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INTRODUCTION

Cost-Volume-Profit (CVP) analysis is a managerial accounting technique that is concerned with the effect of sales volume and product costs on operating profit of a business. It deals with how operating profit is affected by changes in variable costs, fixed costs, selling price per unit and the sales mix of two or more different products. It is based on the same principles of classifying the operating expenses into fixed and variable. Now-a-days it has become a powerful instrument in the hands of policy makers to maximize profits. Earning of maximum profit is the ultimate goal of almost all business undertakings. The most important factor influencing the earning of profit is the level of production. Cost Volume profit analysis examines the relationship of cost and profit to the volume of business to maximize profit.

REVIEW OF LITERATURE CVP analysis has following assumptions: 1. All cost can be categorized as variable or fixed. 2. Sales price per unit, variable cost per unit and total fixed cost are constant. 3. All units produced are sold. Where the problem involves mixed costs, they must be split into their fixed and variable component by High-Low Method, Scatter Plot Method or Regression Method. CVP Analysis Formula The basic formula used in CVP Analysis is derived from profit equation: px = vx + FC + Profit In the above formula, p is price per unit;
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v is variable cost per unit; x are total number of units produced and sold; and FC is total fixed cost Besides the above formula, CVP analysis also makes use of following concepts: Contribution Margin (CM) Contribution Margin (CM) is equal to the difference between total sales (S) and total variable cost or, in other words, it is the amount by which sales exceed total variable costs (VC). In order to make profit the contribution margin of a business must exceed its total fixed costs. In short: CM = S VC Unit Contribution Margin (Unit CM) Contribution Margin can also be calculated per unit which is called Unit Contribution Margin. It is the excess of sales price per unit (p) over variable cost per unit (v). Thus: Unit CM = p v

Contribution Margin Ratio (CM Ratio) Contribution Margin Ratio is calculated by dividing contribution margin by total sales or unit CM by price per unit. Introduction Break-even analysis is a technique widely used by production management and management accountants. It is based on categorising production costs between those which are "variable" (costs that change when the production output changes) and those that are "fixed" (costs not directly related to the volume of production). Total variable and fixed costs are compared with sales revenue in order to determine the level of sales volume, sales value or production at which the business makes neither a profit nor a loss (the "break-even point"). The Break-Even Chart In its simplest form, the break-even chart is a graphical representation of costs at various levels of activity shown on the same chart as the variation of income (or sales, revenue) with the same variation in activity. The point

at which neither profit nor loss is made is known as the "break-even point" and is represented on the chart below by the intersection of the two lines:

In the diagram above, the line OA represents the variation of income at varying levels of production activity ("output"). OB represents the total fixed costs in the business. As output increases, variable costs are incurred, meaning that total costs (fixed + variable) also increase. At low levels of output, Costs are greater than Income. At the point of intersection, P, costs are exactly equal to income, and hence neither profit nor loss is made. Fixed Costs

Fixed costs are those business costs that are not directly related to the level of production or output. In other words, even if the business has a zero output or high output, the level of fixed costs will remain broadly the same. In the long term fixed costs can alter - perhaps as a result of investment in production capacity (e.g. adding a new factory unit) or through the growth in overheads required to support a larger, more complex business. Examples of fixed costs:

- Rent and rates - Depreciation - Research and development - Marketing costs (non- revenue related) - Administration costs Variable Costs

Variable costs are those costs which vary directly with the level of output. They represent payment output-related inputs such as raw materials, direct labour, fuel and revenue-related costs such as commission. A distinction is often made between "Direct" variable costs

and "Indirect" variable costs. Direct variable costs are those which can be directly attributable to the production of a particular product or service and allocated to a particular cost centre. Raw materials and the wages those working on the production line are good examples. Indirect variable costs cannot be directly attributable to production but they do vary with output. These include depreciation (where it is calculated related to output - e.g. machine hours), maintenance and certain labour costs. Semi-Variable Costs Whilst the distinction between fixed and variable costs is a convenient way of categorising business costs, in reality there are some costs which are

fixed in nature but which increase when output reaches certain levels. These are largely related to the overall "scale" and/or complexity of the business. For example, when a business has relatively low levels of output or sales, it may not require costs associated with functions such as human resource management or a fully-resourced finance department. However, as the scale of the business grows (e.g. output, number people employed, number and complexity of transactions) then more resources are required. If production rises suddenly then some short-term increase in warehousing and/or transport may be required. In these circumstances, we say that part of the cost is variable and part fixed.

INDUSTRY PROFILE The world production of rubber was considered to be very unstable during the last few years. Comparatively, India's production of rubber is consistent at the rate of 6% per annum. The Rubber industry in India has been growing in strength and importance. This is the result of India's burgeoning role in the global economy. India is the world's largest producers and third largest consumer of natural rubber. Moreover, India is also one of the fastest growing economy globally. These factors along with high growth of automobile production and the presence of large and medium industries has led to the growth of rubber industry in India. Rubber Producing Areas in India Rubber producing regions in India are divided into two zones traditional and non-traditional.

Traditional zone Kanyakumari Tamil Nadu Districts of Kerala

Non-traditional zone in Coastal regions Karnataka Goa Andhra Pradesh Orissa Some areas Maharashtra Northeastern (mainly Tripura) of of

states

Andaman and Nicobar Islands

Kerala contributes 90% of Indias total production of natural rubber. Also, Kerala and Tamil Nadu together occupies 86% of the growing area of natural rubber. Rubber Production in India Here are some facts regarding rubber industry in India. India is the third largest producer of rubber in the world. It is the fourth largest consumer of natural rubber.

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It is the fifth largest consumer of natural rubber and synthetic rubber together in the world. India is the world's largest manufacturer of reclaim rubber. India and China are the only two countries in the world which have the capacity to consume the entire indigenous production of natural rubber. To know more about India's export opportunities regarding rubber products and also to have an idea about global rubber industry, take the Rubber Industry Overview Rubber Consumption in India The following industrial sector consume most of the rubber products. Automotive tyre sector: 50% consumption of all kinds of rubbers Bicycles tyres and tubes: 15% Footwear: 12% Belts and hoses: 6% Camelback and latex products: 7% Other products: 10%

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Indian Rubber Market Indias production varies between 6 and 7 lakh tons annually which amounts to Rs. 3000 crores. Seventy percent of the total rubber production in India is in the form of Ribbed Smoked Sheets (RSS). This is also imported by India accounting for 45% of the total import of rubber. The Indian rubber industry has a turnover of Rs 12000 crores. Most of the rubber production is consumed by the tyre industry which is almost 52% of the total production of India. Among the states, Kerala is the leading consumer of rubber, followed by Punjab and Maharashtra. The exports of Indian natural rubber have increased tremendously over the years and have reached 76000 tons in 2003-04. Though, India is one of the leading producers of rubber but it still imports rubber from other countries. At present, India is importing around 50000 tons of rubber annually. India Rubber Industry Overview There are about 6000 unit comprising 30 large scale, 300 medium scale and around 5600 small scale and tiny sector units. These units are manufacturing more than 35000 rubber products, employing 400 hundred

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thousand people, which also includes 22000 technically qualified support personnel, contributing Rs. 40 billions to the National Exchequer through taxes, duties and other levies. The Indian Rubber Industry plays a vital role in the Indian national economy. The rubber plantation sector in India produces over 630 hundred thousand tones of natural rubber and there is a projected production of more than one million tones in near future. This has helped in the radical and rapid growth of the Indian rubber industry. This prospect of growth is further enhanced by a boom in the vehicle industry, improved living standards of the people and rapid over-all industrialization. The per capita consumption of rubber in India is only 800 grams compared to 12 to 14 kilos in Japan, USA and Europe. So far as consumption of rubber products is concerned, India is far from attaining any saturation level. This is another factor leading to tremendous growth prospects of the industry in the years to come

COMPANY PROFILE

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For over 30 years Hanani Rubber Industries has been a technological leader in manufacturing, Supplying, and trading high quality rubber products. Hanani rubber Industries today offers a diverse range of rubber products from the land of latex, Kottayam, South India . Made exclusively out of pure natural rubber, straight from its own plantations,our products find demand in overseas market, worldwide. We proud to reveal that our products are widely distributed in world class chain stores-Metro Cash & Carry, Auchan, OBI, Real, Leroy Merlen, Castorama, Victoria, Hyperglobus, Carrefour, Home Centre through our buyers. Hanani Rubber Industries an ISO 9001:2008 certified company always works towards achieving total customer satisfaction. It is committed to give clients product and service excellence by providing in time delivery and consistent products. It has a highly skilled, competent, and experienced management team and manufacturing staff with over 30 years of manufacturing experience. Hence, clients are guaranteed that they receive only the best products and quality service.

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All products pass through quality testing at every step of the production process - starting from the selection of raw materials and mixing of rubber compounds to completion of the final product. Thus, ensuring that each and every unit that goes out of the production is in its best quality. VISION and MISSION "Our vision is to be recognized as one of the leading manufacturers and suppliers of moulded rubber products. Our mission is to ensure total customer satisfaction and cost effectiveness by providing quality rubber products and delivering them to clients promptly." OBJECTIVE The company aims not just to be considered as a leading supplier of quality materials but also to develop partnership with its clients, suppliers and manufacturers.

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PRODUCT PROFILE The Rubberized Poultry Cage Mats The rubberized poultry cage mats introduced found and believed to be very effective and useful. They are affordable in prize, let the litter pass easily avoid the possibility of the presence of microorganism that may cause infection. Again the rubberized poultry cage mats are eco friendly. All over India, Bangladesh, Sri Lanka and Middle East these are used successfully. The wire mesh at the bottom of the cage covered completely. The mats can be fixed very accurately to the mesh. Tile Mats Tile mats with interlocking system are available mainly in four colors Black, Blue, green and Magenta. These can be used to cover a vast area decoratively for having a smooth surface. The interlocking tile mats can be used to cover a large area beautifully

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The Rubber Floor Mats The rubber floor mats keep the floors neat and clean. They are attractive as well as affordable and available in very many designs. Hollow Mats Hollow Mats are mainly in two sizes .i.e., 600m x 40m and 75m x 45m. Both are available with 12 mm thicknesses and 16mm thickness The Honey Comb Mat The honey comb Mat is as exclusive as the hollow mats. Any design prescribed by the buyer can be excellently manufacture. Tray Mats Tray Mats - The coir decorated tray mats are extremely attractive. The tips of coir brush produce an acupuncture effect.

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RESEARCH METHODOLOGY DATA COLLECTION


Data plays a very vital role in any research program. Source of data are of mainly two types i.e., primary and secondary. The data used in this study were collected from the published annual reports and magazines of relevant periods of the company. PERIOD OF STUDY The period covered by the present study is based on the financial year 2011.

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DATA ANALYSIS AND INTERPRETATION Problem of the Study Mrs. Glory Jocob of Hanani Rubbers enjoys a monopoly in his local market catering to around 1000000 customers every year. His friend James mathew of M M Rubbers supplier him good Quality materials kit Very

measurable rate (14400 per unit). The year 2011 was not a good year for Mrs.Glory Jacob He lost his good friend James Mathew in a road accident. He also lost of his savings in a share market scam. The Sun God did not bless him with a hot summer and sales was expected to fall by 20% . Te make the matter worse the new head of M M Rubbers Mr. Mathew Varghese increase the price of material kit by 30%. On the above situation Mrs. Glory reduced his market share from 1000000 customers to 800000 customers. Because of increasing the material cost.

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COST DATA The cost data is divided in to two parts. 1. Fixed cost 2. Variable cost The fixed and the variable components of the mixed cost are separated. The variable cost are divided in to three major categories Direct materials cost, Direct labor cost, and the variable overhead . The division of all the cost rate is tabulated for 1000000 units as well as 800000 units as follows:Present scenario(1000000 units)

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Table No : I Fixed cost Labor Electricity Depreciation Telephone Rent (office) Office expenses Bank charges Insurance Repairers and maintenance Convergence Post courier and parcel Total Amount 1210000.00 35000.00 1506620.00 4580.00 120000.00 22000.00 18000.00 35000.00 25000.00 16800.00 7000.00 3000000.00

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Table No: II Direct materials Packing materials Materials Other materials Total 6000000.00 4000000.00 2900000.00 12900000.00

Table No: III Direct Labour Direct Labor Total 2000000.00 2000000.00

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Table No: IV Variable Overhead Electricity Telephone Office expense Repairs and Maintenance Recruitment Travelling expense Conveyance Post courier and parcel Miscellaneous 100000.00 460000.00 346000.00 240000.00 64000.00 380000.00 190000.00 170000.00 150000.00

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Total

2100000.00

Future Scenario If Are Budget From H2O (800000Units)

Table No: V Fixed cost Labor Electricity Depreciation Telephone Rent (office) Office expenses Bank charges Insurance Repairers and maintenance Convergence Post courier and parcel Amount 1210000.00 35000.00 1506620.00 4580.00 120000.00 22000.00 18000.00 35000.00 25000.00 16800.00 7000.00

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Total Table No: VI Direct Materials Packing materials Materials kit (520/kit) Other materials Total

3000000.00

4800000.00 4160000.00 2320000.00 11280000.00

Table No: VII Direct labour Direct Labor Total 1600000.00 1600000.00

Table No: VIII Variable overhead Electricity Telephone Office expense Repairs and Maintenance 368000.00 2768000.00 276800.00 192000.00

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Recruitment Travelling expense Conveyance Post courier and parcel Miscellaneous expense Total

51200.00 304000.00 152000.00 136000.00 120000.00 1680000.00

Comparative analysis of Both Scenarios Table IX Profitability analysis of 1000000 units Sales revenue Rs.25/ units Less : Variable overhead Direct materials Direct labor Variable overheads 12900000.00 2000000.00 2100000.00 25000000.00

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Contribution Less :Fixed cost

8000000.00 3000000.00

Operating Profits

5000000.00

Table No: X Profitability Analysis Of 800000 units Sales revenue Rs.25/ units Less :Variable overhead Direct material Direct labor Variable Overhead 11280000.00 1600000.00 1680000.00 20000000.00

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Contribution Less Fixed cost

5440000.00 3000000.00

2440000.00

FINDINGS After going through the report of Mrs. Glory Jacob realized that his profit would drop by Rs. 25.60 lakhs if he continued to purchase materials kit from H2O care sales drops to 800000 units.

Analysis of alternative solution of the problem. There was no other material manufactures in the market the only alternative for Mrs.Glory Jacob was to manufacture materials

indigenously. But he had cost of his money and for manufacture material he need to expand his factory and purchase a new machinery (overall Rs 5 lakhs more was needed). Row material received is Rs 300/unit. Additional labour is required. There by labour cost increased to Rs 250/unit. The
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making of material would also drow more electricity there by increasing the variable overhead cost. The banks were not willing to finance him. Mr. Lalchi Singh, the loan shark saw opportunity to make money and offered the loan money to Mrs. Glory Jacob for a period of one year at the rate of more than 20%. The loan to be paid in two instalments Rs 3 lakh each , the first one is to be made in the first six months and the second instalment at the end of the year. The interest would be paid at the end of the year. If Mrs.Glory Fails to pay back the interest and the principal on the due dates Mr.Lalchi would be entitled to auction of the factory and get back his sum. The problem is that Mrs.Glory now has to decide whether to accept the offer of not. Table XI Fixed Cost Labor Electricity Depreciation Telephone 1210000.00 35000.00 1506620.00 4580.00

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Rent (office) Office expense Bank charges Insurance Repairs and Maintenance Conveyance Post, Courier and parcel Machinery Total

120000.00 22000.00 18000.00 35000.00 25000.00 16800.00 7000.00 500000.00 3500000.00

Table XII Direct material cost Packing Materials 4800000.00

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Raw Materials Other Materials

2320000.00 2400000.00

Table XIII Direct labour cost Direct labour cost 2000000.00

Table XIV Other Variable Over Heads

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Electricity Telephone Office Expense Repairs and Maintenance Recruitment Travelling Expense Conveyance Postage, Courier and Parcel Miscellaneous Total

360000.00 368000.00 346000.00 276800.00 51200.00 304000.00 152000.00 136000.00 120000.00 2114000.00

Table XV Projected profit when materials are produced


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Particulars Sales Revenue 8000 unit @ Rs 2500 Less: Variable cost Direct materials Direct labor Variable Overheads 9520000.00 2000000.00 2114000.00

Amount

20000000.00

13634000.00 6366000.00

Less: Fixed Cost Operating Profit Less: Interest of instalment Earnings Before Tax

3500000.00 2866000.00 600000.00 2266000.00

Table XVI Table showing Break even units

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(A) Contribution (B) Sales in Units (C) Contribution per unit (A/B) (D) Fixed Cost (E) Break even Units (A/C)

6366000.00 8000.00 795.75 3500000.00 4398.00

Table XVII

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Table showing BEP units if fixed cost is devided in to 300000 in First six months and 3200000 in the next six months Total Fixed Cost A. Fixed cost in first 6 months B. Fixed cost in next 6 months C. Contribution margin per unit D. BEP units in First 6 months (A/C) E. BEP units in next 6 months(A/D) 3500000.00 300000.00 3200000.00 795.75 377.00 4021.00

Table XVIII

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Table showing BEP units if fixed cost divided in equally in first six months and next six months. Total Fixed Cost A) Fixed cost in First 6 months B) Fixed cost in Next 6 months C) Contribution Margin / unit D) BEP units in first 6 months E) BEP units in Next 6 months 3500000.00 1750000.00 1750000.00 795.75 2199.00 2199.00

Findings of the alternative solution

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Manufacturing materials indigenously, would eat away the profit by another Rs 174000 There is also an inherent risk of default of the first instalment to Mr.Lalchi as it would not be possible to sell even 377 units in the off season. There is no reason why Mr.Coolgay should go ahead with the idea of manufacturing materials. After seeing the income statement and Break-even analysis Mrs. Glory Jacob decided not to take the loan. Another alternative The machinery was meant for long term use. It could not be prudent to change its cost in current year itself. It would be better amortize the cost over a period of five years,ie. amortize Rs 1 lakh every year. Then the difference are

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Table XIX Table showing Fixed Cost Fixed cost Labor Electricity Depreciation Telephone Rent (office) Office expenses Bank charges Insurance Repairers and maintenance Convergence Post courier and parcel Depreciation of machinery Interest Total Amount 1210000.00 35000.00 1506620.00 4580.00 120000.00 22000.00 18000.00 35000.00 25000.00 16800.00 7000.00 100000.00 100000.00 3200000.00

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Table XX Table showing Direct material Cost Packing Materials Raw Materials Other Materials 4800000.00 2320000.00 2400000.00

Table XXI Table showing Direct Labour Cost Direct labour cost 2000000.00

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Table XXII Table Showing Other Variable Over Heads Electricity Telephone Office Expense Repairs and Maintenance Recruitment Travelling Expense Conveyance Postage, Courier and Parcel Miscellaneous Total 360000.00 368000.00 346000.00 276800.00 51200.00 304000.00 152000.00 136000.00 120000.00 2114000.00

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Table XXIII Table Showing Revised Projected profit Particulars Sales Revenue 8000 unit @ Rs 2500 Less: Variable cost Direct materials Direct labor Variable Overheads 9520000.00 2000000.00 2114000.00 13634000.00 6366000.00 Less: Fixed Cost Operating Profit 3200000.00 3166000.00 20000000.00 Amount

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Findings From this alternative the profit was actually increase by Rs 900000 Another alternative On the basis of the above profit loan taken is suggested. But it has some conditions. It would be deficult to sell even a modest target of 377 units in the off season. But offering heavy off season discount ie up to 20% the sales can be pushed up significantly. Proper advertising should be done so as to inform the people that the discount would be available. As the Hanani Rubbers has a monopoly in the region the people would like to cash this opportunity and the sales would go up. The discount should be discontinued as soon as cash position is reached.

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Table XXIII Statement showing the above analysis. Particulars New selling Price 2000 Sales Revenue 8000 units @ Rs 2000 Less: Variable cost Direct materials Direct labor Variable Overheads 9520000.00 2000000.00 2114000.00 13634000.00 2366000.00 295.75 1014 16000000.00 Amount

Contribution Contribution per unit = 2366000/8000 Break even Unit= 300000/295.75= 1014units

As soon as 1014 units are sold the discount should be discontinued.

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FINDINGS 1. On the first alternative his profit would drop up by Rs 25.60 lakhs if he continued to purchase material kit from M M Rubbers and sales drop to 8000 units. 2. Manufacturing materials indigenously, would eat away the profit by another Rs 174000 There is also an inherent risk of default of the first instalment to Mr.Lalchi as it would not be possible to sell even 377 units in the off season. There is no reason why Mr.Coolgay should go ahead with the idea of manufacturing materials. After seeing the income statement and Break-even analysis Mrs. Glory Jacob decided not to take the loan. 3. From the third alternative it is find that profit was actually increase by 900000. 4. In the fourth alternative it is find that the discount is discontinued If the sales reach to 1014 units. 5. When the discount offered is the fourth alternative the contribution/unit is 295.75 and break even unit is 1014 units.

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SUGGESTIONS 1. On the first alternative his profit would drop up by Rs 25.60 lakhs if he continued to purchase material kit from M M Rubbers and sales drop to 8000 units. So materials should not be purchased from M M Rubbers and sales not to drop by 8000 units. 2. Manufacturing materials indigenously, would eat away the profit by another Rs 174000 There is also an inherent risk of default of the first instalment to Mr.Lalchi as it would not be possible to sell even 377 units in the off season. There is no reason why Mr.Coolgay should go ahead with the idea of manufacturing materials. After seeing the income statement and Break-even analysis Mrs. Glory Jacob decided not to take the loan. 3. As per the report of third alternative the discount is discontinued when sales is reach to 1014 units. 4. Mrs.Glory should not take loan for the year.

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5. A mild summer one year is usually a harbinger of a short coming summer in the following year. The demand for the product is likely to shoot up the next year. It would not be prudent then to keep up purchasing material from M M Rubbers 6. Investment for making materials should be made next years winter from the profit of the year summer.

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CONCLUSION Based up on the study of my B.com program I conduct a Cost Volume Profit Analysis of M/s Hanani Rubbers, I learn many things about the Concern. I am glad to give suggestion to the concern on the problem arised on my study. Based up on the study I find that the Financial position of the concern satisfactory and it has all possibilities to expand their activities in the near Feature.

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