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FINAL SUBMISSION
SUBMITTED TO
SUBMITTED BY
VINEET JHIM
MBA GEN SEC A
CONTENTs
Acknowledgement
Executive Summary
Chapter 1
Company Profile
Overview
History
Different Products
Strength/Opportunity & weakness/Threats
Board Of Directors
Achievements
Chapter 2
Demand and determinants of demand
Demand estimation and forecasting
Chapter 3
Data analysis
Cost analysis
Cost curves
Chapter 4
Economies of Scale
Chapter 5
Consumer survey
Suggestions
Bibliography
ACKNOWLEDGEMENT
It is my proud privilege to release the feelings of my gratitude to several persons
who helped me directly or indirectly to conduct this project work. I express my
heart full indebtness and owe a deep sense of gratitude to my teacher and my
faculty guide Dr. M.K. Sharma, UBS, Panjab University Chandigarh.
I am also extremely thankful to all those persons who have positively helped
me.
I also thank all my friends who have more or less contributed to the preparation
of this project report. I will be always indebted to them.
Thanking You
Executive Summary
This project report contains 5 different chapters. The report begins with the introduction to
company, its area of operation, its organization structure, its achievements, etc.
The second chapter is contains the demand function, determination of demand, forecasting
and demand estimation.
The third chapter gives the data analysis of the company. This work has been done on
previous years data and cost analysis has been done. Also cost curves have been shown.
Also the production function has been derived.
The fourth chapter comprehensive coverage of forecasting concepts and techniques which
shows the analysis of data through tabulation, computation and graphical representation of
data collected from survey.
The fifth chapter deals with the findings, suggestion & conclusion part which is very much
important after analysis is made.
As we know that only analysis and conclusion is not the end of a research, so in the chapter
the recommendation part is covered which are made after a depth study of the analysis part
of thesis.
In each of the five chapters as described above, every chapter has been scheduled in a manner
so as to enable the reader to appreciate the contents easily. The report is supported by figures
and data wherever necessary with a view to assist the reader in developing a clear cut
understanding of the topic.
I hope this report will be extremely useful for those it is meant. Constructive and healthy
suggestions for improvements of the report will be great fully appreciated
What is Stress?
Stress is a part of everyday life, brought on by less-than-ideal situations or perceived threats
that foster feelings of anxiety, anger, fear, excitement, or sadness. Physiologically, stress is
considered to be anything that challenges the bodys ability to function in its usual fashion.
The body has developed remarkably complex and interrelated responses that are designed to
ward off harmful or dangerous situations brought on by stress and to keep it in physiological
balance. Introducing alcohol into this mix throws off a persons physiological balance
compounding the problem and putting the body at even greater risk for harm. Ongoing stress,
or chronic, heavy alcohol use, may impair the bodys ability to return to its initial balance
point. Instead, the body seeks to achieve a new set point (a process known as allostasis) of
physiological functioning. This is important because establishing the new balance point
places a cost on the body in terms of wear and tear, and may increase the risk of serious
disease, including alcohol use disorders.
stressor is removed. If the stressor continues over time (such as long-term heavy drinking)
B), the demands on the bodys systems are increased, making it harder for the body to regain
its
response system may help alleviate the problems associated with withdrawal and, in turn,
aid in recovery. More work is needed to determine the effectiveness of these medications.
CONCLUSION
Although the link between stress and alcohol use has been recognized for some time, it has
become particularly relevant in recent years as combat Veterans, many with PTSD, strive to
return to civilian lifestyles. In doing so, some turn to alcohol as a way of coping.
Unfortunately, alcohol use itself exacts a psychological and physiological toll on the body
and may actually compound the effects of stress. More research is needed to better
understand how alcohol alters the brain and the various circuits involved with the HPA
axis. Powerful genetic models and brain-imaging techniques, as well as an improved
understanding of how to translate research using animals to the treatment of humans,
should help researchers to further define the complex relationship between stress and
alcohol.
0.7
0.6
Total
0.5
Beer
Spirits
0.4
Wine
0.3
0.2
0.1
0
1961
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
Year
Sources: FAO (Food and Agriculture Organization of the United Nations), World Drink Trends 2003
Female 89.3%
Total
79.1%
Male 67.1%
According to the 2003 World Health Survey (total sample size n = 9540, males n = 4605 and
females n = 4935; sample population aged 18 years and above), the rate of lifetime abstainers was
89.6% (total), 80.2% (males) and 98.4% (females).2
Estimates from key alcohol experts show that the proportion of adult males and females who had
been abstaining (last year before the survey) was 75% (males) and 96% (females). Data is for after
year 1995.3
The 2003 National Household Survey of Alcohol and Drug Abuse of 40 697 males aged between
12 to 60 years old found that the rate of lifetime abstainers among the sampled population was
74.1%. Of the total sampled population, 21.4% were reported to be current users of alcohol (used
in last 30 days).4
A sample of 1831 people (aged 10 years and above) interviewed in 19971998 in Meghalaya and
upper Assam region found that the prevalence rate of alcohol use was 12.5%. Female alcohol use
was low (3.2%) compared with male use (20.2%). Distribution by age documents that prevalence
was approximately 23% among adults and the older age group (30 years and above) and 4.2%
among adolescents and young adults (10 to 29 years).
As its name suggests, it is produced from the pulp of jack-fruit (Artocarpus heterophyllus). Ripe
fruit is peeled and the skin discarded. The seeds are removed and the pulp soaked in water. Using
bamboo baskets, the pulp is ground to extract the juice, which is collected in earthenware pots. A
little water is added to the pots along with fermented wine inoculum from a previous fermentation.
The pots are covered with banana leaves and allowed to ferment at 18 to 30C for about one week.
The liquid is then decanted and drunk. During fermentation, the pH of the wine reaches a value of
3.5 to 3.8, suggesting that an acidic fermentation takes place at the same time as the alcoholic
fermentation. Final alcohol content is about 7% to 8% within a fortnight.12
In Bangalore, the following types of alcoholic beverages are consumed most often: Arrack, a
traditional drink produced (both legally and illegally) by distilling fermented molasses, raw brown
sugar, palm wine, rice, or palm sugar; it has an alcohol content ranging from 20% to 40%. Palm
wine, another traditional alcoholic beverage produced from either the coconut tree or other palm
trees, is also consumed.13
Daru, a drink distilled from the flowers of the mahwa tree and which ranges in alcohol content
from 20% to 40% is consumed among the Rajputs of north-western India.13
Zu and Rohi are locally brewed alcoholic beverages found in Nagaland (10 to 20% ethanol
content).14
Unrecorded alcohol consumption
The unrecorded alcohol consumption in Inida is estimated to be 1.7 litres pure alcohol per capita
for population older than 15 for the years after 1995 (estimated by a group of key alcohol experts).3
Morbidity, health and social problems from alcohol use
Industry association sources estimate that 15% to 20% of absenteeism and 40% of accidents at
work are due to alcohol.15 Alcohol use among industrial workers is increasing and this has led to
an increase in alcohol-related sickness and absenteeism. The annual loss due to alcohol-related
problems in work places is between Rs 70 000 to 80 000 million.14
A study looking at the prevalence and associations of hazardous drinking in a male industrial
worker population in India found that hazardous drinking was significantly associated with severe
health problems, such as head injuries and hospitalizations.16
The country's road research institute estimates that 25% of road accidents were alcohol-related,
one third of the drivers on the highway were under the influence of alcohol and 20% of accidentrelated head injury victims seen in emergency rooms of hospitals have consumed alcohol prior to
the accident.17
Alcohol involvement is known to be present among 15% to 20% of traumatic brain injuries at the
time of injury.18
Alcohol-related problems made up 17.6% of the case load of psychiatric emergencies in an Indian
General Hospital.19
In a study looking at risk factors for suicide, it was found that the prevalence of alcohol use
disorders among people who committed suicide in the city of Madras was 34%
The percentage of alcohol-related court cases in a police station in Kohima, Nagaland increased
from 78% in 1995 to 88.8% in 1997.14
In India household expenditure on alcohol varies between 3% to 45% of income. Alcohol abuse
is one of the main killers of young men in India today. However, its real impact is on the social
and family dynamics that underlie its communities. Domestic violence and an exacerbation of
poverty have made alcohol abuse the single most important problem for women in India.21 With
one in three people in India falling below the poverty line, the economic consequences of
expenditures on alcohol attain special significance. Besides money spent on alcohol, a heavy
drinker also suffers other adverse economic effects. These include reduced wages (because of
missed work and lowered efficiency on the job), increased medical expenses for illness and
accidents, legal cost of drink-related offences, and decreased eligibility of loans.22
In a 1997 study comparing two groups of families within the same community in Delhi, India
(Group A having at least one adult consuming alcoholic drinks at least three times per week in
the last month and group B having no adult consuming more than one drink in the last month), it
was found that Group A, on an average, spent almost 14 times more on alcohol per month
compared with group B. A larger proportion of families in group A had significant debt compared
with group B. The implications of this are towards fewer financial resources for food and
education of children and fewer resources for purchasing daily living consumables. The more
heavily drinking group A was more likely to report major illnesses or injuries during the past one
year and was more likely to require medical treatment.23
In a study of 180 women seeking prenatal care in rural South India, it was found that 20% of the
women reported domestic violence and 94.5% of these women identified their husbands as the
aggressors. Husbands alcohol use was a significant risk factor for domestic violence.24 The role
of alcohol in domestic violence is also cited in another Indian study which found that 33% of
spouse- abusing husbands were using alcohol. Of these 15% were occasional, 45% frequent and
about 40% were daily users of alcohol. More than half of the spousal abuse took place during the
period of intoxication.14
Country background information
Total population 2003
Adult (15+)
% under 15
33
28
Rural
72
60.1
Female
62.0
Male
87
Female
95
US$
480
CHAPTER-1
INTRODUCTION
1.1 Introduction of organization
Indian conglomerate company headquartered in UB City, Bangalore in the state of Karnataka. The
company has annual sales of over US$4 billion and a market capitalization of approximately
US$12 billion. Its core business includes beverages, aviation, electrical and chemicals. The company
markets beer under the Kingfisher brand, and owns various other brands of alcoholic beverages. It
also launched Kingfisher Airlines, an airline in India whose operation has been halted after problems
that led to its licence being revoked by the DGCA.[2] United Breweries is India's largest producer of
beer with a market share of around 48% by volume.[3]
The company chairman is Vijay Mallya, who had been a member of the Indian Parliament. United
Breweries now has greater than a 40% share of the Indian brewing market with 79 distilleries and
bottling units across the world. Recently, UB financed a takeover of the spirits business of the
rival Shaw-Wallace company, giving it a majority share of India's spirits business. The group also owns
the Mendocino Brewing Company in the United States.
1.2HISTORY
The UB Group was founded by a Scotsman, Thomas Leishman, in 1857. The Group took its initial
lessons in manufacturing beerfrom South India based British breweries. At the age of 22, Vittal
Mallya was elected as the company's first Indian director in 1947. After a year, he replaced R G N
Price as the chairman of the company. Rangarajan took over from R G N Price.
United Breweries made its initial impact by manufacturing bulk beer for the British troops,
which was transported in huge barrels or "Hogsheads". Kingfisher, the group's most visible and
profitable brand, made a modest entry in the sixties. During the 1950s and 60s, the company expanded
greatly by acquiring other breweries. First was the addition of McDowell as one of the Group
subsidiaries, a move which helped United Breweries to extend its portfolio to wines and spirits
business. Strategically, the Group moved into agro-based industries and medicines when Mallya
acquired Kissan Products and formed a long-term relationship withHoechst AG of Germany to create
the Indian pharmaceutical company now known as Aventis Pharma, the Indian subsidiary of the global
pharma major Sanofi-Aventis.
The logo
The Pegasus, which is the symbol of the United Breweries, first found its place as the Group logo
in 1940. Then, the Helladic horse associated with beer and nectar in Greek mythology carried
a beer cask between the wings, ostensibly because beer formed the core operations of the Group.
Later, the beer cask was removed to represent the Group's multifaceted operations. Now, it is just
the horse.
Recent history
Sales were expected to exceed 70 million cases during the fiscal year 200506, making the Group
the third-largest manufacturer ofspirits products in the world, after Diageo and Pernod Ricard. In
addition, USL is one of only three in the world to own seven millionaire brands and at least five
brands rated by Drinks International, UK, to be amongst the ten fastest growing brands in the world
in their respective categories. The market share of the Spirits Division in India is currently 60%
and exports to the Middle East, Africa and Asian countries are growing rapidly.
The UB Group's brewing entity called United Breweries Limited (UBL) - has also assumed
undisputed market leadership with a national market share in excess of 50%. Through a process of
aggressive acquisition and market penetration, The UB Group today controls 60% of the total
manufacturing capacity for beer in India. The flagship brand, Kingfisher, is now sold in over 52
countries worldwide, having received many accolades for its quality.
With plans to become a global player, United Spirits Limited (USL), the flagship of the UB group,
purchased the Scottish distiller Whyte and Mackay in May 2007 for 595 million (Rs. 4,800
crore).This would bring the brands of W&M like The Dalmore, Isle of Jura, Glayva,
Fettercairn, Vladivar Vodka, and Whyte & Mackay Scotch under its portfolio.
The UB group also manufactures fertilizers. The group company Mangalore Chemicals and
Fertilizers (MCF) has a factory at Panambur in Dakshina Kannada district of Karnataka.
UB Engineering Limited is the group's engineering business arm. It undertakes EPC projects,
infrastructure, on-site fabrication of structures, installation, testing and commissioning of electrical
and mechanical equipment, piping for large industrial projects. The company was initially
established as Western India Erectors in 1963 and came under the UB Group in 1988.
UBICS, Inc provides IT consulting, bodyshopping services and professional IT products to
business companies.
In August 1999, the group made a first-of-its-kind media alliance for the promotion of NDTV
Good Times, a lifestyle television channel run by NDTV.
United Spirits Limited has 144 brands under its umbrella, including White Mischief vodka, the
market leading brand in India.
BUSINESS SEGMENTS
Fertilizer
Engineering
Aviation (see Kingfisher Airlines)
Formula 1 - Force India
IPL cricket team - Royal Challengers Bangalore
Alcoholic beverages
Beer
Kingfisher Ultra
Kingfisher Blue
Kingfisher Red
Kingfisher Bohemia
London Pilsner
UB Export
UB Export Strong
Bullet
Charger
Spirits
Most of the products have been entered in numerous spirit rating competitions and have won several
quality awards. In 2006, McDowells No.1, Black Dog, Dalmore, Jura andWhyte & Mackay received a
Gold Quality Award from the international quality institute Monde Selection. All of the vodka brands
were entered in the 2006 Monde Selections World Quality Selections and won a Silver Quality Award.
SWOT ANALYSIS
STRENGTHS
The Indian beer industry is one of the worlds fastest growing markets. With its low per capita
consumption which leave sample headroom for growth, it looks like a delicious sup for brewers
across the globe, who have seen it as a target for some years now.
OPPURTUNITIES
The beer sector therefore presents a unique opportunity for business development as millions of
new consumers enter the legal drinking age. Considering the expected increase in consumption
and current growth trend, the future of the Indian beer market looks bright and seems set for
continuous growth and increased competition
There is a huge demographic dividend that India will reap in the next decades. The UN expects
the country to overtake. China as the most populous country by 2025, while its inhabitants remain
very young. Half of Indias population is below the age of 25, and in 2030 about 20% of all people
below 25 years of age in the world will be Indian as compared to 11% from China.
THREAT
With the competitive market scenario and with the entrance of competitive brands and products in
the market, the company needs to continuously introduce new brands and further strengthen its
existing portfolio. Although the industry continues to make positive improvements, the high price
levels of beer in India, driven by high taxation, and the volatile input costs of raw materials post
significant threats to the profit margins and the growth of the beer industry.
The loss of momentum in the GDP growth in India in combination with Inflation, which remained
high through most part of the year, eroded domestic consumer savings and curtailed consumption
reflecting in slowing market growth. Cost inflation has also impacted the increase in several input
costs, thereby leading to increase in the input price of beer.
WEAKNESS
The industry is plagued by high working capital requirement and government intervention at each
level in the distribution chain, raising numerous questions. The economies of scale are limited as
all states have to be treated as different markets. Local sourcing and manufacturing requirements
make it an inventory heavy business model and improvement in working capital is an ambitious
target, which in addition is subject to the whims of the state governments as well as the varying
financial requirements of vendors.
Availability of Beer is another serious constraint, there is one licensed outlet per 18,000 Indians,
compared with one per 300 Chinese.
High tax burden in Beer weighs down on brewers and consumers alike. Since price elasticity in
the market is high, every time the governments increase tax on beer, sales are instantly affected.
Liquor, including beer is taxed by state governments, hence tax, mainly excise duty, varies from
state to state. Since alcohol is one segment from which all state governments expect a substantial
chunk of their tax revenue, the tax on it is hiked unfailingly in the annual budget, and new duty
structures are introduced during the year. Along with restrictions on pricing, governments also
control the distribution of alcoholic drinks in the market. Excise duty per litre of beer is the
highest globally, and beer is taxed higher than spirits, though beer is a far milder form of alcohol.
Your Company believes that a lower tax rate for beer could be a catalyst for growing
consumption, which is the key reason for our long term positive bias on the sector.In addition, a
ban on advertising alcoholic products including beer in India is a major constraint in the potential
growth of the beer market.
BOARD OF DIRECTORS
Non-Executive Directors
Executive Directors
ACHIEVEMENTS
1. Kingfisher Strong awarded Asias Best Strong Lager 2013 by the prestigious World Beer
Awards 2013.
2. UBL- Golconda Hyderabad awarded Frost & Sullivans Green Manufacturing Excellence
Awards 2014 under the category category "Challengers Award - Medium Business".
3. United Breweries Limited rated as one of the 100 most innovative growth companies in the
world by Forbes Magazine.
4. Won the Bronze Award at the 'Australian International Beer Awards' in the "International
Packaged Beer Section for the year 2000."
5. First Prize in the International Beer Awards organised by the New Zealand Hop Marketing
Board.
6. First Prize for the label work category at the Asian Grand Prix Cyrel 2000 Label award.
7. Gold Medal at the World Beer Championship held in Chicago in 1997
8. World's Best Lite Lager Award at the Stockholm Beer Festival in 1995.
9. World's Best Lite Lager Award at the Stockholm Beer Festival in 1994.
CHAPTER 2
2.1 DETERMINANTS OF DEMAND
The law of demand, while explaining the price-demand relationship assumes other factors to be
constant. In reality however, these factors such as income, population, tastes, habits, preferences
etc., do not remain constant and keep on affecting the demand. As a result the demand changes i.e.
rises or falls, without any change in price.
1. Income: The relationship between income and the demand is a direct one. It means the
demand changes in the same direction as the income. An increase in income leads to rise
in demand and vice versa.
2. Population: The size of population also affects the demand. The relationship is a direct
one. The higher the size of population, the higher is the demand and vice versa.
3. Tastes and Habits: The tastes, habits, likes, dislikes, prejudices and preference etc. of the
consumer have a profound effect on the demand for a commodity. If a consumers dislikes
a commodity, he will not buy it despite a fall in price. On the other hand a very high price
also may not stop him from buying a good if he likes it very much.
4. Other Prices: This is another important determinant of demand for a commodity. The
effects depends upon the relationship between the commodities in question. If the price of
a complimentary commodity rises, the demand for the commodity in reference falls. E.g.
the demand for petrol will decline due to rise in the price of cars and the consequent decline
in their demand. Opposite effect will be experienced in case of substitutes.
5. Advertisement: This factor has gained tremendous importance in the modern days. When
a product is aggressively advertised through all the possible media, the consumers buy the
advertised commodity even at a high price and many times even if they dont need it.
6. Fashions: Hardly anyone has the courage and the desire to go against the prevailing
fashions as well as social customs and the traditions. This factor has a great impact on the
demand.
7. Imitation: This tendency is commonly experienced everywhere. This is known as the
demonstration effects, due to which the low income groups imitate the consumption
patterns of the rich ones. This operates even at international levels when the poor countries
try to copy the consumption patterns of rich countries.
8. Number of consumers : more consumers means more demand
9. Income & normal goods :as income increases, demand for these goods increases
10. Income & inferior goods as income increases, demand for these goods decreases
11. Preferences :obviously, if they prefer to buy it their D will increase)
12. Price of a substitute: if the price of a substitute good increases, demand for the original
good will increase
13. Expectation of future prices and income.
14. Government policies. e.g. ban pornography. This leans more towards supply restriction
rather than demand.
15. Substitutes :Greater the number of substitutes and the attractiveness of their price, the
smaller will be the demand for the good
16. Complement goods :increase demand for cars would raise demand for petrol
17. fashion :if item is currently popular in the market it will get more buyers and so it would
be a high demand item
18. weather : a winter cloth would be in greater demand in winter as compared to summer
19. wars :demand of certain goods can be influenced in wars compared to peace situation
20. Traditional and religious festivals and events can influence the demand of certain goods,
like Christmas tree is in higher demand in the month of December
21. Number of sellers also impact demand by influencing the price of certain goods.
First of all, you must get into the heads of your potential buyers. What do they want? What are
their preferences and tastes for different goods and services including the one you are newly
offering? What are they willing to shell out money to buy? What are their expectations regarding
prices, availability of the good, or the availability of other goods? And how do these tastes,
preferences, and expectations change with advertising and other events?
The next place to look is at their wallet to see how much money they have to spend. Their
income determines if your potential buyers are, not only willing, but able to buy your new product.
Money serves as a constraint on their willingness to buy your new product.
Willingness and ability still do not mean the buyers will buy your product. What other products
might they be focusing upon? It may be that some other product they are buying fits well, works
well, or is designed to complement what you are offering the consumer. The sale of such
complementary goods might provide an opportunity to piggy back your advertising with some
other good. Have you seen those commercials advertising a particular hotel and the airline to help
you get there?
But maybe your potential buyers are focusing on goods that can substitute for your new product.
Anything that buyers spend for may be gross substitutes because they are not spending that money
on your product. But potential buyers may switch to close substitutes which are differentiated
in the eyes of the consumer from your good; close substitutes may be preferred if their prices are
low enough relative to the price of your product. Finally, you may be offering a standardized
product which cannot be distinguished from those offered by other producers except for
differences in location, quantity, or other terms of sale. Substitutes provide alternatives to your
new good.
So far we have just set out several of the principal determinants of individual demand:
preferences and tastes, buyer expectations, income, complementary goods, and substitute goods.
The following diagram summarizes these determinants and their impact in shifting demand when
a determinant becomes larger.
Taxes,
Price of Complements
Price of Substitutes
Tastes for good/service
Income,
Buyer Expectations,
Number of buyers)
When these determinants change, then an individual's demand changes and the individual demand
curve will shift. If you are to see how a buyer will respond to your price changes for a new product,
all of these determinants must be held constant. Economists use a Latin signature phrase, ceteris
paribus, to indicate that all other determinants are being held constant. Demand is always defined
with this signature phrase to indicate that all demand determinants are held constant when price is
being changed.
frequency of the occurrence happening or a product being bought. Time domain will show
quantities purchases with respect to time.
4. Casual Methods
Other methods included in demand forecasting include casual methods. These methods work under
the assumption that underlying incidents can affect sales numbers of products and services.
Examples of casual methods include holidays and seasons that boost sales of certain items. For
instance, a candy store may sell more candy canes during the holiday season than other parts of
the year. These casual methods also may use linear relationships between sales and another
component that remain consistent over time. If the linear relationship remains consistent, then it is
a safe prediction.
Demand forecasting encompasses many types of methods and is not limited to those listed here.
This forecasting helps those in businesses to determine projected quantities of products or labor
needed to provide services for future sales. In addition, demand forecasting can be an effective
tool for those new to certain business industries. These methods can assist in writing business plans
and obtaining the funds needed to fund a new business venture.
your business, it can be used to come up with fairly accurate estimates if the assumptions made
are correct.
Pricing
One of the reasons that companies use demand estimation is to assist with pricing. When you offer
a new product or start a new business, you may not have any idea how to price your product. When
you have an idea of what the demand will be for the product, you know approximately how much
you have to price the product. This way, you can avoid overpricing your product and alienating
some customers. You may also be able to avoid leaving money on the table.
Production
Another reason that demand estimation is commonly used is so that it can help with production.
Before a company puts a large amount of money into producing a product, it can have an estimate
of the demand for that product. If the demand in the area is for 20,000 units, you should most likely
not invest in making 1 million units during that time frame. This way, more of your capital can
stay on hand instead of being invested into inventory.
Considerations
When making business decisions using demand estimation, it is important to remember that these
estimations are only educated guesses as to what the demand for a product or service will be. If
you have a high-quality product that people want, you may not be able to manufacture them fast
enough to meet demand. Always allow some room for error in the estimation of the demand for
your business. Otherwise, you may be in for some surprises as a business owner.
Estimating demand for the firms product is an essential and continuing process. After all,
decisions to enter new market, decisions concerning production, planning production
capacity, and investment in fixed assets inventory plans as well as pricing and investment
strategies are all depends on demand estimation.
The estimated demand function provides managers with an accurate way to predict future demand
for the firms product as well as set of elasticities that allow managers to know in advance the
consequences of planned changes in prices, competitors prices, variations in consumers income,
or the expected changes in any of the other factors affecting demand.
CHAPTER 3
3.1 COST ANALYSIS
WHAT IS COST ANALYSIS?
Cost analysis (also called economic evaluation, cost allocation, efficiency assessment, costbenefit analysis, or cost-effectiveness analysis by different authors) is currently a somewhat
controversial set of methods in program evaluation. One reason for the controversy is that these
terms cover a wide range of methods, but are often used interchangeably.
Cost analyses can provide estimates of what a program's costs and benefits are likely to be,
before it is implemented.
Cost analyses may improve understanding of program operation, and tell what levels of
intervention are most cost-effective.
Cost analyses may reveal unexpected costs.
Whether or not the program is having a significant net effect on the desired outcomes.
Whether the least expensive alternative is always the best alternative.
Promotes fiscal accountability in programs. Too often, program managers can't easily
determine the cost of providing particular services or achieving certain outcomes, because
they aren't systematically collecting the necessary data, either about clients or about costs.
At the least, programs should be able to tell funders (or potential funders) that during a
given time period, they provided a certain level of services to a specific number of clients,
and at what cost.
Helps set priorities when resources are limited. Managers can use cost information in
designing programs, and in budgeting and allocating funds to get the most out of their
resources.
Can be extremely powerful and persuasive to legislators, policy makers, and other
funders. It may help convince them to invest in particular kinds of programs. Some argue
that this advantage of cost-benefit analysis may hold true even when it is not possible to
assign monetary values to all program costs and outcomes; if the effect is strong enough,
even a relatively incomplete cost-benefit analysis may be persuasive.
Requires a great deal of technical skill and knowledge. A true cost-benefit analysis
requires a solid grounding in economic theory and techniques, which is beyond the training
of many evaluators. It may be necessary to hire a consultant if this type of analysis is
desired.
Critics feel that many cost analyses are overly simplistic, and suffer from serious
conceptual and methodological inadequacies. There is a danger that an overly-simplistic
cost-benefit analysis may set up an intervention to fail, by promoting expectations that are
unrealistically high, and cannot really be achieved. This may result in political backlash
which actually hurts future funding prospects instead of helping.
There are no standard ways to assign dollar values to some qualitative goals,
especially in social programs. For example, how do we value things like time, human lives
saved, or quality of life?
Market costs (what people actually pay for something) don't always reflect "real"
social costs. For example, sometimes one person's cost is another person's benefit. Also,
market costs don't necessarily reflect what economists call the "opportunity costs" of
choosing to do one thing instead of another.
Sometimes there are multiple competing goals, so we need to weight them or prioritize
them in some way. If a program leads to improvement in one area, but more problems in
another, is it still worth doing?
Sometimes costs and monetary values are considered less important than other, more
intangible values or program outcomes
Years
2008
2009
2010
2011
2012
Selling and
Total cost
admin exp
14.25
33.82
12.17
30.172
0.403354
11.45
17.852
0.641385
12.16
26.48
0.459215
11.79
92.107
0.128003
R&D exp
Total cost
R&D Ratio
33.82
30.172
17.852
8.12
26.48
0.306647
7.37
92.107
0.080016
Years
2008
2009
2010
2011
2012
3. Depreciation
Years
2008
2009
2010
2011
2012
depreciation
Total cost
R&D Ratio
9.93
33.82
0.293613
9.49
30.172
0.31453
4.36
17.852
0.24423
5.55
26.48
0.209592
37.19
92.107
0.40377
Other exp
Total cost
5.21
33.82
0.154051
0.192
30.172
0.006364
0.27
17.852
0.015124
26.48
0.438
92.107
0.004755
4. Other expenditure
Years
2008
2009
2010
2011
2012
5. Interest expenditure
Years
2008
2009
2010
2011
2012
interest exp
Total cost
2.66
33.82
0.078652
6.15
30.172
0.203831
1.1
17.852
0.061618
0.54
26.48
0.020393
0.489
92.107
0.005309
Total cost
33.82
0.052336
2.17
30.172
0.071921
0.672
17.852
0.037643
0.11
26.48
0.004154
34.83
92.107
0.378147
6. Income tax
Years
2008
2009
2010
2011
2012
Income
exp
1.77
tax
Cost curves
4,500.00
4,000.00
3,500.00
3,000.00
R&D
2,500.00
2,000.00
1,500.00
1,000.00
500.00
0.00
depreciation
other
interest exp
income tax
total
PRODUCTION FUNCTION
where
Q
quantity
of
:
output
X1, X2, X3,......, Xn are quantities of factor inputs (such as capital, labour, land or raw
materials).
Now the production function of SBI Bank will be determined with the help of regression analysis.
The production function is the combination of the Labour and Capital. It is really a business
concept that defines the maximum rate of output approaching from specified input rates of capital
and labour.
The labour (employee cost), capital and output (interest earned) of UB Group is presented in a
tabular form as :
YEAR
MAR '02
MAR '03
MAR '04
MAR '05
MAR '06
MAR '07
MAR '08
MAR '09
MAR '10
MAR '11
MAR '12
MAR '13
MAR '14
NET SALES
197.88
395.88
452.36
515.76
679.71
1,046.24
1,370.47
1,691.75
1,986.28
3,009.43
3,627.69
3,903.14
4,235.50
CAPITAL
32.4
33.84
36.61
252.12
507.21
557.63
611.26
1,081.54
1,159.77
1,295.01
1,365.14
1,510.69
1,705.86
EMPLOYEE COST
17.92
28
28.61
32.34
44.7
66.83
77.44
87.07
98.92
144.12
188.23
241
260.78
To find out the values of alpha and beta we will use regression analysis. And for
doing the regression analysis we will take natural log on both sides.
Log (O) = Log A + Log (L) + Log (K)------------(1)
YEAR
MAR '02
MAR '03
MAR '04
MAR '05
MAR '06
MAR '07
MAR '08
MAR '09
MAR '10
MAR '11
MAR '12
MAR '13
MAR '14
LOG (O)
2.296402
2.597564
2.655484
2.712448
2.832324
3.019631
3.13687
3.228336
3.29804
3.478484
3.55963
3.591414
3.626905
LOG (K)
1.510545
1.52943
1.5636
2.401607
2.705188
2.746346
2.786226
3.034043
3.064372
3.112273
3.135177
3.179175
3.231943
LOG (L)
1.253338005
1.447158031
1.456517858
1.509740016
1.650307523
1.824971461
1.888965344
1.939868544
1.995284108
2.158724253
2.274688842
2.382017043
2.416274281
Now Regression is applied using the above data and we get the following data:
SUMMARY OUTPUT
Regression Statistics
Multiple R
R Square
Adjusted R
Square
Standard
Error
0.99338538
0.986814513
0.984177416
0.054459596
Observations 13
ANOVA
MS
SS
Regression
Residual
2
10
Total
12
2.249327372
Coefficients
Standard
Error
t Stat
Significance
F
df
P-value
Intercept
Capital
employee
cost
Lower 95%
Upper
95%
Lower
95.0%
Upper
95.0%
1.20447342
Economies of scale
In microeconomics, economies of scale are the cost advantages that enterprises obtain due to size,
output, or scale of operation, with cost per unit of output generally decreasing with increasing scale
as fixed costs are spread out over more units of output. Economies of scale apply to a variety of
organizational and business situations and at various levels, such as a business or manufacturing
unit, plant or an entire enterprise. For example, a large manufacturing facility would be expected
to have a lower cost per unit of output than a smaller facility, all other factors being equal, while a
company with many facilities should have a cost advantage over a competitor with fewer.
3) Manufacturing Expenses:
Year
Rs. in millions
Expenses
2012-2013
2013-2014
Rs.16,581
Rs.17,491
Percentage(Of
net expenditure)
42.5%
41.3%
As we can see from the table given above that the manufacturing expenses have been reduced by
.8% with care full implementation of resources.
4) Technological advancement: The Company has continued its Research & Development
(R&D) program in the area of development of a two row malting variety for barley. In order to
further strengthen the portfolio company has developed and will shortly launch a flavored beer in
the market, using the technology developed by its own R&D department.
High cost inflation has fueled increase in input costs thereby leading to an increase in the cost price
of beer particularly on account of barley prices. The sudden appreciation of the dollar versus the
rupee has resulted in an increase in cost of cans and hops. Aluminum is imported for the making
of cans by our vendors. In order to further reduce power consumption, we are exploring conversion
of organic waste into energy to obtain savings in electricity costs in an environmentally sustainable
manner.
Diseconomies of scale
Diseconomies of scale are the forces that cause larger firms and governments to produce goods and
services at increased per-unit costs. The concept is the opposite of economies of scale.
1) Low GDP
The loss of momentum in the GDP growth in India in combination with Inflation, which remained
high through most part of the year, eroded domestic consumer savings and curtailed consumption
reflecting in slowing market growth. Cost inflation has also impacted the increase in several input
costs, thereby leading to increase in the input price of beer. The industry is plagued by high
working capital requirement and government intervention at each level in the distribution chain,
raising numerous questions. The economies of scale are limited as all states have to be treated as
different markets. Local sourcing and manufacturing requirements make it an inventory heavy
business model and improve working capital is an ambitious target, which in addition is subject to
the whims of the state governments as well as the varying financial requirements of vendors.
2) Few licensed outlets: Availability of Beer is another serious constraint, there is one licensed
outlet per 18,000 Indians, compared with one per300 Chinese.
3) High tax: High tax burden in Beer weighs down on brewers and consumers alike. Since price
elasticity in the market is high, every time the governments increase tax on beer, sales are instantly
affected. Liquor, including beer is taxed by state governments, hence tax, mainly excise duty,
varies from state to state.
4) Non performing segment: With the losses incurred in the segment kingfisher Airlines,
Company has been affected severely and company has to pay a lot of fines and take care of many
legal ramifications. This has seriously affected companys internal and external organisational
effectiveness.
CUSTOMER SURVEY
1. Name
Kiran, Rohit, Rakhi, Sandeep, Naina, jitender ,Ms Kanu chirag Yadav, Saurabh
Dey, manjesh Renu Raghav, Kamal Bansal, Neha Gupta, Rupesh Kumar, Pankaj
kumar, Sumit Mahi, Dheeraj Yadav, Anil, Ashish mangla
2. Gender
Male 13 62%
Female 8 38%
3. Age
35 38 40 22 23 24 25 19 21 20 46
4. Place of residence
Urban 11 52%
Rural 10 48%
5. Working
<2 lakh
4 27%
2-5 lakh
3 20%
5-10 lakh
2 13%
>10 lakh
0 0%
Unemployed 6 40%
Suggestions
Following recommendations were made to top management.
There should be a constant evaluation and review of various organizational
events. There is a need of a monitoring system which could ensure timely
completion of processes.
More clarity regarding job description may be helpful. All the employees who
have multiple reporting should be awarded time slots to do so.
HR Policy, specifically financial policy can be revised for every two years.
Effective manpower planning should be there to ensure optimum utilization
of human resources. This would require adequate number of members in a
team.
The workload should be reduced on each employee. This could be done
through recruiting more people or by developing more advanced
technology.
Also pay according to qualification and work according to qualification
should be encouraged.
Pays and perks should be revised.
BIBLIOGRAPHY
www.google.com
www.scribd.com
www. theubgroup.com/
www.gurufocus.com
www.wikepedia.org