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A PROJECT REPORT ON COST VOLUME PROFIT ANALYSIS AT KERALA MINERALS AND METALS LTLTD(KMML) CHAVARA

PROJECT REPORT In partial fulfilment of the requirement of the degree of MASTER OF BUSINESS ADMINISTRATION University Of Calicut Submitted by Monisha Chandran M (Reg No:EJAKMBA022)

Under the Guidance of Mr. Raghupradeep Nair

ELIJAH INSTITUTE OF MANAGEMENT STUDIES PONGANAMKAD

INTRODUCTION
Finance is the nerve centre and lifeline of any economic activity. It plays an extremely crucial rolr in the continuity and growth of a business. Finance is needed to promote or establish the business, acquires fixed assets , make investigations, develop product,meeting day to day affairs of the company, encourage managers to make progress and create value. Cost Volume Profit analysis is an important tool for profit planning. The analytical techniques used to study the behaviour of profit in response to the changes volume cost and prices is called Cost Volume Profit analysis. It is a device used to determine the usefulness of the profit planning process of the firm. In CVP analysis an attempt is made to analyse the relationship between variations in volume of production. Costing, financial and statistical tools are used for the study. Costing tools used include breakeven analysis, PV ratio and margin of safety. The financial tools used are ratio analysis , income statement. Statistical tools are used in percentage. The data is summarised by using tables, various charts , bar diagrams etc.. CVP analysis heips to determine the minimum sales volume to avoid sales and the sales volume at which the profit goal of the firm will be achieved. It is an immense utility to management as it assists in cost control and decision making. The Kerala Minerals and Metals Limited is a well reputed company fully owned by the state govt. Of Kerala. The company It has been ranked among top 10 competitors in the world producing its own product. Eco friendly and socially committed KMML is the only integrated Titanium Dioxide facility have mining, mineral separation , synthetic rutile and pigment production plants. Apart from producing rutile grade Titanium Dioxide pigment for various types of industries, it also produce other products like monazite, zircon, sillimenite, synthetic rutile etc.

BACKGROUND OF THE STUDY


Here i used this analytical technique to study the behaviour of profit in response to the changes in volume,cost and prices of KMML, Chavara. Here an attempt is made to analyse the relationship between variations in cost with variations in volume of production.This study was very helpful for understanding the production and sales of a company year by year and to make a comparative analysis. It is a device used to determine the usefulness of the profit planning process of the firm.

SCOPE OF THE STUDY


The study is entitled as A study on the Cost Volume Profit analysis of The Kerala Minerals and Metals Ltd, Chavara . The study focuses to find out the profitability of the business by considering the cost and volume of production. It gives a clear picture about the variations in cost over a period of 5 years and also the effect of that in profits. It also provides a chance to understand the practical constraints faced by manager while putting the theory i n practice. This study is limited to an analysis for a period of five years.

OBJECTIVES OF THE STUDY


Primary objective
To find out the relationship between cost, volume and profit of KMML, by using cifferent tools.

Secondary objective
To find out how much sales is required to reach BEP.

To find out the financial soundness and financial efficiency of the company To find out the contribution of KMML. To find out the profitability position of KMML.

RESEARCH METHODOLOGY
Meaning of Research
Research in common parlance refers to a search for knowledge. Once can also define research as a scientific and systematic search for pertinent information on a specific topic. Research is an art of scientific investigation. It is to systematically solve the research problem. Research pays attention to: Formulating the objectives of the study Collection of data Processing and analyzing data Findings and report writing The study is made by personally visiting the company KMML. These datas are collected through two methods, they are primary sources and secondary sources.

Primary sources
Primary data refer to information obtained firsthand by the researcher on the variables of interest for the specific purpose of study. In KMML, the main sources of primary data include

Direct observations Informal interview with managers from Costing , Finance and Accounts department Discussions with various staff members of the company

Secondary sources
Secondary data refer to information gathered from sources already existing. The study is mainly based upon secondary data, which are from the published annual report of the company from 2006-2011. Other secondary sources are Journals and Magazines Periodicals Brochures Websites Annual reports

Research design
A Research design is a program which guides the investigator in the process of collecting, analyzing and interpreting the observation. A research design is the blue print of the data collections measurements and analysis of data.

Analytical Research design


The researcher has adopted analytical research in the present study. Analytical research is to use facts or information already available, and analyze these to make a critical evaluation of the problem.

The study concentrated on the critical analysis of data available from the financial statement of Kerala Minerals and Metals Ltd for a period of 5 years (i.e. from 2006-07 to 20010-11).

Period of study
The study is carried out for 45 days by collecting data for a period of five financial years from 2006-2007 to 2010-2011.

DATA ANALYSIS AND INTERPRETATION


Interpretation refers to the task of drawing inferences from the collected facts after an analytical study. These are the tools which i used for analysis

Tools used for analysis


Breakeven analysis Contribution Margin of safety Ratio analysis Profitability ratios Costing and volume related ratios Profit analysis Trend analysis

LITERATURE REVIEW
Cost volume profit analysis is an important tool of profit planning . Profit is yhe most important measure of a firms performance in the market economy. Profit is a guide for allocating resources efficiently.

The analytical technique used to study the behaviour of profit in response to the changes in the volume cost and price is called cost volume profit analysis.CVP analysis is one of the most powerful tools that managers have at their command. It helps them them understand the interrelationship between cost, volume and profit in an organisation by focussing on interactions among the following five elements: prices of the product, volume or level of activity per unit, variable cost, total fixed cost, mix of product sold. It is a vital tool in many business decisions. These decisions include, for example, what products to manufacture or sell, what pricing policy to follow, what marketing strategy to employ and what type of productive facilities to acquire. CVP analysis provides answers to questions such as What minimum level of sales need to be achieved to avoid losses? What should be the sales level to earn a target profit? What will be the effect of changes in cost, process and volume on profit? What will be the new breakeven point under changes in prices, cost, volume on sales mix? What will be the impact of plant expansion on cost volume profit analysis? Which product is most profitable and which one is the least profit? CVP analysis employs the same basic assumptions as in breakeven analysis. The assumptions underlying CVP analysis are: The behaviour of both costs and revenue is linear throughout the relevant range of activity.(this assumption provides the concept of volume discount on either purchased materials or sales).Cost

can be classified accurately as either fixed or variable. Changes in activity are the only factors that affect costs. All units produced are sold( there is no ending finished goods inventory). When a company sells more than one type of product, the sales mix(the ratio of each product to total sales) will remain constant.

Applications of CVP analysis


CVP simplifies the computation of breakeven in breakeven analysis, and more generally allows simple computation of target income sales. It simplifies analysis of short run trade offs in operational decisions

Tools used in CVP analysis


1. Breakeven point BEP=fixed cost/ contribution per unit 2.Margin of safety Margin of safety= profit/ pv ratio

RATIO ANALYSIS

1. Gross profit ratio Gross profit ratio=gross profit/sales 2. Net profit ratio Net profit ratio=(net profit/ sales)100

3.Return on total assets Return on total assets=netprofit/ total assets 4.Earnings per share EPS= netprofit/ equity shares 5.Operating ratio Operating ratio=[operating cost/netsales]100 6.Expense ratio Expense ratio=[particular expense/netsales]100