Professional Documents
Culture Documents
A
PROJECT
ON
“BREAK EVEN ANALYSIS”
Of “GIMA Tex Ind. Pvt. Ltd. Hinganghat”
Submitted By
Mr. Atul R. Gaulkar
(Session 2010-2011)
CERTIFICATE
Dr. S. S. Khandare
Principal
(B.D.C.E SEVAGRAM)
Date: ___/___/2011
Place: SEVAGRAM
DECLARATION
I hereby declare that the project work entitled “BREAK EVEN ANALYSIS
OF GIMA TEX. IND. PVT. LTD, Hinganghat” submitted to the Rashtra Sant
Tukdoji Maharaj Nagpur University, Nagpur, is a record of an original work
done by me under the guidance of Prof. R. B. Gajbhiye, Bapurao Deshmukh
College of Engineering, Department of Management studies, Sevagram, and
this project work has not performed the basis for the award of any Degree or
diploma/associate ship/fellowship and similar project if any
NU/A7/42728
ACKNOWLEDGEMENTS
“I owe a great many thanks to a great many people who have helped and
Supported me during the making of my Project “
Mr. Vinit Kumar Mohota (Director, Gimatex Ind. Pvt. Ltd Hinganghat) for
their kind attention and continues support towards my project.
Atul R. Gaulkar
EXECUTIVE SUMMARY
The project report covers all the aspects relating to financial decision making
through the eye of Break-even-analysis this has become imperative as the
Gimatex Industries Pvt.Ltd is plunging headlong into a plus area that is profit.
The employees of the Gimatex Industries have passed the management or the
management has passed the employees or both have passed with a support of
Gimatex Industries which is a profit making organization. To begin with
information was collected from primary and secondary sources. In the case of
Gimatex Industries, the Break Even point which generally is usual in a profit
making organization could not be reached as it is loss incurring organization
because of actual sales is greater than BEP sales it indicates that the profitability
of an organization. Financial statement of the organization bear testimony to what
has been stated above enclosed.
INDEX
CHAPTER I
INTRODUCTION
CHAPTER PARTICULAR PAGE NO.
NO.
1. INTRODUCTION
2. COMPANY PROFILE
3. OBJECTIVE
4. HYPOTHESIS
6. RESEARCH METHODOLOGY
8. BREAK EVENPOINT
FACTORS
TOOLS
9. DATA ANALYSIS AND
INTERPRETATION
11. CONCLUSION
12. SUGGESTIONS
13. BIBLIOGRAPHY
profits analysis’. This system in its narrower sense restricts itself only to the
determination of ‘no profit – no loss’ or ‘break – even points’, while in its broader
sense it covers the determination of profits at any level of activity. A break even
analysis indicates at what level cost and revenue are in equilibrium. It is a simple
and easily understandable.
Break even analysis refers to ascertainment of level of operations
where total revenue equals to total costs. It is an analysis used to determine the
probable profit or loss at any levels of operations. Break – even analysis is a
methods of studying the relationship among sales revenue, variable cost and
fixed cost to determine the level of operation at which all the costs are equal to its
sales revenue and it is the no profit no loss situation. This is an important
technique used in profit planning and managerial decision making. Break even
analysis is also known as cost volume profit analysis. The analysis is a tool of
financial analysis whereby the impact on profit of the changes in volume, price,
cost and mix can be estimated with reasonable accuracy.
The break - even point and break even chart are to by –products of break
even analysis. In a narrow sense, it is concerned with the break even point and a
broad sense; it is concerned with break even chart. Break even analysis is also
known as cost volume profit analysis. The analysis is a tool of financial analysis
whereby the impact on profit of the changes in volume, prices, cost can be
estimated with reasonable accuracy. Break even point is equilibrium point or
balancing point of no- profit no- loss. This is a point at which loss cases and profit
begins. This point is where income is exactly equal to expenditure.
These three elements are important for determining the break – even analysis.
BREAK EVEN
ANALYSIS
VARIABLE
SALES FIXED COST
COST
Break even analysis will show the variable costs, fixed costs and total
costs.
Sales can be known.
Margin of safety can be known.
Profit or loss can be known.
It is useful for forecasting plans and profit.
Inter- firm comparison is possible.
It is helpful for cost control.
To decide changes in capacity.
To measure the effect of changes in profit factors.
To choose the most profitable alternative.
To determine the sales required to offset price reduction.
The break – even analysis requires that all costs should be separated into
fixed and variable components.
It is assumed that all fixed cost remain constant at various level of activity
But in practice, it may not be fixed in the long-run.
Another assumption is that variable costs are really variable and changes
in direct proportion to the volume of output. It means that variable cost per
unit of product remain constant- in practice variable cost are not necessary
strictly variable with output.
Break – even analysis ignore the capital employed in business, which is
one of the important fact in determination of profitability of the organisation
and its products.
It is assumed that productivity , operating efficiency, product specification
and method of manufacture sale will not under go any change – in actual
situation, the operating efficiency and productivity depends upon the man
power, it is impractical to assume that this factor remain constant.
There are several assumption of Break even analysis. These are as follows.
Fixed cost will remain constant at all levels or volumes and variable costs
a) Industrial Profile-
India Textile Industry is one of the leading textile industries in the world. Though
was predominantly unorganized industry even a few years back, but the scenario
started changing after the economic liberalization of Indian economy in 1991. The
opening up of economy gave the much-needed thrust to the Indian textile
industry, which has now successfully become one of the largest in the world.
India textile industry largely depends upon the textile manufacturing and export.
It also plays a major role in the economy of the country. India earns about 27%
of its total foreign exchange through textile exports. Further, the textile industry of
India also contributes nearly 14% of the total industrial production of the country.
It also contributes around 3% to the GDP of the country. India textile industry is
also the largest in the country in terms of employment generation. It not only
generates jobs in its own industry, but also opens up scopes for the other
ancillary sectors. India textile industry currently generates employment to more
than 35 million people. It is also estimated that, the industry will generate 12
million new jobs by the year 2010.
Various Categories:
Indian textile industry can be divided into several segments, some of which can
be listed as below:
Cotton Textiles
Silk Textiles
Woollens Textiles
Readymade Garments
Hand-crafted Textiles
Jute and Coir
The Industry
India textile industry is one of the leading in the world. Currently it is estimated to
be around US$ 52 billion and is also projected to be around US$ 115 billion by
the year 2012. The current domestic market of textile in India is expected to be
increased to US$ 60 billion by 2012 from the current US$ 34.6 billion. The textile
export of the country was around US$ 19.14 billion in 2006-07, which saw a stiff
rise to reach US$ 22.13 in 2007-08. The share of exports is also expected to
increase from 4% to 7% within 2012. Following are area, production and
productivity of cotton in India during the last six decades:
Though during the year 2008-09, the industry had to face adverse agro-climatic
conditions, it succeeded in producing 290 lakhs bales of cotton comparing to 315
lakhs bales last year, yet managed to retain its position as world's second highest
cotton producer.
Strengths:
Weaknesses:
Increased global competition in the post 2005 trade regime under WTO
Imports of cheap textiles from other Asian neighbours
Use of outdated manufacturing technology
Poor supply chain management
Huge unorganized and decentralized sector
High production cost with respect to other Asian competitors
Year Quantity (in lakhs bales of 170 kgs) Value (in Rs./Crores)
b) ORGANISATION
PROFILE –
Gimatex Industries Pvt Ltd. (Erstwhile RSR, Wani unit) was set up 1994 as a
sister concern to “The Raisaheb Rekhchand Mohota Spg. & Wvg. Mills Ltd.
(Popularly known as RSR)” in central part of India at Hinganghat. It germinated
with a vision to provide premium quality textile products to its customers using the
latest in textile technology.
An ISO 9000: 2001 Gimatex industries manufacture premium quality of varieties
of yarns and fabrics suitable for ready made garments.
The Mohota group commenced its operation in the year 1898 by setting up its
flagship company Raisaheb Rekhchand Mohota Spg. & Wvg. Mills Ltd. in the
cotton belt of central India. This integrated company converting the basic fibre to
rich fabrics is one of the very few composite units to withstand all the challenges
and threats thrown at it for more than 100 years. In the recent management
restructuring, part of RSR Mohota Mills has been separately formed into a new
company rechristened as Gimatex Industries Pvt. Ltd. Administered by a highly
dynamic and experienced management and executed by a strong skilled
workforce of 3000 people.
In the year 1994, Gimatex industries (Erstwhile RSR Wani) embarked on its
mission by commencing operations at multiple state-of-the-art manufacturing
locations. It has continuously pioneered in improvement of its processes and
systems and today with implementation of ERP the company has successfully
streamlines its operations. Its ceaseless drive to cater to quality conscious buyers
with multiple choices of products has helped company carve a niche in the yarn
manufacturing arena.
The group is a firm believer in the values of innovation, quality, and ethical
practices. Gimatex has thrived using these concepts as pillars of growth.
Organizations, business and people dealing with Gimatex continue their dealing
with the Company on a long term basis. The relationship flourishes in the
environment of mutual trust that reciprocates between the company and its
business allies. Our ever-growing sales figures and export demand is a testimony
to our customer-centric approach
We believe that all the achievements that we have attained are a result of steady
enduring support from the society. Acknowledging this fact, the company engages
into the development of civilization by providing better infrastructure for
education, fairs, awarding scholarship for bright students, arranging health camps
etc. Also the company understands its responsibility towards maintaining a clean
and balanced eco-friendly environment and hence performs treatment of all the
outgoing water, maintains pollution levels below the statutory norms etc with the
aid of proper effluent treatment plants.
In sync with its policy to deliver high value added quality products to discerning
customers, Gimatex has always opted for the latest technologies with state of the
art machineries imported from Europe & Japan. The working environment is
specifically controlled with the aid of advanced humidification and air conditioning
systems. Our testing facility houses best in class quality control laboratory which
ensures defect free end product. These products are then packed in suitable
packaging material to deliver on our promise of right product every time.
Our TMC approved Ginning and Pressing unit is fully modernized to cater to the
requirement of high quality, contamination free, low trash Cotton bales. These
cotton bales along with other man made fibers are used in our existing spinning
facilities having total production capacity of 15000 tonnes / annum of yarns in
various varieties.
Carding Machine
Our quest for quality production continues a step further into weaving with our
production capacities being 4 million meters / annum of fabrics. These capacities
are continuously augmented with major expansion plans.
Yarn Division
Blowroom – LMW & Trutzchler with Automatic Bale Plucker, Unimix, CVT
Contamination Detector - Uster Securomat SP-S
Carding – LMW 300 A& Trutzchler DK 800
Humidification – Luwa
Testing – UT-4, Uster Classimat Quantum, HVI, Statex Strength system.
Packing – Pallete packing , Carton packing
Fabric Division
Warping – Beninger
Sizing – Beninger
Looms – Toyoda JAT 710
Humidification – Luwa
Quality Assurance
Gimatex Industries Pvt Ltd, Hinganghat is a ISO 9001 – 2000 certified company.
Our quality policy is to consistently meet or exceed our customer's expectation for
quality product & performance by continual improvement of our processes &
systems.
The group has carved a niche for itself by investing in lean manufacturing
processes appropriate information technology tools & operation research tools.
Further, state-of-the-art manufacturing facility and quality monitoring system
ensures the delivery of superior total value to the customer.
Certification
Our quality assurance personnel are well qualified & experienced in quality
control and are devoted all the time for collecting & analyzing data from online
and offline quality monitoring system.
Focus on quality right from incoming materials to the delivery of product to the
customer.
Appropriate Fibre sourcing from quality conscious suppliers domestically and
internationally.
Inspection test plans devised statistically such that all the potential vulnerable
points are checked for quality within a short period.
100% bales of contamination-free cotton fibre testing before taking them for
mixing.
Consistent fibre selection for manufacturing a particular count to avoid any
variation over a span of time.
Systematic productive and preventive maintenance to avoid exigencies.
100 % online quality monitoring with all the Autoconers connected through
Conerpilot to clear objectionable faults.
Final physical inspection by quality assurance personal of every cone prior to
packing with the aid of UV light
Along with this a 24 feeder single jersey knitting machine is used to verify the
performance of the yarn in knitting application.
Export Markets
Domestic Markets
Management Body –
e-mail:info@gimatex.co.inmho@gimatex.co.in
Branches of Gimatex-
c) Product profile-
Gimatex Industries has a state of art manufacturing unit for making grey fabric.
Building upon its strength in yarn manufacturing the weaving division was set up
in the year 2006 with versatile and latest machine largely imported from Japan,
Europe.
A. Yarn
Organic Cotton mixings, imported cotton mixings along with various cottons
available domestically particularly DCH, MCU, S-6, Bunny etc. are used for
cotton yarns depending on the end use.
Semi Dull, Optical white, SHT, Micro Denier, Cationic are the different varieties of
Polyester that are used for polyester yarns and blends.
Modal, Viscose-Plus and Viscose find their application in all our viscose yarns
and blends with other fibre.
These yarns are prepared in the following shades
• Grey
• Black
• Mélange
Following types of yarn are produced in various count and blend ranges in single
or multiple plies
• Cotton
• Polyester
• Viscose
• Polyester / Viscose
• Polyester / Cotton
• Cotton / Modal
• Cotton / Viscose
• Poly / Viscose / Texturised
Fabric
Gimatex Industries has a state of art manufacturing unit for making grey fabric.
Building upon its strength in yarn manufacturing the weaving division was set up
in the year 2006 with versatile and latest machine largely imported from Japan,
Europe.
Also special attention is given to developing procedures and systems to match
the service requirements of the biggest fabric buyers in the world.
Intensive Quality Control Procedures & Systems also ensure total customer
satisfaction. Training programmes are conducted aiming on educating the staff on
Total Quality Management & First Time Right method of working.
Gimatex makes Bottom weights and shirting fabric catering to the growing
demands of the top end of apparel and r m g segment
We manufacture fabric from count range of 10 to 100s counts with weight from 75
gsm to 400 gsm.
We have in-house designing and desk loom for sampling.
Laboratory for checking various fabric parameters.
Quality Control
Yarn testing carried out before utilization to check for all critical parameters
Sizing - Benninger
Warping - Beninger
Humidification - LUWA
Types - Griege
Annual production - 8.5 million mts p.a of which the capacity for Dobby
fabric being 1.5 million mts p.a.
OBJECTIVES
Estimation of break even point of GIMA Tex Ind. Pvt. Ltd. Hinganghat.
HYPOTHESIS
All cost and expenses can be separated into fixed and variable
components.
NEED OF STUDY
Gimatex industry is profit making organisation. Break even analysis is one of the
methods by which the financial health of the organisation can judged. With the
help of break even analysis the level of sales can be measured to shoot up the
sales step can be measured.
The present study has been undertaken to analyse the working of Gimatex
industry Pvt. Ltd. Hinganghat. It’s a profit making organisation and this is enquiry
into the reasons therefore. Break even analysis is a tool or a plank used to
enquire into the reasons for continued profit from year to year and a plus area
does not seem to be insight whether the conversion from loss to profit is not
impossible. Every aspect has been thoroughly analysed and keeping in view the
financial health of the company and its vision suggestions have been made.
The scope of the project is intended to cover the terms connected with
break - even analysis and to co - relate them with the GIMA Tex Ind. Pvt. Ltd.
Hinganghat.
RESEARCH METHODOLOGY
DATA COLLECTION
The study is primarily based on secondary data. The information of GIMA
Tex Ind. Pvt. Ltd. Hinganghat. Is of present project is carried on with the co-
operation of the management of the GIMA Tex Ind. Pvt. Ltd. Hinganghat, who
permitted me to carry out study to provide with the requisite data. The data is
collected from two sources.
PRIMARY DATA
The data collected self by the researchers is the primary data.
The information related to GIMA Tex Ind. Pvt. Ltd. Hinganghat. is collected
from the internal interview and discussion and concerned execution of
account department.
SECONDARY DATA
Secondary data may be defined as data that has been collected
earlier for some purpose other than the purpose related object of present
study. Any data that is available prior to the commandment of the research
project is secondary data.
The information of study is collected from the various books of
financial management and also, the information collected from Audited
report from 2006 – 2008.
RESEARCH DESIGN
In this case, the in depth studies of the break even analysis of GIMA Tex
Ind. Pvt. Ltd. Hinganghat.
Period of Study-
The duration used for this project report is two & half month.
The break - even chart and breakeven point are to by –products of break
even analysis. In a narrow sense, it is concerned with the breakeven point and a
broad sense; it is concerned with break even chart.
Break even chart indicates approximate profit or loss at variable costs and
sales volume within a limited range. The break – even chart shows at what
volume the firm first covers all cost with revenue of break – even. The break-
even chart shows the profitability or otherwise of an undertaking at various level
of activity, and indicates the point at which neither profit or nor loss is made.
Breakeven point is known as “No profit no loss point”. So the chart is also known
as break - even chart. At this point, the total costs are recovered and profit
business.
In its simplest form, the break-even chart is a graphical representation of
costs at various levels of activity shown on the same chart as the variation of
income (or sales, revenue) with the same variation in activity. The point at which
neither profit nor loss is made is known as the "break-even point" and is
represented on the chart below by the intersection of the two lines:
FIXED COST :-
VARIABLE COST:-
The variable cost is a cost that tends to very in accordance with level of
activity within the relevant range and within a given period of time. The prime
product cost i.e.: direct material, direct labour and direct expenses tend to very in
direct proportion to the level of activity an increase in the volume means a
proportionate increase in the total variable cost and a decrease in volume while
lead to a proportionate decline in the total variable cost.
TOTAL COST:-
SALES:-
It will show the variable costs, fixed costs and total costs.
Angle of incidence or the intersection of sales line with costs line can also
be known. Thus, it is very useful for managerial decision.
Exact and accurate classification of cost into fixed and variable is not
possible.
Detailed information cannot be known from the chart. To known all the
information about fixed cost, variable cost and selling price, a number of
charts must be drawn.
Cost, volume and profit relation can be known; capital amount, market
aspects, effect of govt. policy etc, which are important for decision -
making cannot be considered from break – even chart.
Break – even point is a point where the total sales are equal to total cost.
In this point there is no profit or loss in the volume of sales.
The breakeven point is that point of sales volume at which total revenue is
equal to total cost. It is a no profit, no loss point.
This is a result indicates where there is no profit or loss is called BEP.
Where sales total is equal to total cost that point is Called break even point there
may be some profit which is including in total cost.
Break - even point helps in assessing the viability of the organization and
to take the decision in profit planning and cost control. Break - even point is the
point of zero income I.e., the level of sales is just equal to its costs. Cost includes
both fixed and variable costs. It is used as a useful tool in financial planning to
recover cost and maximize profits. The changing in operating condition such as,
sales, fixed cost, and variable cost will change the break - even point.
The break-even point is the point at which the income from sales will cover
all costs with no profits. The business owner or manager usually considers
several factors when studying break-even analysis:
Variable expenses.
The study of these factors will inform the business owner of the
possibilities of lowering the break-even point and increasing the gross profit
margins. When attempting to determine the prospect of success for a new
operation, the analysis of the break-even point may indicate the advantages or
disadvantages in modifying the proposed level of operation.
The break-even point informs the business owner of the level of sales at
which the business will realize neither a profit nor a loss. It can be expressed in
numbers or by the use of graphs. To arrive at the break-even point using either
method, we need to calculate the projected and fixed manufacturing, selling, and
administrative expenses, and the expected ratios of sales for each category of
expenses.
OR
OR
Profit volume ratio commonly known as P/v ratio is the ratio of contribution
to sales. This ratio is known as “marginal income ratio” ‘contribution ratio’ or
‘Variable profit ratio’.
Profit volume ratio is very important in decision making. It can be used for
the calculation of B.E.P and in problems regarding profit sales relationship.
OR
OR
no key factor.
CONTRIBUTION
Definition of contribution
Contribution formulas:-
Contribution (per unit) = Selling price (-) Variable or (marginal cost per unit)
Advantages of contribution
maximization.
MARGINAL COSTING
Fixed and variable costs are kept separate at every stage. Semi – variable
When evaluation of finished goods and work in progress are taken into
As fixed costs are period costs, they are charged to profit and loss account
during the period in which they are incurred. They are not carried forward
The difference between the contribution and fixed costs is the net profit or
loss.
Sales price and variable cost per unit remain the same.
Cost volume profit (CVP) relationship is fully employed to reveal the state
Marginal costing also helps the management to take any valuable decision
like price, to make or buy, selecting the more profitable product etc.
It is not an easy task to segregate the overheads into fixed and variable
which are segregated into fixed and variable is absent. There it is very
dangerous.
of inventories i.e. work in progress, finished goods and transfer from one
cost. Standard costing with the help of volume variances. Show the effect
The total sales minus the sales at Break – even – point is known as the
margin of safety.
That is margin of safety is the excess of normal or actual sales over sales
at Break – even –point. In other words sales over and above break even sales
are known as Margin of safety. The margin of safety refers to the amount by
which sales revenue can fall before a loss incurred. That is, it is the difference
between the actual sales and sales at B.E.P. If the margin of safety is large, it is a
sign of soundness of the business and vice versa. The margin of safety serves as
a guide is a reliable indicator of the business strength and soundness. Margin of
safety can be expressed in absolute sales amount or in percentage.
High margin of safety indicates the soundness of a business because
even with substantial fall in sale or fall in production, some profit shall be made.
Small margin of safety on the other hand is an indicator of the weak position of
the business and even small reduction of the business. Margin of safety can be
increased by:-
OR
OR
SALES
258.83
211.61
180.78 Interpretation:- sales in the year 2009 is greater than the sales in the year 2008 and sales
in year 2008 is greater than sales in the year 2007, so it indicates that sales increases in
every year.
VARIABLE COST
Interpretation -
FIXED COST
Interpretation:-
The fixed cost increased in the year 2009 as compare to the year 2007 and 2008.
Profit volume ratio is the ratio of contribution to sales. PVR ratio is an index of sound
Financial health of company’s product.
Interpretation: -
The profit volume ratio is fluctuating every year. So the organisation should
try to maintain p .v. ratio.
P.V Ratio
Interpretation: -
The sale of the organisation in the year 2007 is greater than B.E.P. and also
in the year 2008 or 2009 the sale is greater than B.E.P. Hence, in the year 2007,
2008 and 2009 the organisation was in profit.
RESULT ANALYSIS
The sales in year 2009 is greater than the sale in year 2008 and sales in the
year 2008 is greater than year 2007.This may be because of decreased
price of product or more demand for products or any other factors.
Fixed cost has increased in the year by year. This may be because of
management has given the bonus or any other monetary benefits to the
worker of an organisation.
The profit volume ratio is fluctuating every year. Because of the P.V.R has
increased in past three year. A higher P.V R means higher profitability.
The sales of the organisation in the year 2007 is greater than B.E.P. and also
the year 2008 & 2009, the sale is greater than B.E.P. which suggest to
makes it profit making organisation.
B.E.P sales in year 2007 was 94.33 crore and it increased in 2008 by 10.69
crore which was 105.02 crore and it again increased in 2009 by 9.74 crore
which was 114.76 crore.
CONCLUSION
After the analysis it is found that the gross profit of the organisation is high
due to that profit volume ratio is also high. Hence, the break even sale is less than
the actual sale of an organisation which indicates that the organisation is in the
profit from last three years.
Hence the organisation tries to maintain the same position in the future and
company should concentrate on increasing their sales and to earn more profit.
SUGGESTIONS
BIBLIOGRAPHY
www.gimatex.co.in
Final accounts of organisation Profit & Loss Account and Balance Sheet
for the Accounting Year 2006-07, 2007-08, 2008 – 2009.