Problem 1:
Find out the cost of raw material purchased from the data given below:
|
Particulars
|
Rs.
|
|
Prime cost
|
200,000
|
|
Closing stock of raw material
|
20,000
|
|
Direct labour cost
|
100,000
|
|
Expenses on purchases'
|
10,000
|
Problem 2:
The product of a manufacturing concern passes through two processes A and B and then to finished stock. It is ascertained that in process A normally 5% of the total input is scrap which realizes Rs. 80 per tonne.
From the following information relating to process A for the month of August 2007, prepare process A account
|
Materials
|
500 tonnes
|
|
Cost of materials
|
Rs. 125 per tonne
|
|
Wages
|
Rs. 14,000
|
|
Manufacturing overheads
|
Rs. 4,000
|
|
Output
|
415 tonnes
|
Problem 3:
Ahmedabad Company Ltd. manufactures and sells four types of products under the brand name Ambience, Luxury, Comfort and Lavish. The sales mix in value comprises the following:
Brand name Percentage
Ambience 33 1/3
Luxury 41 2/3
Comfort 16 2/3
Lavish 8 1/3
------
100
The total budgeted sales (100%) are $ 600,000 per month.
The operating costs are:
Ambience 60% of selling price Luxury
Luxury 68% of selling price Comfort
Comfort 80% of selling price Lavish
Lavish 40% of selling price
The fixed costs are $. 159,000 per month.
a) Calculate the breakeven point for the products on an overall basis.
b) It has been proposed to change the sales mix as follows, with the sales per month remaining at $. 6,00,000:
Brand Name Percentage
Ambience 25
Luxury 40
Comfort 30
Lavish 05
---
100
Assuming that this proposal is implemented, calculate the new breakeven point.
Case study:
Bajaj Auto Limited: The Unprecedented Growth Story
Bajaj Auto Limited is the flagship company of the Bajaj Group. The company manufactures two & three wheelers. Mr. Rahul Bajaj is the present Chairman of the company. The company was incorporated in the year 1945 as M/s Bachraj Trading Corporation Private Ltd. The promoters hold about 30% equity, whereas Indian public holds about 26% and institutional investors have more than 27% stake in the company.
The products manufactured by Bajaj Auto are scooters, motor cycles, auto spares parts, machine tools, steel and engineering products. The company also produces three- wheelers as goods carriers such as pick-up or delivery vans and passenger carriers such as auto-rickshaws. Bajaj Auto has a network of 498 dealers, 1,500 authorized service centres and 162 exclusive three-wheeler dealers spread across the country.
Bajaj Auto has also diversified into the general as well as life insurance business through its subsidiaries Bajaj Allianz General Insurance Company Ltd, respectively. The Bajaj brand has presence in many countries such as Sri Lanka, Mexico, Bangladesh, Columbia, Peru, Egypt, etc. The main competitors of the company in the two-wheelers and three-wheelers segment are- Hero Honda Motors Ltd, Kinetic Motor Co Ltd, LML ltd, Maharashtra Scooters Ltd, and TVS Motor Co. Ltd.
The company sold close to 23 lakh vehicles in 2005-06, which is a record performance in its history. The sales of motorcycles manufactured grew by 32% in 2005-06 compared to a market growth of below 19%. For the fifth successive year, the company raised its market share in the motorcycle segment. Today it stands at almost 31%. Sales increased by almost 31% to an all-time high of Rs 9,285 crore in 2005-06. the export of the company in all its product categories has also been unprecedented during the FY 2005-06 as is reflected in the figures given below:
Table A Product-wise exports of Bajaj Auto Ltd
|
Product
|
2005-06
|
2004-05
|
Growth
|
|
( in numbers )
|
(in percentage)
|
|
Motorcycles
|
165,288
|
123,946
|
33
|
|
Total two-wheelers
|
174,907
|
130,945
|
34
|
|
Three-wheelers
|
75,297
|
65,765
|
14
|
|
Total vehicles
|
250,204
|
196,710
|
27
|
Even more impressive has been the growth in company's operating EBITDA, which increased by 47% to touch Rs 1805 crore during 2005-06. Consequently the operating EBITDA margin grew by 220 basis points to 17.9% of the sales and operating income. Earnings per share have been risen from Rs 75.60 to Rs 111.00 in the current year. Dividend too has grown to Rs 40 per share (400%) for the year ended 31st March 2006 as against Rs 25 per share in 2005.
Over the past few years, Bajaj Auto has focused on his technology development, and product development in anticipation of market needs, scaling up its manufacturing facilities, implementing best-in-class production systems, rationalizing vendors, slashing costs while upgrading quality, restructuring dealerships, and distribution channels. These capabilities enabled the company to create exciting new products, which have set benchmarks in styling, design, and technology. The company's products are creating a customer pull at all price points and the company has now transformed from being a price warrior to a price leader. The results of these strategies are reflected in its financial statements as follows (refer Table B and C):
Table B Profit and Loss Account for Bajaj Auto Ltd for the year ended
|
|
March 2003
|
March 2004
|
March 2005
|
March 2006
|
|
|
(Rs in crore)
|
|
Sales
|
4987.05
|
5721.44
|
7078.06
|
9284.84
|
|
Other income
|
297.10
|
507.04
|
516.41
|
602.52
|
|
Change in stocks
|
32.92
|
10.87
|
-11.57
|
50.10
|
|
|
5317.07
|
6239.35
|
7582.90
|
9937.46
|
|
Expenditure
|
4335.16
|
5017.92
|
6286.91
|
8131.87
|
|
Profit & Loss
|
|
|
|
|
|
PBDIT
|
981.91
|
1221.43
|
1295.99
|
1805.59
|
|
Interest
|
1.12
|
0.94
|
0.67
|
0.34
|
|
Depreciation
|
171.42
|
184.32
|
185.66
|
191.28
|
|
PBT
|
809.37
|
1036.17
|
1109.66
|
1613.97
|
|
Tax provision
|
274.44
|
285.41
|
349.32
|
509.37
|
|
PAT
|
534.93
|
750.76
|
760.34
|
1104.60
|
|
Dividends
|
159.81
|
285.37
|
288.64
|
461.50
|
Table C Assets and Liabilities of Bajaj Auto Ltd as on 31 March 2006
|
Liabilities
|
Mar 05
|
Mar 06
|
Assets
|
Mar 05
|
Mar 06
|
|
Rs in crore
|
Rs in crore
|
|
Net Worth
|
4447.16
|
5349.79
|
Gross fixed assets
|
2870.02
|
3092.28
|
|
Paid up Equity capital
|
101.18
|
101.18
|
Capital WIP
|
9.14
|
25.26
|
|
Bonus Equity capital
|
114.17
|
114.17
|
Less: cumulative depreciation
|
1660.32
|
1834.19
|
|
Minority interest
|
89.46
|
148.79
|
Net fixed Assets
|
1205.64
|
1230.77
|
|
Reserves & Surplus
|
4256.52
|
5099.82
|
Investments
|
5273.83
|
6865.43
|
|
Free reserves
|
4233.28
|
5076.58
|
Deferred tax assets
|
9.20
|
6.43
|
|
Share premium reserves
|
87.07
|
285.78
|
Inventories
|
224.70
|
274.47
|
|
Other free reserves
|
4146.21
|
4790.80
|
Receivables
|
3116.05
|
5799.11
|
|
Specific reserves
|
23.24
|
23.24
|
Sundry debtors
|
176.97
|
302.54
|
|
Borrowings
|
1229.17
|
1469.44
|
Debtors exceeding 6 months
|
0.20
|
1.13
|
|
Deferred tax liabilities
|
139.90
|
87.58
|
Advances/loans to corporate bodies
|
62.29
|
33.66
|
|
Current liabilities & provisions
|
4284.64
|
7773.20
|
Group/associate companies
|
34.44
|
19.41
|
|
Sundry Creditors
|
833.86
|
1404.40
|
Other companies
|
27.85
|
14.25
|
|
Other current liabilities
|
1169.04
|
3674.37
|
Advance payment of tax
|
1823.60
|
1869.40
|
|
Provisions
|
2281.74
|
2694.43
|
Other receivables
|
1053.19
|
3593.51
|
|
|
|
|
Cash & Bank balance
|
266.88
|
476.48
|
|
|
|
|
Intangible/DRE not written off
|
4.57
|
27.32
|
|
|
|
|
|
|
|
|
Total Liabilities
|
10100.87
|
14680.01
|
Total Assets
|
10100.87
|
14680.01
|
Notwithstanding its excellent financial performance in the years following its major strategic shift, the management of the firm believes in the philosophy that the quest for perfection is eternal.
To preclude the complacency from setting in, the management not only sets higher standards it also continuously monitors its performance and benchmarks with the industry performance in general and their closest competitors' results in particular.
Discuss
- Is the profitability performance of the firm satisfactory? If not, how can it be improved?
- How attractive is the firm from the short-term and long-term lenders, perspective? Does the firm appear to be the favorite destination in the automobile sector (two-wheelers and three-wheelers segment) for the lenders?
- How efficient is the firm been in utilizing the resources at its disposal? How do you think the company can improve upon its efficiency?