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CHAPTER 1
INTRODUCTION
(RESEARCH METHODOLOGY)
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1.1TITLE OF THE STUDY


A study on cost-volume-profit analysis as tool for profit planning and control
with reference to TCC Limited, Udyoga Mandal, Ernakulum.

1.2 INTRODUCTION
Cost volume profit analysis shows the relation among the various ingredients of profit
planning, namely, unit sale price, variable cost, sale volume, sales mix and the fixed
cost. Cost volume profit (CVP) analysis generally defined as a planning tool by which
managers can evaluate the effect of a change in price, volume, variable cost or fixed
cost on profit. Additionally, CVP analysis is the basis for understanding contribution
margin pricing, related short run decision, target costing and transfer pricing. In the
marginal costing varies directly with the volume of production ot output. In net
effects, if volume is changed, variable cost varies as per the changes in volume. In this
case, selling price remains fixed, fixed remains fixed and then there is a change in
profit.
CVP is a management tool that expresses relationship among sales, volume, cost and
profit. This will help the firm in taking important decisions relating to profit planning,
product planning, product pricing, selection of promotion mix, and selection of
distribution channels make-or-buy decision and add-or- drop decisions.
Therefore the study on cost-volume-profit analysis conducted at TCC Ltd is to find
out amount of sales the company must generate to cover all production cost.

1.3 STATEMENT OF PROBLEM


The main objective of the study is to determine how changes in cost and sales volume
affect the company’s profit and to predict the future volume of activity, cost incurred,
sales made, and profit received.

1.4 SIGNIFICANCE OF THE STUDY


The study of cost-volume-profit analysis would help the firm to know which of their
products result in large profit margin. It will afford the management the opportunity to
knowing changes in cost, which occur as a result of shift in policy concerning
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products produced. The likely effect of changes in the product mix produced and sold,
and the behavior of cost in relation to different sales volume.

1.5 SCOPE OF THE STUDY


This study is performed by using the cost sheet and balance sheet of TCC Ltd. The
analysis done in the cost sheet is break even analysis and profit volume .These
calculations cover the major areas like contribution margin, profit. This would be
useful for the company to forecast profit fairly and accurately and to make new
strategy to compete in the market by adopting various controlling techniques in the
process of manufacturing.

1.6 OBJECTIVES OF THE STUDY


General Objective:
A study on cost-volume-profit analysis as tool for profit planning and control
with reference to TCC Limited, Udyoga Mandal, Ernakulum.
Specific Objectives:
 To find out the breakeven point for multiple products and ascertain which product
is as advantageous.
 To understand the level of sales needed to achieve a desired profit.
 To identify margin of safety and its significance.
 To measure the degree of leverages.
 To analyze the trend with regards to income, expenditures and profits.

1.7 RESEARCH DESIGN


1.7.1 TYPE OF RESEARCH:
The type of research going to be used for this study is only analytical in nature.
1.7.2 DATA COLLECTION:
Secondary Data- The secondary data is collected from the financial statements of the
company and it consists of balance sheet and cost sheet.
1.7.3 Tools for data analysis:
The following are the various analytical tools applied:
 Breakeven analysis, calculation of breakeven point.
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 Multiple products in breakeven point.


 Degree of operating leverage.
 Ratios.
 The collected data can be represented through graphs and flow charts.

1.8 LIMITATIONS OF THE STUDY


 TCC a large chemical company; as such accurate data regarding the internal affairs
of the company are not easily available.
 The interpretation and analysis may not be accurate because of the limited
experience of the researcher.
 Study based only on the secondary data available from annual reports.
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CHAPTER 2
INDUSTRIAL AND
ORGANIZATIONAL STUDY
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CHEMICAL INDUSTRY IN GENERAL


The chemical industry comprises of the companies that produce industrial chemicals.
Chemicals are used to make a wide variety of consumer goods, as well as thousands
of inputs to agriculture, manufacturing, construction and service industries. The
chemical industry itself consumes 26% of its own output. Major industrial customers
include rubber and plastic products, textiles, apparel, petroleum refining, pulp and
paper and primary metals.
Speciality chemicals are a category of relatively high valued, rapidly growing
chemicals with diverse end product markets. They include electronic chemicals,
industrial gases, adhesives and sealants as well as coatings, industrial and institutional
cleaning chemicals and catalysts. Chemicals in the bulk petrochemicals and
intermediates are primarily made from Liquefied Petroleum Gas (LPG), natural gas
and crude oil. Typical large volume products include ethylene, propylene, benzene,
toluene, xylene, methanol, Vinyl Chloride Monomer (VCM), styrene, butadiene and
ethylene oxide.
Other derivatives and basic industrials include synthetic rubber, surfactants, dyes and
pigments, turpentine, resins, carbon black, explosives and rubber products contribute
about 20% of the basic chemicals external sales. Inorganic chemicals (about 12% of
the revenue output) include salt, chlorine, caustic soda, soda ash, acids (such as nitric,
phosphoric and sulphuric) titanium dioxide and hydrogen peroxide. Fertilizers (about
6% of the revenue output) include phosphates, ammonia and potash chemicals.
Consumer products include direct product sale of chemicals such as soaps, detergents
and cosmetics.
Chemical industry is highly heterogeneous with following major sectors:
 Petrochemicals.
 Inorganic chemicals.
 Organic chemicals.
 Fine & Specialities.
 Bulk Drugs.
 Agrochemicals.
 Paints&Dyes.
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INDIAN CHEMICAL INDUSTRY


The Indian Chemical Industry is a significant component of the Indian economy with
revenues at about USD 28 billion. Indian Chemical Industry contributes about 6.7%
of Indian GDP and 10% of total exports. The industry contributes around 20% of
national revenue by way of various taxes and levies. Volume of production by
chemical industry positions India as third largest producer in Asia (next to China and
Japan). The chemical industry accounts for about 13% share in the manufacturing
output. The industry is a vital part of the agricultural and industrial development in
India and has key linkages with several other downstream industries such as
automotive, consumer durables, engineering and food processing .With the current
levels of performance the Indian Chemical Industry ranks twelfth in the world
production of chemicals. The chemical industry has achieved a growth rate of 8.6%
over the last few years making it one of the fastest growing sectors in India. This
industry’s growth rate has been twice the Asian growth rate over the last five years.
But the asset creation has been the lowest. The Indian Chemical Industry is faced
with multiple challenges. It is emerging from a protected environment into a highly
competitive global market. At the same time the domestic market shows a path to
maturity with a high demand potential for chemical end- products. In terms of
consumption, Indian chemical industry itself is its largest consumer; as the basic
chemicals undergo several processing to manufacture downstream chemicals. The
industry accounts for approximately one-third of the total consumption. Gujarat is the
major contributor to the basic chemical as well as petrochemical production with 54%
and 59% share, in all India production, respectively. Other major states producing
basic chemicals include Maharashtra (9%), Tamil nadu and Uttar Pradesh (6% each).
Other major states producing petrochemicals include Maharashtra (18%), West
Bengal (12%), Uttar Pradesh (4%) and Tamil Nadu (3%).
India is also an importer of chemical products. India’s chemical imports are either for
the purpose of further processing in the chemical industry or for usage as
intermediates in other manufacturing sector. India has been sourcing its imports
mainly from China (20% of India’s total chemical imports), followed by USA (8%),
Saudi Arabia (6%), Singapore, Morocco and Germany (5% each).The Government
has been announcing a number of measures to improve the competitiveness of the
Indian chemical industry. These include: abolition of industrial licensing to most of
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the chemical sub-sectors, excepting a small list of hazardous chemicals. The


Government is also continuously reducing the list of reserved chemical items for
production in the small scale sector, thereby facilitating greater investment in
technology upgradation and modernization. The Government has initiated policies for
setting up of integrated Petroleum, Chemicals and Petrochemicals Investment Regions
(PCPIR). Such an initiative is likely to attract major investment, both domestic and
foreign, into the regions, which would have enabling infrastructure that would provide
conducive and competitive environment for setting up of manufacturing units. PCPIR
would reap the benefits of co-siting networking and greater efficiency through use of
common infrastructure and support services. Such an industrial complex would boost
manufacturing activities, augment exports and generate employment.
Government is a signatory to Chemicals Weapons Convention, which is an universal,
non- discriminatory, multilateral Disarmament Treaty that bans the development,
production, Acquisition, transfer, use and stockpile of all chemical weapons. India has
passed the Chemical Weapons Convention Act, 2000, which has come into force in
2005.Indian Chemical Council (ICC – also known as Indian Chemical Manufacturers
Association) is the nodal point / signatory representing India under the Responsible
Care Initiative. ICC has prepared codes, guidance notes for implementation of process
safety, employee health and safety, pollution prevention, emergency response and
product safety. ICC is continuously interacting with regulatory bodies on various
issues like emergency preparedness, and safe transportation of hazardous chemicals.
Indian chemical firms have in place technical agreements with multinational firms to
keep abreast of the technological development in the global chemical industry and to
explore possibilities of adapting the technology to meet the specific requirements of
the Indian market. Such a strategy helped the firms to have continuous upgradation in
technology, resulting in a wide and superior product portfolio. Strategies have also
been adopted by Indian chemical firms to cut down cost of production through
leveraged buy-out for sourcing cost efficient raw materials and solutions for energy
efficiency. Some Indian chemical firms are engaged in continuous research and
development activities to innovate new applications to increase end user segments.
Consolidation through buy-outs of brands and business is another strategy adopted by
Indian chemical firms. Indian chemical firms are leveraging their manufacturing
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expertise and enter into contract manufacturing with multinational firms. These
include custom manufacturing and private labeling.

CHALLENGES AND STRATEGIES


CHALLENGES
Indian chemical sector has grown a long way since its early days of independence.
The sector has grown from a small-scale sector to multi-dimensional sector, which is
taking on the challenges of globalization.
There are few factors, which hinders the growth of the industry.

These include:

HIGH PRICES OF BASIC FEED STOCK


Basic raw materials constitute major portion of cost of production (30% to 60%) in
the chemical industry. Indian chemical industry either uses natural gas or crude oil as
feedstock for manufacturing process. The fluctuations in oil prices therefore affect the
growth projections of the firms. At times, the manufacturers are unable to pass-on the
cost escalation (occurring due to sudden increase in oil prices) to end consumers. Cost
optimization is thus critical for the chemical units, as their margins may go under
pressure during oil crisis.

LOW LEVEL OF ICT INTERFACE


Globally, information technology is being extensively used in several areas like
chemical processing and manufacturing. Application of information technology in the
chemical sector is mainly for equipment design, chemical engineering, and process
simulation that has helped in reducing product and process development time.
Information technology is also increasingly used in the area of R&D, especially in
collaborative research. The usage of information technology in Indian chemical
industry is relatively lower, as most of the units are in the small- scale sector.
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LOW LEVEL OF BRAND DEVELOPMENT


Indian chemical producers, excepting a few large producers, generally sell their
products as generic products without brand development. There is also low level of
interest amongst small scale producers for brand development, product development
as also market development.

LOW LEVEL OF COMMON INFRASTRUCTURE


In general, due to its very nature, the chemical / petrochemical industry requires
certain basic infrastructure facilities, both in the process chain as also in the supply
chain. In the process chain, the critical infrastructure requirements include a common
effluent treatment plant, and an effective green belt segregating the industrial units
from human settlements. In the supply chain, the critical infrastructure requirements
include a good port, chemical storage terminal, and adequate berthing facilities. In the
above context, it is being felt that the production and export earnings of this sector
would receive a quantum jump if an industrial estate dedicated to the chemical
industry could be set up. At present, each unit has to create specialized facilities on its
own which leads to duplication of efforts and investment. If chemical units are
clustered in close proximity, the required infrastructure could be vertically integrated
resulting in cost reduction.

ENVIRONMENTAL REGULATIONS
Safety, health and environment protection issues are becoming important concerns for
the Indian chemical industry. As with other industries, the chemical industry needs to
comply with regulations such as Occupational Safety and Health and Process Safety
Management regulations. Environmental safety, occupational safety and process
management safety can easily be met if a firm is manufacturing large volume of
single chemical. But it may not be relatively feasible for the firms who manufacture
low volume and large number of chemicals in a single plant.
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DUMPING / IMPORT COMPETITION


The chemical industry is the second largest industry that has attracted large number of
anti- dumping actions in the world.

STRATEGIES

FOCUS ON CORE COMPETENCE


Chemical products trade is increasingly getting specialised all over the world.
Innovation is increasingly becoming an important factor to focus on core competence
and to become a leading player in specialty products. In the above context, it is
important for the Indian chemical manufacturers to focus on select business segments
where competitive advantage exists. Such strategies would help Indian chemical
manufacturers to establish relationship with their customers in profitable segments
and exit non-competitive segments.

STRENGTHENING TECHNOLOGICAL COMPETENCE


Indian chemical industry should strive for continually improving its production
processes and products by investing resources in technology development.
Technological development may be achieved by the chemical industry at two levels.
In the bulk products segment, the chemical industry should undertake process
innovation with the objective of reduction in cost of production. In addition, the
industry needs to invest in technological resources that would lead to specialized
product development. Liberalization process has already increased the possibility of
intra-firm transfer of technology and management practices in the form of
consolidation within the economy as also from developed countries through foreign
direct investment.
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IMPROVING BASIC MANAGEMENT CAPABILITIES


Indian chemical industry has a good record of management expertise. This could be
further leveraged with techniques such as Good Manufacturing Practices, Good
Laboratory Practices, Total Quality Management, Total Production Management and
Risk Management. The Principles of Good Laboratory Practices have been developed
to promote the quality and validity of test data used for determining the safety of
chemicals and chemical products. Such practices would result in quality improvement
and lower cost, thereby improving competitiveness.

ADHERING TO ENVIRONMENTAL NORMS


Chemical substances are used in manufacture of consumer items such as paint, glue,
insect spray, cosmetics and household cleaners, chemical producers have the
responsibility in promoting safe management of substances – starting from design in
production to end-use, and their final disposal (hazardous waste).Environmental
regulations were the principal reason for the relocation of manufacturing facilities
from developed to developing countries. To garner a greater share in world chemicals
market, Indian chemical industry needs to address various developmental issues such
as sustainable chemistry, adherence to safety and health and risk management.

FOCUS ON R&D
Research and Development in the chemical sector may be undertaken in areas such
as:
 Product development;
 Process innovation;
 Equipments for production; and
 Research related to application/safe use of chemicals.
The basic chemical sector should focus on process innovation and product
development and strengthen their competitiveness through improvements based on
performance and quality of products. Firms in knowledge based chemical sector
should focus on R&D with the objective of achieving product leadership and process
innovations. The petrochemical sector should focus on application R&D, as new
applications have to be identified to increase use and application of polymers.
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COLLABORATION
The chemical industry needs to enhance their collaborative efforts in order to improve
competitiveness. Collaboration amongst players in the chemical industry could
happen both at cluster level (for sharing of common infrastructure) as also at firm
level (for sharing of knowledge and technology).Collaboration with firms across
borders for technology and investment would also give a boost to the industry. In
addition, the players should also achieve greater level of industry-institutional
partnership for knowledge development and sharing.

INCREASING ICT INTERFACE


Chemical firms in India can gain a lot by making their manufacturing process IT-
enabled. Information Technology (IT) can bring a good change in entire process cycle
from technology, engineering and procurement to manufacturing, by integrating them
with business processes in all these areas. This will eventually result in higher
efficiency for the industry.
Increasing use of IT to transact business will also help the sector, as most of the
products in the chemical sector are commoditized.

CONSOLIDATION
The new trend in chemical industry is competing through consolidation. Chemical
firms, through mergers and alliances are now achieving economies of scale all over
the world. Consolidation helps the chemical industry in reduction of cost in their
procurement and production. Such consolidation exercises also provide for reduction
in overheads, marketing expenses, increased efficiencies in supply chain management,
and enhanced presence in various regions.

INDUSTRY - ACADEMIA LINKAGES


For transforming ideas into new products, partnership between industry and academia
is a must. Thus, Indian chemical industry should leverage the potential of educational
and research institutions to source intellectual as well as human capital. Such linkages
may be effectively used for setting up of in-house R&D facility or for outsourcing
R&D activities. The educational institutions could play a greater role for development
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of Indian chemical industry by offering courses and conducting research proactively.


The research and academic institutions may also open local offices within chemical
clusters to facilitate greater level of interactions.

MARKETING AND PROMOTION


Indian chemical industry should increasingly focus on marketing and promotion to
achieve greater share in global chemical trade. The industry may endeavour to
concentrate more on issues such as brand building, export promotion and market
development. These aspects can be easily tackled through adoption of superior
process technologies and adhering to quality and environmental standards.

SETTING UP OF CHEMICAL PARKS OR MEGA CHEMICAL


ESTATES
In order to address the issue of capacity expansion and for creation of common
infrastructure, the chemical industry, in association with the Government may
establish exclusive Chemical Parks – a concept similar to the Software / Hardware
Technology Park. It is also important to consider establishment of exclusive Chemical
Zones on the lines of Special Economic Zones to give a fillip to the industry. In such
Parks / Zones, the industry may be encouraged to set up mega chemical plants that
could contribute to increased production as well as employment generation. The
Government has already initiated policies for setting up of integrated Petroleum,
Chemicals and Petrochemicals Investment Regions (PCPIR).

DE-RESERVATION OF SELECT CHEMICAL PRODUCTION


Many chemical products are still reserved for production under small-scale sector.
However, cost competitiveness as well as technological compliance cannot be
achieved without operating under scale economies. Most of the firms operating at the
global level are big ones and enjoy economies of scale. De-reservation of chemical
products reserved for production under small- scale sector can be a good measure to
support the globalization efforts of the industry.
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CREATION OF MODERNIZATION FUND


A modernization fund on the lines of technology upgradation fund established for the
textile sector may be created to strengthen the technological competence of the
industry.

INCREASING CONSUMPTION LEVELS OF CHEMICALS


Per capita chemical consumption in India is low as compared to world standards
(estimated to be one-tenth of world average).Increasing consumption level in the
domestic market would ignite the prevailing latent demand. This could be achieved
through increasing applications through R&D and enhancing the knowledge of end
consumers. The industry, thus, has a major role in increasing the per capita
consumption level in the domestic market.
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MAJOR CHEMICAL GROUPS AND SUB-SEGMENTS


PRODUCED IN INDIA

Alkali Such as Soda ash, Caustic soda, and Liquid


Chlorine.

Inorganic Such as Aluminum fluoride, Calcium carbide,


chemicals Carbon black, Potassium chlorate, Sodium
chlorate, Titanium dioxide and Red
phosphorous.

Organic Such as Acetic acid, Acetic anhydride,


chemicals Acetone, Phenol, Methanol, Formaldehyde,
Nitrobenzene, Citric acid, Maleic Anhydride,
Penta- Erithritol, Aniline, Chloro methanes,
ONCB, PNCB, MEK, Acetaldehyde,
Ethanolamines, Ethyl acetate and Ortho nitro
toluene.
Pesticides Pesticides and insecticides registered under the
Insecticide Act of 1968.

Dyes and Such as Azo dyes, Acid direct dyes, Basic


dyestuff dyes, Fast colour bases, Ingrain dyes, Oil
soluble (solvent dyes), Optical whitening
agents, Organic pigment colours, Pigment
emulsion, Reactive dyes, Sulphur dyes, Vat
dyes, Food colours and Napthols.

Petrochemical Such as Synthetic fibres, Fibre intermediates,


Polymer, Elastomers, Surfactants and
Performance plastics.
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INDIAN CHLOR-ALKALI INDUSTRY


The chlor-alkali industry consists of the production of three inorganic chemicals:
caustic soda (NaOH), chlorine (Cl2) and soda ash (Na2CO3). Caustic soda and
chlorine are produced simultaneously while soda ash is produced during a different
process.The caustic soda industry in India is approximately 65 years old. There are 40
major caustic soda plants with an average plant size of 150 tons per day (TPD), which
is relatively small compared to sizes found in developed countries (500 TPD).The
production of caustic soda is associated with chlorine. This inevitable co-production
has been an issue for the chlor-alkali industry. Both products are used for very
different end uses with differing market dynamics and it is only by rare chance that
demand for the two coincides. The Indian chlor-alkali industry is driven by the
demand for caustic soda, and chlorine is considered a by-product.

ENERGY CONSUMPTION
The raw material necessary in the production of caustic soda consisting of salt and
water is abundant and inexpensive. Conversely, the electrical energy required to
process salt into caustic soda and chlorine is expensive and occasionally unreliable.
Energy costs represent 50 to 65% of the total cost of production.During the last 10
years, production has shifted to membrane cell technology. This shift, combined with
technology improvements in mercury and membrane cell processes and energy
conservation programs intended to reduce auxiliary and rectifiers’ energy
consumption, has resulted in an estimated overall energy savings of more than 10%.

FUTURE DEVELOPMENT OF THE CAUSTIC SODA AND


CHLORINE INDUSTRY ONGOING CHANGES IN THE
CAUSTIC SODA AND CHLORINE INDUSTRY
The Indian domestic market is driven by the demand for caustic soda rather than the
demand for chlorine. Because of the inevitable co-production of both products,
European and North American markets are characterized by caustic soda surpluses.
As India needs and imports this product, it is argued that excess production from
abroad is dumped in India. In contrast, chlorine is a very hazardous product which is
very dangerous to transport, meaning that export of chlorine from India to the rest of
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the world is difficult. The mercury cell technology, besides consuming excessive
power also causes mercury pollution. Some mercury is lost from the process to air and
water and shows up in products and wastes.

POTENTIAL FOR ENERGY EFFICIENCY IMPROVEMENT


The type of process used in the production of caustic soda has a significant impact on
the quantity of energy used. In that regard, India performs favorably compared to
most of the industrialized countries. The geographic distribution of caustic soda
processes differs noticeably worldwide. In Western Europe, the mercury cell process
is still largely used, representing 55% of installed capacity, diaphragm cell process
represents 22% and membrane cell process only 20%. In the US, diaphragm cell
process predominates with 75%, and in Japan, it is the membrane cell process that
covers 90% of installed capacity.

CATEGORIES OF ENERGY EFFICIENCY IMPROVEMENT


Energy is used both as electricity and as heat. About half of the energy expended is
converted into the enthalpy of the products. The rest is converted into heat transferred
to the air in the building and the products, which have to be cooled. Energy savings
are possible by redistributing the excess heat where it is necessary. Insulation of the
cells and salt dissolvers reduce the need for ventilation of the cell room and increase
the amount of heat transferable.

Adoption of membrane technology: energy savings by adopting membrane cell


plants compared to mercury are about 1.3 GJ per ton of NaOH produced. Plus, the
additional thermal energy requirement for the membrane process is not constantly
necessary, as concentration of caustic soda is not always needed.

Installation of Advanced Cell Controls: Advanced instrumentation systems such as


short circuit elimination, anode control and protection devices help to operate the cells
at minimum gap, thereby reducing power requirements. The range of power savings
obtained by these means is above 75 kWh/t. The cost of installating such control
systems depends upon the intended version (i.e. automatic, semi-automatic) and age
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of the plant. Realizing its importance as a potential energy saver, a few plants in the
country have installed such advanced instrumentation systems and many others are
intending to adopt them.

Conversion From Rubber Lined To Bare Bottom Configuration: Even today,


many of the plants are still equipped with rubber lined cells, and hence there is scope
for energy savings through their conversion to bare bottom orientation which will
reduce millivolt drops and bus losses. This will reduce the cathodic mV drop to the
tune of 40%.

Revamping Of Electrical Systems: Rectifier equipment is an important element on


which power consumption depends. An old generation mercury-arc rectifier, if it
exists, could be replaced with a newer generation silicon rectifier, which offers much
better ACDC conversion efficiency. Installation of correct capacity rectifiers is
essential, as under-utilization of its capacity reduces transformer losses.

Effective Utilization Of Hydrogen As Fuel: Hydrogen gas is produced as a by-


product of caustic soda; it can be captured and used as a fuel in on-site power co-
generation. The heat can be used for the evaporation of caustic soda and for the
preparation of the brine. Moreover hydrogen is clean fuel. The use of by-product
hydrogen gas can substitute up to 35% of the total fuel requirement in a caustic fusion
plant.

Adoption Of Energy Efficient Chlorine Handling Systems: Considerable energy


savings can be achieved by revamping chlorine compressors, refrigeration systems
and avoiding inefficient capacity control practices such as hot gas bypass.

Other Alternatives: Alternatives other than those discussed above for energy savings
in the chlor-alkali industry are wide ranging, and other methods that can be used
effectively are listed below:
 Brine recycling up to 40% for retention of thermal energy.
 Direct hot lye pumping to concentrator plant for heat saving.
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 Minimization of exposed surface area of clarifiers and lagging of the same for
surface loss reduction.
 Modifications in brine pumping system to reduce the pumping power.
 Application of modern flat belts in place of conventional V-belts to reduce
transmission losses.
 Application of energy savers in drives with varying duty and machine side capacity
controls.
 Application of variables speed drives for energy efficient capacity control in
varying duty fans and pumps.
 Effective insulation of pipelines carrying hot cell liquor at 85 C from the cells to
the
 Evaporators to save about 0.3 tonne of steam per tonne of caustic soda.
 Controlling the water addition in the filters to save steam.

SCENARIOS OF FUTURE ENERGY USE


FUTURE TRENDS IN ENERGY EFFICIENCY

A new technology called Oxygen Depolarized Cathodes (ODC) is currently


developed with substantial potential energy savings of around 440-530 kWh per ton
of caustic soda (1.5 to 2 GJ final energy/t NaOH) (IPPC, 2000). Energy savings of
nearly 30% are expected.

SODA ASH INDUSTRY CHARACTERISTICS


The Indian soda ash industry is highly concentrated with three players accounting for
nearly 80% of the total installed capacity. Plants are mostly located in Gujarat to take
advantage of the availability of inputs like salt, limestone, coke, water, chemical
compounds and power. Soda ash in India is not obtained as a naturally occurring
product. Soda ash is produced by a total of 6 units with an average size of 1000 TPD.
Out of the six plants, three are based on the standard Solvay process, one unit uses the
modified Solvay process or dual process and the two other units use the Akzo dry lime
process. The dual process produces soda ash in co-production with ammonium
chloride, which is used as a fertilizer. The dry lime process uses dry lime instead of
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lime milk for ammonia recovery. This last process is considered as the state of the art
technology. In India, around 40%of the soda ash produced is consumed by the
detergents industry, 20% by glass, 16% by sodium silicate, and the remainder is
consumed by the chemical industry.

ENERGY CONSUMPTION
The energy needs for the production of soda ash take on different forms: electrical,
thermal and mechanical energy and feed stocks. Coke is used as a source of carbon
dioxide in the soda ash production during the limestone calcination. Two types of
soda ash are produced: “light soda ash” with a specific weight of about 500 kg/m and
“dense soda ash” of about 1000 kg/m. Light soda is directly used in the detergent
sector and certain chemical intermediates. The remainder is transformed by
crystallization after drying to produce dense soda mainly used in the glass industry.
The basic advantage of the use of dry lime instead of milk lime is a better steam
balance and the reduction in the raw material inputs, resulting in energy savings. The
consumption of steam and lime is much lower as compared to other processes.

ONGOING CHANGES IN THE SODA ASH INDUSTRY


Demand for soda ash is mainly affected by the demand from glass industry. Demand
has decreased due to the fall in demand for container glass. Bottles made of container
glass are being replaced with PET (Polyethylene Terephthalate) bottles; this has
affected the demand for soda ash and driven up the demand for chlorine.
One of the main specific problems of the soda ash industry in India is that most of the
units are located in the western region, which has the advantage of being in close
proximity to the raw material source but far from consumers. Since soda ash is a high
volume low cost commodity, costs of transportation are very high. This leaves other
markets like the eastern and the northern regions vulnerable to imports. Further, being
a high-power consuming product, Indian producers are always at a disadvantage
compared to their foreign counterparts.
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ENERGY USE IN MANAUFACTURE OF SODA ASH FROM


TRONA ORE
Potentials for energy savings in the soda ash industry in India are about 17%. Even
though India possesses some of the best technology available, potential savings
remain large and would require revamping the oldest plants. Nirma Ltd represents the
best technology available in India, its specific energy consumption comes close to the
EU best practice.

CATEGORIES OF ENERGY EFFICIENCY IMPROVEMENT


Cogeneration: The Solvay process requires a large amount of steam, a big part of
which is used as low pressure steam, injected directly into the process for the recovery
of ammonia (steam stripping). Energy savings can be realized by reducing steam
pressure in a set of turbo-generators while generating electricity. This electricity is
produced with a "cogeneration" of steam, with an excellent efficiency (about 90%)
because all the steam leaving the turbines is used in the process. In comparison, the
same quantity of energy will be generated, in a classical power station, with a much
lower efficiency (about 30%) because of the lost released steam. Comparison of the
primary energy needs of a co-generation unit (based on gas) - for a soda ash plant -
with that required for the separate production of steam and electricity (by a classical
power station for electricity and boilers for steam), shows that it is possible to achieve
30% savings with co-generation.

Heat Recovery: The recovery of heat has been gradually improved throughout the
history of the process by optimizing energy fluxes of different thermal levels
contained in gas and liquids flowing through the process. Low-grade heat is used to
preheat different streams such as:
 Raw brine entering the brine purification step to improve purification
efficiency.
 Raw water used for milk of lime production.
 Boiler feed water.
 Mother liquor from the filtration to the recovery of ammonia by the distillation
off gas.
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Vacuum flashing of distillation liquor may be used for producing low pressure steam
available for distillation and any evaporation units like salt production.

Energy minimization: The following techniques may be considered:


 Careful control of the burning of limestone and a good choice of the raw materials
allow a reduction of the primary energy necessary for the operation.
 Improvement of process control by the installation of distributed control systems
(DCS) - reduction of water content of the crude bicarbonate by centrifugation
before calcination to minimize energy need for its decomposition.
 Back-pressure evaporation (e.g. calcium chloride liquors).
 Energy management of stand-by machinery.
 Equipment lagging, steam trap control and elimination of energy losses.

FUTURE TRENDS IN ENERGY EFFICIENCY


Potential energy savings in the soda ash industry are large, estimated at about 17%.
The sector is very concentrated; only six companies produce soda ash in India, which
makes the scope of the possible plants retrofit more focalized. However, the soda ash
industry is rarely perceived to be an energy intensive one, and hence inadequate
attention is given to its potential energy savings.
The chlor-alkali sector is a very energy intensive sector where energy represents
approximately 60% of total production cost. In a country like India, where the cost of
industrial electricity is high, industries using large quantities of electricity such as the
caustic soda industry have been focusing more attention on reducing energy
consumption. Hence some caustic soda companies are closely monitoring their energy
consumption, resulting in overall moderate specific energy consumption.
Internationally, India compares positively with a substantial share of membrane cell
technology. Both caustic soda and soda ash production have energy saving potentials
of around 17%. The main weakness in this sector seems to be its lack of indigenous
technology equipment production. For example, membrane cell equipment which
needs to be changed every three years must be imported. There is no indigenous
producer. The potential development of caustic soda production through new ODC
technology is gradually emerging in market. India needs to take part in this future
advancement.
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COMPANY PROFILE

HISTORY
Seshasayee brothers established the Travancore Mettur Chemicals in 1951(Under
Indian Companies Act 1956) in joint venture with Fertilizers and Chemicals
Travancore Ltd(FACT).Commercial production was started in 1954 with a capacity of
20 TPD Caustic soda. It has the distinction of manufacturing unique product named
Rayon Grade Caustic Soda. When financial problems happened to the company the
then Travancore- Cochin govt provided financial aid and it was taken over by the
government. Thus it got renamed as Travancore Cochin Chemicals and subsequently
after the independence it was taken over by the Government of Kerala and it became a
public ltd company. At present its production capacity is 175 TPD Caustic soda and it
plans to expand its capacity to 225 TPD Caustic soda. About 50 crores is needed for
the expansion which will take 2-3 years to complete. The company undertook
expansions in 1961, 1964 and 1975 using Mercury cell technology. As Mercury cell
technology is creating problems the company went for the latest technology which
resulted in the shifting of the company’s technology from Mercury cell technology to
Membrane cell technology which is an environment friendly technology. Membrane
cell technology was commissioned in 1997 with technical help of ASAHI Glass Co
Ltd in Japan. The products of TCC are Caustic soda, Chlorine, Hydrochloric acid and
Sodium Hypo Chlorite. The raw materials used for the production of these products
are Common salt, Electricity and Water. About 60% of production cost is spend by
TCC for Electricity. When Mercury cell technology was used there was a requirement
of 3700 units of electricity for producing 1 TPD Caustic soda. But due to the
introduction of Membrane cell technology the consumption got reduced to 2600 units
of electricity for the production of 1 TPD Caustic soda. Common salt is brought
mainly from the salt pans of Tuticorin in Tamilnadu. Water needed for the production
is met from the river Periyar. At present TCC’s strength is about 800 workers which
comprises of 700 employees and 100 managerial staff.TCC is accredited with ISO
9001:2008 certification in 2006 and company is planning to go for ISO 14000
certification.TCC is the only public ltd company manufacturing Caustic soda in India.
TCC’s competitors are all private companies.TCC has decided to join hands with
Indian Space Research Organisation (ISRO).Sodium perchlorate is used as fuel in
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rockets. Sodium chlorate is the essential raw material for making Sodium
perchlorate.TCC and ISRO has signed the deal for the production and supply of
Sodium chlorate.

INITIAL INVESTMENT FOR THE COMPANY

Investors Amount ( in crores)

Govt of Kerala 11.90

KSIDC 8.11

FACT 6.50

Mettur 3.50
Chemicals Ltd

TOTAL 30.01
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PRESENT CAPITAL INFORMATION

Investors % of shares

Govt of Kerala 80

KSIDC 17

FACT 2

Mettur Chemicals Ltd 1

TOTAL 100

MISSION STATEMENT
 Supply quantity and quality chemicals at competitive prices to customers.
 Customer satisfaction and concern for environment & safety.
 Utmost level of conservation of all resources.
 Cost effectiveness in all operations.
 Regular Up gradation of technologies used in processing.
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ACHIEVEMENTS

THE MAJOR ACHIEVEMENTS ARE:

1981 Best performance Award for Safety in the State from


Directorate of Factories and Boilers,Government of Kerala

1987 Award for best Performance in Safety in India under


Chemical Industries group from National Safety council.

1988- Best Pollution Control Award under group “Heavy


89 Inorganic Industries” in Kerala from Kerala State Pollution
Control Board.
1988- Prize for Productivity from Kerala State Productivity
90 Council.

1993 Best Performance Award for Energy Conservation in the


State of Kerala under group “Chemical and Fertilizers
above 3000KVA” from Government of Kerala.
1994- Best Performance Award for the Productivity in the State
95 of Kerala under the

1995- group “Large Industries” from Kerala State Productivity


96 Council.

1996 Best Performance Award for Energy Conservation in the


State of Kerala under group “Major Industries” from
Energy Management Centre,Government of Kerala.
1998 Performance Award for Energy Conservation under the
group “Chlor-Alkali Sector” from Ministry of
Power,Government of Kerala.
2003 Kerala State Energy Conservation Award in appreciation
of the outstanding achievements towards energy
conservation and management.
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MAJOR CUSTOMERS OF TCC


 Hindustan Unilever Ltd (HUL) Kochi,Kerala.
 Indian Rare Earths Ltd (IRE) Udyogamandal,Kerala.
 Tamilnadu Paper Mills Ltd Pugalur,Tamilnadu.
 Pigments India Ltd Chalakudy,Kerala.
 Indian Oil Corporation (IOC) Ernakulam,Kerala.
 Mysore Paper Mills Ltd Bhadravathy,Karnataka.
 Fertilizers and Chemicals Travancore Ltd (FACT) Udyogamandal,Kerala.
 Travancore Titanium Products Ltd Trivandrum,Kerala.
 Kerala Minerals and Metals Ltd (KMML),Kollam.
 Hindustan Zinc Ltd [all units].
 Hindalco Ltd Ernakulam,Kerala.
 Hindustan Newsprint Ltd (HNL) Kottayam,Kerala.
 Kerala Chemicals and Proteins Ltd (KCPL) Kochi,Kerala.
 Hindustan Organic Chemicals Ltd (HOC) Ambalamugal,Kerala.
 Kerala Water Authority (KWA) Trivandrum,Kerala.
 Hindustan Insecticides Ltd (HIL) Udyogamandal,Kerala.
 National Thermal Power Corporation (NTPC) [all units].
 Binani Zinc Ltd Edayar,Kerala.
 Steel Authority of India Ltd (SAIL) [all units].

MAJOR COMPETITORS OF TCC


 Chemfab alkalies ltd, Pondicherry.
 Andhra sugar ltd, Andhra Pradesh.
 DCW ltd, Mettur.
 Kothari petrochemicals ltd, Chennai
 Sree rayal seema alkalies and allied chemicals ltd, Andhra Pradesh.
 Chemplast ltd, Mettur.
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MANAGEMENT & BOARD OF DIRECTORS


There are 5 directors for the company. As the major shareholder, Government of
Kerala nominates the Board of Directors. Professionals and Bureaucrats serve as
Board members. The Managing Director is the only fulltime director in the board. The
principal Secretary of the Industrial Department is the Chairman.

K Sreenivasan IAS (Principal Secretary of


Chairman Industrial Dept)

Managing V Muralidharan Nair


Director

M R Ramachandran (nominee from


Board of KSIDC) N Thomas (nominated director)
Directors N I Paulose (retd official nominated by
govt)

Company
secretary Smt.Susan Abraham
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PRODUCTS & PRODUCTION CAPACITY

Products Production capacity (in tones per


annum)
Caustic Soda 63,875
Lye

Caustic Soda 36,500


Flakes

Liquid Chlorine 26,280

Commercial Hcl 1,41,255

Sodium 16,425
Hypochlorite

INDUSTRIES SERVED BY TCC PRODUCTS

Caustic Soda Soap, Paper, Textile, Fertilizers,


Drugs and Pharmaceuticals,
Vanaspathi, Engineering, Petroleum
and Chemicals.

Chlorine Paper, Textile, Insectides, Water


Purification, Drugs, Pharmaceuticals,
Mineral Processing, Sugar Fine
Chemicals and Rubber.

Commercial Hcl Fertilizing, Engineering, Mineral


acid Processing, Starch, Oessin and
Plastics.
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ORGANISATIONAL STRUCTURE

MD

GMT

DFC

DGM(PJ)

CS & IA

AGM AGM AGM AGM AGM AGM AGM AGM


(OP) (E) (E & I) (M) (HR) (MT) (PJ) (T)

MD-Managing Director

GMT-General Manager Technical

DGM (PJ)-Deputy General Manager (Project)

DFC-Deputy Finance Controller


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CS & IA-Company Secretary & Internal Auditor

AGM (OP)-Assistant General Manager (Operations)

AGM (E)-Assistant General Manager (Engineering)

AGM (E & I)-Assistant General Manager (Electrical & Instrumentation)

AGM (M)-Assistant General Manager (Marketing)

AGM (HR)-Assistant General Manager (Human Resources)

AGM (MT)-Assistant General Manager (Materials)

AGM (PJ)-Assistant General Manager (Project)

AGM (T)-Assistant General Manager (Technical)


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FUNCTIONAL DEPARTMENTS

VARIOUS DEPARTMENTS OF TCC


The various departments functioning in TCC are:

 Operations department
 Marketing department.
 Production department.
 Finance department.
 Training department.
 Materials department.
 Engineering department.
 Project department.
 System department.
 Technical department.
 Security department.
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OPERATIONS DEPARTMENT

Assistant General
Manager (Operations)

Plant Manager-I Plant Manager-II

Deputy Manager Deputy Manager


(Production)-I (Production)-II

Senior Engineer Senior Engineer


(Production)-I (Production)-II

Plant Engineer-I Plant Engineer-II

Executive Trainee-I Executive Trainee-II


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OBJECTIVES
 Reduce non confirming products.
 Maximize the availability of electrolyze operation.
 Optimizing the specific consumption of electricity, furnace oil and purification
chemical.

DUTIES AND RESPONSIBILITIES OF OPERATIONS


MANAGER
 Head of the operations department fixes monthly target of the product based on the
market requirement.
 He is responsible for the modification in the production process and responsible for
the effluent charges.
 Operations Manager has the administrative control over the operations department.
 Operations Manager is the designated emergency controller during any hazardous
incident that is leakage or emission of any toxic gas or liquid.

DUTIES AND RESPONSIBILITIES OF PLANT MANAGER


 Custodian of plant.
 Plant Manager will plan production activities to meet the production of target set
by the Operations Manager.
 Plant Manager has the administrative control of personnel working in the plant.
 Plant Manager Co-ordinates with other managers for the smooth functioning of the
plant.
 Plant Manager is responsible for the material consumption.
 Plant Manager will plan the shut down activities and carry out maintenance work
of plants.
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MARKETING DEPARTMENT

Assistant General Manager


(Marketing)

Sales Manager

Deputy Manager (Marketing)

Assistant Sales Officer

DUTIES AND RESPONSIBILITIES OF MARKETING MANAGER


 Marketing Manager is directly responsible for sales and distribution of the
products.
 Marketing Manager is responsible for the customer satisfaction.
 He is responsible for organizing and co-coordinating various aspects of marketing
including sales forecasting, advertising, sales promotion and transport.
 Marketing Manager is responsible for implementing product policy.
 He has a crucial role in price fixation.
 Marketing Manager has responsibilities regarding after sales service and complaint
handling.

SECTIONS
The marketing departments have been divided into 2 sections:
 The supply section (issue).
 The documentation section (documentation).
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FUNCTIONS OF THE SUPPLY SECTION


 Preparation of schedules of dispatch and the actual dispatch.
 Execution of the sales offers.
 Maintain daily stock registers.
 Informing parties about the dispatch affected.
 Performing after sales services.
 Manufacturing stability in sales so as to boost credibility with the buyers.

FUNCTIONS OF THE DOCUMENTATION SECTION


 Preparation of sales quotation/tenders, letters and amendments.
 Maintenance of sales offers register book and other necessary information.
 Keeping records of the buyers.
 Keeping proper documentation for buyer complaints and the after sales service
provided.
 Preparation of sales budget, sales plan and monthly allotment correspondence with
parties.
 The major markets are in Kerala, Tamilnadu and certain portions of Karnataka
except for caustic soda flakes. All their products are mostly sold in stock in South
India. There is a demand for caustic flakes from Mumbai.

MATERIALS DEPARTMENT
Material is an important factor of production. Materials department of TCC plays an
important role in reducing cost and increasing the profit. Going with the technical
changes, it has a computerized purchases inventory control system. The main
materials used in the industry are given a 10 digit code to avoid complexities in
handling. The materials department is divided into two:

PURCHASE DEPARTMENT
The department handles the purchase activities of TCC. The various raw materials
needed for the production are procured by this department. The materials are
purchased at the right time in right quantity from the suppliers. Materials are procured
as per the request of inventory control section.
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STEPS IN PURCHASING
 Purchase Indent: indenter raises materials procurement request (MPR) to the
inventory section.
 If the material is not available,the form is sent to the purchase department.
 Enquiring: purchase department send enquiry to the approved vendors on the
receipt of purchase indent. Receiving quotation: quotation are received and opened
by a committee which contains a member of purchase department, one from
finance and one from the internal audit.
 Preparation of comparative statement:
 Quotation is tabulated and purchase department prepare comparative statement.It is
send to indenter.
 Approval: it is verified by the audit section.
 Concurrence from the audit department is obtained.
 Purchase order: file is send to the concerned party.

STORE AND INVENTORY CONTROL DEPARTMENT


Stores department stores the raw materials of about 6000 items stored which includes
raw materials, chemicals, electronic goods, equipment, spares etc. The various items
are given 10 digit codes for easy handling. It has computerized system of material
handling.

STEPS IN RECEIVING MATERIALS


 Visual Inspection: To first check the purchase order. Only after this the material is
received and stored.
 Preparation of receiving reports.
 Inspection report: check whether the material is real. Inspection is done by DMIC
inspection report.
 Payment: indenters check the material, receiving and inspection report is
dispatched to accounts department.
 Preparation of rejection report: if the materials are not in proper condition, goods
rejection report is prepared. It is send to the purchase department. They inform this
to the supplier. New supply is done only after this.
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INVENTORY CONTROL
Inventory control is an essential function of stores department. It helps to reduce cost
and increase profit of organization. Codification is done by DMIC. For controlling the
inventory, certain levels of inventory such as maximum, minimum and reorder level
are prepared. When the stock reaches the reorder level purchase request is made.

OBJECTIVES OF INVENTORY CONTROL


 Unwanted piling of inventory is prevented.
 Materials codification to avoid duplication.
 To determine the item to be stored.
 To keep suitable record.
 To determine which and how much to replenish.
 To disclose obsolete items.

ENGINEERING DEPARTMENT

The engineering department has been divided into four departments:


 Electrical department.
 Mechanical department.
 Instrumentation department.
 Civil department.

ELECTRICAL DEPARTMENT
There are two functions for this department:
 Ensuring uninterrupted power supply.
 Man Management.

MECHANICAL DEPARTMENT
All types of manual maintenance is handled by this section and maintains the
machinery in the best possible manner and ensures healthy and sound flow of works
within the organization.
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OBJECTIVES
 To ensure all equipment engaged in production are in good condition.
 To cut down time of critical equipment.
 To reduce cost due to the inefficiency in equipment handling.

INSTRUMENTATION DEPARTMENT
The main functions of instrumentation department are:
 Plant processing operation and control of plant and equipment.
 Keeping record for it.
 The maintenance of equipments.

CIVIL DEPARTMENT
The main functions of civil department are:
 Maintenance of existing building.
 Roof maintenance work.
 Painting and Insulation.
 Tender issue for civil works.
 Preparing Materials Procurement Requirement (MPR) of steel sheet cement and
other construction material except sand.
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HUMAN RESOURCE DEPARTMENT

Assistant General Manager


(Human Resources)

Medical
Officer Chief Security Manager (Human
Officer Resources & Welfare)

Deputy Manager (Catering


Service)

Assistant Personnel Officer

The main functions of Human Resource department are:


 Manpower planning.
 Recruitment.
 Welfare functions (including statutory and Non-statutory welfare measures).
 Grievance Handling- As per the provisions of Industrial Dispute Act and as per
Factories Act.
 Industrial Relations.
 Public Relations.
 Job Description.
 Training.
 Staffing.
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 Performance Appraisal.
 Wage and Salary Administration.
 Promotional Policy.

TRAINING AND DEVELOPMENT DEPARTMENT


The functions of the Training and Development department are:
 Identifying training needs.
 Imparting the required training.
 Maintaining the training records.

TECHNICAL DEPARTMENT

Assistant General Manager (Technical


Service)

Chief Engineer (Fire & Chief Engineer


Safety) (Technical Service)

The Technical department has been divided into two departments:


 Technical Service Section.
 Safety and Pollution Control.

TECHNICAL SERVICE SECTION


The main functions of this section are:
 Production calculation and reporting.
 Production stock comparison.
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SAFETY SECTION
The main functions of this section are:
 Safety Induction.
 Safety Inspection and Auditing.
 Safety Training.
 Safety Awareness Programme.

SYSTEMS DEPARTMENT
Systems department is one of the upcoming department of TCC.It has come into
existence in 2006.

OBJECTIVES
 Website management.
 Upgradation, maintenance and changes are done by manager systems.

PROJECT DEPARTMENT

Deputy General Manager


(Projects)

Assistant General Manager Assistant General Manager


(Projects) (Systems)

(
Deputy Manager (Systems)

Chief Chief
Engineer Engineer
Senior Engineer (Systems)
(Project)-I (Project)-II
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The main functions of this department are:


 Planning feasibility study and implementation of new projects.
 Preparation of detailed report.
 Preparation of feasibility reports if approved by the management.
 Invitation of tenders through advertisements.
 Evaluation of tenders.
 Agreement.
 Execution.
 Hand over new projects to operations departments.

FINANCE DEPARTMENT
The functions of finance department are:

 Purchase bills passing and payment to suppliers.


 Sales invoice records.
 Debt collection.
 Budgeting and costing.
 Statutory auditing.
 Finance control.
 Handle all auditing and taxes.
 Sales accounting.
 Generation and Utilization of funds.
 Treasury operations.
 Management Information Systems (MIS) and Corporate planning.
 Financial book keeping and finalization of accounts.
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SWOT ANALYSIS

Swot analysis is one of the prime and primary steps in strategic management. The
SWOT analysis is given below:

STRENGTH

 TCC is the only chlor-alkali unit in the state.


 Products are the base chemicals which are considered to be the building blocks of
chemical industry.
 TCC is a pioneer in the chlor-alkali market and has created reliability and
credibility amongst its wide range of customers.
 TCC has skilled work force, educated staff and professionally qualified managers
in good numbers.
 TCC has excellent infrastructure facilities including National Highway, Rail lines,
Seaport and Airport which are near the company.
 TCC is situated on the banks of river Periyar.
 TCC has 80% market for its product in the state of Kerala.
 The company has not faced any strike for past few years because of excellent
management labour relation.
 Strategic location with no other competitors around at present.

WEAKNESS

 TCC has surplus manpower and employees cost is high compared to other
competitors.
 TCC has to bring raw materials from distant places for its products which is found
unfavourable because of the increasing transportation cost.
 TCC is a major consumer of Kerala State Electricity Board (KSEB) and the
electricity tariff has increased many folds in a very short period.
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OPPORTUNITIES

 The overall increase in the trade and business in the economy results in bringing
more demand for the products of TCC.
 Own generation of power may result into lower cost of key input,which enables the
company to explore the possibilities of international market.
 The state of Kerala has a number of untapped sources which may be utilized
by the company to achieve competitive advantage.
 Percapita consumption of Chlorine is very low compared to developing countries.
The economic developments in the country may result in higher demands for
the products of the company.
 Caustic Soda industry is subject to a business cycle,which may turn feasible in
future.

THREATS

 TCC is a heavy consumer of electricity and in recent past the electricity tariff
increased many folds.
 As the environment consciousness is very high in Kerala, it may require increase
in the investment in pollution control.
 The infrastructure of the company is obsolete compared to others.
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CHAPTER 3
THEORETICAL FRAMEWORK
AND REVIEW OF
LITERATURE
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THORETICAL FRAMEWORK
The cost-volume-profit (CVP) analysis is a management accounting tool to
show the relationship between these ingredients of profit planning, it is
one of the most hallowed, and yet one of the simplest analytical tool in
management accounting.

Cost-volume-profit (CVP) analysis as an important tool that provides the


management with useful information for managerial planning and
decision-making. Profit of a business firm is the results of interaction of
many factors. Such factors influencing the level of profits, the following
are considered the key factors:

 Selling price

 Volume of sales

 Variable costs on a per unit basis

 Total fixed cost and

 Sales mix

To do an effective job in planning and decision -making, the management


must have analyses which allow reasonably correct predictions of how
profit will be affected by a change in any one of these factors. Also,
management needs an understanding of how revenues, costs and volumes
interact in providing profits. All these analysis and information are
provided by cost-volume-profit analysis.

Cost-volume-profit analysis is a systematic method of examining the


relationship between selling price, total sales revenue, volume of
production, expenses and profit. This analysis simplifies the real world
conditions that a business enterprise is likely to face. CVP analysis can
play an important role by providing the management with information
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regarding financial result if a specified level of activity or volume


fluctuates, information on probable effects of changes in selling price and
other variables.

CVP analysis focuses on prices, revenues, volume, costs, profits and


sales mix and on the inter -relationship between them during the short-
run. The short- run is generally considered a period of one year or less
than one year during which the production of a business enterprise
cannot be increased and is limited to the available current operating
capacity of the enterprise. During the short - run, the capacity of the
plant and machinery cannot be increased (this is possible during the
long-term only) and therefore, production is limited in terms of available
plant facilities.

Similarly, it takes time to reduce the capacity of plant and machinery and
therefore, a business enterprise should operate during the short -run
relatively on a constant quantity of production resources. Besides, no
changes in cost and prices data can be generally made during the short -
term as they might have already been determined. During the short - run,
however, some resources like materials and unskilled labour can be
increased at a short notice. Thus during the short - inn, sales volume and
short-run profitability can be the only vital area which may be found
uncertain. CVP analysis herein reveals the effect of changes in sales
volume on the leve l of profits. CVP analysis, in this way, is an integral
part of financial planning and managerial decision- making.

In CVP analysis, all expenses are classified into fixed and variable. Semi-Variable
expenses have to be divided into their fixed and variable elements. Total variable
costs are considered to be those costs that vary as the production volume changes. In a
factory, production volume is considered to be the number of units produced, but in a
governmental organization with no assembly process, the units produced might refer.
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These steps are important prerequisites to any CVP analysis and a


proper understanding of them is essential for reliable conclusions. Based
upon a knowledge of fixed and variable cost elements and CVP analysis,
it is possible to determine break -even sales volume, to compute the
sales needed to generate desired profits and to supply answers to many
questions that arise It the course of management planning and decision-
making.

TECHNIQUES OF CVP ANALYSIS

CVP analysis uses the following techniques or analyses while answering to many
questions in the area of managerial planning and decision-making:

 Contribution Margin Concept

 Break- Even Analysis

 Profit- Volume (P/V) Analysis

CONTRIBUTION MARGIN CONCEPT

Contribution margin concept indicates the profit potential of a business


enterprise and also highlights the relationship between cost, sales and
profit.. It is a highly useful technique for planning and decision making
by the management

Contribution margin is the excess of sales revenue over variable costs


and expenses. Under contribution margin concept, variable costs include
all variable costs, i. e. variable production costs and variable selling and
administrative expenses, if any.. From the contribution margin, fixed
costs and expenses are deducted giving finally operating income or lossl
Contribution margin is thus used to recover/ cover fixed costs. Once the
fixed costs are covered, any remaining contribution margin adds directly
to the operating income of the firm.
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CONTRIBUTION MARGIN RATIO ( C/S RATIO OR P/V RATIO)

The contribution margin can also be expressed in the form of a percentage.


The contribution margin ratio is also known as 'contribution to sales' (C/S)
ratio or profit-volume (P/ V) ratio. This ratio denotes the percentage of
each sales rupee available to cover the fixed costs and to provide
operating income to a firm. Once the contribution margin is determined, it
can be used to calculate the break -even- point in volume of units or in
total sales dollars. When a per unit contribution margin occurs below a
firm's break- even-point, it is a contribution to the reducti on of fixed
costs. Therefore, i t is logical to divide fixed costs by the contribution
margin to determine how many units must be produced to reach the break -
even-point.

The P/V ratio is useful to the management in deciding whether to


increase sales volume) For example, if the P/V ratio of a business
enterprise is large and the enterprise is operating at less than 100%
capacity, it will be advantageous tor (he firm to go for increase in sales
volume as net income will go up because of higher sales volume. On the
other hand, a firm with a small P/V ratio will not find profitable to have
increase in sales volume much profitable. Intact, enterprises having a
lower PA 7 ratio should aim at reducing costs and expenses before thinking
of increasing the sales volume.

The use of P/ V ratio in specific analysis is based on the assumption that


except sales volume, other factors such as the unit selling price,
percentage of variable cost to sales, amount of fixed costs remain
constant. If there are changes in any of these factors, the effect of such
change should be considered in making the analysis involving the P/V
ratio).
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UNIT CONTRIBUTION MARGIN

Unit contribution margin or contribution margin on per unit basis is


equally useful as it also indicates the profit potent ial of a product or
activity. The unit contribution margin is the money available from sale of
each unit to cover fixed costs and provide profits to a firm.

While the P/V ratio is most useful when the increase or decrease in sales
volume is measured in terms of Rupees, the unit contribution margin is
most useful when increase or decrease m sales volume is measured in
sales unit (quantities). If a business firm has been able to cover fixed
costs, the net income of t he firm will increase by unit contribution margin
multiplied by additional sales units.

BREAK-EVEN ANALYSIS

A break- even analysis is performed to identify the level of operations at which the
entity has covered all costs but has not yet earned any profit. The break-
even point identifies the volume of activity at which total revenues equal
total costs. This is an important point to the management because it represents
a minimum acceptable level of operations and it indicates that profitable operations
can o nly result when the level of activity exceeds the break- even point.

BREAK-EVEN ANALYSIS IN UNITS

Break- even analysis utilizes the contribution margin approach to


compute net income, which splits zests into a fixed and variable
classification. The break- even point in units can be computed by dividing
real fixed costs ( F) by the contribution margin provided by each unit.

Total fixed costs FC

Break-even in units = =

Contribution margin per unit S – VC


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The contribution margin per unit is sales price per unit (S) less variable cost per unit
(VC).

BREAK-EVEN CHARTS

A break-even chart is a graphical representation on of the relationships


between costs, revenues and profits. It is developed by plotting the
total cost curve and total revenue curve on a piece of graph paper.

BREAK-EVEN ANALYSIS IN SALES RUPEES

The concept of the break- even point does not change when the analysis is
performed in sales rupees The break - even point merely identifies the
amount of sales rupees required to cover all costs but generates no
profit.

Equation for Break-even point in Sales Rupees: One method of computing


break-even in sales rupees is to compute break -even in units and multiply
the number of units by the sales price per unit. However, sometimes it
may not be convenient or efficient because of the way the data is given to
first compute the break- even point in units. The break- even point in sales
rupees equal to fixed costs divided by the contribution margin ratio.

Break-even point in sales Rupees = Fixed cost

Contribution Margin Ratio

For an amount of desired profit, the following formulae are used:

= Fixed costs + Desired Profit

Contribution Margin Ratio (C/S Ratio)


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By definition, the contribution margin ratio is the ratio of the contribution


margin to sales. The contribution margin is the sale price minus variable
costs and the ratio is computed by dividing contribution margin by the
sales price.

ASSUMPTIONS IN BREAK-EVEN ANALYSIS

 This is the same as assuming the variable expense per unit is constant.

 The total fixed expenses, within a relevant range of volume, do not


change as sales volume The following are the important assumptions in
break- even analysis and break- even charts.

 The total revenues of the enterprise change in direct proportion to


changes in unit sales volume. This is the same as assuming that the
average selling price is constant.

 All costs are classified as fixed and variables.

 It is assumed that all other costs, such as mixed costs, can be broken
in to fixed and variable cost elements.

 The total expenses can be separated into variable expenses and fixed
expenses per year.

 The total variable expenses vary in direct proportion to changes in sales


volume changes.

 For a multi-product firm, the sales mix remain constant for all volume
levels under consideration.

 Production volume and sales volume are equal; in other words,


inventory changes do no effect profit.
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 Inventory quantities remain unchanged during the year. The number of


units in beginning work-in-progress and finished goods equal to the
number of units in these ending inventories.

 ADVANTAGES OF BREAK-EVEN ANALYSIS

 Break- even analysis provides a useful tool in demonstrating the


relationship and interaction of cost, volume, and profit. If properly
utilized, it aids in establishing realistic profit objectives and operating
budgets.

 It provides management with distinctive insight into the economic


characteristics of its business, not only in terms of the fixed and
variable expenses at varying sales volumes, but also of the break - even
relationship and its effect on the firm due to changes in factors l ikely
to have impact on the profit of a business enterprise.

 The Manager can advantageously employ 'what if question to


determine the anticipated results from contemplated managerial
decisions. The break-even process may involve such planning questions
as plant expansion, equipment modernization, change in product mix or
sales prices and the introduction of new product lines.

 Management is often confronted with the decision to increase sales


volume with an optimistic view towards enhancing profit. Profit
enhancing a possibility, provided costs are controlled within prescribed
limits. The break- even technique can be an important tool in
establishing expenditure constraints and control by adequate
supervision.

 An important influence on profit is the product sales mix with variable


gross margins. The break even chart can highlight problem areas
requiring corrective management action.
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DISADVANTAGES OF BREAK-EVEN ANALYSIS

 Break- even analysis is not a remedy for all problems faced by a


business firm. It cannot be used usefully without a thorough
understanding of i ts concept and limitations.
 The break-even chart generally reflects a number of estimates and
judgments, and the resultant data developed and their implication can
be misleading. For example, measuring costs and sales volume at a
particular output level may be an inaccurate method of assessment,
particularly when the volume approaches the break- even point, which
can change depending on operating circumstances.

 Usually, the break- even is developed at a point that represents a


static position. Changes in relationship factors should be correctly and
logically reflected in a revised chart or a series of charts.

 The improper understanding and usage of the charts can lead to


inadequate decision making, inaccurate planning assumptions and
possibly detrimental control actions.

REVIEW OF LITERATURE

1.Dr. Nabil Alnasser, et al (2014) This research study aimed to figure out the effect
of using breakeven point in planning, controlling, and in the decision-making process,
in the Jordanian industrial companies. This research study shed the light on the reality
of the use of the breakeven point in the planning, controlling and decision-making in
industrial companies in Jordan. The study sample of the study was formed out of 54
employees in the accounting departments in the Jordanian industrial companies. The
study found out that, the most of the Jordanian industrial companies are using break-
even point in the planning, controlling and decision-making, and there is a statistical
significant relationship between the use of the break-even point and successful
planning, control and decision-making in the Jordanian industrial companies. The
study has recommended that, companies should use breakeven point as a main tool of
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decision-making and planning oversight because of its impact, efficiency and


accuracy in the rationalization and control decisions.

2. Sadiq Rabiu Abdullahi, et al (2017) This study aimed to figure out if small
business enterprises utilize cost volume profit (CVP) analysis as a management tool
for decision-making process in Bayero University Kano, with a view to shed light on
the reality of the use of CVP analysis as a decision-making tool in small business
enterprises. The study population is made up of the entire small business enterprises
within Bayero University, Kano. Primary source of data were utilized using structured
questionnaires. The hypotheses were tested using Mann-Whitney U test and Pearson
correlation coefficient. A very weak relationship (0.02) was recorded, it was
discovered that there is no statistical significant difference between having the
knowledge of a management accounting tools and its application. The study
concludes that small business enterprises utilize CVP ignorantly and it is
recommended that CVP analysis and other management accounting tools be
introduced to small business enterprises so that productivity can be improved.

3. Assistant Professor Dragan Georgiev(2014) At this stage there is still insufficient


empirical data and analyses regarding the application of the tools of managerial
accounting in the tourist sector and mainly in the hotel industry. The present study
examines the application of the interdependence cost-volume-profit with a view to the
specific character of the hospitality product in Bulgarian high-category hotels. To that
end there is studied the rate, the frequency of use and the informational usefulness of
the aspects of the analysis in the context of the attained level of development of
managerial accounting in the enterprises, which operate the hotels in the Northeastern
region, Bulgaria.

4. Adibe T. N (2012) This study was on improving production planning and control
through the application of breakeven analysis in manufacturing firms in Nigeria.
Manufacturing in Nigeria cannot be left out of the global connectivity very often lead
to business effectiveness and efficiency. In production planning and control tools for
achieving success are varied. It was concluded among others that the application of
breakeven analysis was more likely to lead to efficiency, profit generation, scrap
reduction and meeting of due dates.
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5. Marcelo Seido Nagano (2016) This work addresses the problem of reallocating
productive resources to maximize profit. Most contributions to the topic focus on
developing or improving the Cost-Volume-Profit model to obtain solutions that
provide an ideal mix of products before the data is given. In particular, some
algorithms are available for the problem, such as the ones proposed by Kakumanu and
Shao and Feng. However, these proposals do not consider the minimum number of
units to be produced, and the reallocation of productive resources for each product is
a problem found in these studies. Bearing this in mind, a new algorithm based on
individual financial revenue is proposed. Computational results indicate that the
proposed method can be utilized as a decision support system.

6. Navaneetha B, et al (2017) The amount of profit in any firm is based on factors


namely cost, selling price, volume of sales and volume of production. Cost determines
selling price to arrive at the desired level of profit. This study aims at cost volume
profit analysis in Nestlé (Ltd) for the period of 2012-2016. From the above finding it
has been concluded that the overall cost volume profit of Nestle Ltd is highly
performed. Overall sale of the Nestle is performing well and they should maintain.
Cost volume profit analysis examines the behaviour of changes in the output level,
selling price, variable cost per unit and fixed cost of a product or service.

7. Prof.Dr.Etem Iseni, et al (2018) This research intends to know how much the
Cost-Volume-Profit Analysis is used to planning and making decisions in the business
environment. The research has been done in manufacturing and service enterprises,
using the combination of econometric models in order for the research to be as
accurate and to have positive effect. The data are realized through structured
questionnaires, using the Mann-Whitney U test, Brunner Munzel test, p-value,
BootStrap, DF-degree of freedom, percent confidence interval, with the dependent
and independent variables etc. In whom case the hypotheses are verified, which are
raised .The results of this research showed that amount of product produced has
positive effect on sales value to service companies and raising profit to the
manufacturing business environment, also exists an important relationship between
production and sales, and CVP analysis contributes to growth profitability and break-
even in the business environment . So, as conclusion based on the results found from
research, cost-volume-profit analysis should be used for making decisions, because
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the risk threshold evidently decreases by doing such analysis. The great demand from
service companies for products it significantly increases profit and producing to
manufacturing enterprises.

8. Geff Okereafor, et al(2015) This study determined the effect of cost-volume profit
analysis in the decision making of manufacturing industries. The study combined both
survey research and longitudinal research design. Both primary and secondary data
were used for collection. They were analyzed using regression and correlation
techniques. The results revealed that the sales value of a product and the quantity of the
product manufactured has a positive effect on profit made on the product, also that there
is a significant relationship between the cost of production and profit. The reorder and
economic order quantity were also determined as a base for assessing decision making
opportunities. Based on the result, the researcher recommends that manufacturing
industries should always adopt cost-volume profit analysis in their decision making

9. Fitsum Kidane (2012) This paper provides a review of empirical research on the
role of cost analysis inmanagerial decision making in profit- oriented organizations. A
well developed costing system is becoming increasingly important to profit oriented
organizations.Cost analysis helps managers in making decisions in such areas like
pricing,profit planning, setting standard cost, capital investment decisions, marketing
decisions,cost management decisions and others. The review shows that, findings
fromdifferent literatures stated that Cost analysis is crucial in various decisions and plays an
important role in managerial decisionmaking.

10. Ayub Mehar (2005) This study measures the impacts of the profitability factors
on the capital structure of a firm. A simulation analysis has been applied in the study
and the impacts of cost, revenue profit, tax liability and dividend have been tested. It
has been found that capital growth of a firm does not depend on the on the
profitability factors. However, the factors of the profitability are important in
determination of the liquidity position of a firm. It is interesting that a large number of
studies have measured the effects of capital structure on the profitability, but the
present study measured the effect of the profits’ factors on the capital structure of a
firm.
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REFRENCES

1. Dr.Alnasser N, et al, (2014), THE EFFECT OF USING BREAK-EVEN-POINT IN


PLANNING, CONTROLLING, AND DECISION MAKING IN THE INDUSTRIAL
JORDANIAN COMPANIES.

2.Abdullahi S R, et al, (2017), COST-VOLUME-PROFIT ANALYSIS AS A


MANAGEMENT TOOL FOR DECISION MAKING IN SMALL BUSINESS
ENTERPRISE WITHIN BAYERO UNIVERSITY, KANO.

3. Assistant Professor Georgiev D, (2014), APPLICATION OF ‘COST-VOLUME-


PROFIT’ ANALYSIS IN THE HOTEL INDUSTRY (BASED ON SURVEY DATA OF
HIGH RANKING HOTELS IN THE NORTH-EAST REGION OF BULGARIA).

4. T. N Adibe, (2012), IMPROVING PRODUCTION PLANNING AND CONTROL


THROUGH THE APPLICATION OF BREAKEVEN ANALYSIS IN
MANUFACTURING FIRMS IN NIGERIA.

5. Nagano M S, (2016), MULTIPRODUCT COST-VOLUME-PROFIT MODEL: A


RESOURCE REALLOCATION APPROACH FOR DECISION MAKING

6. B Navaneetha, et al,(2017), AN ANALYSIS OF COST VOLUME PROFIT OF


NESTLÉ LIMITED

7. Prof.Dr. Iseni Etem, et al ,(2018), ROLE OF ANALYSIS CVP (COST-VOLUME-


PROFIT) AS IMPORTANT INDICATOR FOR PLANNING AND MAKING
DECISIONS IN THE BUSINESS ENVIRONMENT.

8. Okereafor Geff, et al,(2015), COST-VOLUME-PROFIT ANALYSIS AND


DECISION MAKING IN THE MANUFACTURING INDUSTRIES OF NIGERIA

9. Kidane Fitsum, (2012), THE ROLE OF COST ANALYSIS INMANAGERIAL


DECISION MAKING
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10. Mehar A, (2005), THE FINANCIAL REPERCUSSION OF COST, REVENUE


AND PROFIT: EXTENSION IN THE BEP AND CVP ANALYSIS.
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