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CHAPTER 1
INTRODUCTION
(RESEARCH METHODOLOGY)
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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.
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.
CHAPTER 2
INDUSTRIAL AND
ORGANIZATIONAL STUDY
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expertise and enter into contract manufacturing with multinational firms. These
include custom manufacturing and private labeling.
These include:
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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STRATEGIES
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.
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.
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%.
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.
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.
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.
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.
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.
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.
KSIDC 8.11
FACT 6.50
Mettur 3.50
Chemicals Ltd
TOTAL 30.01
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Investors % of shares
Govt of Kerala 80
KSIDC 17
FACT 2
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
Company
secretary Smt.Susan Abraham
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Sodium 16,425
Hypochlorite
ORGANISATIONAL STRUCTURE
MD
GMT
DFC
DGM(PJ)
CS & IA
MD-Managing Director
FUNCTIONAL DEPARTMENTS
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)
OBJECTIVES
Reduce non confirming products.
Maximize the availability of electrolyze operation.
Optimizing the specific consumption of electricity, furnace oil and purification
chemical.
MARKETING DEPARTMENT
Sales Manager
SECTIONS
The marketing departments have been divided into 2 sections:
The supply section (issue).
The documentation section (documentation).
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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.
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.
ENGINEERING 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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Medical
Officer Chief Security Manager (Human
Officer Resources & Welfare)
Performance Appraisal.
Wage and Salary Administration.
Promotional Policy.
TECHNICAL DEPARTMENT
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 Manager (Systems)
Chief Chief
Engineer Engineer
Senior Engineer (Systems)
(Project)-I (Project)-II
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FINANCE DEPARTMENT
The functions of finance department are:
SWOT ANALYSIS
Swot analysis is one of the prime and primary steps in strategic management. The
SWOT analysis is given below:
STRENGTH
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.
Selling price
Volume of sales
Sales mix
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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CVP analysis uses the following techniques or analyses while answering to many
questions in the area of managerial planning and decision-making:
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 in units = =
The contribution margin per unit is sales price per unit (S) less variable cost per unit
(VC).
BREAK-EVEN CHARTS
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.
This is the same as assuming the variable expense per unit is constant.
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.
For a multi-product firm, the sales mix remain constant for all volume
levels under consideration.
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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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.
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.
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