Project Report on

“A study of Leverage & Cost Behavior

analysis in
Vidarbha Liquor Corporation
For the FINANCIAL YEAR
(2007-08 & 2008-09)”
Submitted to

Rashtrasant Tukdoji Maharaj Nagpur

University
Partial fulfillment of
Degree of Master of Business Management
For the academic year 2009-2010

Submitted By

Ashish Wasudeorao Burde

(Enroll no.NU/A5/19810)

Under The Guidance of

Prof. Ms. Lata G. Bhutada

Dhantoli, Katol,
Nagpur, Mharashtra-India
Page 1
 Certificate
This is certify to that the project report submitted by
Ashish Wasudeorao Burde

on
“A study of Leverage & Cost Behavior
analysis in
VIDARBHA LIQUOR CORPORATION
For the financial year 2007-08 & 2008-09”
In partial fulfillment of two year full time Degree of
Master of Business administration
By Rashtra Sant Tukdoji Maharaj Nagpur Univercity.
Nagpur
This original work carried out under our supervision
and guidance and He has undergone the requisites hours
of practical prescribe by the university for project work
during Academic session 2009-2010.

College Guide Head of Department

Ms. Lata Bhutada Dr. K. S. Kadu

Principal
Mr. A.S. Meena
Department of Management Studies Page 2
 NABIRA MAHAVIDYALAYA (Katol)
2009-2010

Acknowledgements

A MBA Final Sem. Training Programme is a golden opportunity for learning

and self development. I consider myself very lucky and honored to have so many wonderful
people lead me through in completion of this project.
My grateful thanks to Prof. Ms. Lata Bhutada Madam who in spite of being
extraordinarily busy with her/his duties, took time out to hear, guide and keep me on the
correct path. I do not know where I would have been without her/him. A humble ‘Thank you
Madam’.
Dr. K.S. Kadu Sir (HOD), DMS Nabira Mahavidyalaya, Katol, Nagpur.
monitored my progress and arranged all facilities to make life easier. I choose this moment to
acknowledge his contribution gratefully.
Mr. Pradeep Mahajan Sir whose patience I have probably tested to the limit.
She was always so involved in the entire process, shared her knowledge, and encouraged me to
think. Thank you, Dear Madam.
I would like to thanks Mr. Atul Charade Sir & Mr. Atul Daware Sir, for
his efforts and help provided to me to get such an excellent opportunity.
I would also like to thank my family and friends for their support as
this project could not be completed without their support and encouragement. I am
very much thankful to them.
Last but not the least there were so many who shared valuable information that
helped in the successful completion of this project.

Ashish W. Burde
MBA IV Sem., DMS Nabira
Mahavidyalaya, Katol,
Nagpur.

Page 3
 DECLARATION

I ASHISH WASUDEORAO
BURDE hereby declare that the Project
report submitted for R.T.M.N.U. Nagpur,
Examination of Summer M.B.A. SEM IV project
entitled
“A study of Leverage &Cost Behavior analysis in
VIDARBHA LIQUOR CORPORATION
For the year (2007-08 & 2008-09)”
is the outcome of my own preliminary
analytical work based on personal study and
has not been submitted by me previously for
award of any degree or diploma to this
university or another university.

Place:-
Ashish W. Burde

Date: - / / 2009 Page 4

 INDEX
SR NO. CHAPTERS PAGE NO.

1. Executive Summary
6-8
2. Introduction to topic
A. Introduction to Topic
09-28
B. Introduction to Company
Profile 29-33
C. Aims & Objectives of study
31
D. Hypothesis of study
32
E. Limitations of study
32
3. Research Methodology
33-35
4. Analysis and Findings of the study
36-53
Page 5
 5. Conclusions and Recommendations
of the study
54-55
6. Suggestion to company
56-57
7. Appendices
58-62
• Bibliography
63

Page 6
 EXECUTIVE
SUMMARY

Executive Summary
Leverage Analysis Page 7
In finance, leverage or leveraging refers to the use of debt to supplement
investment. Companies usually leverage to increase returns to stock, as
this practice can maximize gain (and losses). The easy but high risk
increases in a stock prices due to leveraging at US banks has been blamed
for the usually high rate of pay for top executives during the recent
banking crisis, since gains in stock are often rewarded regardless of
method. Delivering in the action of reducing borrowings. In
microeconomics, a key ensure of leverage is debt to GDP ratio.
There are three types of leverage
1. Operating leverage
2. Financial Leverage
3. Combined Leverage
Cost Behavior
Separating Mixed Costs into their variable and fixed elements. Mixed
costs are common to a wide range of firms. Examples of mixed costs
include sales compensation, repairs and maintenance, and factory
overhead in general. Mixed costs must be separated into the variable and
fixed elements in order to be included in a variety of business planning
analyses such as Cost-Volume-Profit (CVP) Analysis.

The way a specific cost reacts to changes in activity levels is called cost
behavior. Costs may stay the same or may change proportionately in
response to a change in activity. Knowing how a cost reacts to a
change in the level of activity makes it easier to create a budget,
prepare a forecast, determine how much profit a new product will
generate, and determine which of two alternatives should be
selected.

Fixed costs

Fixed costs are those that stay the same in total regardless of the number
of units produced or sold. Although total fixed costs are the same, fixed
costs per unit changes as fewer or more units are produced. Straight-line

Depreciation is an example of a fixed cost. It does not matter whether the

machine is used to produce 1,000 units or 10,000,000 units in a month;
Page 8
the depreciation expense is the same because it is based on the number of
years the machine will be in service.

Variable costs

Variable costs are the costs that change in total each time an additional
unit is produced or sold. With a variable cost, the per unit cost stays the
same, but the more units produced or sold, the higher the total cost. A
direct material is a variable cost. If it takes one yard of fabric at a cost of
$5 per yard to make one chair, the total materials cost for one chair is $5.
The total cost for 10 chairs is $50 (10 chairs × $5 per chair) and the total
cost for 100 chairs is $500 (100 chairs × $5 per chair).

Page 9
 INTRODUCTION

INRODUCTION OF THE TOPIC Page 10

 LEVERAGE
A company can raise the fund required for investment either by
increasing owner’s claims or the creditor’s claim or both. The claims
of the owner’s increases when the company raises the fund by
issuing equity shares or ploughs back its earnings. The claims of the
creditors increase when the funds are raised by borrowings. The
various means used to raise the funds represent the financial or the
capital structure of the company.
The financing or capital structure decision is of tremendous
significance for the management, since it influences the debt-equity
mix of the company, which ultimately affect shareholder’s return and
risk. In case the borrowed funds are more as compared to the
owner’s funds, it result in increase in shareholder’s earning together
with increase in their risk. This is because the cost of borrowed fund
is less than that of shareholder’s fund on account of the cost of
borrowed fund being allowable as a deduction for income tax
purpose. But at the same time, the borrowed fund carry a fixed
interest, which has to be paid whether the company is earning profit
or not. Thus, The risk of the shareholders increase in case there is
high proportion of borrowed funds in the total capital structure of the
company. In a situation where the proportion of the shareholder’s
fund is more that the proportion of the borrowed fund, the return as
well as the risk of shareholders will be much less.
MEANING OF LEVERAGES
The dictionary meaning of the term leverage refers to “an increased
means of accomplishing some purpose.” For example, leverages
helps us in lifting heavy objects, which may not be otherwise
possible. However in the area of finance, the term leverage has
special meaning. It is used to describe the firm’s ability to use fixed
cost asset or funds to magnify the return to its owners.

Page 11
James Horne has defined leverage as “ The employment of an asset
or funds on which the firm pays a fixed cost or fixed return”. Thus,
according to him, leverage is the result of the firm employing an
asset or a source of fund which has a fixed cost or return is the
fulcrum of leverage. If a firm is not required to pay fixed cost or
fixed return, there will be no leverage.
Since fixed cost or return has to be paid or incurred irrespective of
the volume of output or sales, the size of such cost or return has
considerable influence over the amounts of profit available for the
shareholders. When the volume of sales changes, leverage helps in
quantifying such influence. It may, therefore, be defined as the
relative change profit due to change in sales. A high degree of
leverage implies that there will be a large change in profit due to
relatively small change in sales and vice-versa. Thus, higher the
leverage, higher is the risk and higher is the expected return.
TYPES OF LEVERAGES
Leverages are of three types:
1. Operating leverage

2. Financial leverage

3. Composite leverage/Combined leverage

1. Operating Leverage

Operating leverage may be defined as the tendency of the operating

profit to vary disproportionately with sales. It is said o exist when a
firm has to pay the fixed cost regardless of volume of output or
sales. The firm is said to have a high degree of operating leverage if
it employs a greater amount of fixed cost and a smaller amount of
variable costs. On the other hand, a firm will have a low operating
leverage when it employs a greater amount of variable costs and
smaller amount of fixed cost. On the other hand, a firm will have a
low operating leverage when it employ a greater amount of variable
Page 12
cost and a smaller amount of fixed costs. Thus, the degree of
operating leverage depends upon the amount of fixed element in
cost structure.
Operating leverage in a firm is a function of the following three
factors:
1. The amount of fixed cost

2. The contribution margin

3. The volume of sales

Of course, there will be no operating leverage, if there are no fixed

operating costs.
The operating leverage can be calculated by following formula:
Contribution C
Operating Leverage = or
Operating Leverage OP
Operating profit here means “Earnings before interest & tax” (EBIT).
Operating leverage may be favorable or unfavorable. In case the
contribution (i.e. sales less variable cost) exceeds the fixed cost,
there is favorable operating leverage. In a reverse case, the
operating leverage will be termed as unfavorable.
Degree of Operating Leverage
The degree of operating leverage may be defined as percentage
change in the profits resulting from a percentage change in the
sales. It may be put in the form of following formula:
Percentage change in profit
Operating Leverage =
Percentage change in sales
Utility
Operating leverage indicates the impact of change in sales of
operating income. If a firm has high degree of operating leverage,
small changes in sales will have large effect on operating income, In
other words, the operating profit (EBIT) of such a firm will increase
Page 13
at a faster rate than the increase in sales. Similarly the operating
profit of such a firm will suffer a greater loss as compared to
reduction in its sales.
Generally, the firm does not like to operate under condition of high
degree of operating leverage. This is a very risky situation Can be
excessively damaging to the firm’s effort to achieve profitability.
2. Financial Leverage

Financial leverage may be defined as the tendency residual net

income to very disproportionately with operating profit. It indicates
the change that takes place in the taxable income as a change of
result in operating income. It signifies the existence of fixed
interest /fixed dividend bearing securities in the total capital
structure of the company. Thus, the use of fixed interest/dividend
bearing securities such as debt & preference capital along with the
owner’s equity in the total capital structure of the company, the
fixed interest/dividend bearing securities are greater as compared to
the equity capital, the leverage is said to be larger. In a reverse case
the leverage will be said to be smaller.
Favourable and unfavourable Financial Leverage
Financial leverage may be favourable or unfavourable depending
upon whether the earning made by the use of fixed interest or
dividend-bearing securities exceed or not the explicit fixed cost, the
firm has to pay for the employment of such funds. The leverage will
be considered to be favourable so long the firm earns more on
assets purchased with the fund than the fixed cost of their use.
Unfavourable or negative leverage occurs when the firm does not
earn much as the fund cost.
Computation
Computation of Financial leverage can be done according to
following methods:

Page 14
 (i) Where capital structure consist of equity shares and debt. In
such a case Financial leverage can be calculated a according to
the following formula:

OP

Operating leverage =
PBT

Where,
OP = Operating profit or Earnings before interest & tax(EBIT)
PBT = Profit before tax but after interest
(ii) Where the capital structure consist of preference shares and
equity shares. The formula for computation of financial leverage
can also be applied to a financial plan having preference shares.
Of course, the amount of preference dividend will have to be
grossed up (as per the tax rate applicable to the company) and
deducted from the earnings before interest and tax.

Degree of Financial leverage

Degree of financial leverage may be defined as he percentage
change in “taxable profit” as a result of percent change “operating
profit”.
This may be put in the form of following equation:
Percentage change in Taxable income
Degree of Financial leverage=
Percentage change in operating income
Alternative definition of Financial Leverage
One of the objective of planning an appropriate capital structure is to
maximize the return on equity share holder’s funds or maximize the
earning per shares(EPS).Some authorities have used the term
‘Financial Leverage’ in the context that it defines the relationship
between EBIT & EPS. According to Gitman, Financial leverage is ‘The
ability of a firm to use fixed financial charges to magnify the effects
of changes in EBIT on the firm’s earnings per share. The financial
Page 15
leverage, therefore, indicate the percentage change in earning per
share in relation to a percentage change in EBIT.

Percentage change in EPS

Degree of Financial leverage=
Percentage change in EBIT

Utility
Financial leverage helps the financial manager considerably while
devising the capital structure of the company. A high financial
leverage means high fixed financial cost and high financial risk. A
Financial manager must plan the capital structure in a way that the
firm is in a position to meet its fixed financial costs. Increase in the
fixed financial cost requires necessary increase in EBIT level. In the
event of failure to do so, the company may be technically forced into
liquidation.
3. Composite Leverage

As explained in the preceding pages, operating leverage measures

percentage changes in operating profit due to percentage changes in
sales. It explains the degree of operating risk. Financial leverage
measures the percentage change in taxable profit (or EPS) on
account of percentage change operating profit (i.e., EBIT). Thus, it
explains the degree of financial risk. Both these leverages are closely
concerned with the firm’s capacity to meet its fixed costs (both
operating & financial). In case both the leverage are combined, the
result obtained will disclosed the effect of change in sales over
change in taxable profit (or EPS).
Composite leverage thus expresses the relationship between
revenue on account of sales (i.e., contribution or sales less variable
cost) and the taxable income. It helps in findings out the resulting
percentage change in taxable income on account of percentage
change in sales. This can be computed as follows: Page 16
Composite Leverage = Operating Leverage * Financial Leverage
= (C / OP) * (OP / PBT) = C / PBT
Where,
C = Contribution (i.e., Sales – Variable cost)
OP = Operating profit or Earnings before interest & tax
PBT = Profit before tax but after Interest

SIGNIFICANCE OF LEVERAGE
Operating leverage and financial leverage are the two quantitative
tools used by the financial expert to measure the returns to the
owners (viz., EPS) and the market price of the equity shares. The
financial leverage is considered to be the superior of these tools,
since it focuses the attention on the market price of the shares which
the management always tries to increase by increasing the Net
worth of the Firm. The management for this purpose resorts to
trading on equity because when there is increase in EBIT then there
I corresponding increase in the price of equity shares. However a
firm cannot go on indefinitely raising the debt content in the total
capital structure of the company. If a firm goes on employing
greater proportion of debt capital, the marginal cost of debt will also
go on increasing because the subsequent lenders will demand higher
rate of interest. The company’s inability to offer the subsequent
assets as security will also stand in the way of further employment
on debt capital. Moreover, a firm with widely fluctuating cannot
afford to employ a high degree of financial leverage.
A company should try to have balance of the two leverages because
they have got tremendous acceleration deceleration effect on EBIT
and EPS. It may be noted that a right combination of these
leverages is a very big challenge for the management. A proper
combination of both operating & financial leverages is a blessing’s
for firm’s growth, while an improper combination may prove to be
curse. Page 17
A high degree of operating leverage makes the position of firm very
risky. This is because on the one hand on the one hand it is
employing excessively assets for which it has to pay fixed cost and
at the same time it is using a large amount of debt capital. The fixed
cost towards using assets and fixed interest charges bring a greater
risk to the firm. In case the earning falls, the firm may not be in a
position to meet its fixed cost. Moreover, greater fluctuation in
earnings is likely to occur on account of the existence of a high
degree of operating leverage. Earnings to the equity share holders
will also fluctuate widely on account of existence of a high degree of
financial leverage. The existence of a high degree of operating
leverage will result in a more than proportionate change in EPS even
on account of small changes in EBIT. Thus, a firm has high degree of
financial leverage and high degree of operating leverage has to face
the problems of inadequate liquidity or insolvency in one or the other
year. It does not, however, mean that a firm should opt for low
degree of operating & financial leverage. Of course, such lower
leverages indicate the caution policy of the management. But the
firm will be losing many profit earnings opportunities. A firm should,
therefore, make all possible efforts to combine operating & financial
leverage in a way that suits the risk bearing capacity of the firm.
It may be observed that the firm with the high operating leverage should
not have a high financial leverage. Similarly, a firm having low operating
leverage will stand to gain by having a high financial leverage provided it is
enough profitable opportunities for the employment of borrowed fund.
However, low operating leverage is considered to be an ideal situation for
the maximization of profit with minimum of risk.

COST BEHAVIOR
Page 18
 Cost behavior is the measure of how a cost responds to changes in
the level of business activity. Understanding of how costs behave in a
particular situation is crucial for decision-making process in an
organization. Thus the production performance results reported on the
income statement.

Cost behavior information allows managers:

• To prepare budgets
• To predict cash flows
• To plan dividend payments
• To establish selling prices

Depending on the cost behaviors, there are four common cost types,
which are variable, fixed, mixed, and step-variable costs.

Main Features of marginal Costing

1. Marginal costing is technique or working of costing, which is used in
conjunction with other method of costing.
2. Fixed & variable cost is kept separate at every stage. Semi-variable
cost is also separated into fixed & variable.
3. As fixed is period cost. They are excluded from product cost or cost
of production or cost of sales. Only variable cost is considered as the
cost of the product.
4. When evaluation of finished goods and work-in-progress are taken
into account, they will be only variable cost.
5. As fixed cost is period cost, they are charged to profit and loss
account during the period in which they are incurred. They tar not
carried forward to the next year’s income.
6. Marginal income or marginal contribution known as income or the
profit.
7. The difference between the contribution & fixed cost is the net profit
or loss.
8. Fixed cost remains constant irrespective of level of activity.
9. Sales price and variable cost per unit remains the same.

Page 19
 10. Cost-volume-profit relationship is fully employed to revel the
state of profitability at various level of activity.

Advantages of cost behavior analysis

1. Constant in nature: - Variable cost fluctuates from time to time,
but in the long run, marginal cost is stable. Marginal cost remains the
same, irrespective of volume of production.

2. Effective cost control: - It divides cost into fixed & variable.

Fixed cost is excluded from product. As such, management can control
marginal cost effectively.

3. Treatment of overhead simplified: - It reduces degree of over

or under recovery of overhead due to the separation of fixed overhead
from production cost.

4. Uniform & realistic valuation: - As fixed overhead cost are

excluded from product cost, the valuation of work-in-progress and finished
goods become more realistic.

5. Helpful to management: - It enables management to start a

new line of production which is advantageous. It is helpful in determining
which is profitable –whether to buy or manufacture a product. The
management can take decision regarding pricing & tendering.

6. Help in production planning: - It shows amount of profit at

every level of output with the help of cost volume profit relationship. Here
the break-even chart is made use of.

7. Better result: - When used with standard costing, it gives better

result.
8. Fixation of selling price: - The differentiation between cost &
variable cost is very helpful in determining the selling price of product or
services. Sometimes, different prices are charged for the same article in
different market to meet varying degree of competition. Page 20
 9. Help in budgetary control: - The classification of expenses is
very helpful in budgeting and flexible budget for various levels of activities.

10. Preparing tenders: - Many business enterprises have to

complete in the market in quoting the lowest price. Total variable cost,
when separately calculated, becomes the “floor price”. Any price above this
floor price may be quoted to increase the total contribution.

11.”Make or Buy” Decision: - Some time a decision has to be

made whether to manufacture a component or a product to buy it
readymade from the market. The decision to purchase it would to be taken
if the price paid recovers some of the fixed expenses.

12. Better presentation: - The statement & graphs prepared

under marginal costing are better understood by management executives.
The break-even-analysis presents the behavior of cost, sales, contribution
etc. in terms of chart & graphs. And, the result can easily be grasped.

Disadvantages of cost behavior analysis

1. Difficulty to analyze overhead: - Separation of cost into fixed
& variable is a difficult problem. In marginal costing, semi-variable & semi-
fixed cost is not considered.

2. Time element ignored: - Fixed cost and variable costs are

different in the short run; but in the long run, all cost are variable. In the
long run all cost change at varying level of operation. When new plant &
equipment are introduced, fixed cost & variable cost will vary.
3. Unrealistic assumption: - Assumption of the sale price will
remain the same at different levels of operation. In real life, they may
change & give unrealistic result.
4. Difficulty in fixation of price: - Under marginal costing, selling
price is fixed on the basis of contribution. In case of cost plus contract, it is
very difficult to fix price.

Page 21
 5. Complete information not given: - It does not explain the
reason for increase in production or sale.

6. Significance lost: - In capital-intensive industry, fixed cost

occupy major portion in the total cost. But marginal cost only covers
variable cost. As such, it loses its significance in capital industry.

7. Problem of variable overhead: - marginal costing overcomes

the problem of over and under-absorption of fixed overhead. Yet there is
the problem in the case of variable overhead.

8. Sales-oriented: - Successful business has to go in a balanced

way in respect of selling production function. But marginal costing is
criticized on account of its attaching over-importance to selling function.
Thus it is said to be sales-oriented. Production function is given less
importance.

9. Unrealistic Stock valuation: - Under marginal costing stock of

work in progress & finished stock is valued at variable cost only. No portion
of fixed cost is added to the value of stock. Profit, determined, under this
method, is depressed.

10. Claim for loss of stock: - Insurance claim for loss or damage
of stock on the basis of such a valuation will be unfavorable to business.

11. Automation: - Now-a-days increasing automation is leading to

increase in fixed costs. If such increasing fixed cost is ignored, the costing
system cannot be effective and dependable.
Marginal costing, if applied alone, will not be much in use, unless it
is combined with other techniques like standard costing & budgetary
control.

MARGINAL COSTING
In marginal costing, only variable cost is charged to production. The
Institute of cost & management accountants (U.K.) defines it as,
Page“the
22
practice of charging all cost, both variable & fixed to operation, process or
product.” This explains why this technique is also called full costing.
Administrative, selling & Distribution overhead as much from part of total
cost as prime cost & factory burden.

Cost-Volume-Profit Analysis
As the term itself suggest, the cost-volume-profit (CVP) analysis is
the analysis of three variables, viz., cost, volume and profit. In CVP
analysis, an attempt is made to measure variation of cost and profit with
volume. Profit as variable in the reflection of number of internal and
external condition which exert influence on sales revenue and costs.
The CVP analysis helps or assists the management in the profit
planning. In order to increase the profit, a concern must increase the
output. When the output is at maximum, within the installed capacity, it
adds to the contribution. The CVP analysis is relationship among the cost,
Volume and profit. When volume of output increases, the fixed cost per
unit decreases. Therefore, profit will be more, when sales price remains
constant. Generally, cost may not change in direct proportion to the
volume. Thus, a small change in the volume will affect the profit.
The management is always interesting in knowing that which
product or product mix to most profitable, what effect a change in the
volume of output will have on cost of production & profit etc. All these
problems are solved with the help of CVP analysis.
To know the cost volume profit relationship, a study of following is
essential.
1. Marginal cost formulae:
2. Break–even-analysis:
3. Profit volume ratio:
Marginal Cost Equations
Sales = Variable Cost + Fixed Cost + Profit or Loss
Sales –Variable cost = Fixed Cost + Profit or Loss
Sales –Variable cost = Contribution
Contribution = Fixed Cost + Profit
Contribution

Page 23
 Contribution is the difference between sales & marginal cost of sales.
Contribution Enables to meet fixed cost and adds to the profit. Contribution
is also known as Gross margin. Fixed cost is covered by the contribution;
and the balance amount in an addition to the net profit.
Marginal Cost = prime cost + Variable Overhead
Contribution = Sales – Marginal cost
Contribution = Sales – Variable cost
Contribution = Fixed Cost + Profit or Loss
Profit = Contribution – Fixed cost
Sales –Variable cost = Fixed Cost + Profit or Loss
(or) C=S–V
C=F+P
S–V=F+P
C= Contribution, S= Sales, V= Variable cost,
P= Profit, F= Fixed Cost.
Break-Even Analysis
The Break-Even point Break-Even chart is two by-product of Break-
Even analysis. In a narrow sense, it is concerned with break-even chart.
Break-even analysis is also known as CVP analysis. The analysis is a tool of
financial analysis whereby impact on profit of changes in volume, price,
costs and mix can be estimated with reasonable accuracy. Break-even
point is equilibrium point or is a point where the income is exactly equal to
expenditure.
Break even point. Break-even point is a point where the total sales
are equal to total cost. In this point there is no profit or no loss in the
volume of sales. The formula to calculate break-even point is:

Total Fixed cost

B.E.P. (in unit) =
Contribution per unit

Total Fixed cost

B.E.P. (in sales) =
Profit Volume ratio Page 24
Profit Volume Ratio
Profit volume ratio, which is popularly known as P/V ratio; express
the relationship of contribution to sales. Another name for this ratio is
contribution sales ratio or marginal-income ratio or variable-profit ratio.
The ratio, expressed as a percentage, indicate the relative profitability of
different product.
The formula for computing the P/V ratio is given below:
Contribution
P/V Ratio =
Sales

Or Fixed Cost + Profit

=
Sales

Or Sales - Variable Cost

=
Sales
It can also be expressed in percentage. Normally, this ratio
expressed in percentage. When we know the P/V ratio, B.E.P. can be
calculated by using the formula
Total Fixed cost F
B.E.P. (in Sales) = (or)
Profit Volume ratio P/V ratio
The profit of a business can be increased by improving P/V ratio. As
such management will make effort to improve the ratio. A higher ratio
means greater profitability and vice-versa. So management will increase
the P/V ratio:
(a) By sales price per unit
(b) By decreasing variable cost
(c) By increasing the production of product which is having high
P/V ratio and vice-versa
P/V ratio is very important in decision making. It can be used for
The calculation of B.P.E. and in problem regarding profit sales relationship.
Page 25
Margin of Safety
Margin of Safety is an important concept in marginal costing
approach. Total sales minus the sales at break-even point are known as
“Margin of safety (M/S).” That is, margin of safety is the excess of normal
or actual sales over sales at B.E.P. In other words, sales over & above
break-even sales are known as margin of safety. The Margin of safety
refers to the amount by which sales revenue can fall before a loss is
incurred. That is, it is the difference between the actual sales and sales at
break-even point. Break-even point can be compared to a Red Signal
point. If the margin of safety is large, it is a sign of soundness of the
business and vice versa. The margin of safety serves as a guide is a
reliable indicator of business strength & soundness. Margin of safety can be
expressed in absolute sales amount in percentage.
High Margin of safety indicates the soundness of a business because
even substantial fall in sale or fall in production, some profit shall be made.
Small margin of safety on the other hand is an indicator of weak position of
the business and even a small reduction in sale or production will adversely
affect the profit position of the business.
Margin of safety can be increased by:
a) Decreasing the fixed cost
b) Decreasing the variable cost
c) Increasing the selling price
d) Increasing the output & sales
e) Changing to a product mix that improve P/V ratio

Margin of Safety = Actual Sales – Sales at BEP

Profit
Or =
P/V ratio

Profit Page 26
 Or =
Contribution

FUNCTIONAL AND CONTRIBUTION MARGIN INCOME STATEMENTS

Up until now, we have been using the functional, or traditional, or
conventional income statement format that you learned in financial
accounting. But managers are better aided in their decision making by a
contribution margin or variable costing income statement.
A traditional, functional income statement is required for external
financial statements. It separates costs by their function: product costs or
period costs. Product costs (COGS) are subtracted from sales to show
gross margin (gross profit). All period costs (selling, general, and
administrative) are then subtracted to show operating income.
Sales
` Less Cost of goods sold (including DM, DL, VOH, and FOH)
Gross margin
Less operating expenses
Variable selling, general, and administrative expenses
Fixed selling, general, and administrative expenses
Net operating income
The contribution margin income statement is preferable for
management purposes. It separates costs by their behavior: variable costs
and fixed costs. It also works very well with CVP analysis. All variable
costs, both product and period, are subtracted from sales to show
contribution margin. All fixed costs, both fixed overhead (a product cost)
and fixed period costs, are then subtracted to show operating income.
Fixed overhead is subtracted in total regardless of how many are produced
or sold.
Sales
Less variable cost
Variable cost of goods sold (including DM, DL, and VOH)
Variable selling, general, and administrative expenses
Contribution margin
Less fixed costs
Fixed overhead Page 27
 Fixed selling, general, and administrative expenses
Net operating income

If all units produced are also sold, the operating income will be the
same regardless of the type of income statement produced.
On the contribution margin income statement, note that everything,
including sales, direct materials, direct labor, variable overhead, variable
selling/general/administrative, and contribution margin will vary in direct
relationship to the number of units sold. The fixed costs, both fixed
overhead and fixed selling/general/administrative, remain the same
whether we sell any number of units or no units. We’ll find this concept
very helpful when we analyze the relationships among costs, volume, and
profit.

The way a specific cost reacts to changes in activity levels is

called cost behavior. Costs may stay the same or may change
proportionately in response to a change in activity. Knowing how a cost
reacts to a change in the level of activity makes it easier to create a
budget, prepare a forecast, determine how much profit a new product
will generate, and determine which of two alternatives should be
selected.

1. Variable Cost – varies proportionately in total but remains constant on a

per unit basis.
a. True variable costs – proportionately variable (ex. Raw material)
amount used directly increases as production increases by the same
percentage.
b. Step variable costs – costs obtainable in large segments (ex.
Labor costs of maintenance workers) and that increase or decrease
in response to fairly wide changes in activity levels.
costs are constant for a certain activity level (relevant range) and
then vary in a step like fashion as volume increases.
2. Fixed Costs – remain constant in total but vary inversely on a per unit
basis (if production increases, then per unit cost decreases; if production
decreases, then per unit cost increases)

Page 28
 a. Committed fixed costs – relate to the investment in plant,
equipment and the basic organizational structure of the firm (ex.
Depreciation of building and equipment, real estate taxes, insurance,
management salaries, etc.)
- are long term in nature
- cannot be reduced immediately over a short period of time
without seriously impairing either the profitability or the long run
goals of a firm.
b. Discretionary Fixed Costs (Managed Fixed Costs)
- arise from annual decisions by management to spend in
certain fixed costs areas (ex. Advertising, research,
management development programs)
- Short term in nature, usually a single year
- Possible to cut back on certain costs for short periods of
time with minimum disruptions to long term goals.
c. Semi variable or Mixed Costs – contains both variable and fixed
costs elements
- At certain levels of activity mixed costs display the same
Characteristics as a fixed cost
- At certain levels they display same characteristic as a
variable cost
- (examples: electricity, heat, telephone, maintenance, car
rental, copy machine rental)

INRODUCTION TO COMPANY PROFILE

The VIDARBHA LIQUOR CORPORATION is situated in the Heart

of Nagpur City. The company is the member of VIDARBHA INDUSTRIAL

ASSOCIATION(VIA).The company is famous across all the vidarbha

Page 29
region as a leading liquor provider. The company is not only providing

liquor to the Nagpur District but also the near Districts of the Nagpur. The

distribution of company is to Madhya Pradesh also. The company is also

deals in the Foreign Brands .The Manufacturing unit & Administrative office

is situated at same location. The Company is influencing most of all on

local brands.

INFORMATION OF COMPANY :-

1. Name of Company :- “M/S. VIDARBH LIQUOR CORPORATION”

2. Owner of Company :- 1. Mr. RAMESH JESWANI

2. JAL SALASAR TRADERS PVT. LTD.

3. Address :- 30/30,NEW COTTON MARKET LAY OUT

NEAR S.T. STAND, NAGPUR-440018.

4. Product :- COUNTRY & FOREIGN LIQUOR

5. PAN :- AADFV – 8562- H

6. STATUS :- REGD. FIRM

7. TYPE OF FIRM :- PARTNERSHIP FIRM

SHARES OF PARTNERS

PARTNERS SHARE PERCENTAGE

Ramesh Jaiswani 60%

Jal Salasar Traders Pvt. Ltd. 40%

Page 30
Following books of accounts are maintained at the company.

 Cash Book

 Ledgers Book

 Bank Book

 Journal

The company is using the Mercantile system of Accounting. The valuation

of the closing stock is employed at cost or net realizable value whichever is

lower.

ADDRESS OF COMPANY
Vidarbha Liquor Corporation.
30/30, NEW COTTON MARKET LAY OUT

NEAR S.T. STAND, NAGPUR-440018.

AIMS & OBJECTIVES OF STUDY

The objectives of Leverage & cost behavior analysis are as follows:-

 Analysis of Operating, Financial & Combined Leverage.

Page 31
  To understand the Degree of Operating, Financial & Combined
Leverage.
 To check change in the profit from income statement using the
contribution format.
 To study thy profit volume analysis.
 To study the Break-Even analysis of company.
 To understand how the fixed & variable cost behave with respect to
the sale & how it is used to predict cost.

HYPOTHESIS OF STUDY

The Hypothesis for cost behavior analysis are as follows :-

Page 32
  The changes in the level of various revenue and cost arise only
because of the changes in the number of product (or service) units
produced & sold.
 Total cost can be divided into a fixed component and a component
i.e., variable with respect to the level of output.
 There is linear relationship between revenue & cost.
 All revenue and cost can be added and compared without taking into
account the time value of money.

LIMITATIONS OF STUDY
The limitations for study are as follows:-

 Inventories are valued at variable cost & fixed cost is treated as

period cost. Therefore, closing stock carried over to the next
financial year does not contain any component of fixed cost.
Inventory would be valued at full cost in reality.
 The study is limited for two years statement of accounts VIDARBHA
LIQUOR CORPORATION.
 The scope & duration of study is limited.

Page 33
 RESEARCH
METHODOLOGY

RESEARCH METHODOLOGY Page 34

 Research in common parlance refers to a search for knowledge.
Research can also be defined as a scientific and system search for
pertinent information on specific topic. We can also say research as an art
of scientific investigation.

In analytical research, the researcher has to use facts or information

already available, and analyze these to make a critical evaluation of the
material.
Descriptive research includes surveys and fact – finding enquiries of
different kinds. The major purpose of descriptive research is description of
the state of affairs, as it exists at present.
Other method used is the observational and interactive method which is
used to observe the working of the company

Step 1: Research Objectives

• To find out the various cost involved in operation of Vidarbha
Liquor
Corporation.
• To check that how these cost behave as per the change in the level
of production.
• To analyze the cost-volume-profit.
• Find out the Break Even Point & Margin of Safety for company.
• To study the Accounting operation involved in the Organization.
• Analysis of operating, financial & combined leverage.
• To understand the degree of operating, financial & combined
leverage.

Step 2: Develop the Research Plan

A: Data sources

 Primary data :-
The data has been collected by the discussion with the renowned
Company guide on successfully relating to company profile &
Accounting operation with relation to mine.

 Secondary data :- Page 35

 The data has been collected from the Annual reports of company
for 2007-08 & 2008-09.

B: Research Approaches

Analytical Research: - It is best suited for Financial

Analysis .Uses Fact or information already available and analyzes to
make a critical evaluation.

Descriptive Research: - Survey & fact finding enquiries, State

of affairs as it exists, No control over variables, try to discover
cause.
C: Research Instrument

• Primary data collection instrument:

 Company Project guides Mr. Yogesh Bangale.
• Secondary data collection instrument:
 Balance Sheet of VIDARBHA LIQUOR CORPORATION
 Profit & Loss Account of VIDRBHA LIQUOR
CORPORATION
 Internal (company journals, manuals)

Step 3: Collect the Information

Our primaries are collected from personal interview

and desk research and the material that we received collected
secondary data from other sources.

Step 4: Analyze the Information

Here we tabulate all data and use tables, charts, pie

charts and some advance statically techniques to analyze the raw
data and convert those data into some meaningful information.

Step 5: Present the Findings

We have presented our analysis in verbal form,

tabular form as well as graphical form.
Page 36
 Analysis &
Findings of Study

Page 37
 INCOME STATEMENT FOR THE YEAR
2008-2009

PARTICULARS AMOUNT
Sales 100940319.00
Less Variable Cost 53237939.58
Contribution 47702379.42
Less Fixed Cost 435869.00
Net Operating Profit(EBIT) 47266510.42
Less Interest 1023137.36
Profit Before Tax(PBT) 46243373.06
Less Tax Paid 42411.00
Profit after tax or net profit 46200962.06

Page 38
Calculation of variable Cost

PARTICULARS AMOUNT

1. Consumption P. Material 47624207.10

2. Consumption of R. Material 40126507.40

3. Direct expenses 3265294.00

4. Building repairs & maintenance 69711.00

5. Charity & Donation 10401.00

6. Conveyance 874481.00

7. Electricity 172812.00

8. Employee state insurance 27977.00

9. Finance charges 99084.00

10. Generator Fuel & rent 147855.00

11. Insurance 52338.00

12. License & other fee expenses 2084050.00

13. Machinery repairs & maintenance 56671.00

14. Maharashtra state labour welfare fund 30000.00

15. Miscellaneous expenses 5996.64

16. N.I.T. Ground rent 20804.00

17. Postage 5906.00

18. Printing & stationary 13648.00

19. Provident fund 153178.00

20. Repair & maintenance 69187.00

21. Sample & chemical analysis 109599.00

22. State Ex. Escort charges 87469.00

23. State Excise charges 263691.00

24. Sundry Expenses 266878.66

Page 39
 25. Telephone expenses 35455.00

26. Transportation expenses 95029.00

27. Travelling expenses 155225.00

28. Vehicle maintenance 163674.78

29. Weight & Measure 12610.00

Total 53237939.58

Calculation of Fixed Cost

PARTICULARS AMOUNT

1. Advertisement expenses 10456.00

2. Salary 413413.00

3. Sales promotion 12000.00

Total 435869.00

Calculation of Total Interest

PARTICULARS AMOUNT

1. Bank Commission Interest & charges 58718.36

2. Bank Interest 862713.00

3. Interest 61079.00

4. Interest on VAT 40627.00

Total 1023137.36

Calculation of Tax Paid

PARTICULARS AMOUNT
Page 40
1. Corporation tax 25278.00

2. Sales Tax 17133.00

Total 42411.00

INCOME STATEMENT FOR THE YEAR

2007-2008
PARTICULARS AMOUNT
Page 41
 Sales 71442096.00
Less Variable Cost 66173933.28
Contribution 5268162.72
Less Fixed Cost 319086.00
Net Operating Profit(EBIT) 4949077.72
Less Interest 1400578.00
Profit Before Tax 3548499.72
Less Tax Paid 25534.00
Profit after tax on net profit 3522965.72

Calculation of variable Cost

PARTICULARS AMOUNT

1. Consumption of P. material 36364088.30

Page 42
2. Consumption of R. material 22136758.98

3. Direct Expenses 3213217.00

4. Computer maintenance 6020.00

5. Electricity 102230.00

6. Insurance 46324.00

7. Legal fees 86534.00

8. License & others 1891650.00

9. Machinery repairs & maintenance 9207.00

10. Postage 8470.00

11. Maharashtra state labour welfare fund 1056.00

12. Printing & stationary 60744.00

13. Sample & chemical analysis 80670.00

14. Commission on sale 104800.00

15. State Excise escort charges 94085.00

16. Travelling 95216.00

17. Charity & Donations 7572.00

18. Consultancy expenses 84000.00

19. Diesel & Oil 636268.00

20. Transportation 257064.00

21. Maharashtra Pollution control 4200.00

22. Loading & unloading expenses 3670.00

23. Employee state insurance 27627.00

24. Ganging Expenses 10000.00

24. NIT ground rent 5526.00

25. Provident fund 291986.00

26. Repair & maintenance of building 17561.00

Page 43
 27. Security charges 59204.00

28. State Excise charges 333295.00

29. Sundry expenses 48435.00

30. Vehicle maintenance 79605.00

31. Brokerage 6850.00

Total 66173933.23

Calculation of Fixed Cost

PARTICULARS AMOUNT

1. Advertisement expenses 10586.00

2. Salary 308500.00

Total 319086.00

Calculation of Total Interest

PARTICULARS AMOUNT

1. Bank Commission Interest & charges 87053.00

2. Bank Interest 976442.00

3. Interest on Tanker loan 80873.00

4. Interest 256210.00

Total 1400578.00

Calculation of Tax Paid

PARTICULARS AMOUNT

1. Corporation tax 25534.00

Total 25534.00
Page 44
 Calculation of Operating Leverage
The formula for computing the Operating leverage is given below:

Contribution
Operating leverage =
Operating profit

Page 45
 FOR THE YEAR CALCULATION RESULT
2007-2008 5268162.72/4949077.72 1.064
2008-2009 47702379.42/47266510.42 1.009

RESULT :-

In the year 2007-08 the company is having the Operating Leverage 1.064
& in 2008-09 it is lowered down to 1.009 this is due to behavior of the
variable cost with respect to fixed cost.

Calculation of Degree of Operating

Leverage
The formula for computing the Degree of Operating leverage is given
below:

Percentage Change in profit

Degree of operating leverage =
Percentage Change in sales Page 46
Percentage change in Operating profit =
= [47266510.42 – 4949077.72] = 855.06%
4949077.72

Percentage change in Sales =

= [100940319.00 – 71442096.00] = 41.29%
71442096.00

855.06
Degree of operating leverage =
41.29
= 20.71

RESULT :-

The Degree of Operating Leverage is lowered down due decrease in

operating leverage i.e., 20.71 .

Calculation of Financial Leverage

The formula for computing the Financial leverage is given below:

Operating Profit
Financial leverage =
Profit Before tax

Page 47
 FOR THE YEAR CALCULATION RESULT
2007-2008 4949077.72/3548499.72 1.395
2008-2009 47266510.42/46243373.06 1.022

RESULT :-

In the year 2007-08 the company is having the Operating Leverage 1.395
& in 2008-09 it is lowered down to 1.022 this is due to increase in the fixed
cost.

Calculation of Degree of Financial

Leverage
The formula for computing the Degree of Operating leverage is given
below:

Percentage Change in Taxable income

Degree of Financial leverage =
Page 48
 Percentage Change in Operating income

Percentage change in Taxable income=

= [46200963.06-3522965.00] = 1211.42%
3522965.00

Percentage change in Operating income =

= [47266510.42 – 4949077.72] = 855.06%
4949077.72

1211.42
Degree of operating leverage =
855.06
= 1.42

RESULT :-

Degree of Financial Leverage is Exists & favourable for the company as it

is above one i.e., 1.42 .

Calculation of Combined Leverage

The formula for computing the Combined Leverage is given below:

Contribution
Combined Leverage =
Profit Before tax
Page 49
 FOR THE YEAR CALCULATION RESULT
2007-2008 5268162.72/3548499.72 1.485
2008-2009 47702379.42/46243373.06 1.032

RESULT :-

In the year 2007-08 the company is having the Combined Leverage 1.485
& in 2008-09 it is lowered down to 1.032 this gives how the risk bearing
for the company is lowered down.

Calculation of Profit Volume Ratio

The formula for computing the P/V ratio is given below:
Contribution
P/V Ratio =
Sales

Page 50
 FOR THE YEAR CALCULATION RESULT
2007-2008 5268162.72/71442096.00 0.0737 OR 7.37%
2008-2009 47702379.42/100940319.00 0.4726 OR 47.26%

RESULT :-
As comparing the PVR of the year 2007-08, it is found that the PVR is
highly increased in the year 2008-09 the reason behind this high increase
in sales volume.

Calculation of Break-Even-Point (in

sales)
The formula for computing the Break-Even Point is given below:
Total Fixed cost
B.E.P. (in sales) =
Profit Volume ratio

Page 51
 FOR THE YEAR CALCULATION RESULT
2007-2008 319086.00/0.0737 4329525.10
2008-2009 435869.00/0.4726 922278.88

*Can not calculate BEP in unit as annual production is not

available.

RESULT :-
As comparing the BEP of the year 2007-08, it is found that the BEP is
decreased in the year 2008-09 These is due to Increase in fixed cost.

Calculation of Margin of Safety

The formula for computing Margin of safety is given below:
Margin of Safety = Actual Sales – Sales at BEP

FOR THE YEAR CALCULATION RESULT

2007-2008 71442096.00 - 4329525.10 67112570.90
Page 52
 2008-2009 100940319.00 - 922278.88 100018040.12

RESULT :-
As comparing the Margin of safety of the year 2007-08, it is found that the
Margin of safety is increased in the year 2008-09 as the sale is increasing.

Profit Percent of Sales

FOR THE YEAR CALCULATION RESULT

2007-2008 (3522965.72/71442096.00)*100 4.93%
2008-2009 (46200962.06/100940319.00)*100 45.77%

Page 53
RESULT :-
As comparing the Profit percentage with sale of the year 2007-08, it is
found that the Profit is increased in the year 2008-09 this due to increase
in the output.

Page 54
 Conclusion &
Recommendation
s of Study

CONCLUSIONS & RECOMMENDATIONS OF

STUDY Page 55
From the above study we bring the following conclusions:-

 The Operating leverage of the company is under favaourable

condition as the degree of the operating leverage is lowered this
defines that the risk of the company is low. As the Degree of
operating Leverage is high then the small change in the sales will
have large effect on operating income.
 The financial leverage of the company is exists as more than one.
The Financial leverage is lowered down therefore the financial risk is
also low. Also the company is not earning the interest so the
Financially company is under favourable condition.
 Composite Leverage also at the better position as it is providing
good relationship between revenue on account of sale.
 The output of the production at each level is increasing every year
that is the reason behind increase in the profit of every year.
 Output growth is more than the increase the fixed cost that is also
one of the reasons for increase in profit every year.
 Profit Volume Ration of the company is increasing every year
increase in profit.
 Break-Even Point is act as the Red Signal Point. Break-Even Point of
company is also increasing every year due to
o Increase in the output.
o Increase in the profit.
 Margin of safety of the company is at the good position as it is
increasing at every year.
 All the Cost analysis for company is states that the company is at
good position.
 The company has greater future prospective for expansion.
 Company profitability providing good return to their owners.
 The profit generated by company profit is effectively invested in the
company in order to expand business.

Page 56
 SUGGETIONS
TO COMPANY

Suggestions to Company
Page 57
From the above study we bring the following suggestions:-

 The Profit should maintain along with the sale so that the risk
associated to that can be identified.
 The company should increase the investment.
 The assets of company should be increased.
 The financial stability should be attained so the company should not
have to take loan from others.
 The company should apply the automated networking structure at
mine level that may help to give effective & faster work.

Page 58
APPENDICES

Page 59
 Manufacturing & Profit & Loss Account
for the year ended 2007-08

M/S VIDARBHA LIQUOR CORPORATION

MANUFACTURING TRADING ACCOUNT FOR THE YEAR ENDED

31ST MARCH, 2008

PARTICULARS AMOUNT AMOUNT PARTICULARS AMOUNT AMOUNT

To Opening stock of 0.00 By Sales 228616133.0
finished goods Less: Ex. Duty 0
To CONSUMPTION collected
P.MATERIAL Less: sales tax 118038960.0
Opening stock 1413542.62 collected 0
Add: Purchase 36335879.1 Less: TCS collected
2 37896209.00
Less: Discount 37749421.7 Less: Discount 1238868.00
4 Allowed 71442096.00
Less: Closing stock 9.00 71442096.00
37749412.7 36364088.3 0.00
4 0
To CONSUMPTION 1385324.44
R. MATERIAL
Opening stock By Closing stock
Add: Purchase ----------------------
Finished Goods 597720.00
Less: Closing stock 204617.38
22437903.0
To DIRECT 0 22136758.9
EXPENSES 22642520.3 8
Freight/Octroi/Loading 8
Transport & Subsidy 505761.40
Salary & wages
Water charges
1718033.00
To Gross profit 1131500.00 3213217.00
-------------------------- 332144.00
Carried Forward 31540.00
10325751.7
2

TOTALRS. 72039816.0 TOTAL RS. 72039816.00

0

Page 60
 M/S VIDARBHA LIQUOR CORPORATION

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH,
2008

PARTICULARS AMOUNT AMOUNT PARTICULARS AMOUNT AMOUNT

To advertisement 10586.00 By Gross Profit
To Bank Commi. & ----------------------
Int. Charges 87053.40 Brought down 10325751.72
To comp. maintenance 6020.00 By discount on
To corporation tax 25534.00 tanker
To electricity 102230.00 By interest on FDR
To Insurance 46324.00 By sales tax refund
To Interest 256210.14
To legal fees 86534.00
To license & others 1891650.00
To machinery repairs
& maintenance 9207.00
To postage 8470.00
To Mah. Labour wel.f. 1056.00
To printing & 60744.00
stationary 80670.00
To samp. & chem.. 104800.00
ana
To Commi. On sale 94085.00
To state Ex. Escort
charges 976442.00
To bank interest 95216.00
To travelling 7572.00
To charity & donation 84000.00
To consultancy exp. 636268.00
To diesel & oil 257064.00
To transportation 4200.00
To Mah. Poll. Cont.
To loading/unloading 3670.00
expenses
To emp. State 27627.00
insurance a/c
To Interest on tanker 80873.74
loan
To VAT ganging exp. 10000.00
To NIT ground rent 5526.00
To PF a/c 291986.00
To regional office exp. 0.00
To repair & maint. 17561.00
To salary a/c 308500.00
To security charges 59204.00
To state Ex. Charges 333295.00
To sundry exp. 48435.09
To vehicle exp. 79605.00
To Brokerage 6850.00

To depreciation 690262.00
To Net profit 3430421.35

TOTAL RS. 10325751.72 TOTAL RS. 10325751.72

Page 61
 Manufacturing & Profit & Loss Account
for the year ended 2008-09

M/S VIDARBHA LIQUOR CORPORATION

MANUFACTURING TRADING ACCOUNT FOR THE YEAR ENDED

31ST MARCH, 2009

PARTICULARS AMOUNT AMOUNT PARTICULAR AMOUNT AMOUNT

To Opening stock of By Sales 310350333.0
finished goods 597720.00 Less: Ex. Duty 0
To CONSUMPTION collected
P.MATERIAL Less: sales tax 156439237.0
Opening stock 1385324.44 collected 0
Add: Purchase 49024146.6 Less: TCS
6 collected 51446872.00
Less: Closing stock 50409471.1
0 47624207.10 Scrap sale 1669097.00
To CONSUMPTION 2785264.00 100940319.00
R. MATERIAL 145192.00
Opening stock
Add: Purchase
505761.40
Less: Closing stock 40502375.0 By Closing stock
0 40126507.40 ----------------------
To DIRECT 41008136.4 Finished Goods 677775.00
EXPENSES 0
Freight/Octroi/Loading 881629.00
Salary & wages
Water charges 3265294.00
2918564.00
To Gross profit 297406.00
-------------------------- 49324.00 10004365.50
Carried Forward
TOTAL 101618094.0 TOTAL RS. 101618094.00
RS. 0

Page 62
 M/S VIDARBHA LIQUOR CORPORATION

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH,
2008

PARTICULARS AMOUNT AMOUNT PARTICULARS AMOUNT AMOUNT

To advertisement 10456.00 By Gross Profit
To Bank Commi. & 58718.36 ----------------------
Int. Charges 862713.00 Brought down 10325751.72
To Bank Interest 69711.00 By discount on
To Buil. Repair & 10401.00 tanker
maint. 874481.00 By interest on FDR
To charity & donation 25278.00 By sales tax refund
To conveyance 172810.00
To corporation tax 27977.00
To electricity 99084.52
To emp. State 147855.00
insurance a/c 52338.00
To Financial charges 61079.00
To generator fuel, rent 40627.62
To insurance 2084050.00
To Interest
To Interest on VAT
To license & others
To machinery repairs
& maintenance
To Mah. Labour wel.f.
To Misc. Expenses
To NIT ground rent
To postage
To printing &
stationary
To PF a/c
To repairs & maint.
To salary a/c
To sales promotion
To sales tax
To samp. & chem..ana
To state Ex. Escort
charges
To state Ex. Charges
To sundry exp.
To telephone exp.
To transportation
To travelling
To vehicle exp.
To weight & measure

To depreciation
To Net profit

TOTAL RS. 10325751.72 TOTAL RS. 10325751.72

Page 63
 BIBLIOGRAPHY

 BOOKS :-

o Essentials of Management Accounting

 By Dr. P.N. Reddy
o Corporate Accounting
 By K.S. Raman
o Management Accounting
 By R.S.N. Pillai & Bhagawati V.
o Research Methodology
 By V.S. Dessai
o Annual report of MOIL 2006-07
o Corporate Finance of YCMOU
o Annual report of MOIL 2007-08
o Annual report of MOIL 2006-09

 WEB-SITES :-

o www.google.com
o www.bing.com
o www.wikipedia.com
o www.moil.org.in
o www.investopedia.com
o www.schandgroup.com
o www.yahooanswers.com

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