Executive Summary

This project has been embarked on to apply all the important concept of Managerial Accounting,
and analyze the financial situation of Punjab Oil Mill Limited. The income statement of the years
2011-2013 have been studied and a horizontal and vertical analysis have been conducted of the
income statement and the cost of sales. The Breakeven point has also been determined. Apart
from these the report aims to identify how the concepts of Managerial accounting would benefit
the Firm.
















Contents
Punjab oil mills .............................................................................................................................................. 3
Introduction: ................................................................................................................................................. 3
Income Statement Analysis........................................................................................................................... 4
Income Statement .................................................................................................................................... 4
Profitability Ratios ..................................................................................................................................... 4
Vertical Analysis of Income Statement ..................................................................................................... 5
Horizontal analysis of income statement ................................................................................................. 7
Cost of Sales Analysis .................................................................................................................................... 8
Cost of Sales Statement ............................................................................................................................ 8
Horizontal/Vertical Analysis of Cost of Sales ............................................................................................ 9

















Punjab oil mills
Introduction:
Punjab Oil Mills Limited is a leading manufacturer of edible oils and fats based in Islamabad,
Pakistan. We make and market a wide range of cooking and baking mediums and other specialty
fats under the flagship brand names of Zaiqa and CanOlive. All our products are prepared under
the strict supervision of qualified professionals to ensure the highest quality standards. We are an
ISO 9001 : 2008 & HACCP certified company and take pride in making products that
consistently exceed customer expectations. As a result the Zaiqa and CanOlive brands enjoy a
valuable brand franchise today and are synonymous with uncompromising quality and constant
innovation. Apart from edible oils we also make a line of laundry soap products marketed under
the brand name of Raja.
Punjab Oil Mills Limited (POML) was founded In 1983 as a manufacturer of Banaspati and
Cooking Oil. Our production facilities were established In Islamabad, Pakistan and commercial
production commenced In 1984. Since then we have greatly expanded our product portfolio by
introducing specialized products to better meet our customers needs. This has been done by
continuously investing in new technology and capital equipment to improve product quality,
reduce costs and expand our production capabilities. Today, apart from our wide range of
Banaspati and Cooking 0il products, we are also producing specialty fats targeted to the baking
and food processing industries, while an ongoing Research and Development process is striving
to come up with new and better products, In addition, as part of our "Transfer Free Initiative", we
have already switched to a Transfat Free formulation for our Banaspati targeted to household
consumers, and are working on providing Transfat Free solutions to our other customers as well.





Income Statement Analysis
Income Statement

Profitability Ratios

The Gross Profit Margin Ratio of the company remained steady over the course of 2010-2012
however it increases in 2013 primarily due to a jump in the companys Gross profit which
increased by nearly 66.7%. The NP margins do not present a very favorable picture as the ratios
2013 2012 2011 2010
RUPEES RUPEES RUPEES RUPEES
Sales - net 4,525,960,699 4,168,048,880 3,710,266,602 3,018,441,736
Cost of sales 4,120,585,644 3,924,977,126 3,473,834,763 2,837,147,451
Gross profit 405,375,055 243,071,754 236,431,839 181,294,285
Operating expenses
Selling and distribution cost 152,426,296 84,749,722 66,336,186 55,120,077
Administrative expenses 77,760,141 66,060,468 61,621,323 47,973,674
230,186,437 150,810,190 127,957,509 103,093,751
Operating profit 175,188,618 92,261,564 108,474,330 78,200,534
Finance cost 4,321,063 5,010,773 1,892,040 719,488
Other operating charges 12,948,508 6,939,678 8,379,160 6,434,776
17,269,571 11,950,451 10,271,200 7,154,264
157,919,047 80,311,113 98,203,130 71,046,270
Other income 5,296,673 3,027,620 4,298,067 6,073,121
Profit before taxation 163,215,720 83,338,733 102,501,197 77,119,391
Taxation 100,177,604 74,195,902 65,437,264 26,799,599
Profit for the year 63,038,116 9,142,831 37,063,933 50,319,792
Profitability Ratios 2013 2012 2011 2010
GP Margin 9% 6% 6% 6%
NP Margin 1% 0% 1% 2%
are quite low this is primarily due to high level of selling and distribution charges levied on the
companys operating income which in turn is reducing their Net Income.


Vertical Analysis of Income Statement



It shows that cost of sales has been increased over the period of 2011-2013 but the cost of sales
is highest in the year 2012 as compared to other two years that is 94.17%. Increase in cost of
sales is not a good sign for the production of company as it decreases the efficiency in operations
of the company. Other expenses like selling and administrative expenses have also increased
over this period but there is higher increase in selling expenses from 1% to 3% as compared to
administrative expenses. Finance cost has also increased but with the lower amount. So from
2,013 2,012 2,011 2,013 2,012 2,011
RUPEES RUPEES RUPEES Variance % Variance % Variance %
Sales - net 4,525,960,699 4,168,048,880 3,710,266,602 100.00% 100.00% 100.00%
Cost of sales 4,120,585,644 3,924,977,126 3,473,834,763 91.04% 94.17% 93.63%
Gross profit 405,375,055 243,071,754 236,431,839 8.96% 5.83% 6.37%
Operating expenses
Selling and distribution cost 152,426,296 84,749,722 66,336,186 3.37% 2.03% 1.79%
Administrative expenses 77,760,141 66,060,468 61,621,323 1.72% 1.58% 1.66%
230,186,437 150,810,190 127,957,509 5.09% 3.62% 3.45%
Operating profit 175,188,618 92,261,564 108,474,330 3.87% 2.21% 2.92%
Finance cost 4,321,063 5,010,773 1,892,040 0.10% 0.12% 0.05%
Other operating charges 12,948,508 6,939,678 8,379,160 0.29% 0.17% 0.23%
17,269,571 11,950,451 10,271,200 0.38% 0.29% 0.28%
157,919,047 80,311,113 98,203,130 3.49% 1.93% 2.65%
Other income 5,296,673 3,027,620 4,298,067 0.12% 0.07% 0.12%
Profit before taxation 163,215,720 83,338,733 102,501,197 3.61% 2.00% 2.76%
Taxation 100,177,604 74,195,902 65,437,264 2.21% 1.78% 1.76%
Profit for the year 63,038,116 9,142,831 37,063,933 1.39% 0.22% 1.00%
vertical analysis by keeping our sales as base we can see that highest expenditures that we are
facing over the course of three years are from cost of goods sold.



Company can reduce its COGS by different methods.
1. Buy in Larger Quantities When you buy in larger quantities you will often be able to take
advantage of quantity discounts. You may also benefit from shipping discounts
2. Automate
for each job you can replace with a machine, your cost of goods sold will decrease
drastically. Machines dont form unions, they dont go on strike, they dont need health
insurance, and they get to work on time
3. Lock in Long Term Pricing for Raw Materials This is a bit of a risk, but for some
companies this strategy really pays off. The price of a raw material that is core to your business
is poised to increase, you may consider entering into a long term agreement with a supplier.
So by using these methods COGS can be improved and so can be the production efficiency.
Horizontal analysis of income statement:

The company has declined with a negative profit or loss of 240364000 in 2012.
The sales value has been increased from 2010-2013 but the variances show that the sales are
increasing with the smaller volume every next year but the growth rate is still positive. This can
hurt the company as the ultimate goal of any company is to generate higher sales. Talking about
the cost of goods sold they have also increased. Moreover there is so much fluctuation in the
sales that from 2010-2011 company sales has been decreased. There are so many factors that can
cause this decrease in sales one may be the competition that there are other oil companies in the
market that are contributing in this decrease in net sales of Punjab Oil Mills. From 2011-2013
there is a positive trend in net sales that mean company was able to sustain its position and was
able to snatch its market share back from its competitors. Talking about selling and distribution
costs they have increased with a tremendous amount from about from 2012-2013.Their variance
shows the value of about 27.76% to 79.85%. The other expenses have also increased but with the
smaller amount there variance are as follows from 2012-2013 (7.20% - 17.71%)
Financing cost has the increasing trend in first three years but in the last year it has decreased. So
it can be seen that due to increase in cogs there is fluctuating trends in net profit.
2013 2012 2011 2010 2013 2012 2011
RUPEES RUPEES RUPEES RUPEES VARIANCE% VARIANCE% VARIANCE%
Sales - net 4,525,960,699 4,168,048,880 3,710,266,602 3,018,441,736 8.59% 12.34% 22.92%
Cost of sales 4,120,585,644 3,924,977,126 3,473,834,763 2,837,147,451 4.98% 12.99% 22.44%
Gross profit 405,375,055 243,071,754 236,431,839 181,294,285 66.77% 2.81% 30.41%
Operating expenses
Selling and distribution cost 152,426,296 84,749,722 66,336,186 55,120,077 79.85% 27.76% 20.35%
Administrative expenses 77,760,141 66,060,468 61,621,323 47,973,674 17.71% 7.20% 28.45%
230,186,437 150,810,190 127,957,509 103,093,751 52.63% 17.86% 24.12%
Operating profit 175,188,618 92,261,564 108,474,330 78,200,534 89.88% -14.95% 38.71%
Finance cost 4,321,063 5,010,773 1,892,040 719,488 -13.76% 164.83% 162.97%
Other operating charges 12,948,508 6,939,678 8,379,160 6,434,776 86.59% -17.18% 30.22%
17,269,571 11,950,451 10,271,200 7,154,264 44.51% 16.35% 43.57%
157,919,047 80,311,113 98,203,130 71,046,270 96.63% -18.22% 38.22%
Other income 5,296,673 3,027,620 4,298,067 6,073,121 74.95% -29.56% -29.23%
Profit before taxation 163,215,720 83,338,733 102,501,197 77,119,391 95.85% -18.69% 32.91%
Taxation 100,177,604 74,195,902 65,437,264 26,799,599 35.02% 13.38% 144.17%
Profit for the year 63,038,116 9,142,831 37,063,933 50,319,792 589.48% -75.33% -26.34%
Cost of Sales Analysis

Cost of Sales Statement

The cost of sales have generally seen an increasing trend from 2010 to 2013.





2013 2012 2011 2010
RUPEES RUPEES RUPEES RUPEES
Raw material consumed 3,642,232,639 3,491,857,285 3,090,461,402 2530711037
Stores and spare parts consumed 6,540,920 4,659,463 4,056,579 3346911
Chemicals consumed 40,298,495 33,332,968 32,676,677 31251899
Packing materials consumed 261,939,876 223,475,354 217,384,152 201181610
Salaries, wages and benefits 27,614,957 23,512,580 19,573,643 18448336
Power, fuel and lubricants 101,841,432 112,188,701 79,220,767 74633665
Repair and maintenance 4,237,151 4,724,082 4,263,043 3210436
Filling and Loading 8,999,857 4,740,713 5,120,713 5186105
2,633,981 2,399,481 1,746,610 1604437
Depreciation 23,161,491 12,272,115 10,344,136 9650349
4,119,500,799 3,913,162,742 3,464,847,722 2879224785
Work in process:
Opening 27,429,536 35,719,286 32,893,295 20196335
Closing (50,591,382) (27,429,536) (35,719,286) -32893295
(23,161,846) 8,289,750 (2,825,991) -12696960
Cost of goods manufactured 4,096,338,953 3,921,452,492 3,462,021,731 2866527825
Finished goods:
Opening 76,972,990 80,497,624 92,310,656 62930282
Closing (52,726,299) (76,972,990) (80,497,624) -92310656
24,246,691 3,524,634 11,813,032 -29380374
COST OF SALES 4,120,585,644 3,924,977,126 3,473,834,763 2837147451
COST OF SALE
Horizontal/Vertical Analysis of Cost of Sales

The cost of sales of Punjab Oil Mills Limited have been continously increasing since 2012
however this scenario is usually prevalent for majority of the companies due to the increasing
inflation rate in Pakistan and this increase might simply be off-set by the increase in sales of a
compnay. Therefore to analyse deeper in this issue cost of sales were represented as percentage
of sales(Vertical Analysis) and then the true picture emerged because the cost of sales as a
percentage of sales has decreased from 2010 to 2013 from 94% to 91% respectively. This denote
that the production efficiency of Punjab Oil Mills have increased and would in turn translate into
higher profits for the company.
The cost of filling and loading have increased drastically in the year 2013 with a rapid increase
of 90% this is resulting in higher costs for the company. However the inventory management of
Punjab Oil Mills have increased as the opening inventory of finished goods and work in progress
2013 2012 2011 2010 2013 2012 2011
RUPEES RUPEES RUPEES RUPEES
Raw material consumed 3,642,232,639 3,491,857,285 3,090,461,402 2530711037 4% 13% 22%
Stores and spare parts consumed 6,540,920 4,659,463 4,056,579 3346911 40% 15% 21%
Chemicals consumed 40,298,495 33,332,968 32,676,677 31251899 21% 2% 5%
Packing materials consumed 261,939,876 223,475,354 217,384,152 201181610 17% 3% 8%
Salaries, wages and benefits 27,614,957 23,512,580 19,573,643 18448336 17% 20% 6%
Power, fuel and lubricants 101,841,432 112,188,701 79,220,767 74633665 -9% 42% 6%
Repair and maintenance 4,237,151 4,724,082 4,263,043 3210436 -10% 11% 33%
Filling and Loading 8,999,857 4,740,713 5,120,713 5186105 90% -7% -1%
2,633,981 2,399,481 1,746,610 1604437 10% 37% 9%
Depreciation 23,161,491 12,272,115 10,344,136 9650349 89% 19% 7%
4,119,500,799 3,913,162,742 3,464,847,722 2879224785 5% 13% 20%
Work in process:
Opening 27,429,536 35,719,286 32,893,295 20196335 -23% 9% 63%
Closing (50,591,382) (27,429,536) (35,719,286) -32893295 84% -23% 9%
(23,161,846) 8,289,750 (2,825,991) -12696960 -379% -393% -78%
Cost of goods manufactured 4,096,338,953 3,921,452,492 3,462,021,731 2866527825 4% 13% 21%
Finished goods:
Opening 76,972,990 80,497,624 92,310,656 62930282 -4% -13% 47%
Closing (52,726,299) (76,972,990) (80,497,624) -92310656 -32% -4% -13%
24,246,691 3,524,634 11,813,032 -29380374 588% -70% -140%
COST OF SALES 4,120,585,644 3,924,977,126 3,473,834,763 2837147451 5% 13% 22%
COST OF SALE
2013 2013 2012 2012 2011 2011 2010 2010
RUPEES % of Sales RUPEES % of Sales RUPEES % of Sales RUPEES % of Sales
COST OF SALES 4,120,585,644 91% 3,924,977,126 94% 3,473,834,763 94% 2837147451 94%
have decreased and the closing inventories of both work in progress and finished goods have also
increased. This results in lower storage costs and ultimalety lowers the overall costs to some
extent.

Break Even Analysis

TOTAL FIXED COSTS











Fixed Cost 2013 2012 2011
Administration expenses 77,760,141 66,060,468 61,621,323
Finance Cost 4,321,063 5,010,773 1,892,040
Depreciation 2,573,499 1,363,568 1,149,348
Insurance 2,633,981 2,399,481 1,746,610
Salaries, wages and benefits(20%) 5,522,991 4,702,516 3,914,729
SELLING AND DISTRIBUTION COST
Salaries, wages and benefits(20%) 6,491,035 6,598,255 6,368,812
Advertisement 84,948,001 37,409,873 20,932,470
Amortization 7,374,997 1,229,167 -
Other Operating Charges
Auditor Renumeration 655,000 655,000 655,000
Total Fixed Cost 192,280,709 125,429,101 98,280,332

Total Variable Cost Calculation







BREAKEVEN 2013 2012 2011
C.M% 6% 3% 4%
Breakeven Sales 3,215,899,149 3,669,948,274 2,600,140,258
Variable Cost 2013 2012 2011
Income tax expense 100,177,604 74,195,902 65,437,264
Cost of Sales component
Raw material consumed 3,642,232,639 3,491,857,285 3,090,461,402
Stores and spare parts consumed 6,540,920 4,659,463 4,056,579
Chemicals consumed 40,298,495 33,332,968 32,676,677
Packing materials consumed 261,939,876 223,475,354 217,384,152
Salaries, wages and benefits 22,091,966 18,810,064 15,658,914
Power, fuel and lubricants 101,841,432 112,188,701 79,220,767
Repair and maintenance 4,237,151 4,724,082 4,263,043
Filling and Loading 8,999,857 4,740,713 5,120,713
Work In Process
Opening 27,429,536 35,719,286 32,893,295
closing (50,591,382) (27,429,536) (35,719,286)
Opening Finished goods 76,972,990 80,497,624 92,310,656
closing finished goods (52,726,299) (76,972,990) (80,497,624)
SELLING AND DISTRIBUTION COST
Salaries, wages and benefits(80%) 25,964,142 26,393,021 25,475,250
Travelling and conveyance 2,091,464 1,928,188 2,014,256
Carriage outward 25,556,657 11,191,218 11,545,398
Other Expenses
Workers' profit participation fund 8,783,323 4,492,210 5,519,653
Workers' welfare fund 3,510,185 1,792,468 2,204,507
TOTAL VARIABLE COST 4,255,350,555 4,025,596,021 3,570,025,616
CONTRIBUTION MARGIN 2013 2012 2011
C.M% 6% 3% 4%
SALES 2013 2012 2011
NET SALES 4,525,960,699 4,168,048,880 3,710,266,602