c.v.p analysis of nishat mills

ESHA MARYAM 13030046-020

MARYAM KHAN 13029046-002

INTRODUCTION TO C.V.P

What is C.V.P? C.V.P (cost volume profit analysis) it is used to

determine how changes in costs and volume affect a company's operating income and net income.

Its include Contribution margin . contribution margin ratio. Breakeven analysis. Margin of safety. Target Profit.

Cost-Volume-Profit Analysis

Why CVP analysis is important for business?

To have a strong and successful business, you need to have a clear understanding of the financial impact that your most basic business

decisions may have.

FORMULAS USED IN C.V.P ANALYSIS

Break-even point (BEP): The level of activity, in units or dollars, at which total

revenues equal total costs.

In unit: Total Fixed Cost

Contribution Margin Per Units

Contribution Margin Per Units = sale price per unit - variable cost per units

Break-even in Sales Revenue: In Dollars: Total Fixed Cost

Contribution Margin Ratio

Contribution Margin Ratio = Contribution / sale*100

Margin Of Safety In Percentage

Budgeted sales - Break-even sales *100 Budgeted sales

Target ProfitOne of the key uses of CVP analysis is called target profit analysis In target profit analysis, we estimate what sales volume is needed to achieve a specific target profit Fixed Cost + Target Profit

Contribution Margin Per Unit

EQUATION METHOD OF BREAKEVENTotal revenue – total variable costs – total fixed costs = Profit(USP x Q) – (UVC x Q) – FC = P (50Q) – (30Q) – 200,000 = PIn breakeven profit is equal to zero so,(50Q) – (30Q) – 200,000 = 020Q – 200,000 = 020Q = 200,000Q = 10,000 units.

ASSUPMTIONS In performing this analysis, there are several

assumptions made, including: Sales price per unit is constant. Variable costs per unit are constant. Total fixed costs are constant. In multi-product companies, the sales mix

 is constant. In manufacturing companies, inventories do not

change. The number of units produced equals the number of units sold.

Nishat mills limited is the flagship company of nishat group.It was establish in 1951.

It is one of the most modern, largest vertically integrated textile company in Pakistan with annual turnover of $575 million.

Due to the application of prudent management policies, consolidation of operation a strong balance sheet.

An effective marketing strategy the growth trend is expected to continue in the year to come

INTRODUCTION

After almost half a century of undaunted success, Nishat group is among the leading business houses of country . the four main business of Nishat mill is; Textile Power generation Banking Cement

The textile business is further subdivided into -textile division: (Nishat Chunian)

(Nishat Faisalabad)

(Nishat Sheikhupura)

(Nishat Lahore)

TextileThe textile capacity of the group is the largest in the country. 20,000 new spindles, 100 new air jet looms and new dyeing plants has increased the existing capacity of 242,000 spindles, 740 looms and dyeing and finishing capacity of 5 million meters. The largest exporters of textile products from Pakistan, for more then decade.

The company also has the most modern textile dyeing and processing units, 2 stitching units for home textile , one stitching unit for garments and power generation facilities.

The company’s production facilities comprise of: Spinning processing Weaving Stitching Power generation

Graphic Presentation

Consider the following information for Hap Bikes:

Income 300 units

Income 400 units

Income 500 units

Sales 150,000$ 200,000$ 250,000$Less: variable expenses 90,000 120,000 150,000 Contribution margin 60,000$ 80,000$ 100,000$Less: fixed expenses 80,000 80,000 80,000 Net income (loss) (20,000)$ -$ 20,000$

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

- 100 200 300 400 500 600 700 800

Volume per period (X)

Dol

lars

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

- 100 200 300 400 500 600 700 800

Break-even point

Dol

lars

Volume per period (X)

HORIZONTAL ANALYSIS YEAR 2013 2012 2011 2010 2009 2008

SALES 268% 229% 248% 161% 122% 100%

Cost of sale 259% 227% 243% 152% 116% 100%

Gross profit 322% 241% 279% 213% 155% 100%

NISHAT MILL C.V.P ANALYSIS

Year 2010 2011 2012 2013

Cost of good sold 25555462 40718697 38134910 43381545

Distribution expenses 1714598 2190496 2555327 2529455

Admin expenses 545166 656756 731740 870269

NISHAT MILL C.V.P ANALYSISDetails 2010 2011 2012 2013

Sales 31,535,647 48,565,144 44,924,101 52,426,030

Variable Cost 26,490,261 41,956,723 39,506,648 44,575,420

Contribution 5,045,386 6,608,421 5,417,453 7,850,610

Contribution To Sale Ratio

0.16 0.14 0.12 0.15

Breakeven 8281552.63 11826168.15 15882819.14 14730562.60

Variable Cost/Sales

0.84 0.86 0.88 0.85

High Low Method

Cost of highest activity –cost of lowest activity

Highest Sale-Lowest Sale

46,781,269 - 27,815,226

52,426,030 – 31,535,647

=0.91

=91.0%

Uses• analysis is used to determine how changes

in costs and volume affect a company's operating income and net income. In performing this analysis, there are several assumptions made, including