009-10 2010-11 12,075,349.5 15,010,269.5 15,331,231 143,270,914 157,983,241 162,259,547 8.42 9.50 9.44 NET SALES PERCENTAGE

2011-12

16,434,901.5

175,624,031

9.35

ANALYSIS OF FACTORY OVERHEADS

10.00% 9.50% 9.00% 8.50% 8.00% 7.50%
percentage 9.50% 8.42% 9.44%

9.35%

2008-09

2009-10 Years

2010-11

2011-12

ANALYSIS AND INTERPRETATION

ANALYSIS OF ADMINISTRATION OVERHEADS TO SALES
Analysis of Administration Overheads=Administration Overheads*100 Net Sales
YEARS ADMINISTRATION OVERHEADS 2008-09 2009-10 2010-11 2011-12 10,254,024.5 14,189,780.5 18,520,588 17,691,380.5 143,270,914 157,983,241 162,259,547 175,624,031 7.15% 8.98% 11.41% 10.07% NET SALES PERCENTAGE

ANALYSIS OF ADMINISTRATION OVERHEADS

15.00% percentage 10.00% 5.00% 7.15% 8.98% 11.41% 10.07%

0.00%
2008-09 2009-10 Years 2010-11 2011-12

ANALYSIS AND INTERPRETATION

ANALYSIS OF DIRECT COSTS TO SALES
Analysis of Direct costs =Direct Costs *100 Net Sales
YEARS
2008-09 2009-10 2010-11 2011-12

DIRECT COST
119,497,812 123,964,006 133,633,450 151,961,618

NET SALES
143,270,914 157,983,241 162,259,547 175,624,031

PERCENTAGE
83.40% 78.46% 82.35% 86.52%

ANALYSIS OF DIRECT COSTS

90.00% Percentage 85.00% 83.40% 78.46% 82.35% 86.52%

80.00%
75.00% 70.00% 2008-09

2009-10 Years

2010-11

2011-12

ANALYSIS AND INTERPRETATION

ANALYSIS OF INDIRECT COSTS:
Analysis of Indirect Costs =Indirect Costs*100 Net Sales
YEARS
2008-09 2009-10 2010-11 2011-12

INDIRECT COST
10,435,279 10,526,148 14,502,644 10,898,268

NET SALES
143,270,914 157,983,241 162,259,547 175,624,031

PERCENTAGE
7.28% 6.66% 8.93% 6.20%

ANALYSIS OF INDIRECT COSTS

10.00% 8.00% 6.00% 4.00% 2.00% 0.00%

8.93%
7.28% 6.66% 6.20%

Percentage

2008-09

2009-10 Years

2010-11

2011-12

ANALYSIS AND INTERPRETATION

OPERATING RATIO:
Operating Ratio=Operating Cost*100 Net Sales
YEARS COGS+OPERATING EXPENSES 2008-09 2009-10 2010-11 2011-12 128,089,823 134,490,154 146,806,022 164,460,096 143,270,914 157,983,241 162,259,547 175,624,031 89.40% 85.12% 90.47% 93.64% NET SALES PERCENTAGE

OPERATING RATIO
95.00% Percentage 90.00% 85.00% 80.00% 2008-09 2009-10 Year 2010-11 2011-12 93.64%

89.40%
85.12%

90.47%

ANALYSIS AND INTERPRETATION

ANALYSIS DEBT-EQUITY RATIO
Analysis of Debt-Equity ratio =Total Debt /Total Equity
YEARS
2008-09 2009-10 2010-11 2011-12

DEBT
60,349,784 62,662,059 57,125,673 56,899,675

EQUITY
22,837,082 31,850,858 34,952,584 37,580,100

RATIO
2.64 1.96 1.63 1.51

ANALYSIS OF DEBT-EQUITY RATIO

3.00% Times 2.00% 1.00% 2.64% 1.96% 1.63% 1.51%

0.00%
2008-09 2009-10 Years 2010-11 2011-12

ANALYSIS AND INTERPRETATION

ANALYSIS OF GROSS PROFIT AND NET PROFIT RATIOS
Gross Profit Ratio = Gross profit / Net sales*100 Net profit ratio= Net profit / Net sales*100

GROSS PROFIT RATIO

20% 15% 12% 10% 5% 0% 2008-09 2009-10 2010-11 2011-12 10% 16% 6.00% 5.00% 4.00%

NET PROFIT RATIO

5.70%

9.00%

3.00% 2.00% 1.00% 0.00% 2008-09 2009-10 2010-11 2011-12 2.43% 1.29% 1.49%

ANALYSIS AND INTERPRETATION

ANALYSIS OF RETURN ON ASSETS RATIO
Return On Assets Ratio = Net Profit After Tax * 100 Total Assets
Years
2008-09 2009-10 2010-11 2011-12

NPAT
34,88,399 90,13,776 21,06,726 2,627,516

TOTAL ASSETS
108,847,513 125,913,966 135,364,125 137,725,944

ROAR
3.2% 7.15% 1.6% 1.90%

RETURN ON ASSETS RATIO

8.00% Percentage 7.15%

6.00%
4.00% 2.00% 0.00% 3.20%

1.60%

1.90%

2008-09

2009-10
Years

2010-11

2011-12

ANALYSIS AND INTERPRETATION

RETURN ON CAPITAL EMPLOYED RATIO:
ROCE= Net Operating Profit After Tax*100 Capital Employed

YEARS
2008-09 2009-10 2010-11 2011-12

NPAT
34,88,399 90,13,776 21,06,726 2,627,516

CAPITAL EMPLOYED
83,186,866 94,512,917 92,078,257 94,479,775

RATIOS
4.2% 9.53% 2.3% 2.78%

RETURN ON CAPITAL EMPLOYED RATIO

15.00% Percentage 10.00% 5.00% 0.00% 2008-09 2009-10 Years 2010-11 2011-12 4.20%

9.53% 2.30% 2.78%

ANALYSIS AND INTERPRETATION

ANALYSIS OF PROFIT-VOLUME RATIO:
Profit Volume Ratio= Contribution*100 Sales
YEARS 2008-09 2009-10 2010-11 2011-12 CONTRIBUTION 35,433,073 49,857,744 45,481,079 41,676,788 NET SALES 143,270,914 157,983,241 162,259,547 175,624,031 PV RATIO 24.73% 31.55% 28.02% 23.73%

PROFIT VOLUME RATIO

35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00%

31.55%
24.73%

28.02% 23.73%

Percentage

2008-09

2009-10 Years

2010-11

2011-12

ANALYSIS AND INTERPRETATION

PERCENTAGE OF BES TO TOTAL SALES
Percentage of BES to net sales=Break Even Sales*100 Net Sales
YEARS 2008-09 2009-10 2010-11 BES 81,892,366 83,564,688 106,726,463 128,583,451 NET SALES 143,270,914 157,983,241 162,259,547 175,624,031 % OF BES 57% 53% 66% 73% % OF M/S 43% 47% 34% 27%

80% 70% 60% 50% 40% 30% 20% 10% 0%

2011-12

66% 57% 43% 53% 47% 34%

73%

Percentage

27%

2008-09

2009-10 Years

2010-11

2011-12

FINDINGS
1. Direct costs (prime cost) are not controlled properly and therefore both costs are abnormally increased year by year. Even office and administration costs are also controllable in the organization. The company has continuously decreased the proportion of debt and chosen more of equity to raise the fund Operating expenses in the company have shown again a picture where these expenses are not being consistent over the years. In 2009-10 it has shown a drastic fall but again in the year 2010-12 it has again increased in the same drastic way. Companys P/V Ratio is quite stable and favorable i.e. 25% average. Percentage of BES increases is unfavorable to the growth and performance of the organization, as it does not includes any profit element. 2.

3.

4.

5. 6.

RECOMMENDATIONS
1. Proper policy and strategy should be designed to monitor the direct cost in the company so that they can control these cost as much as possible. 2. Company has to take similar steps which it has taken this year to minimize factory & administration overheads. Company has to implement strict control measures that these expenses should not raise in the coming years.

3. Operating expenses in the company have shown again a picture where these expenses are consistently increasing over the years company has to take effective control measures to keep these costs under their control.
4. Company must make regular efforts to improve P/V Ratio so as to minimize the market risk. 5. Proper monitoring of cost must be made to improve percentage of Margin of Safety and minimize percentage of BES.

CONCLUSIONS
CONLUSIONS: 1. The cost-benefit analysis is an important function in financial sector. This indicates growth & standard of the organization. It is difficult to study properly & cover all the aspects of the organization. 2. However the findings of the entire study indicate that the company is trying to utilize all the facilities available to its optimum & this can be seen from the ever improving sales of the company. 3. The company has to control the cost element as least as possible so as to improve its Break Even Sales and to increase the profits of the company. In doing the project lot of practical applications of cost to benefit analysis and its applicability in the industries like FAPPL has been learnt.

Bibliography
TEXT BOOKS: Financial Management, by M.Y.KHAN and P.K.JAIN. Publication: Tata McGraw Hill Education Pvt Ltd. sixth edition ISBN-13:978-0-07-106785-0 Cost Accounting, by M.Y.KHAN and P.K.JAIN Publication: Tata McGraw Hill Education Pvt Ltd. ISBN-13:978-0-07-040224-9 Accounting for management, by Dr.Jawahar Lal Publication: Himalaya Publishing House. Fifth revised edition ISBN-978-81-8448-095-3 FINANCIAL REPORTS OF THE COMPANY: Annual reports from the year 2008-09 to 2011-12 URLs:

www.fappl.com www.investopedia.com www.wikepedia.com

Thank You