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CHAPTER-I Introduction

The Indian Dairy Industry


Today, India is 'The Oyster' of the global dairy industry. It offers opportunities galore to entrepreneurs worldwide, who wish to capitalize on one of the world's largest and fastest growing
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markets for milk and milk products. A bagful of 'pearls' awaits the international dairy processor in India. The Indian dairy industry is rapidly growing, trying to keep pace with the galloping progress around the world. The liberalization of the Indian economy beckons to MNC's and foreign investors alike. India is the largest producer and consumer of milk in the world. The Indian dairy sector is characterized by a very large number of small herds. Production of milk from buffaloes exceeds that of cows, which are considered sacred by Hindus. India has an extensive governmentsupported dairy cooperative structure. Milk from the small herds is collected by the cooperatives at centralized cooling facilities and transported to the end-users in urban centres. Also typical of smallholder dairying, most of the milk produced (over 80%) is distributed as liquid milk for home consumption or manufacturing of traditional products like ghee, paneer and mithais. From burfi to kulfi, from kalakhand to shrikhand, from yogurt to ice creams extend the delectable world of Indian milk delicacies. India surpassed the US in 1998 with a production of 92 million tonnes to become the largest milk producing country in the world. In 2006, India's milk production crossed 100 million tonnes, representing 15% of world milk production. From being milk impoverished nation to the top producer has been an astonishing success. Dairy industry plays a dynamic role in India's agro-based economy. Dairy is now a highly specialized field today that involves production, procurement, storage, processing and distribution of dairy products. The dairy industry involves processing raw milk into products such as consumer milk, butter, cheese, yogurt, condensed milk, skimmed milk powder and ice cream, using processes such as chilling, pasteurization, and homogenization. Indias dairy sector is expected to triple its production in the next 10 years in view of expanding potential for export to Europe and the West. Moreover with WTO regulations expected to come into force in coming years all the developed countries which are among big exporters today would have to withdraw the support and subsidy to their domestic milk products sector. Also India today is the lowest cost producer of per litre of milk in the world, at 27 cents, compared with the U.S' 63 cents, and Japans $2.8 dollars. Also to take advantage of this lowest cost of milk production and increasing production in the country multinational companies are planning to expand their activities here. Some of these milk producers have already obtained quality standard certificates from the authorities. This will help them in marketing their products in foreign countries in processed form.

Overall, the Indian dairy sector is experiencing an upheaval with new product launches, repositioning of brands and entry of new players. This will also prompt several global players to enter the Indian market. The growth of disposable incomes, change in family structures, more
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women joining the work force and focus on healthy-nutritious and quality products are likely to result in demand for a shift towards dairy products that are not just functional and convenient but also meet the consumers' aspirational needs. The credit of the huge success behind the dairy industry must be attributed in great measure to Operation Flood which was a rural development programme started by India's National Dairy Development Board (NDDB) in 1970. One of the largest of its kind, the programme objective was to create a nationwide milk grid. It resulted in making India one of the largest producers of milk and milk products. The success behind Operation Flood was the Gujarat-based Amul (Anand Milk Union Limited) which in turn became a mega company based on the cooperative approach. Dr Varghese Kurien gave the professional management skills and necessary thrust to the cooperatives and is considered as the architect of India's White Revolution. Milk production is primarily a supplementary occupation for small landholders or landless labourers. There are no official counts of dairy farms and estimates vary widely. Some estimates indicate that approximately 70 million rural households are engaged in milk production. The average herd size is two milking animals and average daily milk production per herd is about four litres. The average yield per cattle is very low in the country, because cattle are fed primarily on dried straw or residues from crop production. Dairying is practiced throughout India, but concentrated in the north-western states where the climate is temperate. The milk surplus states in India are Uttar Pradesh, Punjab, Haryana, Rajasthan, Gujarat, Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu. The top 6 states i.e. Uttar Pradesh, Punjab, Madhya Pradesh, Rajasthan, Tamil Nadu and Gujarat together account for 58% of the national production. About 110,000 dairy cooperative village societies, involving 12 million farmer members had been organized by 2003-04 to supply milk to processing units and directly to consumers. Until the early 1990s, milk processing was reserved for the cooperative sector through licensing. As part of the domestic economic reforms and commitments to the WTO regulations, the Indian dairy sector was liberalized in a phased manner starting in 1991. The government removed all restrictions on setting up new milk processing capacity in March 2002. Following partial decontrol of the dairy sector, many private sector processors entered the market and established milk processing facilities, mostly in milk surplus states.

Dairy sector, mainly an offshoot of agriculture sector in India, has taken shape of an industry in a big way today. Intimately interwoven with the socio-economic fabric of rural people in India, dairying has played a crucial role in providing nutritional security to the millions of households. It has also strengthened our economy all along by supplementing family incomes and generating
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gainful employment in the rural sector. All this is substantiated by the fact that Livestock accounts for 4.36% of India's total GDP and 24.72% of Agricultural GDP as of the figures available for 2004. Indian dairy industry of late has become the major growth area and goes far beyond being an important agri-business sector of the national economy. Besides being the largest milk producing country with 5 per cent annual increase in milk production, India has a large market of dairy products due to the constantly increasing demand for variety of milk products in the urban as well as rural sectors. The rising demand for value added milk products at the national level and opening of the markets at the international level under the changing global scenario and WTO have opened up new opportunities and threats alike for the Indian dairy industry.

Acc. to the economic survey 2007-08, India ranks first in the world in milk production, which increased from 17 million tons (MT) in 1950-51 to about 102 MT by 2007-08. The per capita availability of milk has also increased from 112 grams per day in 1968-69 to 246 grams during 2006-07. But it is still low compared to the world average of 265 grams/day. About 80 per cent of milk produced in the country is in the unorganized sector and the remaining 20 per cent is shared
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equally by cooperative and private dairies. Over 1.2 lakh village-level dairy cooperative societies, spread over 265 districts in the country, collect about 21 million litres of milk per day and market about 18 million litres. The efforts of the department in the dairy sector are concentrated on promotion of dairy activities in non-operation flood area with emphasis on building up cooperative infrastructure, revitalization of sick dairy cooperatives and federations and creation of infrastructure in the States for production of quality milk and milk products (Table 1). Table1 Production and per capita Availability of milk Per capita Year grams/day) Milk production (MT) 1990-91 2000-01 2003-04 2004-05 2005-06 2006-07 2007-08 176 220 231 233 241 246 246 53.9 80.6 88.1 92.5 97.1 100.9 102

(Provisional)

CONSUMING PATTERN
In India about 46 % of the total milk produced is consumed in liquid form and 47 % is converted into traditional products like cottage butter, ghee, paneer, khoya, curd, malai, etc. Only 7 % of the
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milk goes into the production of western products like milk powders, processed butter and processed cheese. Among the milk products manufactured by the organized sector some of the prominent ones are ghee, butter, cheese, ice creams, milk powders, malted milk food, condensed milk infant foods etc. Of these ghee alone accounts for 85%. It is estimated that around 20% of the total milk produced in the country is consumed at producer-household level and remaining is marketed through various cooperatives, private dairies and vendors. Also of the total produce more than 50% is procured by cooperatives and other private dairies. While for cooperatives of the total milk procured 60% is consumed in fluid form and the rest is used for manufacturing processed value added dairy products; for private dairies only 45% is marketed in fluid form and the rest is processed into value added dairy products like ghee, makhan etc. As high as 98% of milk is produced in rural India, which caters to 72% of the total population, whereas the urban sector with 28% population consumes 56% of total milk produced. Even in urban India, as high as 83% of the consumed milk comes from the unorganized traditional sector. Presently only 12% of the milk market is represented by packaged and branded pasteurized milk, valued at about Rs. 8,000 crores. Quality of milk sold by the unorganized sector, however, is inconsistent and so is the price across the season in local areas. India's dairy market is multi-layered. Its shape is like a pyramid with a vast market for low-cost milk. The bulk of the demand for milk is among the poor in urban areas whose individual requirement is small, maybe a glassful for use as whitener for their tea and coffee. Nevertheless, it adds up to a sizable volume - millions of litres per day. In the major cities lies an immense growth potential for the modern sector. Presently, barely 778 out of 3,700 cities and towns are served by its milk distribution network, dispensing hygienically packed wholesome, quality pasteurized milk. According to one estimate, the packed milk segment would double in the next five years, giving both strength and volume to the modern sector. The narrow tip at the top is a small but affluent market for western type milk products.

EXPORT POTENTIAL
Traditionally, India has been an importer of dairy products till Operation Flood began showing results. The trend for imports continued till 1993, when, for the first time, exports exceeded imports. Between 1993 and 1999 imports and exports kept edging each other out, and since 2001, India has been a net exporter of dairy products. Post 2003, exports have grown at an astonishing rate while imports have dipped (figure 2). However, Indias share in global dairy trade is 0.3 and
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0.4 percent for exports and imports, respectively, which is almost negligible. The main reason for this is that bulk of the milk in India is consumed in liquid form by the producer households. Also, with increasing income levels in urban centres, the demand for processed dairy products has gone up leaving lesser surpluses for export.

India has the potential to become one of the leading players in milk and milk product exports. Location advantage: India is located amidst major milk deficit countries in Asia and Africa. Major importers of milk and milk products are Bangladesh, China, Hong Kong, Singapore, Thailand, Malaysia, Philippines, Japan, UAE, Oman and other gulf countries, all located close to India. India's export of milk and milk-based products showed a significant drop of nearly 55% during 2005-06 and was Rs 436 crores in 2006-07. Concentrated milk and cream products such as skimmed milk powder continues to be the largest item of export, which together accounts for nearly 78% of net milk and milk products exports during the year 2006-07. The exports of skimmed milk powder reached Rs 343 crores in 2006-07 as against Rs 78 crores in 2001-02. On the other hand butter, butter oil, ghee and other milk fat together accounted for just over 10% of the net milk and milk product exports from India during 2006-07.

In 2005, dry skimmed milk and casein accounted for 43 and 28 percent of the total dairy exports from the country (figure 3). The rest was made up of dried whole milk, ghee and butter oil from cow milk and infant food. Almost all of Indias dairy exports are meant for Asian and African countries. In Asia, neighbouring countries in South Asia and the Middle East are the main buyers [4(a), (b)]. Bangladesh is the largest buyer of Indian dairy products and along with Algeria and UAE, accounts for almost one-third of total dairy exports from India. Despite many efforts, India has not been able to breach the impregnable markets of Europe and North America, while the market in South America remains untapped.

Till about year 2000, India was not on the radar screen of most international dairy companies, since India was neither a major importer nor an exporter of dairy products. Through the 70s, 80s and 90s India used to take some milk powder and butter oil as aid. Exports from India were insignificantly small. From 2000 onwards, Indian dairy products, particularly milk powder, and ghee started making their presence felt in global markets. The decade of 2000-10 will be recorded in dairy history as the decade of exports. But the next decade will be different. Signs of change are already visible. India is finding it difficult to sustain exports. The day is not far when India will become a net importer of dairy products, particularly of dairy fats.
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Indias milk production will grow at about 3 per cent per annum in spite of difficulties due to stagnant livestock herd size and shortage of fodder. Due to increasing population, per capita availability of milk will increase by only about 1.5 per cent per annum. For an economy growing at about 8 per cent per annum, this increase in availability will be grossly inadequate.

Production growing at only 3 per cent and consumption growing at more than double the rate is obviously going to lead to a mismatch between demand and supply. This will create opportunities for international dairy companies. On one hand, India is expected to enter the international market with demand for commodities like skimmed milk powder and butter oil. On the other hand, growing prosperity and fast growth of organized modern retail and western style fast food outlets will lead to increased consumption of products like cheese and table butter. This will throw up opportunities for branded dairy products to enter this huge market of more than a billion people. India, with her sizable dairy industry growing rapidly and on the path of modernization, would have a place in the sun of prosperity for many decades to come.

Leading players
Amul

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Amul being the largest dairy cooperative realized market potential and entered into the dairy beverage segment by launching flavored milk under the brand name of Amul Shakti during September 2002.Amul recently launched a range of probiotic and sugar-free ice creams to cater to health-conscious customers. The Anand-based Gujarat Cooperative Milk Marketing Federation Ltd (GCMMF), India's largest food products marketing organization which markets the Amul brand , has embarked upon a major e-marketing plan with a focus on increasing its sales and customer reach in India. The plan envisages formation of new Amul Ice-cream Cyber stores in 100 cities, launch of Amul Cyber clubs in 125 cities, and creates four global e-commerce hubs in US, Dubai, India and Singapore. In addition, it will also upgrade gifting services and to evolve the Amul family site as a customized portal for kids, teens and homemakers. With an annual turnover of Rs 5,000 crores, Amul products are sold over 40 countries.

Nestle
Nestle is the world's foremost Nutrition, Health and Wellness company. The company is committed to increasing the nutritional value of their products while improving the taste. The Rs 2,800-crore foods major Nestle India has further strengthened its leadership in the dairy industry with the launch of Slim Dahi, a first of its kind low fat dahi in India.

Britannia
Britannia strode into the 21st Century as one of India's biggest brands and the pre-eminent food brand of the country. In 2002, Britannia's New Business Division formed a joint venture with Fonterra, the world's second largest Dairy Company, and Britannia New Zealand Foods Pvt. Ltd. was born. In recognition of its vision and accelerating graph, Forbes Global rated Britannia 'One amongst the Top 200 Small Companies of the World', and The Economic Times pegged
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Britannia India's 2nd Most Trusted Brand. The company's offerings are spread across the spectrum with products ranging from the healthy and economical Tiger biscuits to the more lifestyle-oriented Milkman Cheese. Having succeeded in garnering the trust of almost one-third of India's one billion population and a strong management at the helm means Britannia will continue to dream big on its path of innovation and quality. Britannia is offering widest array of cheese products in India like cheese slice, spread, cubes and many more.

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CHAPTER-II Research Methodology

Objective of the Project: To explain what is Cost Benefit Analysis for decision making. To understand and evaluate various costs and benefits that Mother Dairy needs to undertake into account for analysing. To do the technical analysis of the alternatives for aspects like location etc. To do the financial analysis. It provides necessary data regarding inputs and output and their relative prices. To evaluate the financial costs and financial benefits by calculating contribution. To give meaningful and systematic information on in-house manufacturing vis-a-vis outright purchase with a trend on CBA.
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Methodology: Sources of the data collection (Primary data and secondary data). The data will be collected mainly from: .The invoices for calculating purchases to further calculate COGS (Cost of goods sold). Financial Statements of the company (P&L A/C, Balance Sheet etc.) .Internet. .Newspapers and journals. .Reference text books. Techniques of data analysis The study is focussed on Cost Benefit Analysis. The CBA will be done by calculating: .COGS (Cost of goods sold). .Various costs (fixed cost and variable cost). .Sales turnover. .Contribution. .Profit Volume Ratio. Limitations of the Study: .Availabilty of limited data. Cost-benefit analysis does not consider the effect on the economic return of nonmonetisable costs and benefits. Time constraint: as the data for analysis is available only for two years. Risk must often be considered as a factor in making decision. Limited Number of products for analysis.

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CHAPTER-III Conceptual Discussions (Theoretical backdrop and literature Review)

MOTHER DAIRY

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Mother Dairy, set up in 1974, is a wholly owned subsidairy of National Dairy Development Board (NDDB) of India.

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National Dairy Development Board

The National Dairy Development Board was created to promote, finance and support producerowned and controlled organizations. NDDB's programmes and activities seek to strengthen farmer cooperatives and support national policies that are favourable to the growth of such institutions. Fundamental to NDDB's efforts are cooperative principles and the Anand Pattern of Cooperation.
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A commitment to help rural producers help themselves has guided the Dairy Board's work for more than 30 years. This commitment has been rewarded with achievements made by cooperative dairies in milk production, employment generation, per capita availability of milk, foreign exchange savings and increased farmer incomes. The National Dairy Development Board (NDDB) has replaced exploitation with empowerment, convention with modernity, stagnation with growth and transformed dairying into an instrument for the development of Indian farmers. The National Dairy Development Board was created in 1964 in response to the Prime Minister Lal Bahadur Shastri's call to "transplant the spirit of Anand in many other places". He wanted the Anand model of dairy development - with institutions owned by rural producers, which were sensitive to their needs and responsive to their demands - replicated in other parts of the country. The Board's creation was routed in the conviction that our nation's socio-economic progress lies largely on the development of rural India. Thus NDDB's mandate is to promote, finance and support producer-owned and controlled organizations. NDDB's programmes and activities seek to strengthen farmer cooperatives and support national policies that are favourable to the growth of such institutions. NDDB believes that the Rs 7,000-crore (Rs 70-billion) milk cooperative market is getting much more competitive and wants to strengthen the position of cooperatives through a multi-pronged action plan with an outlay of Rs 800 crore (Rs 8-billion). This includes using MDFL to enter into 51:49 joint venture companies with state cooperative federations to assist them with marketing value added products and to help them in other ways to become self-reliant enterprises.

Mother Dairy's range of products includes the brands Mother Dairy (milk, milk products, curd, ice cream, butter, dairy whitener etc), Dhara (range of edible oils) and Safal (range of fresh fruits and vegetables, frozen vegetables, fruit juices). Mother Dairy was set up under the Operation Flood Programme in Delhi. It later expanded in Mumbai, Punjab and eastern India. Future plans include expansion to South India.

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Mother Dairy Foods Processing Ltd, presently known as Mother Dairy Fruit & Vegetable Private Limited, Parparganj, Delhi, with a estimated turnover of 3000 crores was set up in 1974 under the Operation Flood Programme. It is now a subsidairy company of National Dairy Development Board (NDDB). Mother Dairy Foods Processing Ltd offers the following products: Mother Dairy markets dairy products like Liquid Milk, Ice Creams, Flavoured Milk, Dahi, Lassi, Mishti Doi, Ghee, White Butter, Table Butter, Cheese, SMP, Dairy Whitener, UHT Milk, Dhara range of edible oils and the Safal range of fresh Fruits & Vegetables, Frozen Vegetables and Fruit Juices at a national level, through its sales and distribution networks, for marketing food items. Mother Dairy sources significant part of its requirement of liquid milk from dairy cooperatives. Similarly, Mother Dairy sources fruits and vegetables from farmers / growers associations. Mother Dairy also contributes to the cause of oilseeds grower cooperatives that manufacture/ pack the Dhara range of edible oils by undertaking to nationally market all Dhara products. It is Mother Dairys constant endeavor to (a) Ensure that milk producers and farmers regularly and continually receive market prices by offering quality milk, milk products and other food products to consumers at competitive prices and; (b) Uphold institutional structures that empower milk producers and farmers through processes that are equitable. At Mother Dairy, processing of milk is controlled by process automation whereby state-of-the-art microprocessor technology is adopted to integrate and completely automate all functions of the milk processing areas to ensure high product quality/ reliability and safety. Mother Dairy is an IS/ ISO-9002, IS-15000 HACCP and IS-14001 EMS certified organization. Moreover, its Quality Assurance Laboratory is certified by National Accreditation Board for Testing and Calibration Laboratory (NABL)-Department of Science and Technology, Government of India. Mother Dairy markets approximately 2.8 million liters of milk daily in the markets of Delhi, Mumbai, Saurashtra and Hyderabad. Mother Dairy Milk has a market share of 66% in the branded sector in Delhi where it sells 2.3 million liters of milk daily and undertakes its marketing operations through around 14,000 retail outlets and 845 exclusive outlets of Mother Dairy. The companys derives significant competitive advantage from its unique distribution network of bulk vending booths, retail outlets and mobile units. Mother Dairy ice creams launched in the year 1995 have shown continuous growth over the years and today boasts of approximately 62% market share in Delhi and NCR. Mother Dairy also manufactures and markets a wide range of dairy products that include Butter, Dahi, Ghee, Cheese, UHT Milk, Lassi & Flavored Milk and most of these products are available across the country. The company markets an array of fresh and frozen fruit and vegetable products under the brand name SAFAL through a chain of 400+ own Fruit and Vegetable shops and more than 20,000 retail outlets in various parts of the country. Fresh produce from the producers is handled at the Companys modern distribution facility in Delhi with an annual capacity of 200,000 MT. An IQF facility with capacity of around 75 MT per day is also operational in Delhi. A state-of-the-art fruit processing plant of fruit handling capacity of 120 MT per day, a 100 percent EOU, setup in 1996 at Mumbai supplies quality products in the international market. With increasing demand
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another state-of-the-art fruit processing plant has been set up at Bangalore with fruit handling capacity of around 250 MT per day. Mother Dairy markets milk-based beverage products like flavored milk, dahi and lassi. Mother Dairy flavored milk captures all the goodness of Mother Dairy's pure and fresh milk combined with the magic of special flavours. Made from double toned milk, and available in kesar elaichi, chocolate and vanilla flavours - these drinks are light and refreshing and capture the great taste of these unique flavours without being heavy or too filling. For most Delhiites, milk and Mother Dairy go together. For the past 30 years, lakhs have queued up at Mother Dairy booths for their daily requirement of milk - brand loyalty at its best. Mother Dairy was set up by the National Dairy Development Board under Operation Flood in 1974, to overcome Delhi's severe milk shortage. Today, far from being the capital's biggest milk supplier, the wholly-owned NDDB co-operative is the third-largest dairy player in the country (after Amul and Nestle with a well-diversified product portfolio - not only a range of milk-based products, but also edible oils, frozen vegetables and fruit juices. And in the past couple of years, it has tried to spread its wings outside Delhi to other key cities as well. The move has been slow but sure. The companys aim is to garner bigger market shares in new markets.

FOCUSED APPROACH
In a nutshell, Mother Dairy wants to get into bigger markets and have bigger shares in those markets. The co-operative is also expanding its product portfolio further to match competitive offerings - particularly those of Amul. For the first 22 years of its existence, liquid milk was the only dairy product that Mother Dairy offered.

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It was in 1996 that it came up with ice-creams. But the real spurt came about seven years ago, when it introduced curd, flavored milk, and lassi and mishti doi. It introduced butter in 2005; ghee and UTH milk four years ago; and cheese, also in 2005. And under its frozen foods and vegetables brand Safal, besides the introduction of corn and mixed vegetables, it has come out with frozen potato-based snacks. So while the product portfolio has been growing, Mother Dairy has plans for reaching out to newer markets - but the strategy here is more product-specific. In liquid milk, it will initially concentrate only on four markets - Delhi, its home ground; the Junagarh region and Ahmedabad in Gujarat; Mumbai, which it entered in 2005; and Hyderabad, also in the same year. Mother dairys CEO, Mr. Paul Thachil said, We have no plans to go everywhere with liquid milk. What's the need to get into those markets that already have strong co-operative brands?" He cites the example of Karnataka Milk Federation's brand Nandini in Bangalore, which has been operating strongly in the region. He further added, "Our objective of getting into newer locations is not to make Mother Dairy larger, but to ensure that there is a large viable distribution network and consumer brand to take care of surplus milk," he adds, reminding that Mother Dairy is still essentially a co-operative and not a corporate. In Mumbai, where the liquid milk market is close to 40 to 42 lakh (4 to 4.2 million) litres a day, only about 20-22 lakh (2-2.2 million) litres a day is in the organized market - and that too is highly fragmented with a number of smaller players with shares of about 10,000-20,000 litres a day. Mother Dairy claims a share of 170,000 litres a day, with the biggest player, Mahananda, selling about 800,000 litres a day and Aarey and Amul about 250,000-300,000 litres a day each. In Hyderabad, Mother Dairy claims it has a 15 per cent market share of approximate 9-10 lakh litres a day of the organized market. These are still early days in the two markets, but Mother Dairy is looking at 10-12 per cent growth in the overall fresh milk segment.

WIDER SPREAD
Mother Dairy has expanded its operations across the board. Other than milk, for most state federations, dairy products are still a small part of their operations. So the company is planning to take their products to regions across India, where it sees enough market potential.

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In Ice creams, it was in 2004 that Mother Dairy entered its first market outside Delhi - UP and Punjab. Today, it extended its operation to Haryana, Jaipur, Mumbai and Kolkata as well. And it has also expanded its market to south to Hyderabad and Bangalore. In the case of butter and cheese, it's present across north India, Mumbai and Kolkata, and has also entered Bangalore few years back. In UTH milk, it has entered Mumbai and the milk-short areas of West Bengal and north-east. For ghee, although the current focus is the northern region, it has plans for a nationwide presence. As far as Mother Dairy's non-dairy products are concerned, edible-oil brand Dhara has already has nationwide presence.

PRODUCT DIFFERENTIATION
While Mother Dairy still may not have a product portfolio as large as Amul, which is also expanding across the country in a big way and is a much bigger player, it's doing its bit. Mother Dairy says the idea is not just to enter new markets, but to do well in those markets - which mean bigger market shares in the different product categories in whichever market it is present.
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The drivers will be value created through quality of the offerings as well as innovations in products. This will, of course, be backed by relevant marketing and promotion campaigns. Mother Dairy ice creams launched in the year 1995 have shown continuous growth over the years and today boasts of approximately 62% market share in Delhi and NCR. More Indianised flavours have done exceptionally well, something that the co-operative has constantly focused on. Apparently, its best-seller in take-home ice creams is not the regular Sundae, Jamaican Almond Fudge or Hazelnut Swril, but an Indianised Sundae called Shahi Mewa Malai. Mother Dairys product curd started off very slow but today, it's growing at close to 60 per cent year-on-year in Delhi. Here again, the Indian flavour formula seems to have worked. While curd from an MNC player is probably based on international formulation, Mother dairy formulated it to taste as close to home-made curd as possible. Mother Dairy believes that if its offering fits well with the Indian consumer, the resistance is lower and acceptance more. According to the consumers, Mother Dairy is the most trusted brand. Mother Dairy has over the last three decades, harnessed the power of farmer cooperatives to deliver a range of delicious products, gaining the trust of millions. The company has been ranked second as the Most Trusted Brands in Delhi in 2008 (survey conducted by Economic Times in Delhi). In times to come, Mother Dairy shall strive to remain one of Indias finest food companies.

SMART MARKETING
On the marketing front, Mother Dairy says it's trying to take its product campaigns and communications to a higher platform. For instance, in the case of milk, the campaigns do not talk about the obvious benefits - milk is good for health, it has calcium and so on - but rather it targets children and are created around ideas such as "The country needs you, grow faster".

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"We are saying we want children to achieve their ambitions faster. That the product is pure or healthy is a given for us," says CEO. As far as products such as butter, cheese and ice creams go, the campaigns have been created around "taste". For butter again, the focus is on children. "Amul butter may be selling the most, but the advertising and promotions are almost always targeted at adults," points out an analyst citing Amul's popular Utterly-Butterly campaigns. Here, Mother Dairy has dared to go different. Since 60 per cent butter is consumed by kids, the company wants them to sit up and take notice of its butter. Makkhan Singh, a sturdy jovial cow (a cartoon character) has been made its brand ambassador. While Mother Dairy has been carrying out school programmes - games and activities - involving Makkhan Singh in Delhi, it has plans to take such activities to Mumbai and Kolkata as well. It also runs a gaming website on the character to attract children. It's cheese for children again. A couple of months ago, Mother Dairy carried out a retail activity: "Cheese khao superhero ban jao", where kids buying cheese at a retail outlet were invited for a photo op - dressed as superheros - through Polaroid cameras; and the framed photograph was presented to them. The activity was carried out in about 150 outlets in Delhi and Mumbai, with about 20,000-25,000 snaps being taken. Cheese was also something that helped the company bond better with its retailers. In November 2005, retailers in Delhi displayed banners proclaiming, "Cheese ke saath bees ki cheez," a proposal that said if a consumer buys Mother Dairy cheese, the retailer can offer him anything worth Rs 20 from the shop - which worked better than offering something free with the product, which the consumer didn't even needs. According to the consumers, Mother Dairy is the most trusted brand. Mother Dairy has over the last three decades, harnessed the power of farmer cooperatives to deliver a range of delicious products, gaining the trust of millions. The company has been ranked second as the Most Trusted Brands in Delhi in 2008 (survey conducted by Economic Times in Delhi). In times to come, Mother Dairy shall strive to remain one of Indias finest food companies.

COMPANYS PHILOSOPHY
Mother Dairys inherent philosophy is to drive success in the market place by partnering, empowering and recognizing the farmer communitys contribution to the Indian economy along with encouraging consumers to lead a healthy lifestyle. We drive success in the market place by partnering at the grass root level, with the farming community across the nation, helping them expand and reach new heights in milk and vegetable
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& fruit production. It further applies its processing expertise to produce milk and vegetable & fruit products that reach the consumer in their purest form through its vast, self owned vendor network. Our philosophy is to not only encourage consumers to lead a healthy lifestyle but also empower the farmer.

PRODUCTS OF MOTHER DAIRY


BUTTER
Its delicious, its creamy. And its so easy to spread. Mother Dairy Butter is produced under totally hygienic conditions using Mother Dairys wholesome milk.

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CHEESE
Mother Dairy freshly Mother Dairy and creamy, to be used in a with calcium Mother Dairy 20% of a Calcium food alive with taste and health with Mother Dairy Cheese. Currently, available in three formats: Individually Wrapped Slices (IWS): 200gms (10 slices) Cubes: 200gms (10 cubes) Spreads: 200gms presents cheese made from collected cows milk. Cheese with its great taste soft texture lends itself well variety of foods. Its made rich milk and each slice of Cheese offers approximately growing childs everyday requirement. Bring your

UHT MILK
Mother Dairy UHT Milk is thick, tasty, and completely natural and contains no preservatives. Regular milk is put through a process known as UHT (Ultra Heat Treatment) that makes the milk completely germ-free. The milk is then packed in a special six-layer package that preserves the milk up to 120 days without refrigeration. Also, the milk needs no boiling and can be drunk straight from the pack. Currently, UHT Milk is available as: Toned Milk (with just 3% milk fat) Double Toned Milk (with just 1.5% milk fat)

FLAVOURED MILK
Mother Dairy flavoured milk captures the goodness of Mother Dairys pure and fresh milk and combines it with the magic of special flavours like kesar elaichi, Chocolate and vanilla. Made from Double toned milk, these drinks are light and refreshing without being heavy or too filling.
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DAHI
Absolutely delicious curd, with a rich and creamy texture: Mother Dairy Dahi is uniformly thick, consistent, and natural and has absolutely no preservatives. Mother Dairy Dahi is made from pasteurized Standardized milk which contains 4.5% milk fat and 10% milk SNF. Not only does it taste great, it also aids digestion by maintaining balanced micro-flora in the intestine and suppressing the growth of undesirable pathogenic bacteria. Every 100 grams of Mother Dairy Dahi contains:

Energy value Fat Proteins Carbohydrates Calcium

79.00 K cal 4.50 gms. 4.00 gms. 5.80 gms. 150.00 mg.

Available in 100 grams, 200 grams, and 400 grams. Also available- Yummy Mishti Doi.

MISHTI DOI
Dahi with a traditional Bengali twist. Rich and creamy in texture, Mother Dairy Mishti doi has a unique sweet flavour to it. Not only does it serve as a dessert after meals, it also aids in digestion.

LASSI
Mother Dairy Lassi is a tasty and refreshing drink made from pure, nutritious milk. Drink it either as an anytime snack or as a tasty accompaniment to your food. Either way it's a great tasting drink.

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The Probiotic Range. . . .


B-Activ Probiotic Dahi Happy Tummy to You It is a regular curd with added advantage of unique probiotic culture Bifidobacterium BB-12. The unique fermentation process and the availability of Bifidobacterium BB-12 makes b-Activ a healthy complement to the regular diet, mainly enhancing the bodys natural digestive system and nutrient absorption capability. The probiotic culture in b-Activ can withstand the effects of acidity, alkalinity and bile salts and colonize in the intestine. Colonization of BB-12 improves the gut environment and results in better health S.K.U.s Available: 400g Tub, 200g Tub, 90g Tub

B-Activ Probiotic Lassi A tasty, refreshing way to quench your thirst Mother Dairy b-Activ Lassi also gives all the advantages of Probiotic properties. It is available in an easy to use cup format adding to the convenience. S.K.U.s Available: 200ml Cups

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B-Activ Plus Fibre Rich Curd Mother Dairys b-Activ Plus probiotic dahi contains billions of friendly BB-12 bacteria and essential fibre that together help regulate digestion. Whats more, it tastes great just like any Mother Dairy dahi. Make b-Activ a part of your familys diet and feel the difference.

S.K.U.s Available: 400g Tub, 200g Tub

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NUTRIFIT
The Probiotic Drink that Builds Immunity: Small on Size, Big on Immunity Being strong is one thing. Being immune is quite another. Immunity is our bodys defense system against infection and disease. So the stronger your childrens immune system gets, the fitter they become. Mother Dairys Nutrifit contains billions of LA5 friendly bacteria, which strengthen the bodys defenses against infections & diseases over time. Give your children a bottle of Nutrifit every day, so that they become tough from within.

S.K.Us: 100 ml bottles (Strawberry & Mango)

ICE CREAMS
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Real milk. Abundant toppings. And an utterly delectable taste. That's the secret of Mother Dairy's fascinating range of rich and creamy ice creams - a lip-smacking array of ice candies, milk lollies, bars, cones, real fruit ice creams, Sundaes, low fat desserts and take-home packs. Mother Dairy ice creams are now being enjoyed across the markets of Delhi/ NCR, Mumbai, Kolkata, Punjab, Rajasthan, UP & Uttaranchal.

GHEE

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Mother Dairy Ghee is pure ghee made from buffalo milk and has every quality that you would look for while purchasing ghee - just the right off-white color and the typical daana-daana feel. The formulation developed delivers superior flavour and aroma to the food you prepare making it the best choice in Ghee.

Mother Dairy Ghee is available in one litre and half litre cartons (known as Ceka and having a special type of lining) and also in one litre tins. All the packs are carefully packed to ensure that the rich flavour and aroma of Mother Dairy Ghee gets sealed in and remains intact for you to savour and enjoy.

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CHAPTER IV Data Analysis


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INTRODUCTION
A cost benefit analysis is done to determine how well, or how poorly, a planned action will turn out. Although a cost benefit analysis can be used for almost anything, it is most commonly done on financial questions. Since the cost benefit analysis relies on the addition of positive factors and the subtraction of negative ones to determine a net result, it is also known as running the numbers. As part of this process, the cost/benefit analysis will identify the benefits that can be reasonably expected to be gained from the effort, while also considering the impact on the organization in terms of various types of cost for the alternatives. A cost benefit analysis finds, quantifies, and adds all the positive factors. These are the benefits. Then it identifies, quantifies, and subtracts all the negatives, the costs. The difference between the two indicates whether the planned action is advisable. The real trick of doing a cost benefit analysis well is making sure you include all the costs and all the benefits and properly quantify them. The exact methodology for conducting a cost-benefit analysis will vary based on several factors, but the end result can often yield very important information that proves helpful to the ongoing operation. To make a decision regarding whether a particular product should be manufactured in-house or it has to be bought from outside will depend on the considerations of marginal cost. The marginal costs of manufacturing is to be compared with the purchase price of the relevant material and if the marginal cost is more than the purchase price, a decision as to buying it from the third party can be taken. However there are certain non-cost factors also which must be taken into account before making a final decision.

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Marginal Costing
Marginal Costing is called variable costing. It may be defined as the technique which charges only the variable cost to the cost units. In this technique, cost of a unit consists only of out-ofpockets costs. Out-of-pocket costs are direct, variable or avoidable costs. These are the costs which are exclusively incurred if specific products are manufactured or sold. Fixed costs are treated as period costs and written off in full against the total contribution/income of the period in which they incurred. Fixed overheads are considered irrelevant for short run decisions because they are fixed regarding of the level of output within the relevant range. In Marginal costing, only variable costs are charged to cost units. It is so on the principle that fixed costs are time based, and should not be charged to output. Marginal costing is easier to use and understand by managers. Marginal costing is primarily used for internal reporting, i.e. reporting to management for decision-making. Main Features of Marginal Costing 1. Costs are divided into two categories, i.e., fixed costs and variable costs. 2. Prices are determined with reference to marginal cost and contribution margin. 3. Profitability of departments and products is determined with reference to their Contribution margin. 4. In presentation of cost data, display of contribution assumes dominant role.

Uses of Marginal Costing


In adhoc, non-recurring, short term decisions, the concept of marginal costing is extremely useful. Marginal cost is the lowest amount at which a sale may be made without adding to a products loss. Since fixed costs are sunk costs, it is better to transact additional business at above the marginal cost but below the total cost. The contribution margin so arising covers fixed costs. It helps in making optimal decisions. The following are some important decisions where marginal costing is useful: 1. Accept or reject special order decisions. 2. Make or buy decisions. 3. Pricing decisions. 4. Keep or drop product decisions.
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5. Operate or shut down decisions. 6. Product mix decisions. 7. Introduction of a new product.

Criticism of Marginal Costing In recent years, there has been a widespread interest in marginal costing. Still very few have adopted it as method of accounting for cost. Main points of criticism are: 1. It is not proper to disregard fixed cost for product for product cost determination and inventory valuation. 2. Marginal costing is especially useful in short profit planning and decision-making. For decision of far reaching importance, one is interested in special purpose cost rather than variability of costs. 3. Marginal costing technique disregards the use of recovering fixed cost through product pricing. For long run continuity of business it is not good. Assets have to be recovered of costs. 4. Establishing variability of costs is not easy. I real life situations, variable costs are rarely completely variable and fixed costs are rarely completely fixed. 5. Exclusion of fixed cost from inventory valuation does not conform to accept accounting practice.

Process of marginal Costing


Under marginal costing, the difference between sales and marginal cost of sales is found out. This difference is technically called contribution. Contribution provides for fixed cost and profit. Excess of contribution over fixed cost is profit emphasis remains here on increasing total contribution. Variable Cost. Variable cost is that part of total cost, which changes directly in proportion with volume. Total variable cost changes with change in volume of output. Variable costs are very sensitive in nature and are influenced by a variety of factors. Main aim of marginal costing is to help management in controlling variable cost because this is an area of cost which lends itself to control by management. Fixed Cost. It represents the cost which is incurred for a period, and which, within certain output and turnover limits tends to be unaffected by fluctuations in the levels of activity (output or turnover). Examples are rent, rates, insurance and executive salaries. Break-even point. Break-even point is the point of sale at which company makes neither profit nor loss. The marginal costing technique is based on the idea that difference of sales and variable cost of sales provides for a fund, which is referred to as contribution. Contribution provides for fixed cost and profit. At break-even point, the contribution is just enough to provide for fixed
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cost. If actual sales level is above break-even point, the company will make profit if actual sales are below break-even point the company will incur loss. Contribution.- The concept of contribution is vital in marginal costing. Contribution, also called contribution margin or marginal income is defined as the difference between sales and marginal or variable costs of sales. Contribution is not the same as net profit. It contributes towards recovery of fixed costs and profit. Profit will arise only if contribution is greater than fixed costs. Losses will be incurred if contribution is less than fixed costs. There will be neither profit nor loss if contribution is equal to fixed costs. Such a relationship can be formulated as under: C=SV C=F+P Where, S = Sales V = Variable or marginal costs F = Fixed costs P = Profit or loss Key factor or Limiting factor. There are always factors that do not lend themselves to managerial control. For example, if at a particular point of time there is a Government restriction on the import of a material, which forms the principal ingredient of companys product; company cannot produce, as it wishes. It has to plan production taking into consideration this limiting factor. However, its efforts will be directed for maximum utilization of available resources. Thus, limiting factor is a factor which influences the volume of output of an organization at a given point of time. Key factor is the factor whose influence must be first ascertained to ensure that there is maximum utilization of resources. Gearing the production process in the light of key factors influences will lead to maximization of profit. Key factor constrains managerial action and limits output of company. Generally sales are the limiting factor, but any of the following factors can be a limiting factor: (a) Material (b) Labour (c) Plant capacity (d) Power (e) Government- action. When a limiting factor is in operation and a decision is to be taken regarding relative profitability of different products, contribution for each product is divided by key factor to select the most profitable alternative. The choice of management rests with the products or projects, which show more contribution per unit of key factor. Thus if sale is the key factor, contribution to sales ratio should be considered. If management is facing labour shortage, contribution per labour hour should be considered.

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Profit/Volume Ratio. When the contribution from sales is expressed as a percentage of sales value, it is known as profit/ volume ratio (or P/V ratio). It expresses relationship between contribution and sales. Better P/V ratio is an index of sound financial health of a companys product. This ratio reflects change in profit due to change in volume. Broadly speaking, it shows how large the contribution will appear, if it is expressed on equal footing with sales. The statement that P/V ratio is 40% means that contribution is Rs. 40, if size of the sale is Rs. 100. One important characteristic of P/V ratio is that it remains the same at all levels of output. P/V ratio is particularly useful when it is considered in conjunction with margin of safety. P/V ratio may be expressed as: P/V ratio = (Sales - Marginal cost of sales)/Sales Or = Contribution/Sales Or = Change in contribution/Change in sales Or = Change in profit/Change in sales

Advantages of P/V Ratio i. It helps in determining the break-even point. ii. It helps in determining profit at various sales levels. iii. It helps to find out the sales volume to earn a desired quantum of profit. iv. It helps to determine relative profitability of different products, processes and departments. Improvement of P/V Ratio P/V ratio can be improved, if contribution is improved. Contribution can be improved by any of the following steps: i. Increase in sale price. ii. Reducing marginal cost by efficient utilization of men, material and machines. iii. Concentrating on sale of products with relatively better P/V ratio. This will help to improve overall P/V ratio.

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Money makes the world go around, and decision making is no exception. Cost Benefit Analysis does exactly what it says; you analyze costs and benefits and make a decision accordingly. Costbenefit analysis refers to any type of structured method for evaluating decision options. The project i.e. Cost Benefit Analysis with Mother Dairy Fruit and Vegetable Pvt. Ltd. was started in the month of February i.e. on 18th. Initially I had been given the general training in which details regarding various products of Mother Dairy were given like how many products they have, how many variants are there of different products etc. Mother dairy markets and sells dairy products(Liquid Milk, Ice Creams, Flavoured Milk, Dahi, Lassi, Mishti Doi, Ghee, White Butter, Table Butter, Cheese, SMP, Dairy Whitener, UHT Milk), edible oils and the safal range of fresh fruits and vegetables and fruit juices at a national level through its sales and distribution networks which are being manufactured in-house at companys production units and are also getting processed outsourced by third party under direct supervision and specifications of Mother Dairy management. Mother Dairy makes outright purchases from various parties who have a good presence and capacity in the respective area. And it also manufactures products at various locations namely Parparganj, Pilakhwa, Mangolpuri, Junagarh, Mumbai etc. Very often, management has to decide whether to make a component internally or buy it from outside. Such a decision is taken comparing the marginal cost of production within the factory with the cost of buying from outside. The sum of purchase price plus transportation, insurance, and ordering costs represent the amount applicable to the buy alternative and costs associated with make alternative include the additional variable costs of material, labour, and variable overheads. If the additional costs of manufacturing the component within the factory is more than the cost of buying from outside, the component should be procured from outside. However, if the costs of making the component are lower than the costs of buying, the firm should manufacture it. Fixed costs which are common to both the alternatives are considered irrelevant. However, make or buy decisions will also depend on whether the capacity released by not producing the component can be profitably utilized elsewhere.

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The project at Mother Dairy is to do cost benefit analysis of their various products. So the project is to analyze the costs and to ensure that the processing and conversion cost being paid by Mother Dairy to outsourced parties is beneficial and in line with their own cost of production by comparing the different cost elements of different products at contribution margin level. So in order to do the analysis i.e. to arrive at a conclusion and to make some recommendations, I first calculated the total purchases which Mother Dairy has made during the last six months i.e. from October 2008 to March 2009, from various third parties. Mother Dairy outsources different products from different vendors and from different locations. The cost benefit analysis has to be done for all the products of Mother dairy for which it is doing outright purchases and in-house production. These products include Curd, Lassi, Chaach, Ice creams, Butter.

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MAIN TEXT
First Stage of the project: To calculate the exact figure of purchases i.e. cost of goods sold, we need to make entries taking details of the total purchases during a month (like the quantity purchased and the cost at which it has been purchased) from the invoices of the third parties and then have to reconcile the figures with the Mother Dairys ledger. And to find out at what prices Mother Dairy is purchasing from third party and what has been the cost which the company has to incur to manufacture in-house. The Second stage- At this stage, we need to calculate and collect data on the sales figure and various costs incurred by both third parties and in-house production units. As we need to make a comparison that whether we should produce in- house or should purchase from outside, data for both the alternatives have to be collected. The costs data include fixed costs and variable costs data. Variable costs further is divided into variable processing costs including raw material cost, packing material cost, direct labour etc. and variable marketing costs including damage, octroi etc.(annexure) System Application Products (SAP) played a very important role in the collection of data for various products necessary for calculations. SAP helps to integrate data and processes of an organization into a unified system. During the working of my project, I have leant to work on SAP to an extent. The Final Step: I calculated contribution margin and P/V ratio to do the analysis of the data. The products which were taken to conduct analysis are Curd, Lassi, Chaach, Butter, and Ice Cream as a whole and their variants.

CURD
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Curd is the soft curdled part of the skim milk and is widely employed to prepare Cheese or Casein. World is a giant market comprising of myriads of manufacturers, exporters and suppliers of curd. These vendors of curd are scattered all over the several continental markets nurturing the diverse requirements of a large number of buyers for curd, who are also scattered throughout the whole world. The prime importance for the buyer is to source the premium quality curd, which could also suit his requirements and pocket/budget and thus increasing amazingly his production & profits. The Indian curd market is churning. Indian curd market is a whopping Rs 4.5 crore per day. Dahi is the second largest form of milk usage following tea and coffee-making in Indian homes. Almost 10 per cent of the total milk purchased from shops is converted to dahi in households. So, the total market for dahi in urban India is a huge 2200MT valued at Rs 4.5 crore per day. The three major players have positioned themselves as Indian and also the most pure in the market. The distinguishing factor then could be pricing, promotion and quality. In fact, Mother Dairy dahi, launched in October 2000 is the most price-effective, followed by Amul and Nestle. Absolutely delicious curd, with a rich and creamy texture: Mother Dairy Dahi is uniformly thick, consistent, and natural and has absolutely no preservatives. Mother Dairy Dahi is made from pasteurized Standardized milk which contains 4.5% milk fat and 10% milk SNF. Not only does it taste great, it also aids digestion by maintaining balanced micro-flora in the intestine and suppressing the growth of undesirable pathogenic bacteria. According to an official from Mother Dairy, the product has been positioned as value for money. So far the response has been encouraging and the demand for this convenience product has been growing. Mother Dairy offers different variety of curd at economical charges. Mother Dairy curd is available in three pack sizes (90 gm, 200 gm, and 400gm). Curd which is being sold by mother dairy under its brand name is not only manufactured inhouse but it is also purchased from outside from a third party vendor though the specifications for manufacturing curd is given by the company only. But still there is a difference between the costs which is incurred by both the production units. So analysis has been done on the basis of the data of the costs.

For the analysis part the product has been taken as a whole comprising of all pack sizes. The data has been analyzed for six months i.e. October 2009 to March 2010. In order to show the calculations one month data has been taken as a sample data.
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Total Sales for the month of October (Quantity in Kg) = 965,638.68 Sales figure for the IN-HOUSE MANUFACTURING (Quantity in Kg) = 767,137.83 Sales figure for the THIRD PARTY (Quantity in Kg) = 198,500.85 Net Realization value = 44,873,553 Net Real per Unit = 44,873,553 =46.47 =46 965,638.68 Sales Value for IN-HOUSE MANUFACTURING (in Rs) = 35288340 Sales Value for the THIRD PARTY (in Rs) = 9131039.1 Variable cost for IN-HOUSE MANUFACTURING = 24103627 Variable cost for the THIRD PARTY = 6944880
Variable cost per unit IN-HOUSE MANUFACTURING = 31.4202

Variable cost per unit for the THIRD PARTY = 34.9866512


Contribution for IN-HOUSE MANUFACTURING = 11184713 Contribution for the THIRD PARTY = 2186159.1 Contribution per unit for IN-HOUSE MANUFACTURING = 14.5798 Contribution per unit for the THIRD PARTY = 11.0133488 P/V Ratio for IN-HOUSE MANUFACTURING = 0.316952 P/V Ratio for THIRD PARTY = 0.23942063 % P/V ratio for IN-HOUSE MANUFACTURING = 31% % P/V ratio for THIRD PARTY = 23%

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The above graph shows that the variable cost and contribution per unit taken as a whole of all the variants of curd. This data tells us that In-house manufacturing is cheaper than third party outsourcing. But the variable cost per unit here is taken as a whole so it does not tell us which variants variable cost is more in case of both the alternatives and which is less. This data does not give us the accurate results. So for getting the accurate results, analysis of variants of curd have been done. There are three variants of curd. Each has been taken individually as follows:

CURD 200 GM
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(Figures in Rs per unit) Third party Variable Processing cost Variable marketing cost Primary freight Secondary freight Taxes S&D Octroi Total Variable Cost Net Real Per Unit Contribution Per Unit 7.55 In-house 6.85

0.4161 0.08 0.0727 0.0012 0.0132 8.1332 10.92 2.7868

1.6644 0.32 0.2909 0.0048 0.0528 9.1829 10.92 1.7371

In the above data the variable cost for both the alternatives is the total of variable processing cost and variable marketing cost. The variable processing costs include raw material cost, packing cost, power & fuel, direct labor etc. and variable marketing cost include primary freight and
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secondary freight, octroi, taxes, Selling and distribution. The net real per unit has been calculated by deducting retail margin, wholesale margin etc. from MRP. The contribution margin has been calculated by deducting total variable cost from net real per unit. The contribution margin has been calculated by deducting total variable cost from net real per unit. The cost is the total variable cost which a company incurs and the benefit is the contribution which a company earns. The companys motive is always to minimize the cost and to maximize benefit. The data collected and calculations made shows that the variable cost in case of 200 gm curd which Mother dairy incurs is Rs 9.18 per unit and the cost which the company has to pay to the third party is Rs 8.13 per unit and the contribution margin earned is Rs 1.73 and Rs 2.78 per unit. By comparing the costs and benefit, the graph shows that it is cheaper to purchase from third party than to manufacture in-house.

CURD 90 GM
Third Party In-house
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Variable Processing cost Variable marketing cost Primary freight Secondary freight Taxes S&D Octroi Total Variable Cost Net Real Per Unit Contribution Per Unit

3.66

3.44

0.187246 0.00054 0.032729 0.036 0.00594 3.92245 4.83 0.90

0.748984 0.00216 0.130916 0.144 0.02376 4.48982 4.83 0.34

In case of 90 Gm curd the variable cost per unit is 3.92 when purchased from outside and it is 4.48 if manufactured in-house. Here the net real per unit is 4.83 and so the contribution earned is 0.90 and 0.34 respectively.

CURD 400 GM
Third party Variable Processing cost 14.55

(Figures in Rs per unit) In-house 12.64


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Variable marketing cost Primary freight Secondary freight Taxes S&D Octroi Total variable Cost Net Real Per Unit Contribution Per Unit 0.832204 0.16 0.145463 0.0024 0.0264 15.716 21.6 5.88 2.55 0.64 0.581851 0.0096 0.1056 17.305 21.6 4.29

The above data shows that the variable cost is 15.716 in case of third party and it is 17.30 in case of in-house manufacturing. And the contribution earned is 5.88 and 4.29 respectively. So, this also shows that the third party purchases are beneficial.

FINDINGS: By comparing the costs and benefits of all the variants of curd, it is much clear that the company is benefitted if it purchases from third party i.e. if it outsources the final product than it manufacture it itself. If we drill down the data it is very much clear that the processing cost is more or less same for both the alternatives what makes a difference here is the transportation cost and the taxes paid. The above data shows that the cost of transportation is higher in case of inhouse production which is making it more costly.
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LASSI
All-favourite 'Lassi', made by blending yogurt with water, salt, and spices until frothy. Lassi is primarily a sweet drink that is a regular feature in North Indian homes. The drink is taken cold and is a good way to beat the scorching heat and get refreshed. In addition it is considered to be a healthy drink as it is made of curd and is devoid of any artificial additives. One can enjoy a glassful of your healthy beverage.
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There are many new drinks flooding the markets but the flavour of 'lassi' cannot be replaced by any other drink: This gives energy and cools the body. It is believed that it settles the upset stomach. Lassi has no side-effects unlike other aerated beverages. On a hot sunny day it is only natural to quench one's thirst with a tall glass of Lassi. Lassi is made in two ways either sweet or salty. People in north India particularly prefer the cool curd-based drink called "Lassi" to aerated soft drinks marketed by multinationals like Coca Cola and Pepsi. Locals here say that as far as Lassi is concerned, no other drink comes close as a substitute for quenching one's thirst. What, however, disturbs fanciers of Lassi is Generation Next's wholehearted support for cold soft drinks. Lassi is affordable as it costs just 10 to15 rupees a glass. It has so far maintained its niche market despite the presence of soft drink majors like Pepsi and Coke. A tasty, refreshing way to quench thirst, Mother Dairy Probiotic lassi gives all the advantages of probiotic without being heavy on the tummy. It is available in an easy to use cup format. It hopes to succeed in the north of India, where lassi is particularly popular during the hot summer months. The potential for lassi is huge in India; there have not been any sustained efforts by marketers to promote this market.

Overall analysis of Lassi Total Sales for the month of October (Quantity in Kg) = 140,528.70 Sales figure for the IN-HOUSE MANUFACTURING (Quantity in Kg) = 119,540.10 Sales figure for the THIRD PARTY (Quantity in Kg) = 20,988.60 Net Realization value = 4,180,918
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Net Real per Unit = 4,180,918 = 29.75 = 30 140,528.70 Sales Value for IN-HOUSE MANUFACTURING (in Rs) = 3586203 Sales Value for the THIRD PARTY (in Rs) =629658 Variable cost for IN-HOUSE MANUFACTURING = 2661807 Variable cost for the THIRD PARTY = 491436
Variable cost per unit IN-HOUSE MANUFACTURING = 22.26707

Variable cost per unit for the THIRD PARTY = 23.41442497


Contribution for IN-HOUSE MANUFACTURING = 924395.7 Contribution for the THIRD PARTY = 138222 Contribution per unit for IN-HOUSE MANUFACTURING = 7.732934 Contribution per unit for the THIRD PARTY = 6.585575026 P/V Ratio for IN-HOUSE MANUFACTURING =0.257764 P/V Ratio for THIRD PARTY = 0.219519168 % P/V ratio for IN-HOUSE MANUFACTURING = 26% % P/V ratio for THIRD PARTY = 22%

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The above data and graph shows that the variable cost of all the variants of Lassi is more in case of third party purchases than manufacturing Lassi in-house. This gives us the overall view of the product Lassi than the variants individually. So a single variant of Lassi i.e. Probiotic Sweet Lassi 200 ml has been taken to find out which alternative is beneficial.

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LASSI 200 ML
Third Party Variable Processing cost Variable marketing cost Primary freight Secondary freight Taxes S&D Octroi Total Variable Cost Net Real Per Unit Contribution Per Unit 0 0.072 0 0.00108 0 7.00478 8.71 1.70 6.9317

(Figures in Rs per unit)


In-house 6.46

0 0.328 0 0.00492 0 6.79292 8.71 1.91

The variable cost per unit in case of in-house is 6.79 and in case of third party it is 7.00 per unit. The real per unit is 8.71 so the contribution earned per unit is 1.91 and 1.70 respectively.

FINDINGS:

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This variant of lassi shows that it is more or less same cost which the company incurs in case of both the alternatives so here the company should try to manufacture its product in-house than to purchase it from outside and then it will be able to save almost 20 paisa per unit which does not make a difference when we take a single unit but surely make a difference when we produce many units. If we take the transport cost and taxes then also it is beneficial for the company to produce in-house.

CHAACH 450 ML
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A popular drink all over India is known for its soothing properties. Mother dairy has this healthy way to quench the thirst. Chaach has lower fat content and less calories than regular milk because the fat from Chaach has already been removed to make butter. This shows that the Mother Dairy efficiently utilizes its resources. Chaach have a high potassium, vitamin B12 and calcium content. Chaach is more easily digestible than the whole milk and also contains more lactic acid than skimmed milk. (Figures in Rs per unit)
Third Party Variable Processing cost Variable marketing cost Primary freight Secondary freight Taxes S&D Octroi Total Variable Cost Net Real Per Unit Contribution Per Unit 0 0.072 0 0.00108 0 4.96 8.65 3.69 0 0.828 0 0.01242 0 6.49 8.65 2.16 4.89 In-house 5.65

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The above graph shows that the variable cost per unit is 4.69 in case of third party purchases and 6.49 in case of in-house manufacturing. The net real per unit is 8.65 and so the contribution earned is 3.69 and 2.16 per unit respectively. In this case we have not taken the overall analysis of the product Chaach because this product has only one variant.

FINDINGS: Chaach is cheaper to purchase it from outside than to produce in-house. The company can save cost if it makes out-right purchases. If we include taxes and transport then also it is cheaper.

BUTTER
Butter is a dairy product made by churning fresh or fermented cream or milk. It is generally used as a spread and a condiment, as well as in cooking applications such as baking, sauce making, and frying. Butter consists of butterfat, water and milk proteins. Most frequently made from cows' milk, butter can also be manufactured from that of other mammals, including sheep, goats, buffalo, and yaks. Salt, flavorings and preservatives are sometimes added to butter. Rendering butter produces clarified butter or ghee, which is almost entirely butterfat. Butter is an emulsion which remains a solid when refrigerated, but softens to a spreadable consistency at room temperature, and melts to a thin liquid consistency at 3235 C (9095 F). The density of butter is 911 kg/m3 (1535.5 lb/yd3).[1]
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It generally has a pale yellow color, but varies from deep yellow to nearly white. Its color is dependent on the animal's feed and is commonly manipulated with food colorings in the commercial manufacturing process, most commonly annatto or carotene.

BUTTER 500 GM
Third party Variable Processing cost Variable marketing cost Primary freight Secondary freight Taxes S&D Octroi Total Variable Cost Net Real Per Unit Contribution Per Unit 1.13 1.1 0.16 0.06 1.5 70.42 73.23 2.81 66.47

(Figures in Rs per unit)


In house 70.09

1.15 0.95 0.001 0.006 0.1 72.29 73.23 0.94

The variable cost per unit is 70.42 when the butter 500 gm is purchased from outside and it is 72.29 when manufactured at the companys production unit. The contribution earned per unit is Rs 2.81 and 0.94 respectively.

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FINDINGS: The above data shows that the processing cost in case of outright purchase is less as compare to the companys production unit and after adding the variable marketing cost, it is still cheaper to outsource the product butter 500 gm although the freight cost per unit and taxes paid are higher in case of third party. This shows that the raw material cost to the third party is less as compare to in-house cost. So the company will be in profit if it outsource the product and will be able to save cost and can earn more contribution.

ICE CREAM
Indian Ice Cream Market Industry Snapshot Market Size - 800 Crores Ice Cream market is growing at 10 to 12% Ice creams traditionally are a low volume business The ice cream market growth picked up after de-reservation of the sector in 1997. Of the total size of Rs 15-16bn, around 30-32% is in the hands of organized sector valued at Rs 4.9bn, rest all is with the unorganized sector. In rural areas, kulfi / ice creams made by small / cottage industry are popular. The market for organized sector is restricted to large metropolitan cities. In small towns and villages, there are thousands of small players who produce ice- creams / kulfi in their home backyard and cater to the local market. Almost 40% of the ice creams sold in the country are consumed in the western region with Mumbai being the main market, followed by 30% in the north and 20% in the south.

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Players 1. Amul - Market Leader with share of 36% 2. HLL - Kwality Walls - 2nd biggest player 3. Mother Dairy 4. Arun - Chennai Based Hatsun Agro Product 5. Metro Daily - Kolkata based 6. Aavin - Tamil Nadu based As Mother Dairy has competency cold chain distribution as they have Safal brand (frozen peas, corn, juices and mixed vegetables) under their portfolio, they have expanded from Delhi to Bangalore, Hyderabad, Chennai, Punjab, Rajasthan, UP and Uttaranchal. Mother dairy has a wide range of ice creams like vanilla, strawberry etc.

Overall Analysis of Ice Creams Total Sales for the month of October (Quantity in Kg) = 1,063,321.45 Sales figure for the IN-HOUSE MANUFACTURING (Quantity in Kg) = 561,226.68 Sales figure for the THIRD PARTY (Quantity in Kg) = 502,094.78 Net Realization value = 82,873,791.17 Net Real per Unit = 82,873,791.17 = 77.93 = 78 1,063,321.45 Sales Value for IN-HOUSE MANUFACTURING (in Rs) = 43775681 Sales Value for the THIRD PARTY (in Rs) = 39163393 Variable cost for IN-HOUSE MANUFACTURING = 36241830 Variable cost for the THIRD PARTY = 21,466,215.07
Variable cost per unit IN-HOUSE MANUFACTURING = 64.5761

Variable cost per unit for the THIRD PARTY = 42.753313


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Contribution for IN-HOUSE MANUFACTURING = 7533850.8 Contribution for the THIRD PARTY =17697177 Contribution per unit for IN-HOUSE MANUFACTURING = 13.4239 Contribution per unit for the THIRD PARTY = 35.246687 P/V Ratio for IN-HOUSE MANUFACTURING = 0.1721013 P/V Ratio for THIRD PARTY = 0.4518806 % P/V ratio for IN-HOUSE MANUFACTURING = 17% % P/V ratio for THIRD PARTY = 45%

Under the brand name mother dairy, company is not only manufacturing ice creams but also outsourcing it from third party vendors to serve the wide market of ice creams all over India mainly in the northern, eastern and western region. The company believes in making profit and to increase the market share of their products. The company purchases almost all the variants from their vendors and so I have found out that the variable cost which the company has to incur in case of in-house manufacturing and which the company has to pay to the third party vendors. For this I have analyzed the data for the last six months to calculate cost incurred and contribution earned. As I have analyzed the data for the last six months, and the above calculations and graph shows that the variable cost per unit for Ice Cream in case of In-House Manufacturing is more than the variable cost per unit of the third parties. And therefore the contribution margin is more, if Mother Dairy purchases from outside. The reason behind why there is a lot of difference between the costs of the two parties is that there are a lot of variants under the product Ice cream, if taken individually each variant there will not be a much difference between the two alternatives costs.
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How much is the actual difference between the cost of two alternatives if we take variants individually and can make out which variant of ice cream Mother Dairy should produce and which it can out rightly purchase so that it can save cost and can make more benefit.

VANILLA 50 ML
Third party Variable Processing cost Variable marketing cost Primary freight Secondary freight Taxes S&D Octroi Total Variable Cost Net Real Per Unit Contribution Per Unit 0.01 0.1 0.02 0.21 0.08 3.64 3.42 -0.22 2.31

(Figures in Rs per unit)


In house 2.42

0.02 0.55 0.04 0.46 0.17 3.66 3.42 -0.24

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STRAWBERRY 50 ML
Third party Variable Processing cost Variable marketing cost Primary freight Secondary freight Taxes S&D Octroi Total Variable Cost Net Real Per Unit Contribution Per Unit 0.01 0.1 0.02 0.21 0.08 2.75 3.42 0.67 0.02 0.55 0.04 0.46 0.17 3.44 3.42 2.33

(Figures in Rs per unit)


In house 2.20

-0.02

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STRAWBERRY 100 ML
Third party Variable Processing cost Variable marketing cost Primary freight Secondary freight Taxes S&D Octroi Total Variable Cost Net Real Per Unit Contribution Per Unit 0.0224 0.2 0.0412 0.07804 0.1638 4.83 6.85 2.02 4.33

(Figures in Rs per unit)


In house 4.11

0.0476 0.1 0.0876 0.01951 0.3481 4.71 6.85 2.14

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VANILLA 100 ML
Third party Variable Processing cost Variable marketing cost Primary freight Secondary freight Taxes S&D Octroi Total Variable Cost Net Real Per Unit Contribution 0.0224 0.2 0.0412 0.07804 0.1638 4.79 6.85 2.06 4.29

(Figures in Rs per unit)


In house 4.047

0.0476 0.1 0.0876 0.01951 0.3481 4.64 6.85 2.21

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KESAR PISTA 100 ML


Third party Variable Processing cost Variable marketing cost Primary freight Secondary freight Taxes S&D Octroi Total Variable Cost Net Real Per Unit Contribution Per Unit 0.0224 0.2 0.0412 0.07804 0.1638 8.96 12.8 3.84 8.46

(Figures in Rs per unit)


In house 8.67

0.0476 0.1 0.0876 0.01951 0.3481 9.27 12.8 3.53

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LICLOLLY ORANGE
Third party Variable Processing cost Variable marketing cost Primary freight Secondary freight Taxes S&D Octroi Total Variable Cost Net Real Per Unit Contribution Per Unit 0.01 0.12 0.024 0.26 0.09 2.27 4 1.73 1.77

(Figures in Rs per unit)


In house 1.67

0.02 0.066 0.052 0.55 0.20 2.55 4 1.45

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VANILLA 1000 ML
Third party Variable Processing cost Variable marketing cost Primary freight Secondary freight Taxes S&D Octroi Total Variable Cost Net Real Per Unit Contribution Per Unit 0.224 2 0.41 1.41 0.01 42.49 36.48 -6.01 38.44

(Figures in Rs per unit)


In house 38.16

0.476 1.10 0.87 3.01 0.02 43.6 36.48 -7.12

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FINDINGS: In case of vanilla 50ml and vanilla 100 ml, the cost incurred is almost same. Same is the case with all the variants. The variants of Ice Cream above shows that the variable cost incurred by both the alternatives is more or less same i.e. the processing cost and the freight cost. And so the contribution earned is also more or less same. But still whether its a rupee difference, the inhouse manufacturing is slightly costly in some variants.

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CHAPTER V Findings And


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Conclusion

FINDINGS
After the Financial analysis i.e. analyzing the financial benefits and financial cost, it was found that the company should go for outsourcing or third party purchase in most of its products. But cost is not only the factor which should be considered when making a decision; there are other factors also which should be taken into account. One of them is the location factor, as we know that the products which the company is dealing are dairy products which have a minimal shelf life. If we talk about the product Ice Cream; though the company is incurring more cost in in-house manufacturing but still it cannot stop the production of variants of ice creams it produces because region is the most important factor as in case of dairy products the shelf life is very less and so transporting goods from one part of the country to the other part will only increase the cost for the company. And in case of ice creams, the company cannot take the risk of transporting it from one region to another and if it does, then the company will only incur more cost rather than reducing it as the probability of damage will increase. Like for this product, the in-house production unit is situated in Northern Region to serve market in North and the third party production unit is situated in Western Region and Eastern region to serve market there. So, in this case the company will manufacture in-house as well as outsource the product. Therefore, it is not just the cost factor which is taken into consideration but also some more factors to make a wise-decision. The company considers outright purchases as beneficial because of the following reasons:

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It increases flexibility to meet changing business conditions, demand for products and services and technologies. It improves the operating performance. It obtains expertise, skills, and technologies that would not otherwise be available. It reduces investments in assets and free up those resources for other purposes. It gain market access and business opportunities through the providers network. It accelerates expansion by tapping into the providers developed capacity, processes, and systems. It expands sales and production capacity during periods when such expansion could not be financed. It reduces costs through superior providers performance and lower cost structure. Some products and processes are more expensive or risky to manufacture as they need either expertise knowledge or up-to date machinery. If the suppliers prices are lower than internal costs, the financial aspect is to be considered. It also includes the costs related to the quality control of the materials and semi-finished products and transport costs of materials from the supplier to the sub-contractor as well as the control of the delivered product. In-house manufacturing the manpower cost, depreciation, storage rent are some additional costs which the company have to incur otherwise.

Though it is beneficial for the company to purchase but there are some drawbacks also which should be considered: When purchased from outside there is always a danger of not getting the good quality product from the vendor. This can affect the image of the company in the market. Another risk is of damage, this becomes additional cost which the company might have to incur and in such a situation it is not only this cost in monetary terms but also the cost of not able to supply that good in market when it is demanded. And this will be the biggest cost for the company affecting its image. One more drawback is that of paying minimum guaranteed charges to the third party vendor. These charges are paid against the minimum quantity which the respective company agrees to pay if it is not able to purchase that much amount of quantity from that third party vendor. In situations when there is not much demand of that particular product this will be an additional cost which the company will have to incur. A company should not totally depend on third party for the supply of a product because in case of some mis-happening, the company should not been in a position of not able to supply its product in the market which will affect its brand image.

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PRODUCTS ICE CREAM CURD LASSI MISHTI DOI BUTTER CHAACH NUTRIFIT SAFAL FROZEN

P/V RATIO 29%-39% 30-38% 35-44% 35-50% -2.2-6% 18-50% -10-30% 35-40%

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Some additional findings were the calculation of P/V ratio of various products by taking the data for the last six months. P/V ratio tells the profitability of a particular product. The P/V ratio for Ice cream for the last six months has been in the range of 29%-39%. Initially, it was high then became low and then finally in the end of the period it increased. The reason being that the period includes winter season so the sales has been low during those months and the other reason is that there has been a lot of damage last year because of the bad refrigeration. For curd, the P/V ratio has always improved which shows that it is bringing more profit to the company. The ratio for Lassi has always been in the range of 40% except in the months of winters which shows that this product is bringing more profit to the company. The P/V ratio for the product butter has always been negative showing that the company is incurring huge losses. The reason might be not good marketing efforts done by the company for the product. In case of product Chaach, during the starting of the period, the P/V ratio was in the range of 39% and then decreased. The reason is that it is a seasonal product and the demand during that period is low. Another product of Mother dairy is Nutrifit; it has been observed that there has been a lot of variation in the P/V ratio of this product. It is because this product was launched last year and it is in its initial stage of product life cycle, so sales have been low. And in this product at the overall net profit/loss, there has been a net loss most of the times. In terms of P/V ratio, Mishti doi has always enjoyed a good P/V ratio. And if we rank the products, according to the P/V ratio, this product enjoys the top position. This shows that the product has been good in case of profitability. The P/V ratio for Safal frozen i.e. frozen fruits and vegetables has been in the range of 3540%. If we do the ranking of the various products of Mother Dairy, the first position has been enjoyed by the product Mishti doi then followed by Lassi, Dahi, Safal frozen, Ice cream, Chaach, Cheese, Nutrifit.

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BIBLOGRAPHY

BOOKS:

Maheshwari and Maheshwari, Cost Accounting Ravi M. Kishore, Cost and Management Accounting, New Delhi B.M Lall Nigam & I.C.Jain., Cost Accounting Kothari, C.R, Research methodology, methods & techniques, Gupta, S.P. Stastical methods and techniques, New Delhi Annual Report of the company, 2009-10.

Websites: www.motherdairy.com www.nddb.com www.thehindubusinessline.com www.findarcticles.com www.wikipedia.com

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