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A Study on Cost and Profitability Analysis
CHAPTER: 1
INTRODUCTION
1.1: INTRODUCTION TO FINANCE
Finance
studies and addresses the ways in which individuals, businesses, and organizations raise,
allocate, and use monetary factors of production over time, taking into account the risks entailed
in their projects. The term "finance" may thus incorporate any of the following:
 The study of money and other assets;
 The management and control of those assets;
 Profiling and managing project risks;
 The science of managing money;
 As a verb, "to finance" is to provide funds for business or for an individual's large
purchases (car, home, etc.).
The activity of finance is the application of a set of techniques that individuals and
organizations (entities) use to manage their money, particularly the differences between income
and expenditure and the risks of their investments.
Finance is used by individuals (personal finance), by governments (Public Finance), by
businesses (Corporate Finance), as well as by a wide variety of organizations including schools
and non-profit organizations. In general, the goals of each of the above activities are achieved
through the use of appropriate financial instruments, with consideration to their institutional
setting.
Finance is one of the most important aspects of Business Management. Without proper
financial planning a new enterprise is unlikely to be successful. Managing money (a liquid asset)
is essential to ensure a secure future, both for the individual and an organization.
BET College of Management & Science Page 1

Role and importance of finance

Finance is important to an organization as the firm has to know how viable it is and balance
profit with costs. The Role of the Finance Department can be summarized:
 Prepare and create financial accounts – such as Trading, Profit and Loss Account and
the Balance Sheet.
 Keep and maintain financial records – sales figures and records of expenditure would
be held by the Finance department and used by other departments also.
 Prepare and plan internal financial information – this would mainly be performed in
the case of a budget, which is a financial plan and can help managers take corrective
action.
 Analyze current financial performance – how the firm has done in trading or expenses
would be analyzed primarily using ratio analysis
INTRODUCTION TO COST ACCOUNTING

Cost accounting is one of the types of accounting systems that fall under management
accounting. It is a system that has been developed to provide managers with a structure to
examine the day-to-day finances of the company. From the information gathered, managers can
make decisions on cutting costs which ultimately improves the company’s profitability.
(a): COST
Cost is the sum total of all the expenditures incurred in producing and selling a product or in
rendering a service or in performing a job.
The I.C.M.A., London has defined cost as “the amount of expenditure (actual or notional)
incurred on or attributable to a specified thing or activity”.

(b): COSTING
The Institute of Cost and Management Accountants (ICMA) London has defined the term
costing as “the technique and process of ascertaining costs.”
It is the process of determining the cost of doing something, i.e., the cost of manufacturing an
article, rendering a service or performing a function.
(c): COST ACCOUNTING

Cost accounting involves the classifying, recording and appropriate allocation of expenditure
for the determination of costs of products or services; the relation of these costs to sales value;
and the ascertainment of profitability. It is the formal system of accounting for costs by means of
which costs of products or services are ascertained and controlled.
(d): COST SHEET
Cost Sheet is a statement of cost showing the total cost of production and profit or loss from a
particular product\service. A Cost Sheet shows the cost in a systematic manner and element wise.
(e): NEED FOR COST ACCOUNTING
The need for cost accounting arises owing to the following:
 To Overcome the Limitations of Financial Accounting: Following are the
limitations of Financial Accounting:
 Reveals only the overall result of the business:
 Financial accounts do not provide data for each and every product, process, department
or operation separately. Instead, it provides the financial information in a summary form
for the entire organization as a whole.
 It fails to exercise control over resources:
 Financial accounts fail to exercise control over materials, labour and other expenses
incurred in a business enterprise. As a result, avoidable wastages and losses go
unchecked under this system of accounts.

 It does not provide a basis for cost comparison:
 Financial accounts do not help in cost comparison over a period of time or between two
jobs or two operations. Thus, a basis for judging the efficiency of a year with past year or
worth of two different jobs or operations cannot be appraise.
 It does not make use of control techniques:
 Financial accounts fail to make use of certain important cost control techniques such as
budgetary control and standard costing. Thus, financial accounts do not facilitate
measuring the efficiency of the business with the help of control techniques.
 It fails to ascertain break-even point:
 Financial accounting does not help in ascertaining the break-even point, i.e., the sale or
output where the revenue equals the cost. Hence, the point of no-profit-no-loss cannot be
Smade out under financial accounts.
 To Ensure Optimum Utilization of Resources:
In order to ensure the optimum utilization of scarce resources, the value of input is
measured against the value of output. This implies matching cost per unit of production
against the value of output or selling price. But, financial accounts do not provide the
information relating to cost per unit of production. Hence the need for cost accounting
was felt necessary.
 To Achieve Overall Efficiency of Business:
By analyzing the cost of production of every unit, it helps the management to know the
answers the questions like the most profitable product line, comparison of profits of
previous periods, the amount of capital block in raw materials, variations in cost of
production etc.
(f): OBJECTIVES OF COST ACCOUNTING
To determine the cost
It is the primary objective of cost accounting to determine the cost of the product or service so
as to fix the selling price.

To analyze of cost
Under this objective, cost is calculated after analyzing in cost sheet, the different elements of
cost and recording under specific head.
To reduce the Wastage
Cost accounting’s main objective is to reduce the wastage. Wastage may be in material cost,
labour cost or overhead cost. A cost sheet is prepared to compare with standard cost and with this
one can find at which stage wastage is incurred so that it can be reduced by proper control
measures.
Provide cost data
The previous records of costs of different products would be available, if cost accounting is
maintained by accounting department. Such data can be used by other department/s for taking
decision.
Ascertain the profitability
Cost accounting’s main objective is to determine cost, which helps in determining profit
margin.
Control the cost
Cost accounting’s objective is to control the cost. For example, over stocking and under
stocking is loss of money. By using cost control techniques in stock maintenance, an optimum
level of stock can be maintained to control the cost of stock.
SCOPE OF COST ACCOUNTING
The scope of cost accounting is very wide. There are various techniques, tools, procedures,
processes, programs used in cost accounting for calculating cost and its control. The scope of
cost accounting is as follows:
COST ASCERTAINMENT
In this region of cost accounting, cost accounting collects the material, labor and overhead
cost of each product to calculate total and per unit cost of products. This total cost calculation
will be based on historical or standard or estimated basis. After this, cost accountant will use any
method of costing like specific order costing, operation costing, and direct costing technique.

These techniques and methods may be used for calculating costs for different nature products in
same organization.
COST RECORDS
In this part of cost accounting, cost accountant maintains cost books, vouchers, ledgers, reports
and other cost related documents for future comparison and reference.
COST ANALYSIS
It involves the process of finding out the causal factors of actual costs varying from the
budgeted costs and fixation of responsibility for cost increases.
COST COMPARISONS
Cost accounting also includes comparisons between cost from alternative courses of action
such as use of technology for production, cost of making different products and activities, and
cost of same product/ service over a period of time.
COST CONTROL & COST REDUCTION
In the present industrial scenario, increasing competition squeezes margins and therefore
more attention to cost control and cost reduction is required to maintain or improve profitability.
It is a routine activity carried throughout the whole organization. In this division, cost accountant
uses different techniques and methods for controlling the cost.
COST CONTROL & COST REDUCTION

Cost control or Cost Management
is the prevention of waste within the existing environment. Cost control is the procedure
whereby actual results are compared against the standards so that waste can be measured and
where appropriate, action can be taken to correct the activity. Cost control is the process of
utilizing the resources economically. Some of the cost control techniques are budgetary control,
standard costing, Break Even Point analysis etc.

Cost Reduction is the improvement of the environment. It is the process of seeking ways to
achieve a given result through improved design, better methods, new layouts, incentive schemes,
establishing of new standards etc.
Cost reduction plan is a co-ordinate set of contingent actions to achieve the dual objective of
reducing overall costs without corresponding loss of efficiency. It is a continuous process of
analysis by various methods of all the factors affecting costs, efforts and functions in an
organization. The main aim is to have continuous economy in costs. Cost reduction is a
corrective function. It operates even when efficient cost control system exists. There is room for
reduction in the achieved costs & as such no condition is considered to be permanent where a
change will secure a lowest cost figure. This process finds out the substitutes by finding new
ways or methods.
(h): AREAS OF COST REDUCTION

Material
Design
Purchasing
Storage
Transport
Production
Labour
Overheads
Increasing the production volume
Extension of market and price differentials
Size of business units
Outsourcing
Sales and marketing
Energy

(i): ESSENTIALS OF A GOOD COSTING SYSTEM:-

For availing of maximum benefits, a good costing system should possess the following
characteristics.
Costing system adopted in any organization should be suitable to its nature and size of the
Business and its information needs.
A costing system should be such that it is economical and the benefits derived from the same
should be more than the cost of operating of the same.
Costing system should be simple to operate and understand. Unnecessary complications
should be avoided.
Costing system should ensure proper system of accounting for material, labor and Overheads
and there should be proper classification made at the time of recording of the Transaction itself.
Before designing a costing system, need and objectives of the system should be identified.
The costing system should ensure that the final aim of ascertaining of cost as accurately
Possible should be achieved.
(j): TYPES OF COSTING

There are different types or techniques of costing are used in cost accounting. A different type
of costing is used in different industries to analyze and presenting costs for the purposes of
control and managerial decisions. The generally used types of costing are as follows:
Marginal Costing: In Marginal Costing, it allocates only variable costs i.e. direct materials,
direct labour and other direct expenses and variable overheads to the production. It does not take
into account the fixed cost of production. This type of costing emphasizes the distinction
between fixed and variable costs.
Absorption Costing: The technique of absorbing fixed and variable costs to production is called
absorption costing.
Standard Costing: When costs are determined in advance on certain predetermined standards
under a given set of operating conditions, it is called standard costing. Standard costing is to be
compared with the actual costs periodically to analyze the changes in the cost to revise the
standards to avoid any loss due to outdated costing. Historical costing: When costs are
determined in terms of actual costs and not in terms of predetermined standards cost is called
Historical costing.
(k): GENERAL PRINCIPLES OF COST ACCOUNTING

1. Cause-effect relationship.
Each item of cost should be related to its cause as minutely as possible and the effect of the
same on various departments should be ascertained. This cost should be shared only by those
units for which such cost has been incurred.
2. Charge cost only after its incurrence.
Cost should include only those costs which have been actually incurred. For example, unit cost
should not be charged with selling cost while it is still in factory.
3. Ignore the convention of prudence.
Cost Accounting statements should give the factual picture of the profitability of the project. If
some contingencies need to be made, it should be shown distinctly and separately.
4. Past cost should not form part of future costs.
Past cost which could not be recovered in past should not be recovered from future cost as
it will not only affect true results of future period but will also distort other statement.
5. Exclusion of abnormal costs from cost accounts.
All costs incurred because of abnormal reasons like theft, negligence, etc should not be taken
into consideration while computing the unit cost. If done so, it will distort the cost figures and
mislead the management resulting in wrong decisions.
(l): ADVANTAGES OF COST ACCOUNTING

Profitable and unprofitable Activities:
In Cost Accounting profitable and unprofitable activities are disclosed. Management can
take steps to eliminate or to reduce those activities from which little or no profit is earned. It can
change the method of production in order to render such activities more profitable.
Classification and Subdivision of costs:
Costs are accumulated and classified by every possible division of business. In a good
costing system data regarding costs by functions, departments, processes, jobs or orders,
contracts and services can be easily computed. Thus it helps management to ascertain the
profitability of each product, sales area, division etc, In order to improve profit.
Cost Finding and Price-Fixing:
It provides accurate cost data which help in the fixation of selling price and for submitting
quotations. In periods of depression it enables the management to determine the extent to which
prices can be reduced.
Control of Materials and supplies:
Since in all types of cost accounting, materials and supplies must be accounted for in terms
of departments, processes, and units of production or services; a system of receiving, handling,
and issuing materials and supplies is an essential part of cost control. This will eliminate or
reduce misappropriation, embezzlement, obsolescence, and losses from scrap, defective and
spoiled materials and supplies.
Control of Wages and Salaries:
Cost Accounting activities encourage accounting for labour by jobs and by operations. In
many manufacturing concerns daily summary reports are prepared to show the number of hours
and minutes worked and the wage rate for each worker per job or operation. Cost Accounting is a
benefit to the employer by establishing standards to measure the efficiency of labour to assist in
assignment of work to employees best fitted for it, and to determine the unit cost of labour
arising from each activity.
Overhead costs:
The Cost accountant first separates costs into direct and indirect items. Direct costs consist of
materials and labour.

(m): LIMITATIONS OF COST ACCOUNTING

Cost Accounting is not an exact science like other branches of accounting but is an art which
has developed through theories and accounting practices based on common sense and reasoning.
These practices are changing with time. There is no stereotyped system of cost accounting
applicable to all industries. It lacks uniform procedure. Concepts, methods and techniques of cost
accounting understood and applied differently by different industries.
Cost accounting needs to identify the different types of expenses and allocation of expenses is
considered as a complicated system of accounting.
Limitations of cost accounting are as followed:
The system is more complex:
It needs different forms and formulas to collect the data and preparing the reports. Also it
requires number of steps in ascertaining such details. So it involves a more complex system.
More complex and complicated system of cost accounting is one of the limitation facing by the
cost accounting.
It is expensive:
In installing and maintaining cost accounting system requires more man power and
resources. More analysis, allocation and absorption of overheads requires considerable amount
of additional work. If the expenses incurred in ascertaining the cost is more than what is derived
from it, then the process of cost accounting is meaningless.
Inapplicability of costing method and technique.
Technique and methods of cost accounting differ from organization to organization. One
standard method is not adequate for all the requirement of different organizations. It depends on
the nature of business and the type of service/product manufactured by the firm. If wrong
technique or method is used, it will affect the result.
Not suitable for small scale units:
One of the limitations faced by the cost accounting in installing it in all types of business is
that it is not applicable to small scale units. Through the traditional accounting, small scale units
can control the cost effectively.
Lack of accuracy:
Use of notional cost such as standard cost, estimated cost etc would not bring out the actual
cost of the product. So the cost accounting lacks the accuracy of its results.
Need preparation of frequent reconciliation to verify accuracy:
Results shown by cost accounts differ from those of financial accounts. Preparation of
reconciliation statements to verify the accuracy is frequently required. This leads to unnecessary
increase in workload.
Does not control Cost by itself:
Cost accounting will not control the cost. It only bring out the possibility of areas which needs
control. If the organization does not have a efficient management, the reports and results brought
out by the cost accountant is useless. So cost accounting will not control the cost by itself. It
needs an effective and efficient management to use it
It is based on estimation and previous data:
Most of the data used by a cost accountant is based on estimation of indirect costs,
assumptions and previous data. Not using the actual data and costs is the limitation of cost
accounting.
It only brings out the cost of goods or service:
To find out the operational results, we need to depend on financial accounting. Cost
accounting will not bring forth the financial status of the company.
(n) COST ANALYSIS, CONCEPT AND CLASSIFICATION:

The total cost is analyzed by elements of cost i.e., by the nature by the nature of expenses.
Strictly speaking, the elements of cost are three i.e., materials, labour and other expenses. These
elements of cost are future analysed into different elements as illustrated.
ELEMENTS OF COST: Basic cost elements are:
Raw materials
Material (Material is a very important part of business)

Direct material/Indirect material

Labor
Direct labor/Indirect labour
Indirect expenses/overhead
Overhead (Variable/Fixed)
Production or works overheads
Administration overheads
Selling overheads
Distribution overheads
Maintenance & Repair
Supplies
Utilities
Other Variable Expenses
Salaries
Occupancy (Rent)
Depreciation, Other Fixed Expenses
(In some companies, machine cost is segregated from overhead and reported as a separate
element)
By grouping the above element of cost, the following divisions of cost are obtained.
Prime cost =direct material+ Direct labore+direct expenses.
Works or factory cost=prime cost +works or factory overheads.
Cost of production=work cost+ administrative cost
Total cost or cost of sales=cost of prodaction+selling and administrative overheads.

CLASSIFICATION OF COSTS
MATERIAL
To produce or manufacture material is required. For example to manufacture shirts cloth is
required and to produce flour wheat is required. All material which becomes an integral part of
finished product and which can be conveniently assigned to specific physical unit is termed as
“Direct Material”. It is also described as raw material, process material, prime material,
production material, stores material, etc. The substance from which the product is made is known
as material. It may be in a raw or manufactured state. Material is classified into two categories:
Direct Material
Indirect Material
Direct material:
Direct Material is that material which can be easily identified and related with specific
product, job, and process. Timber is a raw material for making furniture, cloth for making
garments, sugarcane for making sugar, and Gold/silver for making jewellery, etc are some
examples of direct material.
Example: Raw materials used in manufacturing a product.
Indirect material:
Indirect Material is that material which cannot be easily and conveniently identified and
related with a particular product, job, process, and activity. Consumable stores, oil and waste,
printing and stationery etc, are some examples of indirect material. Indirect materials are used in
the factory, the office, or the selling and distribution department.
Example: Lubricants and cotton waste used in maintaining machinery.

LABOUR
Labour is the main factor of production. For conversion of raw material into finished goods,
human resource is needed, and such human resource is termed as labour. Labour cost is the main
element of cost in a product or service. Labour can be classified into two categories:
Direct Labor, and
Indirect Labour
Direct Labour:
Labour which takes active and direct part in the production of a commodity. Direct labour is
that labour which can be easily identified and related with specific product, job, process, and
activity. Direct labour cost is easily traceable to specific products. Direct labour costs are
specially and conveniently traceable to specific products. Direct labour varies directly with the
volume of output. Direct labour is also known as process labour, productive labour, operating
labour, direct wages, manufacturing wages, etc. Cost of wages paid to carpenter for making
furniture, cost of a tailor in producing readymade garments, cost of washer in dry cleaning ha
Indirect labour
Indirect labour is that labour which cannot be easily identified and related with specific
product. Job process. And activities .it includes all labournot directly engaged in converting
raw-materials into finished products. may not vary directly with the volume of carrying out
tasks incidental to goods or service provided is indirect labour .Indirect labour used in the
factory the office or the selling and distribution department wages of store-keepers. time–keeper
salaries of works manager salary of sales man.etc are an example of indirect labour.
Example: wages to those who are aiding manufacturing activities by was of supervision
maintenance, tools .settings etc.
EXPENSES
All incurred in the production of finished goods other material cost and lobour cost
are termed as expenses. Expenses are classification into categories
 Direct expenses
 Indirect expenses
Direct expenses
These are expenses which are directly. Easily and wholly allocated to specific cost center or
cost unit. All direct cost other then direct materials and direct labourare termed as direct
expenses. Direct expenses are also termed as chargeable expanses .some example of the direct
expenses are hire of special machinery cost of special designs ,modals or patterns, feed paid to
architects surveyors and other consultants. in words carriage freight charges on special materials,
cost of patents and products
Example: The cost of special pattern byes drawings to tools etc.made for specific products.
sIndirect expenses
These expenses cannot be directly, easily, and wholly allocated to specific cost centre or cost
units. All indirect costs other than indirect material and indirect labour are termed as indirect
expenses. Thus, indirect expenses are treated as part of overheads. Rent, rates and taxes of
building, repair, insurance and depreciation on fixed assets, etc, are some examples of indirect
expenses.
Indirect Expenses = Indirect cost – Indirect material – Indirect labour.

Example: Office salaries, rent, electricity, advertisement expenses etc.
OVERHEADS
The term overhead has a wider meaning than the term indirect expenses. Overheads include
the cost of indirect material, indirect labour and indirect expenses. This is the aggregate sum of
indirect material, indirect labour and indirect expenses. Overheads are classified into following
three categories:
Factory/works/ production overheads
Office and administrative overheads
Selling and distribution overheads

Overhead = Indirect material + Indirect labour + Indirect expenses.
Factory/works overheads:
All indirect costs incurred in the factory for production of goods is termed as factory/works
overheads. Such costs are concerned with the running of the factory or plant.
These included indirect expenses incurred in the factory
Some examples are as follows:
Indirect materials
Grease, oil, lubricants, cotton waste etc.
Small tools, brushes for sweeping, sundry supplies etc.
Cost of threads, gum, nails, etc.
Consumable stores.
Factory printing and stationery.
Indirect wages
Salary of factory manager, foremen, supervisors, clerks etc.
Salary of storekeeper.
Salary and fee of factory directors and technical directors.
Contribution to ESI, PF., Leave pay etc. of factory employee.
Indirect expenses
Rent of factory buildings and land.
Insurance of factory building, plant, and machinery.
Municipal taxes of factory building.
Depreciation of factory building, plant and machinery, and their repairs and Maintenance
charges.
Power and fuel used in factory.
Factory telephone expenses.

Office and administrative overheads:

These expenses are related to the management and administration of the business. They are
incurred for the direction and control of an undertaking. These represent the aggregate of the cost
of indirect material, indirect labour, and indirect expenses incurred by the office and
administration department of an organization.
Some examples are as follows:

Office printing and stationery, Cost of brushes, dusters etc. for cleaning office and
equipments, Postage and stamps. Salary of office manager, clerks, and other employees, Salary
of administrative directors, Salaries of legal adviser, Salaries of cost accountants and financial
accountants, Salary of computer operator. Rent, insurance, rates and taxes of office building,
Office lighting, heating and cleaning, Depreciation and repair of office building, furniture, and
Equipment etc., Legal charges, Bank charges, Trade subscriptions, Telephone charges, Audit fee
etc.
Selling and distribution overheads:

Selling and distribution overheads are incurred for the marketing of a commodity, for
securing order for the articles, dispatching goods sold or for making efforts to find and retain
customers. These expenses represent the aggregate of indirect material, indirect labour, and
indirect expenses incurred by the selling and distribution department of the organization.
These overheads have two aspects procuring orders executing the order. Based upon this concept
the selling and distributions are studied separately.
Selling Indirect costs incurred in relation to the procurement of sale orders are termed as selling
overheads. Some of the examples of selling Overheads are as follows:
Indirect material
Catalogues, price list
Printing and stationery

Postage and stamps
cost of sample
Indirect wages
Salaries of sales managers, clerks and other employees
Salaries and commission of salesman and technical representatives
Fees of sales directors
Indirect expenses
Advertising
Bad debts
Rent and insurance of showroom
Legal charges incurred for recovery of debts
Travelling and entertainment expenses
Expenses of sending samples
Market research expenses
Distribution overheads
Indirect costs incurred in relation to the execution of the sales order is termed as distribution
overheads. Some of the examples of distribution overheads are as follows:
Indirect material
Cost of packing material.
Oil, grease, spare parts etc. for maintaining delivery vans.
Indirect wages
Salaries of god own employees.
Wages of drivers of delivery vans.
Wages of packers and dispatch staff.

Indirect expenses
Packing expenses.
Good own rent, insurance, depreciation, and repair etc.
Freight carriage outwards and other transport charges.
Running expenses of delivery vans, repair, and depreciation.
Insurance in transit etc.
PROFITABALITY
Profitability is a technical analysis term used to compare performances of different trading
systems or different investments within one system.
This is computed for each system or investments being compared over the same period long
enough to include significant "ups" and "downs". A suitable period is something like the last 5 to
20 years.
Profitability is the primary goal of all business ventures. Without profitability the business will
not survive in the long run. So measuring current and past profitability and projecting future
profitability is very important.
Profitability is measured with income and expenses. Income is money generated from the
activities of the business. For example, if crops and livestock are produced and sold, income is
generated.
However, money coming into the business from activities like borrowing money does not create
income. This is simply a cash transaction between the business and the lender to generate cash
for operating the business or buying assets.
Expenses are the cost of resources used up or consumed by the activities of the business. For
example, seed corn is an expense of a farm business because it is used up in the production
process. A resource such as machines whose useful life is more than one year is used up over a
period of years. Repayment of a loan is not an expense; it is merely a cash transfer between the
business and the lender.

Profitability is measured with an “income statement”. This is essentially a listing of income and
expenses during a period of time (usually a year) for the entire business. Decision Tool, is used
to do a simple income statement analysis. An Income Statement is traditionally used to measure
profitability of the business for the past accounting period.
However, a “pro forma income statement” measures projected profitability of the business for
the upcoming accounting period. A budget may be used when you want to project profitability
for a particular project or a portion of a business
DEFINING PROFITABALITY
Profitability can be defined as either accounting profits or economic profits.
ACCOUNTING PROFITS (NET INCOME)
Traditionally, farm profits have been computed by using “accounting profits”. To understand
accounting profits, think of your income tax return. Your Schedule F provides a listing of your
taxable income and deductible expenses. These are the same items used in calculating accounting
profits.
Accounting profits provide you with an intermediate view of the viability of your business.
Although one year of losses may not permanently harm your business, consecutive years of
losses (or net income insufficient to cover living expenditures) may jeopardize the viability of
your business.
ECONOMIC PROFITS
In addition to deducting business expenses, opportunity costs are also deducted when
computing “economic profits”. Opportunity costs relate to your money (net worth), your labor
and your management ability. If you were not farming, you would have your money invested
elsewhere and be employed in a different career. Opportunity cost is the investment returns given
up by not having your money invested elsewhere and wages given up by not working elsewhere.
These are deduced, along with ordinary business expenses, in calculating economic profit.

Economic profits provide you with a long-term perspective of your business. If you can
consistently generate a higher level of personal income by using your money and labor
elsewhere, you may want to examine whether you want to continue farming.
1.4 INCOME STATEMENT

An income statement or profit and loss account (also referred to as a profit and loss statement
(P&L), revenue statement, statement of financial performance, earnings statement, operating
statement, or statement of operations).
Income statement is one of the financial statements of a company and shows the company's
revenues and expenses during a particular period. It indicates how the revenues (money received
from the sale of products and services before expenses are taken out, also known as the "top
line") are transformed into the net income (the result after all revenues and expenses have been
accounted for, also known as "net profit" or the "bottom line"). The important thing to remember
about an income statement is that it represents a period of time. This contrasts with the balance
sheet, which represents a single moment in time.
Charitable organizations that are required to publish financial statements do not produce an
income statement. Instead, they produce a similar statement that reflects funding sources
compared against program expenses, administrative costs, and other operating commitments.
This statement is commonly referred to as the statement of activities. Revenues and expenses
are further categorized in the statement of activities by the donor restrictions on the funds
received and expended.
The income statement can be prepared in one of two methods. The Single Step income statement
takes a simpler approach, totaling revenues and subtracting expenses to find the bottom line. The
more complex Multi-Step income statement (as the name implies) takes several steps to find the
bottom line, starting with the gross profit. It then calculates operating expenses and, when
deducted from the gross profit, yields income from operations. Adding to income from
operations is the difference of other revenues and other expenses. When combined with income
from operations, this yields income before taxes. The final step is to deduct taxes, which finally
produces the net income for the period measured.

OPERATING SECTION
REVENUE
Cash inflows or other enhancements of assets of an entity during a period from delivering or
producing goods, rendering services, or other activities that constitute the entity's ongoing major
operations. It is usually presented as sales minus sales discounts, returns, and allowances. Every
time a business sells a product or performs a service, it obtains revenue. This often is referred to
as gross revenue or sales revenue.
EXPENSES
Cash outflows or other using-up of assets or incurrence of liabilities during a period from
delivering or producing goods, rendering services, or carrying out other activities that constitute
the entity's ongoing major operations.
COST OF GOOD SOLD (COGS)/COST OF SALES

Represents the direct costs attributable to goods produced and sold by a business
(manufacturing or merchandizing). It includes material costs, direct labour, and overhead costs
(as in absorption costing), and excludes operating costs (period costs) such as selling,
administrative, advertising or R&D, etc.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

It consists of the combined payroll costs. SGA is usually understood as a major portion of
non-production related costs, in contrast to production costs such as direct labour. Selling
expenses - represent expenses needed to sell products (e.g. salaries of sales people, commissions
and travel expenses, advertising, freight, shipping, depreciation of sales store buildings and
equipment, etc.).
General and Administrative (G&A) expenses - represent expenses to manage the business
(salaries of officers / executives, legal and professional fees, utilities, insurance, depreciation of
office building and equipment, office rents, office supplies, etc.).

PROFITABALITY RATIO
Profitability ratios measures a company’s ability to generate earning relative to sales assets
and equity ,These ratios assesses the ability of a company to generate earnings. Profits and cash
flows relative to some metric, after the amount of money invested ,they highlight how
effectively the profitability of a company is being managed.
EBIT(Earnings before interest and tax)

EBIT is a measure of an entity's profitability that excludes interest and income tax expenses.
EBT (Earnings before Tax)

EBT can be defined as the money retained by a company before deducting the money due to be
paid as taxes.
Net Profit Margin

Net profit margin (or profit margin, net margin) is a ratio of profitability calculated as after-
tax net income (net profits) divided by sales (revenue). Net profit margin is displayed as a
percentage. It shows the amount of each sales dollar left over after all expenses have been paid.
Gross Profit Margin

Gross profit margin (gross margin) is the ratio of gross profit (gross sales less cost of sales)
to sales revenue. It is the percentage by which gross profits exceed production costs. Gross
margins reveal how much a company earns taking into consideration the costs that it incurs for
producing its products or services.
Operating Expense Ratio

Operating expense ratio can be explained as a way of quantifying the cost of operating a piece
of property compared to the income brought in by that property.

DU-PONT FORMULA
Definition
Du-Pont formula (also known as the Du-Pont analysis, Du-Pont Model, Du-Pont equation
or the Du-Pont method) is a method for assessing a company's return on equity (ROE) breaking
its into three parts. The name comes from the Du-Pont Corporation that started using this
formula in the 1920s.
Calculation (formula)
ROE (Du-Pont formula) = (Net profit / Revenue) * (Revenue / Total assets) * (Total assets /
Equity) =Net profit margin * Asset Turnover * Financial
leverage
Du-Pont model tells that ROE is affected by three things:
Operating efficiency, which is measured by net profit margin;
Asset use efficiency, which is measured by total asset turnover;
Financial leverage, which is measured by the equity multiplier;
If ROE is unsatisfactory, the Du-Pont analysis helps locate the part of the business that is
underperforming.
ROE analysis The Du-Pont identity breaks down Return on Equity (that is, the returns that
investors receive from the firm) into three distinct elements. This analysis enables the analyst to
understand the source of superior (or inferior) return by comparison with companies in similar
industries (or between industries). The Du-Pont identity is less useful for industries, such as
investment banking, in which the underlying elements are not meaningful. Variations of the Du-
Pont identity have been developed for industries where the elements are weakly meaningful.
Du-Pont analysis relies upon the accounting identity, that is, a statement (formula) that is by
definition true.

INDUSTRY PROFILE:
Dairy Industry In India
India has the highest livestock population in the world with 50% of the buffaloes and
20% of the world’s cattle population, most of which are milch cows and milch buffaloes. India’s
dairy industry is considered as one of the most successful development programmes in the post-
Independence period.
In the year 2006-07the total milk production in the country was over 94.6 million tonnes
with a per capita availability of 229 gms per day. The industry had been recording an annual
growth of 4% during the period 1993-2005, which is almost 3 times the average growth rate of
the dairy industry in the world. Milk processing in India is around 35%, of which the organized
dairy industry account for 13% of the milk produced, while the rest of the milk is either
consumed at farm level, or sold as fresh, non-pasteurized milk through unorganized channels.
Uttar Pradesh, Punjab, Haryana, Rajasthan, Gujarat, Maharashtra, Andhra Pradesh,

Karnataka and Tamil Nadu are the milk surplus states in India. The manufacturing of milk
products is obviously high in these milk surplus States. Exports of dairy products have been
growing at the rate of 25% per annum in the terms of quantity terms and 28% in terms of value
since 2001. Significant investment opportunities exist for the manufacturing of value-added milk
products like milk powder, packaged milk, butter, ghee, cheese and ready-to-drink milk
products.
India prepares to tackle the international market following Japan, where milk
consumption today, has more than trebled to 70 kg per capita from a mere 20 kg in the 'sixties -
the consumption of dairy products in other Asian 'tiger' nations is also growing. As a
consequence - creating excellent export opportunities for India, as these nations are deficient in
milk by at least 3 million tonnes per year. India, with some 27 per cent of Asia's population,
accounts for more than half of the milk output with enough growth potential to explore foreign

markets. In anticipation of the export opportunities and in view of the post GATT scenario, India
is gearing up to tackle the demands of the international market.
Processed Dairy Products

Cheese
The organized cheese market including its variants like processed cheese, mozzarella,
cheese spreads, flavored and spiced cheese, is valued at around Rs 4.5 billion. Processed cheese
at 60% of the overall market is Rs 2.7 billion. The next most popular variant is cheese spread
claiming a share of around 30% of the total processed cheese market. The market is primarily an
urban phenomenon and is known to be growing at around 15%. The market for cheese cubes,
slices and tins is growing. The flavored cheese segment has been constantly declining.
Britannia Industries joined the fray in the cheese market in mid-1990s through an
arrangement with Dynamix Dairy Industries (DDI). It was set up in 1995 by a consortium of five
companies - Conwood, Indo Saigon, Hiranandani, ETA and Metro. DDI has capacity to process
500,000 litres of milk per day with an estimated investment of Rs 1500 mn. The plant designed
by Valio of Finland is run on technology tie-up with Schreiber Foods of the US. Schreiber is the
largest supplier of processed cheese to fast food chains in the US with expertise in sliced cheese.
Britannia's cheese is sold in tins in the form of cubes, and in individually wrapped slices
in packs of fives and tens. The slices are being promoted more aggressively worldwide, and
these account for a bulk of cheese consumption. These are gaining acceptance in India as well.
Amul followed Britannia in launching slices. Its cheese spread in the form of paste has been well
received in the market.
Processed Cheese
Leading Brands
Amul, Vijaya, Verka, Vadilal, Kraft, Britannia.
Market Growth Rates
1990-91 – 1996-97 18.5%
1996-97 – 2001-02 20.6%

2001-02 – 2006-07 11.7%
2004-05 – 2009-10 9.4%
2011-12 – 2016-17 7.4%
Lead Players
The lead players in processed milk products in the market are as follows:
Amul, Britannia, and others include Vijaya, Verka and Vadilal. In the category of cheese Amul,
Britannia Dabur (Le Bon) are the leading players including others like Verka, Nandini, Vijaya
and Vadilal
Dairy Whiteners
About 15% of the total milk output in India is estimated to be processed in the organized
dairy. The industry has maintained a high growth profile, especially in the wake of the Operation
Flood, colloquially also termed as White Revolution, initiated in early 1980s. Today, India
produces over 85 mn tonnes of milk annually. The total milk economy is estimated at Rs 1300
billion in terms of value.
The market for dairy whiteners (commercially know as beverage milk powders and
condensed milk) and creamers is around Rs 3,000 mn. Apart from MNCs like Nestle and
companies like Britannia, the Indian enterprises have also made perceptible progress. Names like
Amul, Sapan, Vijaya, Mohan, Parag and several others have been seen in the marketplace with
their whiteners. These are available mostly in pouches, tetrapacks, and in the near future, may be
in miniportion cups.
Aseptically packed creamer in miniportions is widely used in the West, but has yet to
enter the Indian market in any substantial way. Amul did make a beginning with its whitener
pouches and has emerged as a leader with a market share of 45% followed by Nestle’s 23%.
Aseptically packed creamer involves techniques to impart a longer shelf life to the product. It is
packed in small cups ready to be poured into a cup of tea or coffee. Creamer is fresh milk with
increased fat content (upto 12%) and is aseptically packed after undergoing Ultra Heat Treatment

(UHT) at 1400 C. Its introduction will affect the existing whitener market as a natural milk
product with a longer shelf life.
Britannia forayed into the dairy business as a diversification move in 1997. Its first
offering, Milkman Butter, just managed a 5% share. The dairy business claims a 10% share in
Britannia's topline. The company had drawn up plans to atleast capture 5% of the overall fresh
milk market estimated by Britannia at Rs 420 bn.
Extending the product portfolio beyond cheese, dairy whitener and butter, Britannia
entered the fresh milk segment in 2001. In the dairy whitener, the company has managed to
capture a significant market share.
Leading Brands
Amul, Sapan, Vijaya Spray, Meadow, Mohan, Parag, Shweta, Malkana, Gagan, White Magic,
Every Day.
Market Growth Rates
1990-91 - 1996-97 3.6%
1996-97 - 2001-02 10.1%
2001-02 - 2006-07 8.7%
2004-05 - 2009-10 8.3%
2011-12 - 2016-17 8.0%
KARNATAKA MILK FEDERATION:
Karnataka Cooperative Milk Producers' Federation Limited (KMF) is the Apex Body in
Karnataka representing Dairy Farmers' Co-operatives. It is the second largest dairy co-operative
amongst the dairy cooperatives in the country. In South India it stands first in terms of
procurement as well as sales. One of the core functions of the Federation is marketing of Milk
and Milk Products. The Brand "Nandini" is the household name for Pure and Fresh milk and
milk products.
KMF has 13 Milk Unions throughout the State which procure milk from Primary Dairy
Cooperative Societies (DCS) and distribute milk to the consumers in various Towns/Cities/Rural
markets in Karnataka.

The first ever World Bank funded Dairy Development Program in the country started in
Karnataka with the organization of Village Level Dairy Co-operatives in 1974. The AMUL
pattern of dairy co-operatives started functioning in Karnataka from 1974-75 with the financial
assistance from World Bank, Operation Flood II & III. The dairy co-operatives were established
under the ANAND pattern in a three tier structure with the Village Level Dairy Co-operatives
forming the base level, the District Level Milk Unions at the middle level to take care of the
procurement, processing and marketing of milk and the Karnataka Milk Federation as the Apex
Body to co-ordinate the growth of the sector at the State level.
Coordination of activities among the Unions and developing market for Milk and Milk
products is the responsibility of KMF. Marketing Milk in the respective jurisdiction is organized
by the respective Milk Unions. Surplus/deficit of liquid milk among the member Milk Unions is
monitored by the Federation. While the marketing of all the Milk Products is organized by KMF,
both within and outside the State, all the Milk and Milk products are sold under a common brand
name NANDINI.

CHAPER-2
REVIEW OF LITERATURE AND RESEARCH DESIGN
REVIEW OF LITERATURE
Phill Carroll (Carroll, 1953) in his book on “How to Control Production Costs” stresses
the need for improved cost analyses and control by business to secure reasonable profit
expectations. The book points out various inaccurate and illogical cost-accounting techniques
used by many companies. Every effort is made to create a questioning attitude by management
which will make it aware of its company’s faulty procedures and lead to improved practical
methods of cost control.
Great emphasis is placed upon the need for more detailed cost accounting, depicting
actual conditions so that good judgment can be applied to control and reduce costs. One is made
aware of the need to allocate properly the costs of rework, expensive machines, work and storage
areas, and similar items to the specific products requiring them. The use of average figures for
overhead is glared upon because the individual effects of component factors might be hidden if
they tended to counteract each other. The use of small burden centers and appropriate bases for
overhead rates is stressed as being imperative if companies are to have good control of costs.
Charles T. Horngren, the Edmund W. Littlefield (Horngren, Datar, & Rajan, 2014)
Professor of Accounting, Emeritus, at the Stanford Graduate School of Business, credited with
inventive modern-day cost management practices known to everyone as Chuck. Horngren was
inducted into the Accounting Hall of Fame and was honored repeatedly for his contributions to
the American Accounting Association in 1969, for which he served as president and director of
research. His textbook of Cost Accounting: A Managerial Emphasis which is now in its 14th
edition. It is just one of several of his books that have shaped the education of generations of
accounting students of the whole world.

Horngren (Horngren, Datar, & Rajan, 2014) was credited with changing traditional
accounting education in the 1960s "from cost accounting's overwhelming emphasis on
accumulation and calculation of product costs to managerial accounting, which explores the uses
of costs for various purposes," wrote Thomas Burns, a professor at Ohio State University and
chairman of the Accounting Hall of Fame when Horngren was named to the Hall in 1990.
Charles F. Kettering, (Charles F. Kettering, n.d.) for many years chief of research for
Ford Motors in the USA. once defined research as “an organized process of finding out what
you're going to do when you can't keep on doing what you're doing now”. The dictionary
definition of “a course of critical investigation” is also enlightening.
Dr. Butalal C. Ajmera (Ajmera, 2005) has done his Ph.d in “A Study of Liquidity,
Productivity Viz.-A-Viz. Financial Efficiency of Milk Industry”, in the year 2005 by using
conceptual framework of financial statement, Research plan, profile of the cement industries.
Birla group of companies a bird's eye view, liquidity position, financial structure and suggestion,.
The study reveals the course of profitability.
Sachdeva and Umesh Sharma (2006), in their study, concluded that the materials
management which includes procurement, inventory shop fabrication and field servicing needs
special attention for cost reduction.
Fazeel (Fazeel, 2014) examined that, in the present era where diseases are ubiquitous in
every country, affecting every levels of population, expenditure on medication creates a
significant impact on an individual’s pocket. Cost of drugs has to be given proper attention by
health care professionals so as not to affect the economic status of the patient. Since insomnia is
one of the widespread diseases in India, a patient suffering from chronic insomnia may need to
take hypnotics on consistent basis.
A study by Opler, Saron and Titman (1997) highlight the importance of corporate
liability management for creating value for shareholders. Their study covered analysis of optimal

capital structure (debt equity mix) in such a way that the sum of taxes paid by the firm and the
costs of financial distress are minimized.
Another study (1997) related to developing optimal asset allocation strategy revealed
that the objective of maximizing the utility of wealth. There are relevant factors governing the
development of an optimal strategy as diffusion processes and assets as correlated Brownian
notions.
An empirical study was conducted by L. Sarda, A. Seetharaman and MI Ahmad

(2002) to study correlation of tax adjusted earnings, size, growth and debt on firms value. The
findings were : Debt advantage in terms of market value turned out to be significant. The data
covered by study supported the theory advanced by Miller and Modigliani. Absence of taxes on
interest and dividend have significant implications for the finance controller of companies for
maximization of shareholder wealth.
RESEARCH DESIGN
This chapter is devoted to research design. The formidable problem that follows the task of
defining the research problem is the preparation of the design of the research project popularly
known as the “RESEARCH DESIGN”. A research design is the arrangement of conditions for
collection and analysis of data in a manner that aims to combine relevance to the research
purpose with economy in procedure. In fact, the research design is the conceptual structure
within which research is conducted; it constitutes the blue print for the collection, measurement
and analysis of data. As such the design includes an outline of what the research will do from
writing the final analysis of data.
2.1: TITLE OF THE STUDY
“A STUDY ON COST AND PROFITABALITY ANALYSIS OF KOMUL” AT KOLAR.
2.2: STATEMENT OF PROBLEMS

KOMUL is operating in highly competitive environment. Profitability, Cost & Risks are the key
parameters for analyzing company’s performance with an investor’s perspective. So the study is
conducted to know about operational efficiency of Komul using du-Pont analysis.
2.3: OBJECTIVES
To gain a brief insight of the concept ‘COST PROFITABALITY’.
To know the cost profitability of KOMUL.
To know the Profitability of KOMUL.
To know the Costing and Management efficiency of KOMUL.
2.4: SCOPE OF THE STUDY
This study is confined to the Accounting and Finance department of KOMUL availing only five
years information ranging from 2013 to 2017.
2.5: RESEARCH METHODOLOGY
Research methodology is the basic need of the research. The descriptive study has been
undertaken by studying various input costs involved in comparison with profit for operating the
firm and identifying the costs associated with each activity of the company to study the
implementation of operational efficiency.
In deciding the implementation of the operational efficiency and its benefits, various ratios has
been illustrated and it has been applied to the company by collecting and analyzing the income
statement.
2.6 SOURCES OF DATA

PRIMARY DATA
Primary data has been collected through interaction with the company officials.
SECONDARY DATA
The data has been gathered through secondary sources such as:
Annual reports

Text books
Brochures
Manuals
Income statement
Balance sheet
Various documents of the organization, which was available in company library & from their
website.
2.7: LIMITATIONS OF THE STUDY
Though the present study aims to achieve the above mentioned objectives in full earnest &
accuracy, it may be hampered due to certain limitations as follows:
Since this study is conducted with reference to KMF union therefore it cannot be generalized.
As we know that the companies will maintains the secrecy with regards to their financial
position.
2.8 CHAPTER SCHEME
Chapter 1: Introduction to Operational efficiency
This chapter entails the concept of finance, role and importance of finance, introduction to cost
accounting, need, objectives, scope, types, general principles, advantages and disadvantages of
cost accounting, elements of cost, profitability, income statement, introduction to operating
efficiency, measuring, comparing, tips for increasing operational efficiency, Du-Pont analysis.
Chapter 2: Review of Literature and Research design
This chapter includes the review of literature, statement of the problem, title of the study,
objectives of the study, the scope of the study, research methodology, limitations of the study
and the chapter schemes.
Chapter 3: Company Profile
This chapter comprises of company profile, history, vision & mission, present status and future
of the organization, growth and development, products profile, customers, branch offices.

Chapter 4: Data Analysis and Interpretation

This chapter portrays and interprets the results of the analysed data with the aid of tables and
charts.
Chapter 5: Findings, Suggestions and Conclusion
This chapter brings about the findings of the study, its conclusion and offers suggestions.
BIBLIOGRAPHY:
This chapter highlights the sources formed as a supportive part of the study viz. The references
made from journals, books, articles and websites.
ANNEXURE:
This part of the study contains the financial statements of the five consecutive years i.e. Balance
Sheet as on 31st MARCH 2013, 31st MARCH 2014, 31st MARCH 2015, 31st MARCH 2016,
31ST MARCH 2017.

CHAPTER-3
COMPANY PROFILE:
KOLAR-CHIKABALLAPURA MILK UNION LIMITED:
Kolar-Chikkaballapura District Co-operative Milk Producers Union Ltd., (KOMUL) is

Karnataka’s 2nd highest Milk Producing District organisation. It is a District level apex body of
milk cooperatives in Karnataka, which aims to provide remunerative returns to the farmers by
eliminating the middlemen and also serve the interest of consumers by providing quality Milk &
milk products, which are good value for money.
Once the Dist. was named as Land of Gold & Silk, is making inroads in Quality Milk
Production. It is KOMUL first installed “ Bulk Milk Coolers & Community Milking Machines ”
at Society level in the state of Karnataka to get the quality milk required for UHT milk packed at
Kolar Dairy under the brand name of nandini ‘Good-Life ’.
Presently Union has full pledged dairy at Kolar with an installed capacity of 2.0 LLPD, and three
chilling centers at Chinthamani, Sadli, & Gowribidnur with 1.0 LLPD capacity each
respectively. KOMUL started marketing of liquid milk in polythene sachets in entire Kolar
District and parts of Bangalore City since 1994. The Mnemonic Symbol of NDDB was adopted
by the Union from April’ 2002 to market the liquid milk.
STATUS
Kolar-Chikkaballapura District Co-operative Milk Producers Union is registered under

Co-operative Societies act after bifurcation from Bangalore District Co-operative Milk Producers
Union on 23/03/1987. The area of operation is restricted to Kolar and Chikkaballapur Districts
having 2919 villages of 11 revenue Taluks.

Membership:
Union was started in the year 1987 with 460 functional DCS, as at the end of March –
2017 Union has 2063 Registered Dairy Co-operative Societies and Commissioned 2046 DCS, of
which 1799 DCS are functional. Total Members enrolled are 2,78,886 of which 95,152 are Small
Farmers, 95,455 are Marginal Farmers, 50,201 are Agri Labourers, 38,078 are Others. 70,905 are
Women Members 41,299 are Schedule Caste 28,134 are Schedule Tribe, and 1499 are OBC
members.
Milk Procurement:
The present average Milk procurement during the year 2016 – 17 is 9.63 lakh kgs per day
from 1799 DCS comprises of 2.78 lakh members. The Union had registered a growth to the tune
of 9 % for the last 5 years.
Milk Price:
The cost per kg of Milk is calculated based on Fat and SNF quality of milk. Basic price is
calculated for 3.5% Fat and 8.5% SNF. At present Milk is purchased from DCS at price of Rs
26.05 and DCS pays Rs 25.00 to Producers. In 2016-17 the Union has paid Rs 774.86 crores to
milk producers.
Processing Capacity
Kolar dairy was established during 1994 with a processing

capacity of 1 LLPD of milk. The processing capacity of the
dairy was increased to 2.5 lakh liters during 2005 under
Perspective plan phaseI. Due to the rapid increase in milk
procurement, again the processing capacity of the dairy is
increased to 4.5 lakh liters per day.
Kolar-chikaballapura district co-operative milk producers union is registered under co-operative

societies act after bifurcation from Bangalore district co-operative milk producers union on 23-3-

1987. The area of operation is restricted to kolar and chikaballapura district having 2919 villages
of 11 revenue taluks.
KOMUL has three subdivisions:
 At Chintamani
 At Kolar
 Chikkaballapura
KOMUL has 4 chilling center they are:
Kolar chilling center

Chintamani chilling center
Sadali chilling center
Gowribidnur chilling centre.
NATURE OF THE BUSINESS CARRIED:
One of the core functions is procurement of milk, processing it and marketing milk and milk
products. KOMUL markets its products under the brand name Nandini. The union processes the
milk and market in urban area through various agents. The union is providing service to the milk
producer with technical inputs like veterinary service, seeds, etc and also by giving training to
farmers and induction program.
The union also takes research, development and also other promotional activities for the overall
benefit of the farmers.
MISSION & VALUES

Kolar – Chikkaballapura Milk Union to continuously procure quality milk by providing
remunerative price & technical input services to Producers and supply quality Milk & Milk
Products to the consumers. It also strives to achieve top position in the dairy industry by
improving the financial position of the union.

Values
 Honesty
 Discipline
 Quality
 Hard Work
 Mutual Trust & Belief
 Transparency
 Co-Operation & Team Work
Vision 2020
 Kolar-Chikkaballapura will collect 20 Lakh Lts. of Milk/day.
 Entire Milk will be collected through Bulk Milk Coolers, Computerized systems at
villages.
 Kolar-Chikkaballapura Milk Quality will be a Global Benchmark.
QUALITY POLICY
" We continuously strive to improve our internal quality and operating systems by
educating Milk Producers' and motivating work force to achieve customer satisfaction."
Our Quality Policy
“KOMUL is committed to supply safe Milk and Milk products to the satisfaction of customers
1. By adopting accepted and appropriate methods and technology in procurement,

processing, manufacturing packing and prompt delivery of milk and milk products.
2. Maintaining by constant communication with all the parties involved in the food chain to
achieve ultimate goal of supplying good quality milk and milk products.
3. By complying with statutory and regulatory requirements.

This commitment is supported by measurable objectives and shall be reviewed for continued
suitability from time to time.”
PRODUCT PROFILE
MILK is almost a complete food, with a very high nutritive value. It provides body
building proteins, energy giving lactose and milk fat, bone-forming minerals and health giving
vitamins. All these nutrients are present in an easily digestible and assimilable form in milk and
is therefore a very important food, especially for children. It is also important for the elderly, the
sick or the pregnant women. Milk comprises of water, fat and solid-not-fat (SNF). Milk is
nutritionally balanced when fat and SNF are in the right proportions. SNF is made up of proteins,
lactose and minerals. Normal cow milk contains about 4% fat and 8.5% SNF while buffalo milk
contains about 7% fat and 9% SNF.Of the average daily human requirements, a glass of milk
(about 200ml) provides:16% protein, 30% calcium, 11% Potassium, 20% Riboflavin, 13%
Vitamin, B-12 and 25% vitamin D.
Milk Sales
The marketing area includes entire Kolar district and a part of Bangalore urban and rural
districts. The Union sells following varieties of milks
 Toned Milk
 Homogenized Cow Milk,
 Shubam Milk
 Special Milk
 Samruddhi Milk.
 Double Toned milk etc...
The other range of the products being manufactured and marketed includes:
 UHT milk
 Butter Milk
 Curd

 Ghee
 Peda
Besides this, the Union sells all the products produced by Nandini Milk products, a unit of
K.M.F. The Union is increasing its market share steadily. The present aggregate growth rate
works out to be around 12.85 % for the past 5 years.
The average milk sales during the month of November - 2017 is 2.74 lakhs liters per day
through 632 retailers. During this year the Union registered record milk sales of 2.87 lakhs kgs=
and it is recorded as highest milk sales since inception.
The Average milk sales per day for the last 3 years are as follows
Year 13-14 14-15 15-16 16-17

Avg sales per day 2,22,530 2,36,950 2,43,833 2,66,969
%Growth 15.63 6.48 2.9 9.5
Milk Products Average Sales per day for the Month of Feb – 2016
Sl. No Products Unit Quantity

1 Ghee Kg 5,250
2 Peda Kg 36
3 Curd Kg 17,803
4 Cheese Kg 1,076
Profit and Loss:
During 2015-16, the union turn over Rs 1035.89 crores with provisional profit of Rs. 3.91 crores.
In this financial year, the union paid an average of Rs 21.15 per kg of milk to milk producers.
Years 2013-14 2014-15 2015-16 2016-17

Turnover(Rs in 666.02 827.56 1035.89 1049.94

crore)
KOMUL PRODUCT RANGE
The products produced by komul are:
 MILK
 CURD
 BUTTER MILK
 PEDA
 GHEE
 CHEESE
 GUBAL JAMOON MIX
 MYSORE PAK
 PANEER
 FLAVOURED MILK
 KHOVA
 BUTTER
1 TONED MILK: Karnataka’s most favourite Nandini

toned milk. Pure milk containing 3.0% fat and 8.5%
SNF. This is available in 500ml and 1ltr packs.
2 SHUBHAM MILK: Nandini Shubham milk is nutrious

creamy milk with 4.5% fat and 8.5% SNF suitable for all
the purposes. This is available in 500ml and 1ltr packs.

3 HOMOGENIZED MILK: Nandini homogenized milk is

pure milk which is homogenized and pasteurized.
Consistent right through, it gives you more cups of tea or
coffee and is easily digestible. This is available in 500ml
packs.
4 CURDS: Nandini curds are made out of pure milk. It is
thick and delicious, giving all the goodness of homemade
curds. It is available in 200gms and 500gms.
5 GHEE: Nandini ghee is made from pure butter. It is fresh

and pure butter. It is fresh and pure will a delicious flavor.
Hygienically manufactured and packed in a special pack
to retain the goodness of pure ghee. Shelf life of 6 months
at ambient temperature. This is available 5ltr tins and
15kg.
6 BUTTER: Rich, smooth and delicious, nandini butter is

made out of fresh pasteurized milk cream. Any
preparations made from this will be a delicious treat. It is
available in 100gms(salted), 200gms and 500gms
cartoons both salted and unsalted.
7 MASALA BUTTER MILK: Masala butter milk is

manufactured and sold in the summer season, especially
from month of march to july, the only period during
Which it gets demand. On an average the selling mounts
to about 1000ltrs per day in 250ml sachets.

8 PANEER : Nandini Paneer is very tasty, wholesome and
nutrious supplement for a variety of dishes. Add Paneer
to make dishes creamy and mouth-watering. It is available
in 200gms (chiplets) and 1kg (slab) packs. It can be stored
for 30 days when kept frozen.
9 CHEESE :Nandini cheese is creamy, soft fresh, cheddar

cheese made from pure whole milk comes in an ‘easy-to-
grate’ block. It is available in 1kg and 200gms packs.
10 KHOVA :Nandini pure milk Khova adds richness and

increases the taste in the preparations like carrot halwa,
gulab jamoon etc., it is available in 200gms packs. It can
be stored for 30 days when kept frozen.
11 PEDA: Peda is sweetened heat desiccated product
obtained from milk. It is rich in fat, proteins, lactose and
minerals especially iron content. On an average 25kg
peda is produced and sold in units of 25gms box. Each
box contains 10 pedas weighing 25gram each.
BOARD OF DIRECTORS
Name of board of directors
Sri N G Bytappa Sri K V Nagaraju

President Director, CBpura Tq

Sri Jayasimha Krishnappa Sri Ashwatha reddy.K

Director, Bangarpete Tq Director, Gudibande Tq
Sri R.Ramakrishne gowda Sri K.Y Nanjegowda

Director, Kolar Tq Director, Malur Tq
Sri M Byrareddy Sri R.R Rajender Gowda

Director, SVpura Tq Director, Mulbagal Tq
Sri Y.B Aswthnarayana

Sri Muniyappa
Director, Chinthamani Tq
Director, Shidlaghatta Tq
Sri K Prabhakar reddy Smt Parvathamma

Director, Bagepalli Tq Director, Kolar Dist
Smt Sunandhamma
Sri J.Kantharaju

Director, CB pura Dist Director, Gowribidanur Tq
Sri M.D. Narasimhamurthy Sri P.C.Patnaik

RCS Representative NDDB Representative
Dr H V Thippa Reddy
Dr Channakeshavaiah
KMF Representative
Dept. of AH Representative
Sri N Hanumesh
Managing Director
AREA OF OPERATION (NATIONAL)
Nandini (KOMUL) has a long traditional of maintaining the highest quality standards,
rights from selection of raw milk to processing and packaging of the end products.
KOMUL comprises of Kolar-Chikkaballapura district 11 taluks with a total of 2919

revenue villages.
The reason why its products are much in demand nationally and are exported regularly to
states like Andhra Pradesh, Tamil Nadu, Kerala, Maharashtra, Goa and all over the Karnataka. In
many 2008 kolar milk union started to exported good life milk with a shelf life of 1 year to
Singapore and in Sep2008 union started good life milk to Indian army.

INFRASTRUCTURAL FACILITIES
 Dispatching of milk from the remote area.

 Providing hospital facility to the employees.
 Giving quarters to the employee.
 Well organized machinery.
 Canteen facilities are provided at very subsidized rate.
 Conveyance allowance is given to all employees.
 Transportation facilities are provided to employees of the organization at free of cost.
DAILY ACTIVITIES OF THE UNION
Under Co-operative sector, Kolar-Chikkaballapura Milk Union Limited (KOMUL) is

totally autonomous organization. It functions through elected management committee.
Operational area of union is restricted only to Kolar district comprising of 11 Taluks. In order to
give more importance to dairy farming activities in rural area in turn to bring overall
improvement in production and development,the Union is functioning with the following set of
objectives they are:
• To improve Dairy farming activities in rural area by establishing Milk producers co-operative
societies (MPCS) under co-operative principles.
• To eliminate middleman by organizing DSC owned and managed by producers themselves.
• To provide quality milk and milk products to urban consumers at reasonable price.
• Finally, to provide contact between producers in the village and consumers in the town, this
acts as a bridge to bring society economics and changes in the society.

COMPETITORS
SL.NO COMPANY NAME COMPANY LOGO
1. NESTLE
Swastik
2.
Tirumala
3.
Dodla
4.

Heritage
5.
6. Arokya
Amul
7.
SHARE CAPITAL
Union started with a share capital of rs.8.56 lakhs, which was transferred from Bangalore
district milk union. The share capital of the union at present is rs.3303.74 lakhs.
MEMBERSHIP
As at the end of Feb - 2017, the Union has 2006 Registered Dairy Co-operative Societies
and 1989 Commissioned DCS. Out of which, 1743 are functional. The total Members enrolled
are 2,78,570. Out of which 95,110 are Small Farmers, 95,267 are Marginal Farmers, 50,118 are

Agri Labourers, 38,075 are Others. 70,961 are Women Members 41,235 are Schedule Caste
28,107 are Schedule Tribe , and 1499 are OBC members.
SWOT ANALYSIS
SWOT analysis is a tool for auditing an organization and its environment. It is the first stage
of planning and helps marketers to focus on key issues.
This SWOT analysis is based on both external factors and internal factors of the organization.
STRENGTH WEAKNESS
OPPURTUNITIES THREATS
STRENGTHS
 Customer satisfaction
 Quick availability of raw materials
 Strategically located in the KOMUL
 Popular brand known from many years
 Milk and milk products are available at competitive prices
 KOMUL has very good infrastructure
 KOMUL attends to the complaints of consumers immediately4
 New technology implemented for production of milk
 Ability to maintain uniform quality
 Timely delivery

 Raw milk handling needs is upgrade in terms of physico-chemical and microbiological
attributes of the milk collected. The use of clarification and bactofugation in raw milk
processing has improved the quality of the milk products.
 KOMUL pays the highest price for the milk collected from farmers in India and loyally
among customers for the brand
WEAKNESS
 Freezing of marketable area

 Lack of flexibility in system
 Rivalry among sister unions
 Lack of personalized service to channel members
 High overheads
 Return are not expected
OPPORTUNITIES
 Expansions of operations to rural areas

 Already planned for introducing some new products in means future to cater to new
segments of business.
THREATS
 Entry of MNC’S into dairy industry

 Lack of proper promotions for the KOMUL range of products
 Competitions from private dairy companies
 Unawareness about the various products of KOMUL among the people
FUTURE GROWTH AND PROSPECTORS:
1. Quality prerequisite for growth and competitive edge .

2. Need of High Quality Raw Milk for the production of “Good Life” brand UHT Milk.
3. Need to produce Value Added Products like Cheese, Fruit based Drinking Yogurt an.

CHAPTER-4
DATA ANALYSIS AND INTERPRETATION
KOMUL is operating in highly competitive environment. Profitability, Cost & Risk are
the key parameters for analyzing company’s performance with an investor’s perspective.
So the study is conducted to know about operational efficiency of KOMUL using du-
Pont analysis model.
The data has been gathered through primary sources i.e. information through interaction
with company officials as well as secondary sources such as Annual reports, Brochures,
Manuals, Income statement, Balance sheet and various documents of the organization,
which was availed through company library & website for data analysis and
interpretation.
This chapter port frays and interprets the results of the analyzed data with the aid of
tables and charts. The data analysis and interpretation has done based on Du-Pont
analysis.
DU-PONT ANALYSIS
DEFINITION
Du-point formula (also known as the Du-point analysis Du-point model, Du-point the
equation or the Du-point method) is a method for assessing a company’s returns on
equity (ROE) breaking it’s into three parts. The name comes from the Du-point
Corporation that started using this formula in the 1920’s





CHART REPRENSENTING DU-POINT MODEL AN PRFITABALITY
PROFITABILITY
PAT/PBT EBT/EBIT EBIT/SALES
OPERATING
COGS/SALES EXP/SALES
MATERIAL/SALES LABOUR/SALES DIRECT EXP/SALES

TABEL 4.1
Table showing profit margin
Formula used: PAT/SALES*100
YEAR PROFIT MARGIN
2013-14 0.39%
2014-15 0.41%
2015-16 0.30%
2016-17 0.20%
2017-18 0.18%

ANALYSIS :
From the above table, in 2013-14 the profit margin is positive that is 0.39% ,where as
2014-15the profit margin is 0.41% ,2015-16 the profit margin is 0.30%, 2016-17the profit
margin 0.20% and 2017-18 the profit margin is 0.18%.
GRAPH:4.1
GRAPH SHOWING PROFIT MARGIN
Profit Margin
0.45 0.41
0.39
0.4
0.35 0.3
0.3
0.25 0.2
0.18 Profit Margin
0.2
0.15
0.1
0.05
0
2013-14 2014-15 2015-16 2016-17 2017-18
INTERPRETATION:
Form the above analysis, it can be the profit margin is positive 0.39% in the year 2013-
14. However the profit margin in 2014-15 is 0.41%, 2015-16 is 0.30%, 2016-17 is 0.20%,
2017-18 is 0.18%.
Hence the revenue of the company has decreased profit margin. But made a positive
impact on the profit margin. No negative balance.
TABLE: 4.2
TABLE SHOWING RELATIONSHIP BETWEEN TAXABLE PROFITS

AND OPERATING PROFIT
Formula used: EBT / EBIT x 100
YEARS OPERATING AND TAXABLE

PROFIT
2013-14 50
2014-15 35
2015-16 43
2016-17 53
2017-18 60
ANALYSIS:
From the above table, the ratio of operating profit to taxable profit is positive i.e., 2013-
14 is 50%, whereas in 2014-15 the ratio is 35%, in the year 2015-16 the ratio is 43%, in
the year 2016-17 the ratio is 53% and in the year 2017-18 the ratio is 60%.

GRAPH:4.2
Graph Showing Operating Profit and Taxable Profit
Operating Profit and Taxable Profit

60
60
53
50
50
43
40 35
Operating Profit and Taxable

30
Profit
20
10
0
2013-14 2014-15 2015-16 2016-17 2017-18
INTERPRETATION:
From the above analysis all the year operating and taxable ratio of company is profit is
positive.
However, the profitability ratio in 2009 - 10 is 50%, in the year 2010 - 11 is 35%, 2011 -
12 is 43%, 2012- 13 is 53%. And the year 2013 -14 is 60%.
Since, in 2010 - 2011 the operating expense is very low in the company .
Hence, it shows positive impact in the operating and taxable profitratio of the company.

TABLE 4.3:
Table Showing the Relationship between Profit after Tax and Profit before Tax
Formula used: PAT / PBT*100
YEARS PAT/PBT
2013-14 70%
2014-15 40%
2015-16 70%
2016-17 53%
2017-18 70%
ANALYSIS:
From the above table in 2013-14 relation between PAT and ,PBT is 70%where as in
2014-15 it is 40% 2015-16 is 70% is 2012 -13 it is 53% and 2017-18 is 70%, in the
above table 2014-15 profit is very low.

GRAPE;4.3
Grape showing the relationship between profit after tax and profit before tax
PAT/PBT
80%
70% 70% 70%
70%
60% 53%
50%
40%
40% PAT/PBT
30%
20%
10%
0%
2013-14 2014-15 2015-16 2016-17 2017-18
INTERPRETATION
From the above an be analysis, it inferred that the profitability during the year 2016-17
decreased to53% .In the following year the revenue of the company has picked up due to
which the profitability condition has increased.

TABLE 4.4:
Table Showing Relationship between Operating Profit and Sales
Formula; EBIT/SALES*100
YEARS EBIT/SALES*100
2013-14 1.11%
2014-15 1.65%
2015-16 1.03%
2016-17 0.97%
2017-18 0.43%
ANALIYSIS;
From the above table .in the year 2013-14, 2014-15, 2015-16 is relationship between
EBIT an sales is high. In the year 2016-17, 2017-18 the relationship is very low.

GRAPH 4.4:
Graph Showing the Relationship between Operating Profit and Sales
EBIT/SALES*100
1.80% 1.65%
1.60%
1.40%
1.11%
1.20% 1.03%
0.97%
1.00%
EBIT/SALES*100
0.80%
0.60% 0.43%
0.40%
0.20%
0.00%
2013-14 2014-15 2015-16 2016-17 2017-18
INTERPRETATION:
From the above analysis, it can be inferred that the relation between the operating profit
and the sales is high in the initial year 2014-15. It has subsequently decreased in the
following years.
However, in 2015-16, and 2016-17 the expenditure of the company is increased, thus the
relationship between the operating profit and sales has decreased in the 2017-18.

TABLE 4.5:
Table Showing Expenses Ratio
Formula: used: expenses ratio/sales*100
YEARS EXPENSES RATIO

2013-14 81.10%
2014-15 78.25%
2015-16 79.21%
2016-17 78.44%
2017-18 77.59%
ANALYSIS:
From the above table, the expenses ratio for 2013-14 is 81.10% & then it as
reduced to 78.25% in a year 2014-15, and 2013 - 14 is 77.59%

GRAPH 4.5:
Graph Showing Expenses Ratio
EXPENSES RATIO
82.00%
81.10%
81.00%
80.00% 79.21%
79.00% 78.25% 78.44%
EXPENSES RATIO
78.00% 77.59%
77.00%
76.00%
75.00%
2013-14 2014-15 2015-16 2016-17 2017-18
INTERPRETATION
From the above analysis, it can be inferred that the expenses ratio is varying from year to
year.
In the year of 2013-14 the expenses ratio is more and it has decreased all the year
The expenses ratio is less in 2017-18 compared to the previous years as the company has
not incurred any expenses on the purchase of materials.

TABLE 4.6:
Table Showing the Relationship between Operating Expenses and Sales
Formula used: operating expenses/sales*100
YEARS OPERTING EXP/SALES

2013-14 98.88%
2014-15 98.34%
2015-16 99.88%
2016-17 99.02%
2017-18 99.56%
ANALYSIS:
From the above table, the operating expense ratio for 2013-14 is 98.88%, then 2014-15 is
98.34% it has increased to99.88% in the year 2015-16 and further it has to 99.02%
during 2016-17 and 2017-18 is 99.56%.

GRAPH 4.6:
Graph Showing the Relationship between Operating Expenses and Sales
OPERTING EXP/SALES
99.88%
100.00%
99.56%
99.50%
99.02%
98.88%
99.00%
OPERTING EXP/SALES
98.50% 98.34%
98.00%
97.50%
2013-14 2014-15 2015-16 2016-17 2017-18
INTERPRETATION:
From the above analysis, it can be inferred that the operating expenses have increased
from year to year. In the year of 2013-14the expenses ratio is 98.88% and 2014-
15is98.34% and it has increased in 2015-16 and 2016-17. And 2017-18
The relationship between the operating expenses and sales is impacted from the expenses
of administrative, selling expenses. Since the company has incurred more expenditure
and sales in the year of 2015-16, the operating expense is high as compared to the
following year.

TABLE 4.6 (a):
Table Showing Relationship between Selling Expenses and Sales
Formula used: Selling expenses / Sales x 100
YEARS SELLING EXP/SALES

2013-14 2.21%
2014-15 2.69%
2015-16 2.81%
2016-17 2.59%
2017-18 3.04%
ANALYSIS:
From the above table, the selling expense ratio for the year 2013-14 is 2.21%, then it has
toincreased 2.69% in the year 2014-15,2.81% in the 2015-16, 2016-17. Is 2.59%, and
2017-18 is increased to 3.04%.

GRAPH 4.6 (a):
Graph Showing the Relationship between Selling Expenses and Sales
SELLING EXP/SALES
3.50%
3.04%
2.81%
3.00% 2.69% 2.59%
2.50% 2.21%
2.00%
SELLING EXP/SALES
1.50%
1.00%
0.50%
0.00%
2013-14 2014-15 2015-16 2016-17 2017-18
INTERPRETATION:
From the above analysis, it can be inferred that the selling expense to sales ratio has
increased gradually from year to year.
In the year 2017-18 the selling expense ratio is more when compared to the subsequent
years as the company has incurred more expenditure than sales in the initial year.

TABLE 4.6 (b):
Table Showing the Relationship between Administrative Expenses with Respect to

Sales
Formula used: administrative expenses/sales*sales
YEARS ADMINISTRATIVE EXP/SALES

2013-14 0.56%
2014-15 0.68%
2015-16 0.61%
2016-17 0.64%
2017-18 0.67%
ANALYSIS:
From the above table, the administrative expense ratio for the year 2013-14 is 0.56%,
then it has increased to 0.68% in the year 2014-15 further it reduced to 0.61% during
2015-16. In 2016-17 is increased to 0.64%,and 0.67% is in the year 2017-18.

GRAPH 4.6 (b):
Graph showing the relationship between the administrative expenses with respect to
sales
ADMINISTRATIVE EXP/SALES
0.68% 0.67%
0.70% 0.64%
0.61%
0.60% 0.56%
0.50%
0.40%
ADMINISTRATIVE EXP/SALES
0.30%
0.20%
0.10%
0.00%
2013-14 2014-15 2015-16 2016-17 2017-18
INTERPRETATION:
From the above analysis, it can be inferred that the administrative expense to sales
relationship has reduced gradually from year to year.
In the year 2014-15 the administrative expense ratio is high as the administration
expenses is more when compared to the subsequent years.

TABLE 4.7:
Table Showing the Relationship between Non-Operating Expenses to Sales
Formula used: non-operating expenses/sales*100
YEARS NON-OPERATING EXPENSES
2013-14 1.25%
2014-15 1.09%
2015-16 0.99%
2016-17 0.83%
2017-18 0.79%
ANALYSIS:
From the above table, the non-operating expenses ratio for the year 2013-14 is 1.25%,
then it has reduced to 1.09% in the year 2014-15 further it reduced to 0.99% during 2015-
16. In 2016-17 is 0.83% and 2017-18 is0.79%.

GRAPH 4.7
Graph showing relationship between non-operating expenses and sales
NON-OPERATING EXPENSES
1.40% 1.25%
1.20% 1.09%
0.99%
1.00%
0.83% 0.79%
0.80%
NON-OPERATING EXPENSES
0.60%
0.40%
0.20%
0.00%
2013-14 2014-15 2015-16 2016-17 2017-18
INTERPRETATION:
From the above analysis, it can be inferred that the ratio between the non-operating
expenses and sales has reduced gradually from year to year. This reduction is due to
decrease in depreciation. (Only depreciation is considered as the non-operating
expenses).
As the company is following the written down value method/diminishing value method
and the company has not purchased any fixed assets in the year 2016-17 and 2017-18,
hence the value of depreciation has reduced.

TABLE 4.8:
Table Showing the Relationship between Materials to Sales
Formula used: Material / Sales x 100
YEARS MATERIAL*SALES
2013-14 80.64%
2014-15 78.49%
2015-16 80.37%
2016-17 80.77%
2017-18 81.47%
ANALYSIS:
From the above table, the ratio between material purchase and sales for the year 2013-14
is 80.64%, then it is for the year 2014-15 is 78.49% further it has increased to80.37%
2015-16,in 2016-17 is 80.77% and 81.47% in 2017-18.

Graph 4.8:
Graph Showing the Relationship between Materials to Sales
MATERIAL*SALES
81.47%
81.50%
80.64% 80.77%
81.00%
80.37%
80.50%
80.00%
79.50%
MATERIAL*SALES
79.00% 78.49%
78.50%
78.00%
77.50%
77.00%
2013-14 2014-15 2015-16 2016-17 2017-18
INTERPRETATION:
From the above analysis, it can be inferred that the materials to sales ratio is 80.64% in
the year 2013-14 and the material to sales ratio for the year 2014-15 decreased to
78.49%, and increased all the years.
However, the company has purchased the materials in the year 2017-18, so the
relationship between the material and sales has increased.

TABLE 4.9
Table Showing the Relationship between Manufacturing Expenses and Sales
Formula used: Manufacturing expenses / Sales x 100
YEARS
MANUFACTURING EXP*SALES
2013-14 13.12%
2014-15 15.40%
2015-16 15.09%
2016-17 16.05%
2017-18 17.37%
ANALIYSIS:
From the above table, the ratio between manufacturing expenses and sales for the year
2013-14 is 13.12%, and then it has increased to 15.40% in the year 2014-15, 15.09% in
the year 2015-16, in 2016-17 is 16.05%.and 2017-18 is increased to 17.37%.

GRAPH 4.9:
Graph showing relationship between manufacturing expenses and sales
17.37%
18.00% 16.05%
15.40% 15.09%
16.00%
13.12%
14.00%
12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%
2013-14 2014-15 2015-16 2016-17 2017-18
INTERPRETATION:
From the above analysis, it can be inferred that there is an increase in the manufacturing
expenses. The increased impact may be due to the increase in rate of wages or prices of
materials.

TABLE 4.10:
Table Showing the Operating Profit (EBIT) to Net Profit (PAT) Ratio
Formula used: EBIT/PAT*100
YEARS EBIT/PAT
2013-14 280
2014-15 397
2015-16 325
2016-17 352
2017-18 233
ANALIYSIS:
From the above table, the ratio between operating profit to net profit for the year 2013-14
is 280%, then it has increased to 397% in the year 2014-15 and further it reduced to
325% during 2015-16. in 2016-17 it increases to 352%, and 2017-18 it reduced to233%.

GRAPH 4.10:
Graph Showing the Operating Profit (EBIT) to Net Profit (PAT) Ratio
EBIT/PAT
397
400 352
350 325
280
300
233
250
200 EBIT/PAT
150
100
50
0
2013-14 2014-15 2015-16 2016-17 2017-18
INTERPRETATION
from the above analysis , it can be inferred the operating profit ratio is 280% in the year
2013-14,increased in the year 2014-15 397%, and 2017-18 is decreased to 233%.In the
above graph profits variation year by year.

Table 4.11:
Table Showing the Relationship between Financial Charges to Sales
Formula used: Financial charges / Sales x 100
YEARS FINANCIAL CHARGES/SALES

2013-14 0.30
2014-15 0.23
2015-16 0.18
2016-17 0.19
2017-18 35.73
ANALYSIS:
From the above table, the financial charges relationship for the year 2013-14 is 0.30%,
and then it has reduced to 0.23% in the year 2014-15 and to 0.18 % during 2015-16.and
2017-18 is increased 35.73%.

GRAPH 4.11:
Graph Showing the Relationship between Financial Charges to Sales
FINANCIAL CHARGES/SALES
40 35.73
35
30
25
20 FINANCIAL CHARGES/SALES
15
10
5
0.3 0.23 0.18 0.19
0
2013-14 2014-15 2015-16 2016-17 2017-18
INTERPRETATION:
From the above analysis, it can be very low in all the years 2017-18 is35.73%.
Since there is decrease in the financial charges relationship from year to year, this shows
that the company has paid fewer amounts towards the financial charges.

CHAPTER-5
FINDINGS SUGGESTIONS AND CONCIUSION
FINDINGS
 Profit margin is the positive in all the year, and it has gradually increased in
the following years that show a good sign in the profitability margin of the
company.
 The operating and taxable profit is positive in the initial year and it has
gradually increased in the following years and also sales of the company
have improved in the following year.
 In the initial year the operating expenses is more than the operating income,
so the operating and taxable profit of the company is in positive
 In the initial year, the relationship between the profit after tax and before tax
is positive due to decreased expenditure compared to the revenue, in the
following year , the revenue of the company has picked up due to which the
profitability condition has increased.
 The relation between the operating profit and sales has not showed a greater
impact on the company in the initial year.

 The relationship between the operating profit and sales has been affected
from expenditure being inured by the company. Initial year .the expenditure
of the company. Is less than the total sales.
 The expenses ratio showing the variation from year to year, in the initial
year expenses ratio is more and it has decreased in following year.
 The expenses ratio is more in the 2012-13 compared to all the year due to
the company has purchased more material in this year.
 The operating expense has decreased to year by year. Expenses ratio is more
and it has decreased in the following year.
 There is decreased financial charges relationship from the year to year; this
shows the company has paid fewer amount towards the financial year.
 The non-operating expense and reduced gradually from year to year. This
redaction is due to the impact of the depreciation. (Only depreciation is
considered as the non-operating expenses.
 In the subsequent year the operating and net profit has increased as the sales
of the company has increased in the following year.

SUGGESTIONS
1. From one of the above findings it can be noted that the company experiences recession
due to which its profit has been affected. So it is suggested that the company should plan
its expenditure in such a way that any changes in the business cycle will not affect the
profitability of the company.
2. The company is suggested to frame strategies to control operating expenses so that the
company can better its operating profitability position.
3. Proper training must be given to sales executives and marketing research must be done
regularly. This would result in increasing the demand for the products and sales would
also increase.
4. The company should go for economic purchasing to reduce costs of production.
5. It is suggested for the company to frame and follow the effective management policy
in order to increase efficiency in the process of manufacturing, administering and selling
the products which results in high sales and increase in profits.

CONCLUSION
In this competitive business world, operating efficiency of an organization plays a
significant role. Hence each and every organization irrespective of their business line
must try to accomplish the objective of attaining Operating efficiency as it impacts on the
profitability status of the organization.
KOMUL has established in Karnataka for milk products. It offers varied products of
highest quality at competitive price. The company has grown enormously in the last five
decades by giving priority to research and development in milk products to give better
and good quality milk products to its customer.
The Operating efficiency of KOMUL is good as the company is managing the resources
in an efficient manner by controlling the cost. The Overall performance of the company
is satisfactory.

BIBILOGRAPHY
Company documents
 Annual report
 Profit and loss accounts statements
 Company web site
Books referred
 Cost Management – Ravi.M. Kishore

 Advanced cost accounting -Jain and Narang
Websites
 www.komul.co.in
 www.amulindia.com
 www.kmfnandini.coop/html/kmfunits-nmp.html
 www.kmfdairy.com

ANNEXURE

ANNEXURE
KOLAR-CHIKKABALLAPURA MILK UNIOUN LTD
NH-4, HUTHUR POST, KOLAR-563102
BALANCE SHEET ABSTACT FOR THE YEAR 2013
PARTICULERS AMOUNT AMOUNT

SOURCESS OF FUNDS
share capital 280974200.00
reserves and surplus 427768810.48
loans 93009551.00
GOK plan funds 280861501.53
Profit and loss a/c 33829819.66
Total 1116443882.67
APPLICATIONS OF FUNDS
Fixed assets
Gross block 952908433.96
Less: depreciation- note block 595050944.66 357857489.30
INVESTMENTS 39513748.53
Current assets 620587772.14
Stock 207253540.51
Trade debtors 339155600.53
Cash and bank balance 143180788.34
Loans and advances 1310177701.52
Total(a)

Less current liabilities and 591105056068
provisions (b)
Net working capital (a-b) 719072644.84

TOTAL 1116443882.67
ANNEXURE
BALANCE SHEET ABSTRACT FOR THE YEAR 2014

SOURCESS OF FUNDS
loans 57170097.00
Total 1104207617.17
Fixed assets
Gross block
1106006765.96
Less: depreciation- note block
656569018.89 44947747.07
198612486.53
INVESTMENTS

Current assets
Stock 275897205.85
Total(a) 974476829.67
Less current liabilities and
provisions (b) 518319446.10

TOTAL 1104207617.17
ANNEXURE

SOURCESS OF FUNDS
loans 47576432.00

Total 1281897814.31
Fixed assets
Gross block
1291455994.96
724173448.73 567282546.23
INVESTMENTS
285446806.53
Current assets
Stock
315440471.38
Trade debtors
364415453.78
Cash and bank balance
209233676.33
Loans and advances
107038904.21
Total(a)
996128505.70
provisions (b)
566960044.15
Net working capital (a-b)

429168461.55
TOTAL 1281897814.31

ANNEXURE

SOURCESS OF FUNDS
loans 164694666.00
total 1907141250.72
Fixed assets
Gross block
1469990997.96
7964496976.18 673494021.78
135189144.53
INVESTMENTS
Current assets
Stock
477632382.79
Trade debtors
457842415.88
539663229.92
Loans and advances
208722465.03

Total(a) 585402409.21
provisions (b) 585402409.21

TOTAL 1907141250.72
ANNEXURE

SOURCESS OF FUNDS
loans 164694666.00
total 1907141250.72
Fixed assets
Gross block
1469990997.96
7964496976.18 673494021.78

INVESTMENTS 135189144.53
Current assets
Stock
Total(a) 208722465.03
Less current liabilities and 585402409.21
provisions (b)
585402409.21
1098458084.41
TOTAL 1907141250.72
ANNEXURE

SOURCESS OF FUNDS
loans 585747840.00

total 2756900571.14
Fixed assets
Gross block
2284808834.96
868339165.12 1416469669.84
INVESTMENTS
42230127.00
Current assets
Stock
537414032.30
Trade debtors
603092950.97
431154262.71
Loans and advances
526659141.27
Total(a)
2098317387.25
provisions (b)
800116612.95
1298200774.30
TOTAL 2756900571.14

KOLAR-CHIKKABALLAPURA MILK UNION LIMITED
PROFIT AND LOSS A/C AND COST PARTICULARS FOR THE YEAR 2012-13
PARTICULARS 2012-13 COST/kg

QTY. PRODUCED(kg's) 306792011
avg.KPD 840526
A.SALES 8275628870 26.97
B.MATERIAL CONSUMED
opening stock 299342968.4
purchses 6742587986
closing stock 620587772.1
(op.st+pur-cl.st 6421343182 20.93

C.GROSS MARGIN(A-B) 1854285688 6.04
D.VARIABLE COSTS:
proc. Trptn. Chgs. 138547458.8 0.45
processing expenses 542549201.9 1.77
packing materials 504504775.8 1.64
selling and distbn exps 251931922.8 0.82
TOTAL 1437533359 4.69
E.CONTRIBUTION(C-D) 416752328.3 1.36
F.FIXED COSTS
technical input exps 66787247.12 0.22
staff expensess 257013029.8 0.84
admn. Exps and taxes 55553719.75 0.18
NDP 1203500
short claimes 0
TOTAL 380557496.7 1.24

G.PROFIT BEFORE INTEREST(E-F) 36194831.57 0.12

H.INTEREST 29572994.2 0.1
I.CASH PROFIT FROM OPRN(G-H) 6621837.37 0.02
J.DEPRECIATION 35887947.01 0.12

RESERVE FOR BAD AND DOUBTFUL
DEBTS
K.NET PROFIT FROM OPRNG(I-J) 29266109.64 -0.1
ADD:MISC.INCOME 51309264.73 0.17

profit before tax 22043155.09 0.07
provision for income tax 6558910 0.02
allocation to instructure fund 0
allocation to price fluctuation fund 0
profit after tax 15484245.09 0.05

avg.KPD 869491
A.SALES 10356698099.54 32.63
B.MATERIAL CONSUMED
purchses 7659754170.90
(op.st+pur-cl.st 8004444737.19 25.22

C.GROSS MARGIN(A-B) 2352253362.35 7.41
D.VARIABLE COSTS:
proc. Trptn. Chgs. 149022462.92 0.47

TOTAL 1634693596.08 5.15
F.FIXED COSTS
technical input exps 103096111.02 .32
admn. Exps and taxes 62821011.10 .20
NDP 4871251.00
short claimes 1410090.00
TOTAL 495406283.60 1.56

H.INTEREST 16659709.70 0.05

DEBTS
K.NET PROFIT FROM OPRNG(I-J) 172408873.42 0.54

provision for income tax 82837755.00 0.26
allocation to instructure fund 103566980.00
allocation to price fluctuation fund 33553650.00


avg.KPD 850773
A.SALES 10495582459.94 33.80
B.MATERIAL CONSUMED
purchses 7994087867.11
(op.st+pur-cl.st 7954544601.58 25.62

C.GROSS MARGIN(A-B) 2541073858.36 8.18
D.VARIABLE COSTS:
proc. Trptn. Chgs. 151981767.57 0.49
TOTAL 1759585123.36 5.67
F.FIXED COSTS
NDP 9539021.00
short claimes 0.00

TOTAL 508595262.40 1.64
H.INTEREST 13898450.38 0.04

DEBTS


avg.KPD 899736
A.SALES 10971766868.22 33.32
B.MATERIAL CONSUMED
purchses 8660495280.55
(op.st+pur-cl.st 8498303369.14 25.81

C.GROSS MARGIN(A-B) 2473463499.08 7.51
D.VARIABLE COSTS:

proc. Trptn. Chgs. 150094317.34 0.46
TOTAL 1755059941.51 5.33
F.FIXED COSTS
NDP 10615785.00
short claimes 0.00
TOTAL 563000103.00 1.71

H.INTEREST 14916752.29 0.05

DEBTS



avg.KPD 963554
A.SALES 12824490425.17 36.46
B.MATERIAL CONSUMED
purchses 10045702311.53
(op.st+pur-cl.st 9985920662.02 28.39

C.GROSS MARGIN(A-B) 2838569763.15 8.07
D.VARIABLE COSTS:
proc. Trptn. Chgs. 171198361.08 0.49
TOTAL 1934408486.92 5.50
F.FIXED COSTS
NDP 19021197.00
short claimes 0.00

TOTAL 542366920.53 1.54
H.INTEREST 4481571.33 0.01

DEBTS


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A Study on Cost and Profitability Analysis

1.1: INTRODUCTION TO FINANCE

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Role and importance of finance

INTRODUCTION TO COST ACCOUNTING

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(c): COST ACCOUNTING

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COST CONTROL & COST REDUCTION

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(h): AREAS OF COST REDUCTION

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(i): ESSENTIALS OF A GOOD COSTING SYSTEM:-

(j): TYPES OF COSTING

(k): GENERAL PRINCIPLES OF COST ACCOUNTING

(l): ADVANTAGES OF COST ACCOUNTING

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(m): LIMITATIONS OF COST ACCOUNTING

(n) COST ANALYSIS, CONCEPT AND CLASSIFICATION:

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Direct material/Indirect material

Works or factory cost=prime cost +works or factory overheads.

Cost of production=work cost+ administrative cost

Total cost or cost of sales=cost of prodaction+selling and administrative overheads.

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are termed as expenses. Expenses are classification into categories

Indirect Expenses = Indirect cost – Indirect material – Indirect labour.

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Overhead = Indirect material + Indirect labour + Indirect expenses.

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Office and administrative overheads:

Some examples are as follows:

Selling and distribution overheads:

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1.4 INCOME STATEMENT

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COST OF GOOD SOLD (COGS)/COST OF SALES

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

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EBIT(Earnings before interest and tax)

EBT (Earnings before Tax)

Net Profit Margin

Gross Profit Margin

Operating Expense Ratio

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Dairy Industry In India

Uttar Pradesh, Punjab, Haryana, Rajasthan, Gujarat, Maharashtra, Andhra Pradesh,

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Processed Dairy Products

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REVIEW OF LITERATURE AND RESEARCH DESIGN

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