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FINANCIAL ANALYSIS
by :
DR. T.K. JAIN
AFTERSCHO☺OL
centre for social entrepreneurship
sivakamu veterinary hospital road
bikaner 334001 rajasthan, india
www.afterschoool.tk
mobile : 91+9414430763
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WHAT IS CVP??
C=COST,V=VOLUME,P=PROFIT
THERE IS RELATION BETWEEN THESE,
THIS RELATION IS IDENTIFIED IN CVP
ANALYSIS
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WHAT IS BEP?
B=BREAK
E=EVEN
P=PROFIT
the point where there is no profit no loss
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WHAT IS BEP?
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What is fixed cost?
The cost which will remain same whether
production is 0 unit or 100 units or 10000
units. Thus this cost has no relation to
production volume.
Example : if you produce 100 units, your cost
of material consumption is Rs. 1000, if you
make 1000 units it is 10000, but the rent paid
for the office remains the same, Rs. 3000 thus
rent is fixed but material is variable cost.
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What is variable cost?
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Examples of fixed cost...
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Examples of variable expenditure
Raw material
wages
power
carriage inward / outward
sales commission
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What is CONTRIBUTION?
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What is PV ratio
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What is target profit pricing?
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What is target profit volume?
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What is margin of safety?
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Example of margin of safety :
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Find BEP ?
Depreciation = 200,material cost = 500,labour
cost = 100, rent = 200, interest = 200, other
expenses = 100, sales = 2000, no. Of units =
100
here fixed cost = (rent 200, interest 200, other
exp. 100) = 500
variable cost per unit = (500+100)/100 =6
contribution = 20-6, BEP = 500/14=35.7
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Price=10, variable works cost =5.5,
variable selling cost =1.5,fixed works
cost=2.7 lakh, fixed selling cost = 1.26
lakh, what should be the sales to earn
10% on sales?
Contribution = 3, pv ratio=30%
let sales = x
x=3.96 lakh+.1x+.7x
.2x=3.96 lakh, or x= 19.8 lakhs. Answer
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Explanation
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Sales : 11.5 lakh, price 11.5 per unit, fixed
exp.=2 lakh, variable cost =7.5 per unit,
selling price is to be reduced to 11, profit
should be same, what should be the sales?
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continued...
.32x = 4 lakhs
X = 12.5 lakhs. Answer
at this sales, the company will earn same profit
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Fixed cost=20 lakhs, sales=5 lakh
unit, variable cost=20 per
unit,profit=25% on cost, what is
BEP?
COST = FIXED + VARIABLE
=20+100 = 120 LAKH
PROFIT = 30 LAKHS
SALES = 150 LAKHS, SELLING PRICE = 30 PER
UNIT, CONTRIBUTION=10
BEP=20LAKH/10=2LAKH UNITS
PV RATIO 10/30*100 = 33%
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In the previous question, what
will be the effect, if selling price
is reduced by 20%?
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Sales 3.2 lakh, fixed cost 66000, variable
cost=62% of sales, now fixed cost will increase
by 32000, sales will increase to 4.6 lakhs, what
is new BEP, and what should be the sales to
get profit of 55600?
New contribution = 4.6 *38%= 1.748 lakhs
PV ratio = 38%
BEP = fixed cost / PV ratio
=98000/38% = 2.578 lakh
sales at profit of 55600:
(98000+55600)/38%=4.042 lakh
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sales=30lakh,variable cost=21
lakh,profit=1.8 lakh, find BEP if
variable cost increases by 5%?
BEP=fixed cost / PV ratio
fixed cost =9-1.8=7.2
PV ratio=9/30*100=30%, present BEP=
7.2/30% = 24 lakhs.
New variable cost = 22.05, new PV ratio =
26.5%, new BEP= 27.1 lakhs answer
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In the previous question, what should be
the sales to maintain profit at present
level, but the selling price per unit is
reduced by 5%?
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What is sunk cost?
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What is opportunity cost?
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Example
A toy manufacturer makes an average net profit of Rs. 2.50 per
piece on a selling price of Rs. 14.30 by producing and selling 60,000
pieces or 60% of the potential capacity. His cost of sales is: Direct
material Rs. 3.50 Direct wages Rs. 1.25
Works overhead Rs. 6.25 (50% fixed) Sales overhead Rs. 0.80
(25% variable) During the current year, he anticipates that his
works overhead will go up by 10%, while rates of direct material and
direct labour will increase by 6% and 8% respectively. But he has no
option of increasing the selling price. Under this situation he obtains
an offer for an order equal to 20% of his capacity. The concerned
customer is a special customer. What minimum price will you
recommend for acceptance to ensure the manufacturer an overall
profit of Rs. 1,67,300?
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solution
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