Presentation on Marginal cost analysis of Britannia

1. Marginal Cost Analysis of Britannia
Presented By:
Shraddha Bhatt (A024)
Jincey Jose (A009)
Richa Tupsakhare (A022)
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2. CONTENTS
• Britannia Industry
• Basic Definitions
• Elements of Cost
• Treatment of stock
• Cost Sheet
• Cost Sheet Analysis
• Conclusion
• Reference 2

3. BRITANNIA INDUSTRIES
• Britannia Industries Limited is an Indian food-products
corporation based in Kolkata.
• It is one of India’s best known brands and also one of the most
admired Food Brand in the country.
• It is the largest company in the food processing industry whose
product range also includes breads and cakes.
• Britannia has a basketful of goodies with biscuits like
– NiceTime, Tiger, Marie Gold, 50 50, Maska Chaska, Milk Bikis,
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4. 4

5. Basic Definitions
• Cost: It means the amount of expenditure incurred on a particular
thing.
• Costing: It means the process of ascertainment of costs.
• Cost Accounting :It is broader than costing. Cost accounting can
be defined as the technique of recording, classification, allocation,
reporting and control of costs.
Thus :
Cost Accounting = Costing + Cost Reporting + Cost Control
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6. Elements of Cost
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COST
MATERIALS
DIREC
T
INDIRECT
LABOUR
DIREC
T
INDIRECT
OTHER
EXPENSES
DIRECT INDIRECT
OVERHEADS
(OH)
FACTORY &
WORKS OH
OFFICE &
ADMINISTRAION
OH
SELLING &
DISTRIBUTIO
N OH

7. Functional Classification of Indirect
Overheads
Factory
overheads
• The indirect expenses (overheads) incurred within the factory area
• E.g. Lubricants, Oil, works manager’s salary, factory rent, lighting. etc.
Administrati
on or office
Overheads
• The indirect expenses (OH) incurred within the administrative area
• E.g. Printing & stationery, accountant’s salary, office rent, office
insurance. Etc.
Selling &
distribution
Overheads
• The indirect expenses (OH) incurred in relation to the sales activities or
for the distribution of the product or services.
• E.g. Packing materials, printing & stationery, salesman’s salary,
advertising, showroom rent, logistics, manager salary bad debts. etc.
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8. Treatment of Stock
Raw Materials
Work In Progress
(WIP)
Finished Goods
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9. What is Cost Sheet??
• It is a statement which
shows various
components of total
cost of product.
• It classifies and
analyses the
components of cost of a
products.
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10. Division of costs
DIRECT
LABOUR
PRIME
COST
DIRECT
EXPENSES
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TOTAL
COST
(COST OF
SALES)
OFFICE
(ADMINIST
RATIONS
OVERHEAD
S)
FACTORY
COST
FACTORY
(WORKS
OVERHEAD
)
FACTORY
(WORKS
COST)
OFFICE
COST
(COST OF
PRODUCTIO
N)
OFFICE
COST
SELLING
(DISTRIBU
TION
OVERHEAD
S)
PRIME
COST

11. Cost Sheet for the Period: ……………
Production:……………. Units
Particulars
Total
cost
Cost per
Unit
(a) Direct Materials
Opening Inventory **********
Add: Purchase of
Raw Materials
**********
Less: Purchase
Return
**********
Less: Purchase
Allowance
**********
Less: Purchase
Discount
**********
Add: Freight **********
Direct
Materials Available fo
r Consumption
**********
Less: Ending
Inventory
**********
Direct Materials
Consumed
**********
(b) Direct Labour **********
Direct Expenses **********
Prime Cost
****
****
**
********
**
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(c) Factory OH or
Manufacturing OH
Indirect Materials
*********
*
Indirect Labour
*********
*
Rents and Rates (Factory)
*********
*
Lighting and Heating (Factory)
*********
*
Power and Fuel
*********
*
Repairs and Maintenance
*********
*
Depreciation of Factory Plants
*********
*
Works Stationery
*********
*
Payroll Taxes
*********
*
Work Manager’s salaries
*********
*
General Factory Overhead
*********
*
Total Factory Overhead Cost
*********
*
Total MFG Cost **********
*****
*****
Add: Work in Process (Opening)
*********
*
Less: Add: Work in Process
(Ending)
*********
*

12. Cost of Goods
Manufactured
********** **********
Add: Finished Goods
Inventory (Opening)
**********
Cost of Goods Available
for Sale
********** **********
Less: Finished Goods
Inventory (Ending)
**********
Cost of Goods Sold ********** **********
Add: Administrative
Overhead Cost
**********
Add: Selling and
Distribution Overhead
Cost
**********
Total Cost or Cost of
Sales
********** **********
Add: Profit (Loss) **********
Sales
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13. COST SHEET OF BRITANNIA BREAD
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580500

14. 14
580500
12400
24150
617050
12200
67500
5204
5890
2820
3850
56780

15. 15
154244
771294
2810
5850
8900
2570
2190
3123
294
25737

16. 16
797031
70500
10000
12798
5700
98998
896029
103971
1000000

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18. CVP Analysis
• Profit of business firms results from:
• 1) Selling Prices, 2) Volume of Sales 3) Unit Variable Cost
4) Total Fixed Cost
• A cost volume profit analysis is useful to management in
knowing how profit is influenced by sales volume, sales price,
variable expenses and fixed expenses.
• CVP analysis uses the techniques of
1. Break-even analysis
2. Profit volume (P/V) analysis
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19. Profit/volume ratio
• It is the ratio of contribution over sales.
• It measures the profitability of the firm.
P/V ratio = Contribution
Sales
• Contribution itself is a profit since it contributes
to recover the fixed cost thus we use contribution
by volume and not profit by volume.
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20. Calculation of P/V ratio
• Contribution margin = Sales – Variable cost
= 1000000- 810969
=189031
• P/V ratio = Contribution * 100
Sales
= 189031*100
1000000
= 18.903 %
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21. Break Even Analysis:
• It indicates at what level cost and revenue are
equal and there is no profit and no loss.
• It will reveal the management, various effects
of alternative decisions to reduce or increase
price and which will increase sales volume
and income
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22. Calculation of Break Even Sales
Break even sales (Units) = Fixed cost = 85060
P/V ratio 18.903 %
= Rs. 449981.48
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23. Margin of safety
• This is the difference between sales and break even
point
• If the difference is relatively short, it indicates that a
small drop in production/sales will reduce profits
considerably and vice versa
• There should be reasonable MOS, otherwise the level
of production may prove dangerous.
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24. Calculation of margin of safety
• Margin of safety = Profit
P/V ratio
• Margin of safety = Sales – BEP sales
= 1000000 – 449981.48
= Rs. 550018.52
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25. Overview
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Particulars F.Y. 2011-12 F.Y. 2010-11
Fixed Cost 85060 80000
Variable Cost 810969 8,03,900
Contribution 189031 166100
Sales 1000000 970000
PV Ratio = Cont./Sales*100 18.903 % 17.124 %
BEP (in Rs.) = FC/PV Ratio Rs. 449981.48 Rs, 467180.56
MOS= Total Sales – BEP Sales Rs. 550018.52 Rs. 502819.44

26. CVP Analysis for year 2011 &
2012
• The % profit increase seen on year to year whereas the sales
have increased, without considerable increase in expenses
which indicates that the company has achieved economies of
scale.
• With the increase in sales, the margin of safety also increased
in the consecutive year so the risk factor for the company
decreased because the business can still make profits even after
a drop in production
• With the increase in contribution the P/V ratio increased for
the consecutive year.
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27. Limitations of CVP Analysis
• Difficult to classify fixed and variable cost
accurately.
• Contribution cant be a guide if there is some
other limiting factor.
• Undue Importance to marginal costs can lead
to low profit & loss.
• Multiproduct had different contribution
margins and costs.
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28. Conclusion
– Britannia Bread is easily available due to its
excellent distribution channels. Britannia has
acquired almost 50% stake in the daily bread
market.
– With improving P/V ratio and other parameters ,
the company can maintain its trend and economy.
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