JANARDAN BHAGAT EDUCATION SOCIETYS

C.K. THAKUR COLLEGE OF ARTS, COMMERCE & SCIENCE

KHANDA COLONY, NEW PANVEL-(W) - 410206

A PROJECT REPORT
ON

COST VOLUME PROFIT ANALYSIS OF FASTRACK CO. FOR THE YEAR ENDING ON 2011

In the subject

ADVANCE COST ACCOUNTANCY

SEMESTER II OF MASTER OF COMMERCE (ACCOUNTANCY)

Submitted To:

UNIVERSITY OF MUMBAI,

Submitted By:

(NIKITA PRASAD AWALE)

(ROLL NO - 07)

Under the Guidance of:

Prof. Gajanan Pandit Wader

M.Com, M.B.A., DCM, SET, GDCA, FCA, ACS, ISA

YEAR-20132014

JANARDAN BHAGAT EDUCATION SOCIETYS

C.K. THAKUR COLLEGE OF ARTS, COMMERCE & SCIENCE

KHANDA COLONY, NEW PANVEL (W) - 410206

DECLARATION BY THE STUDENT

I, Ms. NIKITA PRASAD AWALE student of M Com SEMESTER-II, Roll Number 07 hereby declare that the Project Report for the subject Advance Cost Accountancy, titled, COST VOLUME PROFIT ANALYSIS OF FASTRACK CO. FOR THE YEAR ENDING ON 2011 submitted by me for SemesterII during the academic year 2013-14, is based on actual work carried out by me under the guidance and supervision of Prof. Gajanan Pandit Wader. I further state that this work is original and not submitted anywhere else for any examination.

Date: Place: Signature of Student

SUPERVISOR / GUIDES EVALUATION /CERTIFICATE

This is to certify that the undersigned have assessed and evaluated the project on COST VOLUME PROFIT ANALYSIS OF BATA SHOE CO. FOR THE YEAR ENDING ON 2011 submitted by Ms. Nikita Prasad Awale Student, Roll No. 07 of Semester II M.com Part-I. This project is original to the best of our knowledge and has been accepted for Internal Assessment.

Internal Supervisor

External Expert / Supervisor

Principal

JANARDAN BHAGAT EDUCATION SOCIETYS

C.K. THAKUR COLLEGE OF ARTS, COMMERCE & SCIENCE

KHANDA COLONY, NEW PANVEL (W) -410206

INTERNAL ASSESSMENT MARK LIST

(Internal Assessment Total: Project 40 Marks)

Name of the Student
First name : NIKITA M COM SEM II Surname : AWALE

Class

Roll Number
07

Fathers Name: PRASAD

SUBJECT

ADVANCE COST ACCOUNTANCY A PROJECT REPORT ON -

TOPIC FOR THE PROJECT:

COST VOLUME PROFIT ANALYSIS OF FASTRACK CO. FOR THE YEAR ENDING ON 2011
PARTICULARS INTERNAL SUPERVISOR EXTERNAL SUPERVISOR TOTAL MARKS

PROJECT PROJECT PROJECT PROJECT REPORT VIVA REPORT VIVA

TOTAL MARKS

10

10

10

10

40

MARKS AWARDED

Internal Supervisor

External Expert / Supervisor

Index
Sr. no Chapter I Chapter II Content Objectives Methodology Introduction Features Advantage of Marginal Costing Disadvantages of Marginal Costing Concept of CVP Analysis Requirement of CVP Analysis Formulas used in CVP Analysis Format of Marginal Cost Statement Logical Equations Profile of Company Marginal cost Statement Computation of CVP Ratios Conclusion Bibliography Page No

Chapter III

Chapter IV

Chapter v

Chapter VI

Objectives
This Project is prepared as a partial fulfillment of my studies in M.Com Sem II in the subject of Advance Cost Accounting. To study Marginal costing in details. To know different types of Costing in operating cost To study hospital costing well. To understand various types of services included in hospital costing. To control operating costing . To avoid waste of materials and other consumable stores. To quote rates of hiring to outside party. To compare the cost of running a vehicle with another vehicle. To obtain suitable information of routing the vehicle. To obtain the cost of idle vehicle and cost of running time.

Methodology
The study is based on the secondary data and information available in various books, magazines and internet websites. The information has been collected from various sources with proper acknowledgement. I have not conducted any primary survey nor collected any primary data. My project work is an descriptive analysis of information available in various books, magazines and websites.

Introduction
The term Marginal Cost refers to the amount at any given volume of output by which the aggregate costs are charged if the volume of output is changed by one unit. Accordingly, it means that the added or additional cost of an extra unit of output. Suppose the cost of producing 100 units is Rs.200. If 101 units are manufactured the cost goes up by Rs.2 and becomes Rs.202. If 99 units are manufactured, the cost is reduced by Rs.2 i.e. to Rs.191. With the increase or decrease in the volume the cost is increased or decreased by Rs.2 respectively. Thus, Rs.2 will be called as the marginal cost According to CIMA Terminology Marginal Costing is the ascertainment of marginal cost and of the effect on profit of changes in volume or type of output by differentiating between fixed costs and variable costs. In this technique of costing only variable costs are charged to operations, processes or products, leaving all indirect costs to be written off against profit in the period in which they arise. It is clear from the above that only variable costs form part of product cost in the technique of marginal costing because only variable costs are changed if output is increased or decreased and fixed cost remains the same. Marginal costing is different from direct costing. Direct costing is practice of charging all direct costs to operations, processes or product, leaving all indirect costs to be written off against profit in the period in which they arise. Thus in direct costing some fixed costs could be considered to be direct costs in appropriate circumstances but fixed cost never taken in marginal costing. According to J. Batty, Marginal costing is "a technique of cost accounting pays special attention to the behavior of costs with changes in the volume of output." This definition lays emphasis on the ascertainment of marginal costs and also the effect of changes in volume or type of output on the company's profit.

Features of Marginal Costing

It is the technique of costing which is used to ascertain the marginal cost and to know the impact of variable cost on the volume of output. All cost is classified into fixed and variable cost on the basis of variability. Even semi fixed is segregated into fixed and variable. Variable costs alone are charged to production. Fixed costs are recovered from contribution. Valuation of stock of work in progress and finished goods is done on the basis of marginal cost. Selling price is based on marginal cost plus the contribution. Profit is calculated by deducting marginal cost and fixed cost from sales. Cost Volume Profit (or Break Even) Analysis, is one of the integral part of marginal costing. The profitability of product/department is based on contribution made available by each product/department.

Advantages of Marginal Costing

It is simple to understand and easy to operate. The valuation of closing stock under marginal costing is done at marginal cost and thus prevents the illogical carry forward of fixed costs of one period to the next one as part of value of closing stock. There is no problem of computing fixed overhead recovery rates and their under or over recovery as fixed overheads are charged against the contribution. In marginal costing, it is essential that profit is a function of sales and not of production as profit depends on sales volume and not on production volume. This can be verified by preparing a profit statement under marginal costing. It facilitates control over variable cost by avoiding arbitrary apportionment or allocation of fixed cost. It is very useful tool of profit planning. It guides the management about the profitability of earning profit at various level of production and sales. It is very valuable technique in decision- making. It provides information to management in making-decision like make or buy, selling price fixation, export decision etc. It provides the management with useful technique like Break - Even analysis, P/V ratio etc. It helps in cost control by concentrating variable cost on the fixed cost is non controllable in the short period. It helps in evaluation of performance of different departments, divisions and salesman. It is a valuable adjunct to standard costing and budgetary costing.

Disadvantages of Marginal Costing

The separation of expenses into fixed and variable presents certain technical difficulties whereas marginal costing technique assumes that all expenses can be divided into fixed and variable. In fact, no variable cost is completely variable and no fixed cost is completely fixed. Actually, most of the expenses are semi-variable and it is difficult to segregate them into fixed and variable. Time taken for the completion is not given due attention because marginal cost excludes fixed expense which are connected with time. Fixed should be considered if the suitable comparison of two jobs is to be made. With the development of technology, fixed expenses have increased and their impact on production is much more than that of variable expenses. So, a system of costing which ignores fixed expenses is less effective because a significant portion of the cost representing fixed expenses is not taken care of. It is possible that a concern using marginal costing technique may value work-in-progress and finished stock at marginal cost. The arguments against valuing these items at marginal costs are as follows: Balance sheet will not exhibit a true and fair view because work-in-progress and finished stock will be shown at marginal costs which do not include fixed expenses. Thus, finished stocks and work-in-progress will be understated in the balance sheet. In case of loss by fire, full loss on account of stock destroyed by fire cannot be recovered from the insurance company because marginal costing technique of valuation of stock will not take fixed expenses into consideration. Marginal costing technique does away with the difficulties involved in the apportionment of overheads because fixed expenses are deducted from total contribution. But the problem of apportionment of variable costs are still arises. Marginal costing technique is difficult to apply in contract or shipbuilding industry where the value of work-in-progress is high in relation to turnover. If fixed expenses are not

included in the valuation of work-in-progress, losses may occur every year till the contract is completed, while on the completion of the contract there may be huge profits. Cost control can be better achieved with the help of other techniques such as budgetary control and standard costing as marginal costing technique does not provide any standard for the evaluation of performance which is provided by standard costing and budgetary control. Marginal costing technique cannot be successfully applied in cost plus contracts unless a high percentage over the marginal cost is charged from the contractee to cover the fixed costs and profits. Sometimes an order from a new customer is accepted at a very low price on the argument that if marginal cost is little less than the price of the order it will give some contribution. This may sometimes lead to a general reduction in selling price and thus to losses.

Concept of CVP Analysis

Cost Volume Profit Analysis (or break-even analysis) is a logical extension of marginal costing. 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 factors influencing the earning of profit is the level of production (i.e. volume of output). Cost-Volume-Profit analysis examines the relationship of costs and profit to the volume of business to maximize profits. There may be change in the level of production due to many reasons, such as competition, introduction of a new product, trade depression or boom, increased demand for the product, scarce resources, change in the selling price of the product, etc. In such cases management must study the effect on the profit on account of the changing levels of production. A number of techniques can be used as an aid to management in this respect. One such technique is the cost volume profit analysis. The term cost volume profit analysis is interpreted in the narrower as well as broader sense. Used in the narrow sense, it is concerned with finding out the crisis point, (i.e. break-even point) i.e. level of activity when the total cost equal total sales value. In other words, it helps in locating the level of output which evenly breaks the costs and revenues. Used in its broader sense, it means that system of analysis which determines profit, cost and sales value at different levels of output. The cost volume profit analysis establishes the relationship of cost, volume and profit.

Essentials of CVP Analysis

The behavior of self revenue and cost is linear throughout the revelant range of activity. In other words, we assume that selling price per unit, variable cost per unit and the total amount of fixed cost will remain constant during the time period under consideration. The number of units sold is equal to the number of units produced during each period that is all the unit produced are sold. Variable cost change in total in direct proportation of activity. All cost can be divided into fix and variable elements. Labor productivity, production technology and market condition do not change. In multi-product firm, the sales mix remains constant i.e the number of unit of each product sold will be remain constant percentage of the total number of all the units sold in each period.

Formulas used in CVP Analysis P/V Ratio: - The profit/volume ratio is one of the most important ratios for studying the
profitability of operations of a business and establishes the relationship between contribution and sales. Higher the P/V ratio, more will be the profit and lower the P/V ratio, lesser will be the profit. P/V ratio = contribution x 100 Sales = Sales Variable Cost x 100 Sales Use only in case of two or more years data given = Change in Profit x 100 Change in Sales Only at Break-even point = Fixed Cost x 100 Sales

Break-Even point: - A business is said to be break even when its total sales are equal to its total costs. It is a point of no profits no loss. At this point, contribution is equal to its fixed cost. A concern which attains breakeven point at less number of units will definitely be better from another concern where breakeven point is achieved at more units of production. Break-Even Sales = Fixed Cost P/V Ratio = Actual Sales Margin of safety = Actual Sales Profit P/V Ratio

Margin of Safety: - Margin of safety is the difference between the actual sales and the sales at break-even point. One of the assumptions of marginal costing is that output will coincide sales, so margin of safety is also the excess production over the break-even points output. Sales beyond break-even point are known as margin of safety because it gives some profit, at break-even point only fixed expenses are recovered. Margin of safety can also be expressed in percentage. Margin of safety = Actual sales Break-even sales = Profit P/V Ratio = Change in contribution P/V Ratio = Actual Contribution Breakeven sales P/V Ratio

Estimated Profit when sales given Estimated profit = Estimated sales x P/V ratio Fixed cost

Estimated sales when profit given Estimated sales = Estimated Profit + Fixed cost P/V Ratio = Estimated Profit + Fixed cost Contribution per unit

Format of Marginal Cost Statement

Particular Sales Less:- All Variable cost Contribution Less:- Fixed Cost Profit/Loss

Per unit xx xx xx xx xx

Total Xxx Xxx Xxx Xxx xxx

Logical Equations Used in Marginal Cost Statement

Sales = Total Cost + Profit = Variable Cost + Fixed Cost + Profit = Sales Quantity x Selling Price = Variable Cost + Contribution = Contribution P/V Ratio = Variable Cost (1+ P/V Ratio) Variable Cost = Sales Contribution = Total Cost Fixed Cost = Sales Fixed Cost Profit = Sales (Sales x P/V Ratio) = Quantity x Variable Cost Per Unit Contribution = Sales variable cost = Fixed cost + Profit = Sales x P/V ratio = Selling Quantity x Contribution per unit = Fixed cost loss Fixed Cost = Total Cost Variable cost = Contribution Profit = Sales x P/V ratio Profit = Break-even Sales x P/V ratio = Contribution + Loss Profit = Contribution Fixed cost = Sales Total cost = Sales Variable cost Fixed cost = Sales x P/V ratio Fixed cost = Margin of safety P/V ratio

Profile of the Company

Introduction Name of the Brand: Fastrack Name of the Parent Company: Titan Year of Establishment: 1998

Industry Preview

Market Worth : Rs 5,00,000 Growth Rate: 15 % 20% Market Penetration: 37% Students constitute the largest segment: 30% of the total sales Organized Players control 40% the market. Unorganized Players constitute the rest of the 60% of the market Supplier Power Buyer Power

Company Name: Titan

Company Overview Launched on 1984 A joint venture between Tata Group and Tamil Nadu Industrial Development Corporation Indias largest watch brand with 65% of the organized watch market Worlds Fifth largest integrated watch manufacturer. Awarded No:1 Brand in the Consumer Durables category in the Brand Equity Survey by The Economic Times Turnover for year 2010-2011: 6520.89 Crore

Brand Fastrack

Launched in 1998 as a sub-brand for watches in the youth segment when Timex broke off Titan as an independent company

Spun off as an independent brand since 2005 under the flagship of Titan Contributes the largest share of profit to titan i.e 30-40% Has evolved into a fashion accessory brand with entry into product segments like sunglasses, bags, belts etc.

History of the Company

Fast Track was founded in 1998 by ex-Olympians Alan Pascoe, MBE and Edward Leask with one client, UK Athletics, which is still an important part of our business today. With a team of just 8 people at the start, Fast Track developed a highly successful commercial and televised event programme for the National Governing Body, headlined by a new White Knight Title Sponsor, Insurance company CGU, now known as Aviva. The business grew strongly from then until August 2006 when that growth was bolstered by the acquisition of sports marketing consultancy, Lighthouse Communications. A roster of world class clients and an additional 25 people helped further build the breadth and depth of the Fast Track offering and together we moved into new headquarters at One Brewers Green in Victoria. The new company, now 80 strong, had emerged as one of the leading sports marketing agencies in the UK. In March 2007, marketing services group, Chime Communications PLC added Sports Marketing to its portfolio with the acquisition of Fast Track in a move that recognised the sectors growing importance. With over 50 PR, Advertising, Marketing and Research companies in the Group were now a key part of Chimes Sports Marketing Division. Since then Fast Track has continued to evolve its offer and has built International capability; in addition to our UK Headquarters we now have established offices in Spain, Abu Dhabi, Hong Kong and New Zealand with further expansion expected in 2011. Fast Tracks International reach was further complimented recently through Chimes acquisition of sport marketing group, Essentially which has market presence in Japan, Australia, South Africa, New Zealand and India. Head Office 234/236, Arcot road, Kodambakkam, Chennai - 600 024. Tamilnadu, India Telephone: 24732020 / 28889999 / 60006000

Current Watches Bags Sunglasses Belts Wallets

Proposed Motorcycle Helmets Bicycles

PoD (Points of Disparity) & PoP (Points of Parity)

Price and Placement Fastrack and Timex focus on the middle segment is mid-price ranged watches while Timex focuses heavily on the low end watches and swatch targets primarily the high end models Fastrack targets the urban spectrum of college and high school going population as Helix from Timex aims to do while Casio is targeting the tier II and tier III cities.

Pricing Strategy

Midlevel Pricing for Urban Audience in Tier I and II cities Products range from Rs 650/- to Rs 3995/Prices targeted towards the youth and towards the image of fashion accessory rather than just a timekeeping machine.

Distribution Strategy

11000 Titan Dealers spread across 2500 towns 55 Exclusive Fastrack Stores/Kiosks in 22 towns 745 Service Centers in 345 Towns

Future Plans

Titan targeting three-fold growth in revenue in 5 years to Rs. 14,000 crore making us a 3 billion dollar company. Fastrack is an important part of the expansion plans, targetting 880 Cr turnover for the fiscal year 2012-13 Plans to add 200 more exclusive Fastrack showrooms Tapping into the huge opportunity in International Markets.

FASTRACK Co. Profit & Loss A/c for the year ended 31st March 2011 Particular Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustment Total Income Expenditure Raw Material Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling & Admin Expenses Miscellaneous Expenses Pre- operative Exp Capitalised Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Other written off Profit before tax Extra-ordinary items PBT (post extra-ord item) Tax Reported net profit Total Value addition Preference dividend Equity dividend Corporate dividend tax Shares in issue Earning per share Equity dividend (%) Book Value (Rs.) Amount 4399.11 49.72 4349.39 86.89 -25.83 4410.45 2301.8 48.12 281.24 5.76 0 932.22 0 3569.14 754.42 841.31 18.4 822.91 73.24 0 749.67 -1.09 748.58 157.66 590.98 1267.34 0 261.44 43.56 17429.35 3.39 150 9.15

Marginal Cost Statement

Particular Sales Less:- Variable Cost Raw Material Power Employee Cost Interest Contribution Less:- Fixed Cost Manufacturing Expenses Selling Expenses Miscellaneous Expenses Depreciation Profit

Amount

Amount 4399.11

2301.80 48.12 281.24 18.4 2649.56 1749.55

5.76 0 932.22 73.24 1011.22 738.33

CVP Ratios
P/V Ratio = Contribution x 100 Sales = 1749.55 x 100 4399.11 = 39.77 %

Break-even point = Fixed Cost P/V ratio = 1011.22 39.77% = 2542.67

Margin of Safety = Profit P/V ratio = 738.33 39.77% = 1856.50

Estimated Profit when sales is Rs. 5278.93 = Estimated Sales x P/V ratio Fixed Cost = 5278.93 x 39.77% - 1011.22 = 2099.43 1011.22 = 1088.21

Estimated Sales when profit is Rs. 885.10 = Fixed Cost + Estimated Profit P/V ratio = 1011.22 + 885.10 39.77% = 1896.32 39.77% = 4768.22

VALUE ADDITION & BENEFITS

SWOT Analysis: Fastrack

Strength Good Distribution Network over 100 Fast track stores across 50 towns with Titan Service Centres across India High youth connect Positioning as a youth stylish brand Fast changing designs to keep up with latest trends One of the most trusted brands in India Excellent advertising and brand visibility connecting with the youth Has a diverse portfolio of watches, sunglasses, bags, wallets etc

Weakness Products have a short life due to changing trends Adds to the cost of production Limited global reach despite being a popular brand

Opportunity Fast growing youth segment presents growth opportunities Global penetration would help brand grow and target youth worldwide Tie-ups with fashion houses and special schemes for youth

Threats Youth segment is price sensitive Entry of foreign players has led to tough competition With lots of options available, brand switching is quite high

CONCLUSION

Titan is the market leader in the Wrist Watch Market, India Fastrack one of its most successful and profitable brand Even after the entry of other players, Fastrack in its segment remains largely unthreatened and expansion of its product line shall ensure that it remains a strong player in the coming decades

BIBLIOGRAPHY

Name of the person

Book Name

Publisher Name

Year

I.N Chopde D.H Choudhari Sandeep Chopde Website

Advanced Cost Accounting

Sheth Publication

2013

Google www.fastrack.com Wikipedia

2013-14