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Business Case TyreThe General tyre in Pakistan. The company has set up a plant near Bin-Qasim. The Plant has a

capacity of 2,000,000 tyres. It is expected that the company will utilize 80% of the Plant. Theaverage price of a tyre is Rs.5,500. The sales tax is 17%. The discount and incentives to the

dealer is 1% of the sales. The rise in no. of units is 1% per annum. The rise in price is 3% per

annum

The raw materials include Natural Rubber (44%), Nylon tyre fabric (19%), Carbon Black

(12%),Rubber Chemicals (5%), Butyl Rubber (4%), Others (16%). The inventory details of raw

material for 31-Dec-2012 is as follow :

Stock at beginning of the

year 1,371,295

Purchases 4,592,172

Material Available 5,963,467

Less:

Indirect materials

consumed 12,647

Stock at end of the year 1,212,969

Total 1,225,616

Material Consumed 4,737,851

The stock at end of the year is 20.34% of Material available. This ratio will remain constant for

the rest of the 30 years. The rise in purchases and rise in indirect material consumed is 5% on an

annual basis.

The details of the cost of goods manufactured are as follow. The numbers are in 000.

Cost of goods manufactured 31-Dec-12

Opening stock of work-in-process 156,314

Raw materials consumed 4,737,851

Stores and spares consumed 206,689

Salaries, wages and benefits 676,907

Travelling, conveyance and vehicles maintenance 20,550

Legal and professional charges 1,643

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Power and fuel 363,481

Rent, rates and taxes 2,875

Insurance 15,517

Repairs and maintenance 34,668

Tyre replacement allowance 20,933

Depreciation 140,473

Amortisation 87

Printing and stationery 3,552

Postage and telephone 1,909

Freight and insurance 35,786

Other manufacturing expenses 4,210

Total 6,423,445

Work-in-process at end of the year (176,008)

Cost of goods manufactured 6,247,437

The details of rise in these cost is given in the following schedule.

Work in Process ending percentage to

the cost of goods manufactured 0.0274

Stores and spares consumed 1.03

Salaries, wages and benefits 1.09

Travelling, conveyance and vehicles

maintenance 1.08

Legal and professional charges 1.05

Power and fuel 1.1

Rent, rates and taxes 1.05

Insurance 1.05

Repairs and maintenance 1.06

Tyre replacement allowance 1.03

Printing and stationery 1.05

Postage and telephone 1.05

Freight and insurance 1.03

Other manufacturing expenses 1.06

The beginning finished good inventory is Rs.752,803,000. The ending finished good inventory

is 7.89% of cost of goods manufactured.

Short-term finance facilities available from various commercial banks aggregate to Rs.2000million. These finance facilities carry mark-up of 15% and are secured against pari passu chargeover fixed assets, stocks and trade debts of the Company. These facilities are expired on anannual basis. The rise in short term finance is 5% and assume constant rate of 15% per annumwith annual payment. Prepare income statement in Rs. and in US $.

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