1. INTRODUCTION

1.1 COST VOLUME PROFIT

Cost volume profit (CVP) analysis generally defined as a planning tool by which

managers can evaluate the effect of a change(s) in price, volume, variable cost or fixed cost

on profit. Additionally, CVP analysis is the basis for understanding contribution margin

pricing, related short-run decisions, target costing and transfer pricing. In the marginal

costing varies directly with the volume of production or output. On the other hand, fixed

cost remains unaltered regardless of the volume of 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.

Cost – Volume profit Analysis is a logical extension of Marginal costing. It is

based on the same principles of classifying the operating expenses into fixed and variable.

Now-a-days it has become a powerful instrument in the hands of policy makers to

maximum profits.

There elements need to be related ion order to achieve the maximum profit. Apart

from profit projection, the concept of cost volume profit is relevant the short run. The

relationship among cost, revenue and profit at different levels may be expressed in graphs

such as breakeven charts, profit volume graphs or in various statements forms.

Earning of maximum profit is the ultimate goal of almost all business undertakings.

The most important factors influencing the earning of profit is the level of production. (I.e.

Volume of production).

Profit depends on a large number of factors, most important of which are the cost of

manufacturing and the volume of sales, volume of sales depends upon the volume of

production and market forces which turns in related to costs.

Management has no control over market. In order to achieve certain level of

profitability, it has to exercise control and management of costs, mainly variable cost. This

is because fixed cost is a non-controllable cost.

It helps to find out the profitability of a product, department of division to have

better product mix, for profit planning and to maximize the profit of a concern.

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These decisions can include such crucial areas as pricing policies, product mixes,

market expansion or contractions, outsourcing contracts, idle plant usage, discretionary

expenses planning and a variety of other important considerations in the planning process.

Given the broad range of context in which cost volume profit can be used.

In other words, it helps in locating the level of output which evenly breaks the cost

and revenues used in its broader sense, it means that system of analysis which determine

profit, cost and ales value at different levels of output. The cost Volume profit analysis

establishes the relationship of cost, volume and profit.

Thus cost volume profit furnishes the complete picture of the profit structure. In

other word, cost volume profit is a management accounting tool that expresses relationship

among sales, volume, cost and profit. The cost volume analysis uses the techniques of

breakeven analysis, operating leverage, margin of safety and effect of changes on sales and

contribution on margin and net operating income. The level of sales needed to achieve

desired target profit, in order to predict changes in net operating income. The data are cost

sheet and balance sheet collected from the company.

Cost-volume-profit (CVP) analysis is used to determine how changes in costs and

volume affect a company's operating income and net income. In performing this

analysis, there are several assumptions made, including:

Sales price per unit is constant.

Variable costs per unit are constant.

Total fixed costs are constant.

Everything produced is sold.

Costs are only affected because activity changes.

If a company sells more than one product, they are sold in the same mix

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1.2 INDUSTRY PROFILE

Dairy is a place where handling of milk and milk products is done and technology

refers to the application of scientific knowledge for practical purposes. Dairy technology

has been defined as that branch of dairy science, which deals with the processing of milk

and the manufacture of milk products on an industrial scale.

The dairy sector in the India has shown remarkable development in the past decade and

India has now become one of the largest producers of milk and value-added milk products

in the world.

The dairy sector has developed through co-operatives in many parts of the State.

During 1997-98, the State had 60 milk processing plants with an aggregate processing

capacity of 5.8 million litres per day. In addition to these processing plants, 123

Government and 33 co-operatives milk chilling centers operate in the State.

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 Japan’s $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.

The urban market for milk products is expected to grow at an accelerated pace of

around 33% per annum to around Rs.43,500 crores by year 2005. This growth is going to

come from the greater emphasis on the processed foods sector and also by increase in the

conversion of milk into milk products. By 2005, the value of Indian dairy produce is

expected to be Rs 10,00,000 million. Presently the market is valued at around Rs7,00,000

mn.

1.2.1 MILK PRODUCTION FROM 1950 TO 2020

1950 – 17 million tonnes

1996 – 70.8 million tonnes

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1997 – 74.3 million tonnes

(Projected) 2020 – 240 million tonnes

Expected to reach- 220 to 250 mt – 2020

India contributes to world milk production rise from 12-15 % & it will increase up to 30-

35% (year 2020)

TABLE NO. 1.2.1 WORLD'S MAJOR MILK PRODUCERS (MILLION MTS)

Country2007-08 2008-09 (Approx.)

India 81 84.5

Brazil 75 77

Russia 34 33

Germany 27 27

France 24 24

Pakistan 21 22

USA 71 71

UK 14 14

Ukraine 15 14

Poland 12 12

Source: www.wikepedia.com//diaryindustry/

1.2.2 RESEARCH AND DEVELOPMENT IN DAIRY INDUSTRY:

The research and development need to the dairy industry to develop and survives

for long time with better status. The various institute and milk dairy companies R&D

results provide base for today’s industry growth and development. The research and

development of products of dairy, like yogurt and cheese market research and company

reports provides insights into product and market trends, analysis opportunities, sales and

marketing strategies will help local milk unions to develop and spread world wide through

obtaining this knowledge. Specific on market share, segmentation, size and growth in the

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US and global markets are also helps industry to expand its market worldwide even small

union also.

1.2.3 DEVELOPMENT OF FOOD PROCESSING INDUSTRY:

The food processing industry sector in India is one of the largest in terms of

production, consumption, export and growth prospects. The government of accorded it is a

high priority, with a number of fiscal relieves and incentives, to encourage

commercialization and value addition to agriculture produce, for minimizing harvest

wastage, generating employment and export growth.

Food processing industry is providing backbone support to the milk industry. The

development food products by using milk can give good market opportunities to produces

milk.

1.2.4 PRODUCTS AND INDUSTRY STATUS:

Among the products manufactured by organized sector are Ghee, Butter, Cheese,

Ice-Creames, Milk powders, Melted milk food, Infant food, condensed milk etc.. some milk

products like Casein and Lactose are also being manufactured lately. Therefore, there is

good scope for manufacturing these products locally.

Liberalization of the economy has led to a flood of new entrants, including MNCs due to

good prospects and abundant supply.

1.2.5 INVESTMENT POTENTIAL IN MILK PRODUCTS:

At the present rate of growth, India is expected to overtake the US in milk

production by the year 2010, when demand is expected to be over 125.69 ml.tn. Being

largely imported, manufacture of casein and lactose has good scope in the country.

Exports of milk products have been decentralized and export in 2005-2010 is

estimated at 71.875 cr.

1.2.6 PRODUCTION OF MILK IN INDIA:

The facts and figures here shown are calculated on the basis of percentage increases

per year.

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TABLE NO. 1.2.2 PRODUCTION OF MILK INCREASE IN INDIA

Year Production in million MT

1993-94 61.2%

1994-95 63.5%

1995-96 65.0%

1996-97 68.0%

1997-98 71.0%

1998-99 74.5%

1999-00 78.0%

2000-01 81.51%

2001-02 85.17%

2002-03 89.0%

2003-04 93.0%

2004-05 97.65%

2005-06 102.45%

2006-07 107.58%

Source: www.wikepedia.com//diaryindistiry/

1.2.7 INDUSTRY PROFILE ON DAIRY PRODUCT

A dairy is a facility for the extraction and processing of animal milk—mostly from

cows or goats, but also from buffalo, sheep, horses or camels —for human consumption.

Typically it is a farm (dairy farm) or section of a farm that is concerned with the production

of milk, butter and cheese.

Terminology differs slightly between countries. In particular, in the U.S. a dairy can

also be a facility that processes, distributes and sells dairy products, or a room, building or

establishment where milk is kept and butter or cheese is made. In New Zealand English a

dairy means a corner convenience store, or Superette—and dairy factory is the term for

what is elsewhere called a dairy.

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As an attributive, the word dairy refers to milk-based products, derivatives and

processes, and the animals and workers involved in their production: for example dairy

cattle, dairy goat. A dairy farm produces milk and a dairy factory processes it into a variety

of dairy products. These establishments constitute the dairy industry, a component of the

food industry.

1.2.8 HISTORY

Milk producing animals have been domesticated for thousands of years. Initially,

they were part of the subsistence farming that nomads engaged in. As the community

moved about the country, their animals accompanied them. Protecting and feeding the

animals were a big part of the symbiotic relationship between the animals and the herders.

In the more recent past, people in agricultural societies owned dairy animals that

they milked for domestic and local (village) consumption, a typical example of a cottage

industry. The animals might serve multiple purposes (for example, as a draught animal for

pulling a plough as a youngster, and at the end of its useful life as meat). In this case the

animals were normally milked by hand and the herd size was quite small, so that all of the

animals could be milked in less than an hour—about 10 per milker. These tasks were

performed by a dairymaid (dairywoman) or dairyman. The word dairy harkens back to

Middle English dayerie, deyerie, from deye (female servant or dairymaid) and further back

to Old English dæge (kneader of bread).

With industrialisation and urbanisation, the supply of milk became a commercial

industry, with specialised breeds of cattle being developed for dairy, as distinct from beef

or draught animals. Initially, more people were employed as milkers, but it soon turned to

mechanisation with machines designed to do the milking.

Historically, the milking and the processing took place close together in space and

time: on a dairy farm. People milked the animals by hand; on farms where only small

numbers are kept, hand-milking may still be practiced. Hand-milking is accomplished by

grasping the teats (often pronounced tit or tits) in the hand and expressing milk either by

squeezing the fingers progressively, from the udder end to the tip, or by squeezing the teat

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between thumb and index finger, then moving the hand downward from udder towards the

end of the teat. The action of the hand or fingers is designed to close off the milk duct at the

udder (upper) end and, by the movement of the fingers, close the duct progressively to the

tip to express the trapped milk. Each half or quarter of the udder is emptied one milk-duct

capacity at a time.

The stripping action is repeated, using both hands for speed. Both methods result in

the milk that was trapped in the milk duct being squirted out the end into a bucket that is

supported between the knees (or rests on the ground) of the milker, who usually sits on a

low stool.

Traditionally the cow, or cows, would stand in the field or paddock while being

milked. Young stock, heifers, would have to be trained to remain still to be milked. In

many countries, the cows were tethered to a post and milked. The problem with this method

is that it relies on quiet, tractable beasts, because the hind end of the cow is not restrained.

In 1937, it was found that bovine somatotropin (bST or bovine growth hormone)

would increase the yield of milk. Monsanto Company developed a synthetic (recombinant)

version of this hormone (rBST). In February 1994, rBST was approved by the Food and

Drug Administration (FDA) for use in the U.S. It has become common in the U.S., but not

elsewhere, to inject it into milch kine (dairy cows) to increase their production by up to

15%.

However, there are claims that this practice can have negative consequences for the

animals themselves. A European Union scientific commission was asked to report on the

incidence of mastitis and other disorders in dairy cows, and on other aspects of the welfare

of dairy cows.

The commission's statement, subsequently adopted by the European Union, stated

that the use of rBST substantially increased health problems with cows, including foot

problems, mastitis and injection site reactions, impinged on the welfare of the animals and

caused reproductive disorders. The report concluded that on the basis of the health and

welfare of the animals, rBST should not be used. Health Canada prohibited the sale of

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rBST in 1999; the recommendations of external committees were that, despite not finding a

significant health risk to humans, the drug presented a threat to animal health and, for this

reason, could not be sold in Canada.

1.2.9 STRUCTURE OF THE INDUSTRY

While most countries produce their own milk products, the structure of the dairy

industry varies in different parts of the world. In less developed countries the producer

generally sells directly to the public, whereas in major milk-producing countries most milk

is distributed through wholesale markets. In Ireland and Australia, for example, farmers'

co-operatives own many of the large-scale processors, while in the United States many

farmers and processors do business through individual contracts. In the United States, the

country's 196 farmers' cooperatives sold 86% of milk in the U.S. in 2002, with five

cooperatives accounting for half that. This was down from 2,300 cooperatives in the 1940s.

As in many other branches of the food industry, dairy processing in the major dairy

producing countries has become increasingly concentrated, with fewer but larger and more

efficient plants operated by fewer workers. This is notably the case in the United States,

Europe, Australia and New Zealand. In 2009, charges of anti-trust violations have been

made against major dairy industry players in the United States.

Government intervention in milk markets was common in the 20th century. A

limited anti-trust exemption was created for U.S. dairy cooperatives by the Capper-

Volstead Act of 1922. In the 1930s, some U.S. states adopted price controls, and Federal

Milk Marketing Orders started under the Agricultural Marketing Agreement Act of 1937

and continue in the 2000s. The Federal Milk Price Support Program began in 1949. The

Northeast Dairy Compact regulated wholesale milk prices in New England from 1997 to

2001.

Plants producing liquid milk and products with short shelf life, such as yogurts,

creams and soft cheeses, tend to be located on the outskirts of urban centres close to

consumer markets. Plants manufacturing items with longer shelf life, such as butter, milk

powders, cheese and whey powders, tend to be situated in rural areas closer to the milk

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supply. Most large processing plants tend to specialise in a limited range of products.

Exceptionally, however, large plants producing a wide range of products are still common

in Eastern Europe, a holdover from the former centralized, supply-driven concept of the

market.

As processing plants grow fewer and larger, they tend to acquire bigger, more

automated and more efficient equipment. While this technological tendency keeps

manufacturing costs lower, the need for long-distance transportation often increases the

environmental impact.

Milk production is irregular, depending on cow biology. Producers must adjust the

mix of milk which is sold in liquid form vs. processed foods (such as butter and cheese)

depending on changing supply and demand.

1.2.10 OPERATION OF THE DAIRY FARM

When it became necessary to milk larger numbers of cows, the cows would be

brought to a shed or barn that was set up with bails (stalls) where the cows could be

confined while they were milked. One person could milk more cows this way, as many as

20 for a skilled worker. But having cows standing about in the yard and shed waiting to be

milked is not good for the cow, as she needs as much time in the paddock grazing as is

possible. It is usual to restrict the twice-daily milking to a maximum of an hour and a half

each time. It makes no difference whether one milks 10 or 1000 cows, the milking time

should not exceed a total of about three hours each day for any cow.

As herd sizes increased there was more need to have efficient milking machines,

sheds, milk-storage facilities (vats), bulk-milk transport and shed cleaning capabilities and

the means of getting cows from paddock to shed and back.

Farmers found that cows would abandon their grazing area and walk towards the

milking area when the time came for milking. This is not surprising as, in the flush of the

milking season, cows presumably get very uncomfortable with udders engorged with milk,

and the place of relief for them is the milking shed.

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As herd numbers increased so did the problems of animal health. In New Zealand

two approaches to this problem have been used. The first was improved veterinary

medicines (and the government regulation of the medicines) that the farmer could use. The

other was the creation of veterinary clubs where groups of farmers would employ a

veterinarian (vet) full-time and share those services throughout the year. It was in the vet's

interest to keep the animals healthy and reduce the number of calls from farmers, rather

than to ensure that the farmer needed to call for service and pay regularly.

Most dairy farmers milk their cows with absolute regularity at a minimum of twice

a day, with some high-producing herds milking up to four times a day to lessen the weight

of large volumes of milk in the udder of the cow. This daily milking routine goes on for

about 300 to 320 days per year that the cow stays in milk. Some small herds are milked

once a day for about the last 20 days of the production cycle but this is not usual for large

herds. If a cow is left unmilked just once she is likely to reduce milk-production almost

immediately and the rest of the season may see her dried off (giving no milk) and still

consuming feed for no production. However, once-a-day milking is now being practised

more widely in New Zealand for profit and lifestyle reasons. This is effective because the

fall in milk yield is at least partially offset by labour and cost savings from milking once

per day. This compares to some intensive farm systems in the United States that milk three

or more times per day due to higher milk yields per cow and lower marginal labor costs.

Farmers who are contracted to supply liquid milk for human consumption (as

opposed to milk for processing into butter, cheese, and so on—see milk) often have to

manage their herd so that the contracted number of cows are in milk the year round, or the

required minimum milk output is maintained. This is done by mating cows outside their

natural mating time so that the period when each cow in the herd is giving maximum

production is in rotation throughout the year.

Northern hemisphere farmers who keep cows in barns almost all the year usually

manage their herds to give continuous production of milk so that they get paid all year

round. In the southern hemisphere the cooperative dairying systems allow for two months

on no productivity because their systems are designed to take advantage of maximum grass

and milk production in the spring and because the milk processing plants pay bonuses in

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the dry (winter) season to carry the farmers through the mid-winter break from milking. It

also means that cows have a rest from milk production when they are most heavily

pregnant. Some year-round milk farms are penalised financially for over-production at any

time in the year by being unable to sell their overproduction at current prices.

1.2.11 INDUSTRIAL PROCESSING

A Fonterra cooperative dairy factory in Australia.

Interior of a cheese factory in Seine-et-Marne, France

Main article: dairy products

Dairy plants process the raw milk they receive from farmers so as to extend its

marketable life. Two main types of processes are employed: heat treatment to ensure the

safety of milk for human consumption and to lengthen its shelf-life, and dehydrating dairy

products such as butter, hard cheese and milk powders so that they can be stored.

1.2.12 CREAM AND BUTTER

Today, milk is separated by large machines in bulk into cream and skim milk. The

cream is processed to produce various consumer products, depending on its thickness, its

suitability for culinary uses and consumer demand, which differs from place to place and

country to country.

Some cream is dried and powdered, some is condensed (by evaporation) mixed with

varying amounts of sugar and canned. Most cream from New Zealand and Australian

factories is made into butter. This is done by churning the cream until the fat globules

coagulate and form a monolithic mass. This butter mass is washed and, sometimes, salted

to improve keeping qualities. The residual buttermilk goes on to further processing. The

butter is packaged (25 to 50 kg boxes) and chilled for storage and sale. At a later stage

these packages are broken down into home-consumption sized packs. Butter sells for about

US$3200 a tonne on the international market in 2007 (an unusual high).

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1.2.13 SKIMMED MILK

The product left after the cream is removed is called skim, or skimmed, milk.

Reacting skim milk with rennet or with an acid makes casein curds from the milk solids in

skim milk, with whey as a residual. To make a consumable liquid a portion of cream is

returned to the skim milk to make low fat milk (semi-skimmed) for human consumption.

By varying the amount of cream returned, producers can make a variety of low-fat milks to

suit their local market. Other products, such as calcium, vitamin D, and flavouring, are also

added to appeal to consumers.

1.2.14 CASEIN

Casein is the predominant phosphoprotein found in fresh milk. It has a very wide

range of uses from being a filler for human foods, such as in ice cream, to the manufacture

of products such as fabric, adhesives, and plastics.

1.2.15 CHEESE

Cheese is another product made from milk. Whole milk is reacted to form curds that

can be compressed, processed and stored to form cheese. In countries where milk is legally

allowed to be processed without pasteurisation a wide range of cheeses can be made using

the bacteria naturally in the milk. In most other countries, the range of cheeses is smaller

and the use of artificial cheese curing is greater. Whey is also the byproduct of this

process.Cheese has historically been an important way of "storing" milk over the year, and

carrying over its nutritional value between prosperous years and fallow ones. It is a food

product that, with bread and beer, dates back to prehistory in Middle Eastern and European

cultures, and like them is subject to innumerable variety and local specificity. Although

nowhere near as big as the market for cow's milk cheese, a considerable amount of cheese

is made commercially from other milks, especially goat and sheep (see Roquefort cheese

for a notable example).

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1.2.16 WHEY

In earlier times whey was considered to be a waste product and it was, mostly, fed

to pigs as a convenient means of disposal. Beginning about 1950, and mostly since about

1980, lactose and many other products, mainly food additives, are made from both casein

and cheese whey.

1.2.17 YOGURT

Yoghurt (or yogurt) making is a process similar to cheese making, only the process

is arrested before the curd becomes very hard.

1.2.18 MILK POWDERS

Milk is also processed by various drying processes into powders. Whole milk, skim

milk, buttermilk, and whey products are dried into a powder form and used for human and

animal consumption. The main difference between production of powders for human or for

animal consumption is in the protection of the process and the product from contamination.

Some people drink milk reconstituted from powdered milk, because milk is about 88%

water and it is much cheaper to transport the dried product. Dried skim milk powder is

worth about US$5300 a tonne (mid-2007 prices) on the international market.

1.2.19 OTHER MILK PRODUCTS

Kumis is produced commercially in Central Asia. Although it is traditionally made

from mare's milk, modern industrial variants may use cow's milk instead.

1.2.20 TRANSPORT OF MILK

Historically, the milking and the processing took place in the same place: on a dairy

farm. Later, cream was separated from the milk by machine, on the farm, and the cream

was transported to a factory for buttermaking. The skim milk was fed to pigs. This allowed

for the high cost of transport (taking the smallest volume high-value product), primitive

trucks and the poor quality of roads. Only farms close to factories could afford to take

whole milk, which was essential for cheesemaking in industrial quantities, to them. The

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development of refrigeration and better road transport, in the late 1950s, has meant that

most farmers milk their cows and only temporarily store the milk in large refrigerated bulk

tanks, whence it is later transported by truck to central processing facilities.

1.2.21 MILKING MACHINES

Milking machines are used to harvest milk from cows when manual milking

becomes inefficient or labour intensive. The milking unit is the portion of a milking

machine for removing milk from an udder. It is made up of a claw, four teatcups, (Shells

and rubber liners) long milk tube, long pulsation tube, and a pulsator. The claw is an

assembly that connects the short pulse tubes and short milk tubes from the teatcups to the

long pulse tube and long milk tube. (Cluster assembly) Claws are commonly made of

stainless steel or plastic or both. Teatcups are composed of a rigid outer shell (stainless

steel or plastic) that holds a soft inner liner or inflation. Transparent sections in the shell

may allow viewing of liner collapse and milk flow. The annular space between the shell

and liner is called the pulse chamber.

Milking machines work in a way that is different from hand milking or calf

suckling. Continuous vacuum is applied inside the soft liner to massage milk from the teat

by creating a pressure difference across the teat canal (or opening at the end of the teat).

Vacuum also helps keep the machine attached to the cow. The vacuum applied to the teat

causes congestion of teat tissues (accumulation of blood and other fluids). Atmospheric air

is admitted into the pulsation chamber about once per second (the pulsation rate) to allow

the liner to collapse around the end of teat and relieve congestion in the teat tissue. The

ratio of the time that the liner is open (milking phase) and closed (rest phase) is called the

pulsation ratio.

The four streams of milk from the teatcups are usually combined in the claw and

transported to the milkline, or the collection bucket (usually sized to the output of one cow)

in a single milk hose. Milk is then transported (manually in buckets) or with a combination

of airflow and mechanical pump to a central storage vat or bulk tank. Milk is refrigerated

on the farm in most countries either by passing through a heat-exchanger or in the bulk

tank, or both.

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In the photo above is a bucket milking system with the stainless steel bucket visible

on the far side of the cow. The two rigid stainless steel teatcup shells applied to the front

two quarters of the udder are visible. The top of the flexible liner is visible at the top of the

shells as are the short milk tubes and short pulsation tubes extending from the bottom of the

shells to the claw. The bottom of the claw is transparent to allow observation of milk flow.

When milking is completed the vacuum to the milking unit is shut off and the teatcups are

removed.

Milking machines keep the milk enclosed and safe from external contamination.

The interior 'milk contact' surfaces of the machine are kept clean by a manual or automated

washing procedures implemented after milking is completed. Milk contact surfaces must

comply with regulations requiring food-grade materials (typically stainless steel and special

plastics and rubber compounds) and are easily cleaned.

Most milking machines are powered by electricity but, in case of electrical failure,

there can be an alternative means of motive power, often an internal combustion engine, for

the vacuum and milk pumps. Milk cows cannot tolerate delays in scheduled milking

without serious milk production reductions.

1.2.22 MILKING SHED LAYOUTS

Bail-style sheds— This type of milking facility was the first development, after

open-paddock milking, for many farmers. The building was a long, narrow, lean-to shed

that was open along one long side. The cows were held in a yard at the open side and when

they were about to be milked they were positioned in one of the bails (stalls). Usually the

cows were restrained in the bail with a breech chain and a rope to restrain the outer back

leg. The cow could not move about excessively and the milker could expect not to be

kicked or trampled while sitting on a (three-legged) stool and milking into a bucket. When

each cow was finished she backed out into the yard again. The UK bail, developed largely

by Rex Patterson, was a six standing mobile shed with steps that the cow mounted, so the

herdsman didn't have to bend so low. The milking equipment was much as today, a vacuum

from a pump, pulsators, a claw-piece with pipes leading to the four shells and liners that

stimulate and suck the milk from the teat. The milk went into churns, via a cooler.

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As herd sizes increased a door was set into the front of each bail so that when the

milking was done for any cow the milker could, after undoing the leg-rope and with a

remote link, open the door and allow her to exit to the pasture. The door was closed, the

next cow walked into the bail and was secured. When milking machines were introduced

bails were set in pairs so that a cow was being milked in one paired bail while the other

could be prepared for milking. When one was finished the machine's cups are swapped to

the other cow. This is the same as for Swingover Milking Parlours as described below

except that the cups are loaded on the udder from the side. As herd numbers increased it

was easier to double-up the cup-sets and milk both cows simultaneously than to increase

the number of bails. About 50 cows an hour can be milked in a shed with 8 bales by one

person. using the same teat cups for successive cows has the danger of transmitting

infection, mastitis, from one cow to another. Some farmers have devised their own ways to

disinfect the clusters between cows.

Herringbone Milking Parlours— In herringbone milking sheds, or parlours, cows

enter, in single file, and line up almost perpendicular to the central aisle of the milking

parlour on both sides of a central pit in which the milker works (you can visualise a

fishbone with the ribs representing the cows and the spine being the milker's working area;

the cows face outward). After washing the udder and teats the cups of the milking machine

are applied to the cows, from the rear of their hind legs, on both sides of the working area.

Large herringbone sheds can milk up to 600 cows efficiently with two people.

Swingover Milking Parlours— Swingover parlours are the same as herringbone

parlours except they have only one set of milking cups to be shared between the two rows

of cows, as one side is being milked the cows on the other side are moved out and replaced

with unmilked ones. The advantage of this system is that it is less costly to equip, however

it operates at slightly better than half-speed and one would not normally try to milk more

than about 100 cows with one person.

Rotary Milking sheds— Rotary milking sheds consist of a turntable with about 12

to 100 individual stalls for cows around the outer edge. A "good" rotary will be operated

with 24–32 (~48–50+) stalls by one (two) milkers. The turntable is turned by an electric-

motor drive at a rate that one turn is the time for a cow to be milked completely. As an

17

empty stall passes the entrance a cow steps on, facing the centre, and rotates with the

turntable. The next cow moves into the next vacant stall and so on. The operator, or milker,

cleans the teats, attaches the cups and does any other feeding or whatever husbanding

operations that are necessary. Cows are milked as the platform rotates. The milker, or an

automatic device, removes the milking machine cups and the cow backs out and leaves at

an exit just before the entrance. The rotary system is capable of milking very large herds—

over a thousand cows. 80-stand rotary dairy that is fully computerised and records milk

production

Automatic Milking shed— Automatic milking or 'robotic milking' sheds can be

seen in Australia, New Zealand and many European countries. Current automatic milking

sheds use the voluntary milking (VM) method. These allow the cows to voluntarily present

themselves for milking at any time of the day or night, although repeat visits may be

limited by the farmer through computer software. A robot arm is used to clean teats and

apply milking equipment, while automated gates direct cow traffic, eliminating the need for

the farmer to be present during the process. The entire process is computer controlled.

There is a description of an automatic system here—

Supplementary accessories in sheds— Farmers soon realised that a milking shed

was a good place to feed cows supplementary foods that overcame local dietary

deficiencies or added to the cows' wellbeing and production. Each bail might have a box

into which such feed is delivered as the cow arrives so that she is eating while being

milked. A computer can read the eartag of each beast to ration the correct individual

supplement. A close alternative is to use 'out-of-parlour-feeders', stalls that respond to a

transponder around the cow's neck that is programmed to provide each cow with a

supplementary feed, the quantity dependent on her production, stage in lactation, and the

benefits of the main ration

The holding yard at the entrance of the shed is important as a means of keeping

cows moving into the shed. Most yards have a powered gate that ensures that the cows are

kept close to the shed.

18

Water is a vital commodity on a dairy farm: cows drink about 20 gallons (80 litres)

a day, sheds need water to cool and clean them. Pumps and reservoirs are common at

milking facilities. Water can be warmed by heat transfer with milk.

1.2.23 TEMPORARY MILK STORAGE

Milk coming from the cow is transported to a nearby storage vessel by the airflow

leaking around the cups on the cow or by a special "air inlet" (5-10 l/min free air) in the

claw. From there it is pumped by a mechanical pump and cooled by a heat exchanger. The

milk is then stored in a large vat, or bulk tank, which is usually refrigerated until collection

for processing.

1.2.24 PROCESSING FACILITIES

Topics:

Pasteurization, homogenization

Cream extraction

Cheese making

Buttermaking

Caseinmaking

Yogurt processing

1.2.25 WASTE DISPOSAL

Manure spreader going to the field from a dairy farm, Elba, New York.

In countries where cows are grazed outside year-round, there is little waste disposal

to deal with. The most concentrated waste is at the milking shed, where the animal waste is

liquefied (during the water-washing process) and allowed to flow by gravity, or pumped,

into composting ponds with anaerobic bacteria to consume the solids. The processed water

and nutrients are then pumped back onto the pasture as irrigation and fertilizer. Surplus

animals are slaughtered for processed meat and other rendered products.

19

In the associated milk processing factories, most of the waste is washing water that

is treated, usually by composting, and returned to waterways. This is much different from

half a century ago, when the main products were butter, cheese and casein, and the rest of

the milk had to be disposed of as waste (sometimes as animal feed).

In areas where cows are housed all year round, the waste problem is difficult

because of the amount of feed that is bought in and the amount of bedding material that

also has to be removed and composted. The size of the problem can be understood by

standing downwind of the barns where such dairying goes on.

In many cases, modern farms have very large quantities of milk to be transported to

a factory for processing. If anything goes wrong with the milking, transport or processing

facilities it can be a major disaster trying to dispose of enormous quantities of milk. If a

road tanker overturns on a road, the rescue crew is looking at accommodating the spill of 5

to 10 thousand gallons of milk (20 to 45 thousand litres) without allowing any into the

waterways. A derailed rail tanker-train may involve 10 times that amount. Without

refrigeration, milk is a fragile commodity, and it is very damaging to the environment in its

raw state. A widespread electrical power blackout is another disaster for the dairy industry,

because both milking and processing facilities are affected.

In dairy-intensive areas, the simplest way of disposing of large quantities of milk

has been to dig a large hole in the ground and allow the clay to filter the milk solids as it

soaks away. This is not very satisfactory.

1.2.26 ASSOCIATED DISEASES

Leptospirosis is one of the most common debilitating diseases of milkers, made

somewhat worse since the introduction of herringbone sheds, because of

unavoidable direct contact with bovine urine

Cowpox is one of the helpful diseases; it is barely harmful to humans and tends to

inoculate them against other poxes such as small pox.

20

Tuberculosis (TB) is able to be transmitted from cattle mainly via milk products that

are unpasteurised. TB has been eradicated from many countries by testing for the

disease and culling suspected animals.

Brucellosis is a bacterial disease transmitted to humans by dairy products and direct

animal contact. Brucellosis has been eradicated from certain countries by testing for

the disease and culling suspected animals

Listeria is a bacterial disease associated with unpasteurised milk, and can affect

some cheeses made in traditional ways. Careful observance of the traditional

cheesemaking methods achieves reasonable protection for the consumer.

Johne's Disease (pronounced "yo-knees") is a contagious, chronic and sometimes

fatal infection in ruminants caused by a bacterium named Mycobacterium avium

subspecies paratuberculosis (M. paratuberculosis). The bacteria are present in retail

milk, and are believed by some researchers to be the primary cause of Crohn's

disease in humans. This disease is not known to infect animals in Australia and New

Zealand.

21

1.3COMPANY PROFILE

1.3.1 MANAGEMENT

1.3.1.1 BOARD OF DIRECTORS

The company is managed by the Managing Director, Joint Managing Director and

Executive Director - Operations subject to the superintendence, control and direction of the

board of directors.

The board of Directors of the company have an optimum combination of executive,

Non-Executive and independent directors, which compels with clause 49 of the listing

requirements as well. The entire board of the company is involved in selection, Orientation

and succession of directors.

1.3.1.2 EXECUTIVE DIRECTORS

Shri R.G.Chandramogan Chairman & Managing Director

Shri R.G.Chandramogan is the promoter of the company. He is the chairman and

managing director of the company. He has initially started icecream business in early 1970s

and later ventured into milk and milk related products. In the year 1986 he formed the

business into a private limited company, which was later converted into a public limited

company.

Shri K.S.Thanarajan Joint Managing Director

Shri K.S.Thanarajan is a post-graduate in economics and is in-charge of day-by-day

operations of the dairy division of the company. Shri Thanarajan has had more than 30

years of experience.

22

Shri C.Sathyan Executive Director-Operations

Shri C.Sathyan, a Company Executive, is a Bachelor of Business Management with

specialization in Marketing. He has held various executive positions during his career

spanning over 10 years.

1.3.1.3 NON - EXECUTIVE DIRECTORS

Shri P. Vaidyanathan

Shri P.Vaidyanathan is a fellow member of The Institute of Chartered Accountants

of India and associate member of The Institute of Company Secretaries of India and The

Institute of Cost and Works Accountants of India. Shri Vaidyanathan is the Chairman of

M/s Integrated Enterprises (India) Limited. He is also on the Board of reputed companies

viz., City Union Bank Limited, Economist Communications Limited and Templeton Asset

Management Pvt. Limited. Shri Vaidyanathan has had more than 32 years of experience in

the Finance functions.

Shri Kirti P Shah

Shri Kirti P Shah, an Industrialist, is an Engineering Graduate. Shri Shah is a Non-

Resident Indian. At present he is the President of M/s Custom Magnetics Inc., U.S.A. Shri

Shah has had more than 40 years of experience in the field of Engineering.

Shri S. Thiagarajan

Shri. S.Thiagarajan is a post graduate in Economics and a Certified Associate of the

Indian Institute of Bankers. He has over four decades of experience in the financial services

sector and has held various senior positions in Reserve Bank of India, Industrial

Development Bank of India and Small Industrial Development Bank of India.

23

Shri B. S. Mani

Shri. B.S.Mani is a post graduate in Literature and has a Diploma in Journalism

from Cardiff England. He has over 4 decades of experience in the Journalism. He is the

Chairman of Karnataka News Publications Private Limited, which publishes a Tamil Daily

outside Tamilnadu.

Shri N Chandrasekaran

Shri N.Chandrasekaran is a Mechanical Engineering Graduate with about 38 years

experience. He has held various executive positions during his career. He is the Managing

Director of M/s Fichtner Consulting Engineers (India) Pvt. Ltd. and M/s Fortune Valley

Agro Forms Pvt. Ltd. He is also on the Board of reputed companies viz., M/s EPT

Engineering Services Pvt. Ltd. and M/s Enmas Process Technologies Pvt. Ltd.

24

1.3.2 INFRASTRUCTURE

1.3.2.1 MILK PROCUREMENT

The Company has an excellent milk collection system with chilling centers in more

than 36 locations and a fleet of more than 1348 vehicles on contract for procurement.

FIGUR 1.3.2.1 MILK PROCUREMENT

Its milk shed area is spread over 10

districts in Tamilnadu and 3 in Karnataka and

covers over 52,000 milk producers and 2000

medium and bulk milk vendors.

The Company is also involved in dairy

extension services to farmers for the development

of livestock quality and yields.

Besides this the company also has tie up with banks for arranging agricultural loans

to milk producers.

More than 110 veterinary doctors under direct employment rendering full-scale

animal care to the milk producers.

1.3.2.2 PROCESSING PLANTS

FIGUR 1.3.2.2 PROCESSING PLANT

Hatsun's state of the art processing and

packaging plants are located in Salem, Kancheepuram,

Madurai, Palacodu in TamilNadu and Honnali, Belgaum

in Karnataka. After procurement, milk vans then take

the procured milk to these plants where the milk has to

25

undergo a quality test again to enter the plant. Then the weight is checked. After that, using

superior technologies milk is subjected to pasteurisation, homogenisation, and bacteria

clarification.

Hatsun is a pioneer in India of the world-acclaimed homogenisation processes

where the fat globules are broken and evenly distributed in the milk making it rich and

wholesome. An unyielding commitment to quality has formed the backbone of Hatsun's

business ethics right from its start. At every stage, intensive procedures to preserve quality

are undertaken to ensure the purity of the milk. The entire Hatsun staff work in harmony as

one family in enforcing the tough standards that Hatsun set for itself as basic guidelines.

Each milk packet packaged-using German technology-reaches the consumer with this

assurance: The Hatsun Quality.

1.3.2.3 DISTRIBUTION

FIGUR 1.3.2.3 DISTRIBUTION VEHICLE

Everyday Hatsun's fleet of puff-insulated

trucks travel 3.9 times the distance around the

world, i.e. 1,82,730 km taking milk for

consumption by homes across the states of

Tamilnadu, Karnataka, Goa and Kerala. Hatsun

takes pride in having its large cold-chain network

in India ensuring that each and every one of its consumers gets fresh milk day after day.

1.3.2.4 LOGISTICS

The company has a strong logistics and distribution network in icecream and milk.

Around 1100 exclusive Arun Icecreams parlours spread over the entire Tamilnadu and

parts of Andhra Pradesh and Karnataka.

The company has six cold room distribution points, strategically located for quick and easy

distribution of its products.

In the milk segment, the Company's distribution network comprises of 150

wholesale distributors and above 10,000 dealers for Arokya and around 850 direct selling

agents for Hatsun Komatha milk.

26

More than 1348 vehicles handling distribution, and each covering a distance of 200

to 250 km every day.

The total distance travelled by company vehicles in procurement, marketing and

other administrative activities per day comes close to 1, 82, 730 km, which is equivalent to

going around the world 3.9 times a day.

1.3.3 RECOGNITION

Hatsun's dairies are ISO 9001:2000and HACCP (Hazard Analysis Critical Control Point)

certified. The Salem plant has received ISO 14001and been certified eco-friendly. The

quality assurance of Hatsun ensures that stringent quality standards and norms of American

Dairy Products Institute (ADPI) are fully met. The success of Arun Icecreams has been

taken as a case study by the Indian Institute of Management, Ahmedabad, India's leading

business school.

1.3.4 OUR NETWORK

The company has achieved excellence in establishing an extremely efficient supply chain

management, better logistics and widespread distribution network spearheaded by

exclusive franchisee outlets. All the brands of the company enjoy very strong brand equity

and despite being in a price sensitive market, its brands command a premium.

ARUN Icecream is sold through exclusive franchisee outlets and is occupying the top slot

in Tamilnadu and figures within the top three in the south India. With the commissioning of

plant in Belgaum, the company has entered into the Goa, Pune and southern districts of

Maharashtra markets. The company has also entered into International markets during the

financial year (2004-05). The company has implemented an arrangement, whereby Arun

icecream is now available in Seychelles. Arun Icecream is also being exported to Brunei.

1.3.5 CORPORATE MILESTONES

Arun Icecream Launch.

1970

M/s. R.G. Chandramogan & Co. set up.

27

1986

March- M/s. Hatsun Foods (HFPL) incorporated as a private limited company. The same

year HFPL was admitted as a partner in M/s. R.G. Chandramogan & Co.

1986

April HFPL takes over M/s. R.G. Chandramogan & Co. HFPL was allowed to register the

brand name 'Arun' in its own name subject to a royalty payment of 1% on the gross

icecream sales.

1991

MPD Factory (Atlantic) - Salem Inauguration.

1993

Hatsun Dairy Private Limited (HDPL), promoted by M/s. Hatsun Foods

Private Limited, established.

Salem Dairy - Inauguration.

1995

M/s. Hatsun Foods goes public. Changes name to Hatsun Agro Product Limited. Icecream

Factory - Red Hills - Inauguration.

1998

Hatsun Milk Product Limited (formerly known as HFPL amalgamated with Hatsun Agro

Product Limited.

2000

Belgaum Dairy - Inauguration.

Kanchipuram Dairy Acquisition.

2004

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Dairy Ingredient Plant - Inauguration (Salem & Kanchipuram)

1.3.6 FINANCIAL RESULTS

The company's sales have grown from a level of INR 190.9 million (approx. USD 4

million) in 1997 to INR 8694 million (approx. US$ 183 million) in 2008. The company's

PBDITA has increased from INR 25.14 million (approx. US$ 0.53 million) in 1997 to INR

614 million (approx US$ 12.92 million) in 2008.

The equity base with reserves stand at Rs.481 million (approx US$ 10.12 million)

and gross asset base of more than Rs.2332 million (approx US$ 49.09 million).

1.3.7 SHARE CAPITAL

The Company made its maiden public issue of 18,00,000 equity shares of Rs.10/- at

a premium of Rs.35/- per share. The issue was well subscribed. The present listed and paid-

up Equity Share Capital of the company is Rs.6.79 Crore with a shareholder base of 3,772

as of 30th September, 2008.

1.3.8 LIST OF SHARES

The Company's Equity Shares are listed on Bombay Stock Exchange Limited and

the shares are regularly traded.

1.3.9 PROCURING WITH CARE

The company procures around 1.65 million litre of liquid milk per day by directly

collecting it from farmers spread over 4500 villages in south India. Hatsun has its own

infrastructure of milk collection centre & chilling centre for procuring & handling of raw

milk.

Over 350 field's staffs are employed to ensure timely collection, testing of milk at

the point of collection, weekly payment; cattle feed sales, encouraging farmers to grow

their herd size, bank loans, animal insurance, training farmers on a better animal

management and clean milking.

29

Over 100 veterinary doctors and 160 inseminators under direct employment, assist

in artificial insemination, feed management, breed management, vaccination program and

render full scale animal health care.

1.3.10 HIGHLY SOPHISTICATED PROCESSING FACILITIES

With high-tech processing plants operating at 7 locations, Hatsun ensures rigors

testing of milk before processing.

Intensive procedures to ensure the purity of milk with handling capacity of

1.7million litre of milk per day, proves Hatsun's unyielding commitment to quality. The

facilities comprise of highly advanced technology from westfalia called Bactofuge which

bacteria clarifies the milk resulting in a high quality end product.

There are state-of-the-art laboratories (chemical & microbiological) for process

control, product quality control and product development. Validations of critical parameters

are also done at our fully quipped central lab located at Chennai. These ISO 22000:2005;

9001:2000, 14001:2004 and HACCP certified manufacturing facilities have been regularly

upgraded to meet the requirement & standards of various large multinational companies.

1.3.10 MILK PROCESS

FIGUR 1.3.10 MILK PROCESS

Hatsun operates state of the art processing

plants at 6 locations. Rigorous milk testing is done

at each of these locations. The raw milk when

received is bacteria clarified by use of west Falia

Bactofuge. The milk is then sent either for fresh

product processing or for manufacturing of dairy

ingredients.

An unyielding commitment to quality has formed the backbone of Hatsun's business

ethics right from its start. Intensive procedures to pressure the quality are undertaken to

ensure the purity.

30

Handling capacity of 1.7 million litre of milk per day, including Fresh milk and

Dairy ingredients.

ISO 22000:2005, ISO 14001:2004 and ISO 9001:2000 certified manufacturing

facilities that have been extensively upgraded in the last three years.

Only company in India using Bactofuge Technology (from West Falia-Germany) to

clarify liquid milk.

State-of-the-art laboratory for process control, product quality control including

Micro Biological lab and product development.Capable of being scaled up for higher

volumes and enhanced product range.

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1.4 PRODUCT PROFILE

1.4.1 ARUN ICECREAM

FIGUR 1.4.1 ARUN ICECREAM

Arun: An insight Arun Icecreams believes in the motto "Customer is the King".

Arun Icecreams, a feather in the cap of Hatsun is a brand leader in the icecream market.

Today, Arun is the largest selling icecream brand in south India. It sells its icecreams

through exclusive parlours spread all over Tamilnadu, and parts of Karnataka, Kerala and

Andhra Pradesh. With over 70 unforgettable varieties, Arun continues to delight millions of

customers.

Arun Icecreams success was due to the below said reasons

Pure Milk based Icecreams with rich and creamy taste.

Range of flavours and varieties

Innovative product concepts

Packaging at par with International standards

32

Arun: First to Take the Parlour Route

Arun introduced the concept of exclusive franchise parlours selling only Arun

Icecreams. This is admittedly one of the major reasons for Arun Icecreams' strong

performance over the years. By reaching out to towns with a population of 30,000 and in

some cases even smaller towns, Arun has boldly taken a path that is less traveled. Arun

Icecreams continue to come up with new varieties and flavours which should help it

maintain its strong performance and brand image.

Arun: Parlour Standardisation

Arun has now brought about standardisation of its parlours. This will help maintain

the unique identity of the parlours. This, in turn, enhances uniformity in the image of the

brand among the consumers leading to utmost satisfaction.

Arun Icecreams parlours have been hugely successful. The reasons for this are explained

briefly:

Ideal and convenient location

Well-decorated parlours where cleanliness given top priority

Convenient working hours (10 A.M to 10 P.M.)

Regular maintenance of freezer to keep them functioning at optimum levels

Courteous and unmatched service

Knowledge of product/variety among the staff

Ability to understand customers' needs so as to satisfactorily cater to their tastes

33

1.4.1.1 ICE CREAM MANUFACTURING PROCEDURE

FIGUR 1.4.1.1 ICE CREAM MANUFACTURING PROCEDURE

The basic steps in the manufacturing of ice cream are generally as follows:

Blending of the mix ingredients

Pasteurization

Homogenization

Aging the mix

Freezing

Packaging

Hardening

Process flow diagram for ice cream manufacture: the red section (Blending of mix

ingredients, Pasteurization) represents the operations involving raw, unpasteurized mix, the

34

pale blue section (Homogenization, Cooling, Aging) represents the operations involving

pasteurized mix, and the dark blue section (Continuous Freezing, Batch freezing,

Packaging, Hardening, Storage/Distribution) represents the operations involving frozen ice

cream.

1.4.1.2 BLENDING

First the ingredients are selected based on the desired formulation and the

calculation of the recipe from the formulation and the ingredients chosen, then the

ingredients are weighed and blended together to produce what is known as the "ice cream

mix". Blending requires rapid agitation to incorporate powders, and often high speed

blenders are used.

1.4.1.3 PASTEURIZATION

The mix is then pasteurized. Pasteurization is the biological control point in the

system, designed for the destruction of pathogenic bacteria. In addition to this very

important function, pasteurization also reduces the number of spoilage organisms such as

psychrotrophs, and helps to hydrate some of the components (proteins, stabilizers).

Pasteurization (Ontario regulations): 69° C/30 min. 80° C/25s

Both batch pasteurizers and continuous (HTST) methods are used.

Batch pasteurizers lead to more whey protein denaturation, which some people feel

gives a better body to the ice cream. In a batch pasteurization system, blending of the

proper ingredient amounts is done in large jacketed vats equipped with some means of

heating, usually steam or hot water. The product is then heated in the vat to at least 69 C

(155 F) and held for 30 minutes to satisfy legal requirements for pasteurization, necessary

for the destruction of pathogenic bacteria. Various time temperature combinations can be

used. The heat treatment must be severe enough to ensure destruction of pathogens and to

reduce the bacterial count to a maximum of 100,000 per gram. Following pasteurization,

the mix is homogenized by means of high pressures and then is passed across some type of

heat exchanger (plate or double or triple tube) for the purpose of cooling the mix to

35

refrigerated temperatures (4 C). Batch tanks are usually operated in tandem so that one is

holding while the other is being prepared. Automatic timers and valves ensure the proper

holding time has been met.

Continuous pasteurization is usually performed in a high temperature short time

(HTST) heat exchanger following blending of ingredients in a large, insulated feed tank.

Some preheating, to 30 to 40 C, is necessary for solubilization of the components. The

HTST system is equipped with a heating section, a cooling section, and a regeneration

section. Cooling sections of ice cream mix HTST presses are usually larger than milk

HTST presses. Due to the preheating of the mix, regeneration is lost and mix entering the

cooling section is still quite warm.

1.4.1.4 HOMOGENIZATION

The mix is also homogenized which forms the fat emulsion by breaking down or

reducing the size of the fat globules found in milk or cream to less than 1 µ m. Two stage

homogenization is usually preferred for ice cream mix. Clumping or clustering of the fat is

reduced thereby producing a thinner, more rapidly whipped mix. Melt-down is also

improved. Homogenization provides the following functions in ice cream manufacture:

Reduces size of fat globules

Increases surface area

Forms membrane

Makes possible the use of butter, frozen cream, etc.

By helping to form the fat structure, it also has the following indirect effects:

Makes a smoother ice cream

Gives a greater apparent richness and palatability

Better air stability

Increases resistance to melting

Homogenization of the mix should take place at the pasteurizing temperature. The high

temperature produces more efficient breaking up of the fat globules at any given pressure

36

and also reduces fat clumping and the tendency to thick, heavy bodied mixes. No one

pressure can be recommended that will give satisfactory results under all conditions. The

higher the fat and total solids in the mix, the lower the pressure should be. If a two stage

homogenizer is used, a pressure of 2000 - 2500 psi on the first stage and 500 - 1000 psi on

the second stage should be satisfactory under most conditions. Two stage homogenization

is usually preferred for ice cream mix. Clumping or clustering of the fat is reduced thereby

producing a thinner, more rapidly whipped mix. Melt-down is also improved.

1.4.1.5 AGEING

The mix is then aged for at least four hours and usually overnight. This allows time for

the fat to cool down and crystallize, and for the proteins and polysaccharides to fully

hydrate. Aging provides the following functions:

Improves whipping qualities of mix and body and texture of ice cream

It does so by:

providing time for fat crystallization, so the fat can partially coalesce;

allowing time for full protein and stabilizer hydration and a resulting slight viscosity

increase;

allowing time for membrane rearrangement and protein/emulsifier interaction, as

emulsifiers displace proteins from the fat globule surface, which allows for a

reduction in stabilization of the fat globules and enhanced partial coalescence.

Aging is performed in insulated or refrigerated storage tanks, silos, etc. Mix

temperature should be maintained as low as possible without freezing, at or below 5 C. An

aging time of overnight is likely to give best results under average plant conditions. A

"green" or unaged mix is usually quickly detected at the freezer.

1.4.1.6 FREEZING AND HARDENING

Following mix processing, the mix is drawn into a flavour tank where any liquid

flavours, fruit purees, or colours are added. The mix then enters the dynamic freezing

process which both freezes a portion of the water and whips air into the frozen mix. The

37

"barrel" freezer is a scraped-surface, tubular heat exchanger, which is jacketed with a

boiling refrigerant such as ammonia or freon. Mix is pumped through this freezer and is

drawn off the other end in a matter of 30 seconds, (or 10 to 15 minutes in the case of batch

freezers) with about 50% of its water frozen. There are rotating blades inside the barrel that

keep the ice scraped off the surface of the freezer and also dashers inside the machine

which help to whip the mix and incorporate air.

Ice cream contains a considerable quantity of air, up to half of its volume. This

gives the product its characteristic lightness. Without air, ice cream would be similar to a

frozen ice cube. The air content is termed its overrun, which can be calculated

mathematically.

As the ice cream is drawn with about half of its water frozen, particulate matter

such as fruits, nuts, candy, cookies, or whatever you like, is added to the semi-frozen slurry

which has a consistency similar to soft-serve ice cream. In fact, almost the only thing which

differentiates hard frozen ice cream from soft-serve, is the fact that soft serve is drawn into

cones at this point in the process rather than into packages for subsequent hardening.

1.4.1.7 HARDENING

After the particulates have been added, the ice cream is packaged and is placed into

a blast freezer at -30° to -40° C where most of the remainder of the water is frozen. Below

about -25° C, ice cream is stable for indefinite periods without danger of ice crystal growth;

however, above this temperature, ice crystal growth is possible and the rate of crystal

growth is dependant upon the temperature of storage. This limits the shelf life of the ice

cream.

A primer on the theoretical aspects of freezing will help you to fully understand the

freezing and recrystallization process.

Hardening invloves static (still, quiescent) freezing of the packaged products in

blast freezers. Freezing rate must still be rapid, so freezing techniques involve low

38

temperature (-40oC) with either enhanced convection (freezing tunnels with forced air fans)

or enhanced conduction (plate freezers).

The rate of heat transfer in a frezing porcess is affected by the temperature difference,

the surface area exposed and the heat transfer coefficient (Q=U A dT). Thus, the factors

affecting hardening are those affecting this rate of heat transfer:

Temperature of blast freezer - the colder the temperature, the faster the hardening,

the smoother the product.

Rapid circulation of air - increases convective heat transfer.

Temperature of ice cream when placed in the hardening freezer - the colder the ice

cream at draw, the faster the hardening; - must get through packaging operations

fast.

Size of container - exposure of maximum surface area to cold air, especially

important to consider shrink wrapped bundles - they become a much larger mass to

freeze. Bundling should be done after hardening.

Composition of ice cream - related to freezing point depression and the temperature

required to ensure a significantly high ice phase volume.

Method of stacking containers or bundles to allow air circulation. Circulation

should not be impeded - there should be no 'dead air' spaces (e.g., round vs. square

packages).

Care of evaporator - freedom from frost - acts as insulator.

Package type, should not impede heat transfer - e.g., styrofoam liner or corrugated

cardboard may protect against heat shock after hardening, but reduces heat transfer

during freezing so not feasible.

Ice cream from the dynamic freezing process (continuous freezer) can also be

transformed into an array of novely/impulse products through a variety of filling and

forming machines, which have ben identified on a separate page.

1.4.2 ARUN ICECREAM UNLIMITED

And now Arun introduces the whole new concept in icecream retailing in south

India, the Unlimited concept.

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Arun unlimited offers the customer a wide range of flavours with unlimited options

of creating ones own sundaes. The customer is given the option to choose his own choice of

icecream and toppings or sauces to go with it. In addition to allowing customers to create

their own combinations, The Arun unlimited has a sundae menu of proprietary and

innovative creations ready for customers to enjoy. We even offer take away icecreams.

The parlours are decorated to offer a vibrant,fun and friendly experience.

Currently operational at Chennai's leading shopping mall - Spencer plaza and also

stand alone parlours at Annanagar, R.K.Salai , Besant nagar, Egmore etc

Arun Unlimited also operates inside the most renowned IT parks like Chennai one and IT

giants like Accenture.

Arun unlimited is very much on its way marching ahead to become the leading

icecream Retail chain in south India in years to come.

1.4.3  AROKYA MILK OVERVIEW

FIGUR 1.4.3 AROKYA MILK

Arokya - Milk that suits children & adults alike !!!

Arokya has more nutrition and butterfat. Growing children can consume Arokya

because it's wholesome and nourishing. It fortifies the bones with calcium, proteins and

minerals. In case of adults, Arokya can be diluted with water & used.

40

Arokya is a healthy and ready nourishment for growing children. Fortified with

4.5% butterfat, Arokya helps in the growth of vital strengths of a child - both physical and

mental. It contains adequate quantities of calcium and phospholipids for development of the

bones and brain respectively.

Unlike toned milk where butterfat is removed to make it only 3%, Arokya has 4.5%

butterfat. Hence the catchy slogan attached to it: Nothing added. Nothing removed.

Nobody underscores the need for healthy foods more than the World Health

Organisation (WHO). In fact, World Children's Fund (WCF)-a body recognized by WHO-

believes that milk with 4.5% butterfat is best for growing children.

It is very critical to give every child the right kind of food and nutrients, and to give

the child just when he needs them the most. If you are looking to make your child skilled,

agile and admired, switch to Arokya. And watch your child excel.

1.4.4 MILK PRODUCTS   /   HATSUN COOKING BUTTER

FIGUR 1.4.4 HATSUN COOKING BUTTER

Hatsun's all-natural high-quality Cooking Butter has something that makes it stand

out from the crowd - it has dollops of 'zeal' in it. Hatsun Pasteurised Cooking Butter is

made from the choicest of creams, churned from pure farm fresh milk. It is then processed

in a high-tech dairy plant where hygiene and quality are given utmost importance. This

ensures that sweets, savouries and cakes have a great taste and aroma.

41

1.4.5 HATSUN COW GHEE

FIGUR 1.4.5 COW GHEE

At Hatsun, we decided that Hatsun

would be different from other branded ghees

that jostle for your attention. So, what makes

Hatsun Ghee different? The nutty taste of

Hatsun Ghee - a special grade ghee, is perfect

for Indian cuisine in general and sweet making

in particular. Being made only from cow milk,

all the freshness and uniqueness associated

with cow milk can be found in Hatsun Ghee. It

has the distinct property of carrying and

enhancing the flavour of practically any dish

that one briefly fries in Hatsun Ghee. Hatsun

Ghee comes with the 'Agmark' seal of quality.

1.4.7 HATSUN CURD

FIGUR 1.4.7 HATSUN CURD

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Hatsun Curd is a semi-solid fermented milk

product, with excellent consistency. It has a very low

bacteria count making it extremely healthy in nature

and delightfully tasty in character.

1.4.7 HATSUN PANEER

FIGUR 1.4.7 HATSUN PANEER

Made from farm-fresh milk.

Higher milk solids make it more tasty and helps in retaining texture & shape.

1.4.8 THE LARGEST DAIRY IN THE LAND OF MILK

India, the largest producer of milk in the world produces over 97 million annually.

For the past 4 years India has been a consistent exporter of Fairy Ingredients to the world.

The average growth rate of milk production in India is 4%. The Northern &

Western part of India is a major producer of Buffalo milk and the South of India produces

cow's milk.

Hatsun, based in South India is the largest private sector dairy company in India and

hence has a distinct advantage of dealing in cow's milk.

43

Hatsun Agro Product Limited is a public limited company that was founded by Mr.

R.G.Chandramogan, who is also the present Chairman & Managing Director.

In 1970, Hatsun began with the pioneering effort of producing Arun icecream,

which stil continues to be the most popular icecream brand in South india.

Hatsun started marketing fresh milk in pouches from 1993 and manufacturing dairy

ingredients from 2003.

Today, Hatsun is a USD 185 million company, listed in the Mumbai Stock Exchange.

1.4.9 DAIRY INGREDIENTS PRODUCTS OVERVIEW

Quality that's perfect for the World

Hatsun's Range of Dairy Ingredients is made directly from Liquid Milk and contains

all the premium qualities and Nutritional benefits of Fresh COW'S MILK.

Hatsun's Procurement team ensures timely collection, testing of milk at the point of

collection, cattle feed sales, encouraging farmers to grow their herd size, training farmers

on a better animal management and clean milking. Over 110 veterinary doctors under direct

employment assist in artificial insemination, feed management, breed management,

vaccination program and also render full-scale animal care.

Hatsun's Dairy Ingredients are processed at the state-of-the-art processing

technology run by people with strong technological capabilities. These, together with an

innovative and flexible approach, enable us to manufacture a range of high quality

products.

Hatsun has an annual production of 20,000 MT of Milk Powders and 11,000 MT of milk

Fat at present.

1.4.10 QUALITY

Preamble: We at "Hatsun" from management to down the line i.e. land/floor are

conscious and continue to strive hard to achieve high level of pledge in obtaining pure milk

and safe products. Scruple sly & sincerely IS standard of analysis are followed "before -

during - after"; at procurement point, collection bank point, raw fresh milk reception point,

44

Chilled milk point, market milk point, dairy ingredients point, dairy by-products point.

Particularly physical, chemistry, microbiology, residue monitoring are applied at all

necessary point in order to comply & to provide comfortable milk & milk products. This

applies from cow to commercial.

COW TO COMMERCIAL ANALYSIS SUBJECTIVE STRATEGY:

At Fresh milk collection centre i.e. Hatsun Milk bank (HMB) First stage analysis):-

Fresh Milk is procured and poured at our dedicated (major) fresh milk collection centre i.e.

Hatsun Milk Bank (HMB).

1.4.11 PHYSICAL EVALUATION:

Organ optic evaluation i.e. sensory evaluation is carried out by our trained HMB

personal

Milk is measured i.e. computerized.

Cleanliness of milk cans.

1.4.12 CHEMICAL ANALYSIS:

Gerber method applied to find out fat percentage

Lactometer method is applied to find out Solid non fat

At Chilling centre raw fresh milk reception dock (Second tire analysis): -

1.4.13 PHYSICAL EVALUATION:

Organ optic evaluation i.e. sensory evaluation is carried out by our trained HMB

personal

Milk is measured i.e. computerized.

Cleanliness of milk cans.

1.4.14 CHEMICAL ANALYSIS:

Gerber method applied to find out fat percentage

Lactometer method is applied to find out Solid non fat

Adulteration test are carried out.

45

MBRT is conducted.

COB is conducted.

At Dairy chilled fresh milk reception dock (Third tire analysis): -

1.4.15 PHYSICAL EVALUATION:

Sensory evaluation is carried out by our trained HMB personal

Milk is measured i.e. computerized.

Cleanliness of milk cans.

1.4.16 CHEMICAL OF MILK:

Gerber method applied to find out fat percentage

Lactometer method is applied to find out Solid non fat

Adulteration test are carried out.

COB is conducted.

Acidity test

1.4.17 MICROBIOLOGY OF MILK:

MBRT of milk

Antibiotic residue test

CAP residue test

Standard plat count enumeration

Coli form enumeration

1.4.18 DURING AND AFTER PROCESS OF MARKET MILK:

Homogenization efficiency

The entire test stated above to confirm its declaration on the package.

1.4.19 DURING AND AFTER PROCESS OF DAIRY INGREDIENTS:

46

Entire IS standard of analysis and enumerations (Chemistry, microbiology, residue

monitoring both quantitative and qualitative) are carried out scrupulously with out any

deviations.

Shelf-life studies are in place.

Third party analyses are in place.

Third party frequent audit are in place.

Constant monitoring, feed-back and collection of various datas have played and playing a

major roll in our assurance of safe products to our royal - real ultimate customers.

1.4.20 CLIENTELE

We have prestigious customers who are very satisfied with our consistent quality and

services spread across 40 countries around the world.

1.4.21 INDIAN DAIRY INDUSTRY

Dairy is a place where handling of milk and milk products is done and technology

refers to the application of scientific knowledge for practical purposes. Dairy technology

has been defined as that branch of dairy science, which deals with the processing of milk

and the manufacture of milk products on an industrial scale.

In developed dairying countries such as the U.S.A., the year 1850 is seen as the

dividing line between farm and factory-scale production. Various factors contributed to this

change in these countries, viz. concentration of population in cities where jobs were

plentiful, rapid industrialization, improvement of transportation facilities, development of

machines, etc. whereas the rural areas were identified for milk production, the urban

centres were selected for the location of milk processing plants and product manufacturing

factories. These plants and factories were rapidly expanded and modernized with improved

machinery and equipment to secure the various advantages of large-scale production.

Nearly all the milk in the U.S.A. before 1900 was delivered as raw (natural) milk. Once

pasteurization was introduced, it developed rapidly. Mechanical refrigeration helped in the

rapid development of the factory system of market milk distribution.

47

In India, dairying has been practised as a rural cottage industry since the remote

past. Semi-commercial dairying started with the establishment of military dairy farms and

co-operative milk unions throughout the country towards the end of the nineteenth century.

During the earlier years, each household in those countries maintained its ‘family

cow’ or secured milk from its neighbour who supplied those living close by. As the urban

population increased, fewer households could keep a cow for private use. The high cost of

milk production, problems of sanitation etc., restricted the practice; and gradually the

family cow in the city was eliminated and city cattle were all sent back to the rural areas.

Gradually farmers within easy driving distance began delivering milk over regular

routes in the cities. This was the beginning of the fluid milk-sheds which surround the large

cities of today. Prior to the 1850s most milk was necessarily produced within a short

distance of the place of consumption because of lack of suitable means of transportation

and refrigeration.

The Indian Dairy Industry has made rapid progress since Independence. A large

number of modern milk plants and product factories have since been established. These

organized dairies have been successfully engaged in the routine commercial production of

pasteurized bottled milk and various Western and Indian dairy products. With modern

knowledge of the protection of milk during transportation, it became possible to locate

dairies where land was less expensive and crops could be grown more economically.

In India, the market milk technology may be considered to have commenced in

1950, with the functioning of the Central Dairy of Aarey Milk Colony, and milk product

technology in 1956 with the establishment of AMUL Dairy, Anand. The industry is still in

its infancy and barely 10% of our total milk production under goes organized handling.

1.4.22 HISTORY OF INDIAN MARKET MILK INDUSTRY

Beginning in organized milk handling was made in India with the establishment of Military

Dairy Farms.

48

Handling of milk in Co-operative Milk Unions established all over the country on a

small scale in the early stages.

Long distance refrigerated rail-transport of milk from Anand to Bombay since 1945

Pasteurization and bottling of milk on a large scale for organized distribution was

started at Aarey (1950), Calcutta (Haringhata, 1959), Delhi (1959), Worli (1961),

Madras (1963) etc.

Establishment of Milk Plants under the Five-Year Plans for Dairy Development all

over India. These were taken up with the dual object of increasing the national level

of milk consumption and ensuing better returns to the primary milk producer. Their

main aim was to produce more, better and cheaper milk.

1.5 OBJECTIVES OF THE STUDY

1.5.1 PRIMARY OBJECTIVE:

To analyze the Cost Volume Profit and its impact at HATSUN AGRO PRODUCT

LTD with reference to ARUN ICE CREAM.

1.5.2 SECONDARY OBJECTIVES:

To identify the effect of breakeven point for Arun ice cream and ascertain which

product is as advantages.

To analyze the level of sales needed to achieve a desired target profit.

To identify margin of safety and its significance.

To measure the degree of leverages of Hatsun Agro Product Ltd.

To analyze the trend with regard to income, expenditure and profits.

49

1.6 SCOPE OF THE STUDY

This study is performed by using the Trading Account and Annual Report of

HUTSUN AGRO PRODUCT LTD. The analysis done in the cost sheet are Breakeven

analysis, profit volume, etc., these calculation cover the major areas like contribution

margin, profit. This would be useful for company to make new strategy to compete in the

market by adopting various controlling techniques in the process of manufacturing.

This study was conducted only on overall cost volume profit analysis and not on

each and every variables. This study helps to forecast profit fairly and accurately as it is

essential to know the relationship between profits and costs.

This study assists in evaluation of performance for the purpose of control and also

assists in formulating policies by showing the effect of different price structure on costs and

profits.

50

This study predetermines the overhead rates that are related to a selected volume of

production.

1.7 LIMITATIONS

51

2. LITERATURE REVIEW

Cost volume profit analysis is one of the most hallowed, and yet one of the simplest,

analytical tool in management accounting. In a general sense, it provides a sweeping

financial overview of the planning process (Horngren Al., 1994).

That overview allows managers to examine the possible impacts of a wide range of

strategic decisions. These decisions can include such crucial areas as pricing policies,

product mixes, market expansion or contractions, outsourcing contracts, idle plant usage,

discretionary expenses planning and a variety of other important considerations in the

planning process. Given the board range of context in which cost volume profit can be

used.

The basic simplicity of cost volume profit is quite remarkable. Armed with just

three inputs of data – Sales price, variable cost per unit, and fixed cost – a managerial

analyst can evaluate the effect of decision that potentially alter the basic nature of a firm.

Cost-volume-profit analysis (CVP), or break-even analysis, is used to compute the

volume level at which total revenues are equal to total costs. When total costs and total

52

revenues are equal, the business organization is said to be "breaking even." The analysis is

based on a set of linear equations for a straight line and the separation of variable and fixed

costs.

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, for example, to the number of welfare cases processed.

There are a number of costs that vary or change, but if the variation is not due to

volume changes, it is not considered to be a variable cost. Examples of variable costs are

direct materials and direct labor. Total fixed costs do not vary as volume levels change

within the relevant range. Examples of fixed costs are straight-line depreciation and annual

insurance charges. Total variable costs can be viewed as a 45 line and total fixed costs as a

straight line. In the break-even chart shown in Figure 1, the upward slope of line DFC

represents the change in variable costs. Variable costs sit on top of fixed costs, line DE.

Point F represents the breakeven point. This is where the total cost (costs below the line

DFC) crosses and is equal to total revenues (line AFB).

All the lines in the chart are straight lines: Linearity is an underlying assumption of

CVP analysis. Although no one can be certain that costs are linear over the entire range of

output or production, this is an assumption of CVP. To help alleviate the limitations of this

assumption, it is also assumed that the linear relationships hold only within the relevant

range of production. The relevant range is represented by the high and low output points

that have been previously reached with past production. CVP analysis is best viewed within

the relevant range, that is, within our previous actual experience. Outside of that range,

costs may vary in a nonlinear manner. The straight-line equation for total cost is:

Total cost = total fixed cost + total variable cost

Total variable cost is calculated by multiplying the cost of a unit, which remains

constant on a per-unit basis, by the number of units produced. Therefore the total cost

equation could be expanded as:

53

Total cost = total fixed cost + (variable cost per unit number of units)

Total fixed costs do not change.

A final version of the equation is:

Y = a + bx

where a is the fixed cost, b is the variable cost per unit, x is the level of activity, and Y is the

total cost. Assume that the fixed costs are $5,000, the volume of units produced is 1,000,

and the per-unit variable cost is $2. In that case the total cost would be computed as

follows:

Y = $5,000 + ($2 1,000) Y = $7,000

It can be seen that it is important to separate variable and fixed costs. Another

reason it is important to separate these costs is because variable costs are used to determine

the contribution margin, and the contribution margin is used to determine the break-even

point. The contribution margin is the difference between the per-unit variable cost and the

selling price per unit. For example, if the per-unit variable cost is $15 and selling price per

unit is $20, then the contribution margin is equal to $5. The contribution margin may

provide a $5 contribution toward the reduction of fixed costs or a $5 contribution to profits.

If the business is operating at a volume above the break-even point volume (above point F),

then the $5 is a contribution (on a per-unit basis) to additional profits. If the business is

operating at a volume below the break-even point (below point F), then the $5 provides for

a reduction in fixed costs and continues to do so until the break-even point is passed.

Once the contribution margin is determined, it can be used to calculate the break-

even point in volume of units or in total sales dollars. When a per-unit contribution margin

occurs below a firm's break-even point, it is a contribution to the reduction of fixed costs.

Therefore, it is logical to divide fixed costs by the contribution margin to determine how

many units must be produced to reach the break-even point: Assume that the contribution

margin is the same as in the previous example, $5. In this example, assume that the total

54

fixed costs are in creased to $8,000. Using the equation, we determine that the break-even

point in units:

The break-even point is shown as a vertical line from the x-axis to point F. Now, if

we want to determine the break-even point in total sales dollars (total revenue), we could

multiply 1600 units by the assumed selling price of $20 and arrive at $32,000. Or we could

use another equation to compute the break-even point in total sales directly. In that case, we

would first have to compute the contribution margin ratio. This ratio is determined by

dividing the contribution margin by selling price. Referring to our example, the calculation

of the ratio involves two steps:

Going back to the break-even equation and replacing the per-unit contribution

margin with the contribution margin ratio results in the following formula and calculation:

Break-even point, at $32,000 in sales, as a horizontal line from point F to the y-axis. Total

sales at the break-even point are illustrated on the y-axis and total units on the x-axis. Also

notice that the losses are represented by the DFA triangle and profits in the FBC triangle.

The financial information required for CVP analysis is for internal use and is

usually available only to managers inside the firm; information about variable and fixed

costs is not available to the general public. CVP analysis is good as a general guide for one

product within the relevant range. If the company has more than one product, then the

contribution margins from all products must be averaged together. But, any cost-averaging

process reduces the level of accuracy as compared to working with cost data from a single

product. Furthermore, some organizations, such as nonprofit organizations, do not incur a

significant level of variable costs. In these cases, standard CVP assumptions can lead to

misleading results and decisions.

CVP ANALYSIS

The CVP model is widely used when assessing the potential impact of costs, prices, and

volume on the organisation’s profits.CVP analysis is often helpful in making Decisions

concerning pricing of products, choice of product lines, and utilisation of production

55

facilities. Furthermore, the model is easy to use and is logically appealing because of its

relationship to the income statements. The assumptions of CVP analysis are that:

1. Revenues and costs are linear throughout the relevant range. This means that revenues

and costs can be shown on a line graph as straight lines with sales volume on the horizontal

axis. For this to happen, sales prices must remain constant per unit, and costs must be

categorised into variable or fixed elements. The total cost function is linear within the

relevant range. In reality however, changes in efficiency

are likely to result in a cost function, which is non-linear.

2. Inventory quantities remain unchanged during the year. The number of units in

beginning work-in-process and finished goods equal the number of units in these ending

inventories.

3. Sales-mix remains constant. The sales mix of multiple products or services is constant.

The sales-mix refers to the

relative portion of unit or dollar sales derived from each product or service. If products

have different selling prices and costs, changes in the mix will affect CVP model results.

The sales-mix is the combination of products that makes up total sales.

4. All costs are classified as fixed or variable.

5. It is assumed that all other costs, such as mixed costs, can be broken into fixed and

variable cost elements.

6. There is only one cost driver.

7. CVP analysis assumes that the only cost driver relevant to the relationships being studied

is unit or dollar sales volume.

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3. RESEARCH METHODOLOGY

Research Methodology is a way to systematically analysis the research

subject and it may be understood as a science of study how research at done scientifically.

Research is common parlance refer to a research for knowledge. According to Redman and

Mary, research is defined as “a systematized effort to gain new knowledge”. Research

Methodology is a way to systematically solve the problem. It may be understood as a

science of studying how research is done scientifically. The advanced learner’s dictionary

lay down the meaning of research as a careful investigation or inquiry especially through

search for new facts in any branch of knowledge.

3.1 RESEARCH DESIGN

Research Design is the conceptual structure within which the research is conducted,.

A research is the arrangement of conditions for the collection and analysis of data in a

manner that aims to combine the relevance to the research purpose with economy in

procedures. Research constitutes the blue print for the collection. Measurement and

analysis of data. The research design used for this study is analytical and descriptive

research design.

57

3.1.1 ANALYTICAL DESIGN:

The researcher has to use facts or information already availability and analyze these

to make a critical evaluation of the materials.

3.1.2 DESCRIPTIVE RESEARCH:

Descriptive research is those studies concerned with describing the characteristics

of the state of affairs as it’s exist at present. The main purposes descriptive research study

is to specify the objectives with sufficient precision to ensure that data collected are

relevant. The data collected are examined collected the information. The research design

is prepared keeping in view the objectives of the study the resources available.

3.2 SAMPLING DESIGN

A sample design is a definite plan for obtaining a sample from the sampling frame. It

refers to the technique or the procedure of researchers would adopt in selecting some

sampling units from which inferences about the population is drawn.

3.2.1 AREA OF THE STUDY

The sampling area included in this study is Hatsun Agro Product Ltd, finance

department with reference to Arun Ice Cream.

3.2.2 PARAMETERS OF INTEREST:

1. Break Even Point

2. PV Ratio

3. Margin of Safety

4. Contribution

5. Operating Leverage

6. Financial Leverage

7. Combined Leverage

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8. Comparative income Statement

3.3 METHOD OF DATA COLLECTION;

The base data has been collected as below

3.3.1 PRIMARY DATA

The Primary data has collected by observation and discussion with the finance

department.

3.3.2 SECONDARY DATA

The secondary data is to be collected from the financial reviews of the company it

consists of Trading account and annual report which is already been collected by the

company, company website, journal, newspaper, books etc.,

3.4 ANALYTICAL TOOL;

The following were the various analytical tools applied.

3.4.1 BREAKEVEN ANALYSIS;

The breakeven analysis indicates at what level cost and revenue an in equilibrium.

It is a simple and easily understandable method of presenting to management the effect of

changes in volume on profit detailed analysis of breakeven data will reveal to management

the effect alternative decision which reduce or increase cost and which increases sales

volume and income. It is a device which portrays the effects of any type of future planning

by evaluating alternative course of action.

3.4.1.1 BREAKEVEN POINT;

59

Under this analysis at the breakeven point profit being zero, contribution is equal to

the fixed cost. If the actual volume of sales is higher than the breakeven volume, there will

be a profit.

Fixed Cost Breakeven sales (in Rupees) = _____________________

PV Ratio

3.4.1.2 MULTIPLE PRODUCTS IN BEP;

There are multiple products with different has a direct effect on the fixed cost

recovery and total profits of the firm. Different products have different profit volume ratio

because of different selling price and variable cost. The total profit depend to some extent

upon the proportion is the products are sold.

Fixed Cost B/E Sales = _________________ * 100

Total Contribution

3.4.2 PROFIT VOLUME RATIO

Sales – Variable Cost P/V ratio = _____________________ * 100 Sales

3.4.3 MARGIN OF SAFETY;

This is the difference between the sales and breakeven point. If the distance is

relatively short it indicates that a small drop in production or sales will reduces profit

considerably. If the distance is long it means that the businesses can still making profit

60

even after a serious drop in production. It is important that there should be a reasonable

margin of safety otherwise reduces level of production may prove dangerous.

Margin of Safety = Sales – BES

Margin of Safety Margin of Safety Ratio = _____________________ * 100

Sales

3.4.4 DESIRED TARGET PROFIT;

The management faces two decisions

(i) To increases sales volume through reduction in selling price

(ii) To increase selling price in case the profit volume ratio is low, with the

expectation that the higher profit will be earned. If reduction is selling price

does not increase the sales volume the price reduction will result only in lower

profits. If the profit makes only small contribution, then a reduction in selling

price makes it all the more difficult to recover the fixed cost and to earn profit.

Fixed expenses + Target Profit Required sales value = ____________________________

Contribution Margin Ratio

3.4.5 PROFIT FROM GIVEN SALES:

It can be appropriately used to solve most of the problems of cost volume profit

analysis.

Profit is different from the contribution which is net margin increasing after reducing

fixed expenses from the total contribution profit can be ascertained as given below

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Contribution = Sales - Variable cost

Profit = Contribution - Fixed Cost

3.4.6 DEGREE OF OPERATING LEVERAGE:

Operating leverage is determined by the firm’s sales revenue and its earnings before

interest and tax (EBIT). The earnings before interest and taxes are called as operating

profit ( EBIT), while financial leverage can be quite significant for the earning available to

ordinary shareholders.

Contribution 3.4.6.1 Operating Leverage = ____________

EBIT

EBIT3.4.6.2 Financial Leverage = ____________

Profit

Contribution3.4.6.3 Combined Leverage = _________________

EBT

3.4.7 CONTRIBUTION MARGIN RATIO:

62

The P/V ratio which establishes the relationship between contribution and sales is of

vital importance for studying the profitability of operation of a business. It reveals the

effects on profit of changes the volume. The profit volume ratio is also called the

contribution ratio or Marginal ratio.

Contribution = Sales – Variable Cost

Contribution Contribution Margin ratio = ________________ * 100

Sale

3.4.8 TREND ANALYSIS:

Trend is the long term movement of a time series. It helps to ascertain the growth

factor. If a trend can be ascertained and tentative estimates concerning future is made

accordingly. The equation for the straight lines used to describe the linear relationship

between independent variable and the dependent variables.

Y = a + b(x)

3.4.9 COMPARATIVE INCOME STATEMENT:

The income statement discloses net profit or net loss on account of operations. A

comparative income statement will show the absolute figures for two or more periods. The

absolute change from one period to another and if desired. The change in terms of

percentages. Since, the figures for two or more periods are shown side by side; the reader

63

can quickly ascertain whether sales have increased or decreased, whether cost of sales has

increased or decreased etc.

3.5 DATA ANALYSIS AND INTERPRETATION

3.5.1 BREAKEVEN POINT OF MAR – 2005:

Fixed Cost Breakeven sales (in Rupees) = _____________________

PV Ratio

PV Ratio = Contribution / Sales * 100

Contribution = Sales – Variable Cost

Sales : 45382.76

Fixed Cost:

Salaries, Wages and Other Allowances : 947.21Contribution to Provident and Other Funds : 63.66Gratuity : 29.43

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Staff Welfare Expenses : 187.14

Fixed Cost : 1227.44

Variable Cost:

Consumption of Materials : 34373.42Purchase – Traded Goods : 0000.00Other Expenditure : 7370.18

Variable Cost : 41743.60

Contribution: Sales : 45382.76 (–) Variable Cost : 41743.60

Contribution : 3639.16

3.5.2 PV RATIO MAR – 2005:

3639.16 Contribution / Sales * 100 : * 100

45382.76

PV Ratio : 8.02%

The PV Ratio for the year Mar-2005 is 8.02%

1227.44Break Even Sales = Fixed Cost / PV Ratio : 8.02%

Break Even Sales : 15306.99

The Break Even Sales for the year Mar-2005 is 15306.99 (in lacs).

65

3.5.3 DEGREE OF OPERATING LEVERAGE FOR MAR- 2005

Contribution Operating Leverage = ____________

EBIT 3639.16

: 729.42

: 4.99

The Operating Leverage for the year of 2005 is 4.99

EBIT Financial Leverage = ____________

EBT

729.42:

160.11: 4.56

The Financial Leverage for year of 2005 is 4.56

Combined Leverage = Operating Leverage * Financial Leverage

: 4.99 * 4.56

: 22.73

The Combined Leverage for the year of 2005 is 22.73

3.5.4 BREAKEVEN POINT OF MAR - 2006

66

Fixed Cost Breakeven sales (in Rupees) = _____________________

PV Ratio

PV Ratio = Contribution / Sales * 100

Contribution = Sales – Variable Cost

Sales : 54481.86Fixed Cost:

Salaries, Wages and Other Allowances : 1052.34Contribution to Provident and Other Funds : 69.04Gratuity : 20.05Staff Welfare Expenses : 347.49

Fixed Cost : 1488.92

Variable Cost:

Decrease / (Increase) in stock-in-trade : 134.33Consumption of Materials : 40560.60Purchase – Traded Goods : 343.33

Other Expenditure : 8955.56

Variable Cost : 51482.74

Contribution: Sales : 54481.86

(–) Variable Cost : 51482.74

Contribution : 4622.37

3.5.5 THE PV RATIO OF 2006 :

4622.37 Contribution / Sales * 100 : * 100

54481.86

67

PV Ratio : 8.48%

The PV Ratio for the year 2006 is 8.48%

1488.92Break Even Sales = Fixed Cost / PV Ratio : 8.48%

Break Even Sales : 17549.25

The Break Even Sales for the year 2006 is 17549.25 (in lacs)

3.5.6 DEGREE OF OPERATING LEVERAGE OF MAR-2006:

Contribution Operating Leverage = ____________

EBIT

4622.37:

17549.25

: 2.62

The Operating Leverage for the year of Mar-2006 is 2.62

EBIT Financial Leverage = ____________

EBT

68

1766.58:

829.96

: 2.13The Financial Leverage of Mar- 2006 is 2.13

Combined Leverage = Operating Leverage * Financial Leverage

: 2.62 * 2.13

: 5.57

The Combine Leverage of Mar-2006 is 5.57

3.5.7 BREAKEVEN POIN OF MAR - 2007

BREAKEVEN POINT:

Fixed Cost Breakeven sales (in Rupees) = _____________________

PV Ratio

PV Ratio = Contribution / Sales * 100

Contribution = Sales – Variable Cost

Sales : 58528.28

Fixed Cost:

Salaries, Wages and Other Allowances : 1225.08Contribution to Provident and Other Funds : 92.06Gratuity : 5.03Staff Welfare Expenses : 368.35

Fixed Cost : 1690.52

69

Variable Cost:

Decrease / (Increase) in stock-in-trade : -519.48Consumption of Materials : 44301.14Purchase – Traded Goods : 600.11

Other Expenditure : 9418.27

Variable Cost : 55490.56

Contribution: Sales : 58528.28(–) Variable Cost : 55490.56

Contribution : 4208.76

3.5.8 PV RATIO OF MAR-2007:

4208.76 Contribution / Sales * 100 : * 100

58528.28

PV Ratio : 7.19%

The PV Ratio of Mar-2007 is 7.19

1690.52Break Even Sales = Fixed Cost / PV Ratio : 7.19%

Breakeven Sales : 23508.88

The Breakeven Sales of Mar-2007 is 23508.88 (in lacs)

3.5.9 DEGREE OF OPERATING LEVERAGE OF MAR-2007:

70

Contribution Operating Leverage = ____________

EBIT

4208.76:

2153.88

: 1.95

The Operating Leverage of Mar – 2007 is 1.95

EBIT Financial Leverage = ____________

EBT

2153.88:

1146.03

: 1.88The Financial Leverage of Mar-2007 is 1.88

Combined Leverage = Operating Leverage * Financial Leverage

: 1.95 * 1.88

: 3.67

The Combined Leverage of Mar-2007 is 3.67.

3.5.10 BREAKEVEN POINT OF MAR - 2008

Fixed Cost Breakeven sales (in Rupees) = _____________________

71

PV Ratio

PV Ratio = Contribution / Sales * 100

Contribution = Sales – Variable Cost

Sales : 86319.36

Fixed Cost:

Salaries, Wages and Other Allowances : 1601.98Contribution to Provident and Other Funds : 107.87

Gratuity : 2.89Staff Welfare Expenses : 391.24

Fixed Cost : 2103.98Variable Cost:

Decrease / (Increase) in stock-in-trade : -1901.22Consumption of Materials : 67180.37Purchase – Traded Goods : 1100.13

Other Expenditure : 12312.01

Variable Cost : 80592.51

Contribution: Sales : 86319.36(–) Variable Cost : 80592.51

Contribution : 5726.85

3.5.11 PV RATIO OF MAR-2008 :

5726.85 Contribution / Sales * 100 : *100

86319.36

72

PV Ratio : 6.63%

The PV Ratio of Mar-2008 is 6.63.

2103.98Break Even Sales = Fixed Cost / PV Ratio : 6.63%

Breakeven Sales : 31712.76

The Breakeven Sales of Mar- 2008 is 31712.76 (in lacs)

3.5.12 DEGREE OF OPERATING LEVERAGE OF MAR-2008:

Contribution Operating Leverage = ____________

EBIT

5726.85:

31712.76

: 1.33

The Operating Leverage of Mar-2008 is 1.33

EBIT Financial Leverage = ____________

EBT

4297.76:

2794.92

73

: 1.54The Financial Leverage of Mar-2008 is 1.54.

Combined Leverage = Operating Leverage * Financial Leverage

: 1.33 * 1.54

: 2.05The Combined Leverage of Mar-2008 is 2.05.

3.5.13 BREAKEVEN POINT OF MAR - 2009

Fixed Cost Breakeven sales (in Rupees) = _____________________

PV Ratio

PV Ratio = Contribution / Sales * 100

Contribution = Sales – Variable Cost

Sales : 101305.01

Fixed Cost:

Salaries, Wages and Other Allowances : 2310.39Contribution to Provident and Other Funds : 161.11

Gratuity : 31.76Staff Welfare Expenses : 542.28

Fixed Cost : 3045.54Variable Cost:

Decrease / (Increase) in stock-in-trade : 0000.00Consumption of Materials : 74586.25Purchase – Traded Goods : 1183.84

Other Expenditure : 16379.19

Variable Cost : 92149.28

74

Contribution: Sales : 101305.01(–) Variable Cost : 92149.28

Contribution : 9155.73

3.5.14 PV RATIO OF MAR-2009 :

9155.73 Contribution / Sales * 100 : * 100

101305.01

PV Ratio : 9.04%

The PV Ratio for the year of Mar-2009 is 9.04.

3045.54Break Even Sales = Fixed Cost / PV Ratio : 9.04%

Breakeven Sales : 33697.85

The Breakeven Sales of Mar-2009 is 33697.85 (in Lacs)

3.5.15 DEGREE OF OPERATING LEVERAGE OF MAR-2009:

Contribution Operating Leverage = ____________

EBIT

9155.73:

4123.83

: 2.22

The Operating Leverage of Mar-2009 is 2.22

75

EBIT Financial Leverage = ____________

EBT

4,123.83:

1,992.19

: 2.07

The Financial Leverage of Mar-2009 is 2.07

Combined Leverage = Operating Leverage * Financial Leverage

: 2.22 * 2.07

: 4.60

The Combined Leverage of Mar-2009 is 4.60

3.5.16 COMPARATIVE BALANCE SHEET (2008-2009)

TABLE 3.5.1 COMPARATIVE BALANCE SHEET (2008-2009)

PARTICULAR

S

31/03/2008 31/03/2009 INCREASE/DECREASE %

CURRENT ASSETS

Inventories 421349 278926 (142423) (33.80)

sundry debtors 149654 85716 (63938) (42.72)

Cash& bank

balance

118440 60903 (57537) (48.57)

Claims receivable - 14580 14580 100

Loans &

advances

203535 208857 5322 2.61

Total current 892978 648982 (243996) (27.32)

76

assets(A)

FIXED ASSETS

Gross block 2332619 2571479 238860 10.23

Accumulated

depn.

(801060) (907251) (10691) (13.25)

Net block(b) 1531559 1664228 132669 8.66

Capital work in

progress(c)

222652 1281473 1058821 475.54

Total work in

progress

1754211 2945701 1191490 67.92

Total assets 2647189 3594683 947494 35.79

LIABILITIES & PROVISION

Current liabilities (658946) (574552) (8394) (12.80)

Provisions (118019) (40364) (84394) (65.79)

Loan fund

Secured loan 837156 1932401 1095245 130.82

Unsecured loan 443981 356396 (87585) (19.72)

Total 1281137 2288797 1007660 78.65

SHARE HOLDERS FUND

Share capital 118721 118721 - -

Reserves &

surplus

362855 452731 89876 24.76

77

Total 481576 571452 89876 18.66

Deferred tax 8325 7885 (440) (5.28)

Deferred tax

liabilities net

99186 111633 12447 12.54

Total liabilities

and capital

2647189 3594683 947494 35.79

Source: Annual Report and Trading Account of Hatsun Agro Product Ltd

3.5.17 COMPARATIVE BALANCE SHEET (2007-2008)

TABLE 3.5.2 COMPARATIVE BALANCE SHEET (2007-2008)

PARTICULAR

S

31/03/2007 31/03/2008 INCREASE/DECREASE %

CURRENT ASSETS

Inventories 169675 421349 251674 148.32

sundry debtors 52549 149654 97105 184.78

Cash& bank

balance

34554 118440 83886 242.76

Claims receivable - - - -

78

Loans &

advances

123814 203535 79721 64.38

Total current

assets(A)

380592 892978 512386 134.62

FIXED ASSETS

Gross block 2092664 2332619 239955 11.46

Accumulated

depn.

(698251) (801060) 102809 14.72

Net block(b) 1394413 1531559 137146 9.83

Capital work in

progress(c)

41628 222652 181024 434.86

Total work in

progress

1436041 1754211 318170 22.15

Total assets 1816633 2647189 830556 45.71

LIABILITIES & PROVISION

Current liabilities (411326) (658946) 247620 60.20

Provisions (58899) (118019) 59120 100.37

Loan fund

Secured loan 523582 837156 313574 59.89

Unsecured loan 350217 443981 93764 26.77

Total 873799 1281137 407338 46.61

SHARE HOLDERS FUND

Share capital 118721 118721 - -

79

Reserves &

surplus

242010 362855 120845 49.93

Total 360731 481576 120845 33.50

Deferred tax 13966 8325 (5641) (40.39)

Deferred tax

liabilities net

97912 99186 1274 1.30

Total liabilities

and capital

1816633 2647189 830556 45.71

Source: Annual Report and Trading Account of Hatsun Agro Product Ltd

3.5.18 COMMON-SIZE BALANCE SHEET (2008-2009)

TABLE 3.5.3 COMMON-SIZE BALANCE SHEET (2008-2009)

PARTICULAR

S

31/03/2008 % 31/03/2009 %

CURRENT ASSETS

Inventories 421349 15.91 278926 7.75

sundry debtors 149654 5.65 85716 2.38

80

Cash& bank

balance

118440 4.4 60903 1.69

Claims receivable - - 14580 0.40

Loans &

advances

203535 7.60 208857 5.81

Total current

assets(A)

892978 33.73 648982 18.05

FIXED ASSETS

Gross block 2332619 88.11 2571479 71.53

Accumulated

depn.

(801060) (30.26) (907251) (25.23)

Net block(b) 1531559 57.85 1664228 46.29

Capital work in

progress(c)

222652 8.41 1281473 35.64

Total work in

progress

1754211 66.26 2945701 81.94

Total assets 2647189 100.00 3594683 100.00

LIABILITIES & PROVISION

Current liabilities (658946) 24.89 (574552) 15.98

Provisions (118019) 4.45 (40364) 1.12

Loan fund

Secured loan 837156 31.62 1932401 53.75

Unsecured loan 443981 16.77 356396 9.91

81

Total 1281137 48.39 2288797 63.67

SHARE HOLDERS FUND

Share capital 118721 4.4 118721 3.30

Reserves &

surplus

362855 13.70 452731 12.59

Total 481576 18.19 571452 15.89

Deferred tax 8325 0.31 7885 0.21

Deferred tax

liabilities net

99186 3.74 111633 3.10

Total liabilities

and capital

2647189 100.00 3594683 100.00

Source: Annual Report and Trading Account of Hatsun Agro Product Ltd

3.5.19 COMMON-SIZE BALANCE SHEET (2007-2008)

TABLE 3.5.4 COMMON-SIZE BALANCE SHEET (2007-2008)

PARTICULAR

S

31/03/2007 % 31/03/2008 %

CURRENT ASSETS

Inventories 169675 9.34 421349 15.91

82

sundry debtors 52549 2.89 149654 5.65

Cash& bank

balance

34554 1.90 118440 4.4

Claims receivable - - - -

Loans &

advances

123814 6.81 203535 7.60

Total current

assets(A)

380592 20.95 892978 33.73

FIXED ASSETS

Gross block 2092664 115.19 2332619 88.11

Accumulated

depn.

(698251) (38.43) (801060) (30.26)

Net block(b) 1394413 76.75 1531559 57.85

Capital work in

progress(c)

41628 2.29 222652 8.41

Total work in

progress

1436041 79.04 1754211 66.26

Total assets 1816633 100.00 2647189 100.00

LIABILITIES & PROVISION

Current liabilities (411326) 22.64 (658946) 24.89

Provisions (58899) 3.24 (118019) 4.45

Loan fund

83

Secured loan 523582 28.82 837156 31.62

Unsecured loan 350217 19.27 443981 16.77

Total 873799 48.09 1281137 48.39

SHARE HOLDERS FUND

Share capital 118721 6.53 118721 4.4

Reserves &

surplus

242010 13.32 362855 13.70

Total 360731 19.85 481576 18.19

Deferred tax 13966 0.76 8325 0.31

Deferred tax

liabilities net

97912 5.38 99186 3.74

Total liabilities

and capital

1816633 100.00 2647189 100.00

Source: Annual Report and Trading Account of Hatsun Agro Product Ltd

3.5.20 NET SALES OF HUTSUN AGRO PRODUCT LTD

TABLE 3.5.5 NET SALES OF HUTSUN AGRO PRODUCT LTDS. NO. YEAR NET SALES IN LACS

1 Mar-05 44918.75

2 Mar-06 54034.42

3 Mar-07 58528.28

4 Mar-08 86319.36

84

5 Mar-09 101305.01

Source: Annual Report and Trading Account of Hatsun Agro Product Ltd

INFERENCE:-

It is inferred that from the above table 44918.75, 54034.42, 58528.28, 86319.36 and

101305.01 (in lacs) net sales for the year of 2005, 2006, 2007, 2008 and 2009 respectively.

FIGUR 3.5.1 NET SALES OF HUTSUN AGRO PRODUCT LTD

85

Mar-05 Mar-06 Mar-07 Mar-08 Mar-090

20000

40000

60000

80000

100000

120000

44918.75

54034.4258528.28

86319.36

101305.01

YEARS

NE

T S

AL

ES

IN

LA

KH

S

3.5.21 EXPENDITURE OF HUTSUN AGRO PRODUCT LTD

TABLE 3.5.6 EXPENDITURE OF HUTSUN AGRO PRODUCT LTDS. NO. YEAR EXPENDITURE IN LACS

86

1 Mar-05 42971.04

2 Mar-06 51482.74

3 Mar-07 55490.56

4 Mar-08 80795.27

5 Mar-09 95194.82

Source: Annual Report and Trading Account of Hatsun Agro Product Ltd

INFERENCES:-

It is inferred that from the above table 42971.04, 51482.74, 55490.56, 80795.27 and

95194.82 (in lacs) expenditure for the year of 2005, 2006, 2007, 2008 and 2009

respectively.

FIGUR 3.5.2 EXPENDITURE OF HUTSUN AGRO PRODUCT LTD

87

Mar-05 Mar-06 Mar-07 Mar-08 Mar-090

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

42971.04

51482.7455490.56

80795.27

95194.82

YEARS

IN L

AK

HS

3.5.22 PROFIT OF HUTSUN AGRO PRODUCT LTD

TABLE 3.5.7 PROFIT OF HUTSUN AGRO PRODUCT LTDS. NO. YEAR PROFIT IN LAKHS

1 Mar-05 73.51

88

2 Mar-06 424.5

3 Mar-07 814.6

4 Mar-08 1732.56

5 Mar-09 1196.79

Source: Annual Report and Trading Account of Hatsun Agro Product Ltd

INFERENCE:-

It is inferred that from the above table 73.51, 424.5, 814.6, 1732.56and 1196.79 (in

lacs) profit for the year of 2005, 2006, 2007, 2008 and 2009 respectively.

FIGUR 3.5.4 PROFIT OF HUTSUN AGRO PRODUCT LTD

89

Mar-05 Mar-06 Mar-07 Mar-08 Mar-090

200

400

600

800

1000

1200

1400

1600

1800

73.51

424.5

814.6

1732.56

1196.79

YEARS

IN L

AK

HS

3.5.23 PV RATIO OF HUTSUN AGRO PRODUCT LTD

TABLE 3.5.8 PV RATIO OF HUTSUN AGRO PRODUCT LTD

90

S. NO. YEAR PV RATIO

1 Mar-05 8.02%

2 Mar-06 8.48%

3 Mar-07 7.19%

4 Mar-08 6.63%

5 Mar-09 9.04%

Source: Annual Report and Trading Account of Hatsun Agro Product Ltd

INFERENCE:-

It is inferred that from the above table 8.02%, 8.48%, 7.19%, 6.63% and 9.04% PV

Ratio for the year of 2005, 2006, 2007, 2008 and 2009 respectively.

91

FIGUR 3.5.4 PV RATIO OF HUTSUN AGRO PRODUCT LTD

Mar-05 Mar-06 Mar-07 Mar-08 Mar-090.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10.00%

8.02%8.48%

7.19%6.63%

9.04%

YEARS

RA

TIO

FO

R 1

00%

3.5.24 BREAKEVEN POINT OF HUTSUN AGRO PRODUCT LTD

92

TABLE 3.5.9 BREAKEVEN POINT OF HUTSUN AGRO PRODUCT LTD

S. NO. YEAR BEP IN LAKHS

1 Mar-05 15307.00

2 Mar-06 17549.25

3 Mar-07 23508.88

4 Mar-08 31712.76

5 Mar-09 33697.85

Source: Annual Report and Trading Account of Hatsun Agro Product Ltd

INFERENCE:-

It is inferred that from the above table 15307.00, 17549.25, 23508.88, 31712.76 and

33697.85 (in lacs) breakeven point for the year of 2005, 2006, 2007, 2008 and 2009

respectively.

93

FIGUR 3.5.5 BREAKEVEN POINT OF HUTSUN AGRO PRODUCT

LTD

Mar-05 Mar-06 Mar-07 Mar-08 Mar-090.00

5000.00

10000.00

15000.00

20000.00

25000.00

30000.00

35000.00

15307.00

17549.25

23508.88

31712.76 33697.85

YEARS

IN L

AK

HS

94

3.5.25 OPERATING LEVERAGE OF HUTSUN AGRO PRODUCT LTD

TABLE 3.5.10 OPERATING LEVERAGE OF HUTSUN AGRO PRODUCT LTD

S. NO. YEAR OPERATING LEVERAGE

1 Mar-05 4.99

2 Mar-06 2.62

3 Mar-07 1.95

4 Mar-08 1.33

5 Mar-09 2.22

Source: Annual Report and Trading Account of Hatsun Agro Product Ltd

INFERENCE:-

It is inferred that from the above table 4.99, 2.62, 1.95, 1.33 and 2.22 operating

leverage for the year of 2005, 2006, 2007, 2008 and 2009 respectively.

95

FIGUR 3.5.6 OPERATING LEVERAGE OF HUTSUN AGRO

PRODUCT LTD

Mar-05 Mar-06 Mar-07 Mar-08 Mar-090.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00

4.99

2.62

1.95

1.33

2.22

YEARS

OP

ER

AT

ING

LE

VE

RA

GE

96

3.5.26 TABLE FOR FINANCIAL LEVERAGE OF HUTSUN AGRO

PRODUCT LTD

TABLE 3.5.11 TABLE FOR FINANCIAL LEVERAGE OF HUTSUN AGRO

PRODUCT LTD

S. NO. YEAR FINANCIAL LEVERAGE

1 Mar-05 4.56

2 Mar-06 2.13

3 Mar-07 1.88

4 Mar-08 1.54

5 Mar-09 2.07

Source: Annual Report and Trading Account of Hatsun Agro Product Ltd

INFERENCES:-

It is inferred that from the above table 4.56, 2.13, 1.88, 1.54 and 2.07 financial

leverage for the year of 2005, 2006, 2007, 2008 and 2009 respectively.

97

FIGUR 3.5.8 FINANCIAL LEVERAGE OF HUTSUN AGRO PRODUCT LTD

Mar-05 Mar-06 Mar-07 Mar-08 Mar-090.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

5.00 4.56

2.131.88

1.54

2.07

YEARS

FIN

AN

CIA

L L

EV

ER

AG

E

98

3.5.27 COMBINED LEVERAGE OF HUTSUN AGRO PRODUCT LTD

TABLE 3.5.12 COMBINED LEVERAGE OF HUTSUN AGRO PRODUCT LTD

S. NO. YEAR COMBINED LEVERAGE

1 Mar-05 22.73

2 Mar-06 5.57

3 Mar-07 3.67

4 Mar-08 2.05

5 Mar-09 4.60

Source: Annual Report and Trading Account of Hatsun Agro Product Ltd

INFERENCE:-

It is inferred that from the above table 22.73, 5.57, 3.67, 2.05 and 4.60 combined

leverage for the year of 2005, 2006, 2007, 2008 and 2009 respectively.

99

FIGUR 3.5.8 COMBINED LEVERAGE OF HUTSUN AGRO PRODUCT LTD

Mar-05 Mar-06 Mar-07 Mar-08 Mar-090.00

5.00

10.00

15.00

20.00

25.0022.73

5.57

3.672.05 4.60

YEARS

CO

MB

INE

D L

EV

ER

AG

E

100

3.5.28 TABLE FOR MARGIN OF SAFETY OF HUTSUN AGRO

PRODUCT LTD

TABLE 3.5.13 MARGIN OF SAFETY OF HUTSUN AGRO PRODUCT LTD

S. NO. YEAR MARGIN OF SAFETY

1 Mar-05 30075.76

2 Mar-06 36932.61

3 Mar-07 35019.40

4 Mar-08 54606.60

5 Mar-09 67607.16

Source: Annual Report and Trading Account of Hatsun Agro Product Ltd

INFERENCES:-

It is inferred that from the above table 30075.76, 36932.61, 35019.40, 54606.60 and

67607.16 in lakhs margin of safety for the year of 2005, 2006, 2007, 2008 and 2009

respectively.

101

FIGUR 3.5.9 MARGIN OF SAFETY OF HUTSUN AGRO PRODUCT LTD

Mar-05 Mar-06 Mar-07 Mar-08 Mar-090.00

10000.00

20000.00

30000.00

40000.00

50000.00

60000.00

70000.00

80000.00

30075.76

36932.6135019.40

54606.60

67607.16

YEARS

IN L

AK

HS

102

3.6 STATISTICAL ANALYSIS

3.6.1 TREND ANALYSIS

The trend analysis equation Y= a+bx

The strait line equations are

1. ∑y = Na + b∑x

2. ∑xy = a∑x + b∑x2

Year - x Profit - y X X2 XY

2005 73.51 -2 4 -147.02

2006 424.5 -1 1 -424.5

2007 814.6 0 0 0

2008 1732.56 1 1 1732.56

2009 1196.79 2 4 2393.58

Total 4241.96 0 10 3554.62

N=5

∑y = Na + b∑x -------------- (1)

4241.96 = 5a + b * 0

5a = 4241.96

a = 4241.96 / 5 a = 848.39

∑xy = a∑x + b∑x2 ------------- (2)

3554.62 = a * 0 + b * 10

b = 3554.62 / 10 b = 355.46

Y= a+bx

Y= 848.39 +355.46 * x X= 2010-2007 = 3

Y= 848.39 + 355.46 * 3 = 1914.77

From the trend analysis the trend profit of the year 2010 is 1914.77

103

4. FINDINGS, SUGGESTIONS & CONCLUSION

4.1 FINDINGS

• The PV Ratio for the year 2005, 2006, 2007, 2008 and 2009 are 8.02, 8.48, 7.19,

6.63 and 9.04 respectively.

• The Profit for the year 2005, 2006, 2007, 2008 and 2009 are 73.51, 424.50, 814.60,

1732.56, 1196.79 in lakhs respectively.

• The operating leverage for the year 2005, 2006, 2007, 2008 and 2009 are 4.99,

2.62,1.95, 1.33 and 2.22 respectively. The operating leverage is greater than 1. The

contribution is more than Earnings before interest and tax.

• The financial leverage for the year 2005, 2006, 2007, 2008 and 2009 are 4.56, 2.13,

1.88, 1.54 and 2.07 respectively. The financial is greater than 1.

• The combined leverage for the year 2005, 2006, 2007, 2008 and 2009 are 22. 73,

5.57, 3.67, 2.05 and 4.60 respectively.

• The Margin of safety for the year 2005, 2006, 2007, 2008 and 2009 are 30075.76,

36932.61, 35019.40, 54606.60 and 67607.16 in lakhs respectively.

• From the trend analysis the trend profit of the year 2010 is 1914.77

104

4.2 SUGGESTIONS

• The profit of the company is decreased in the year of 2009 than 2008 due to

increase in expenditure. The cost of company should be reduced by constant

material cost.

• The scrap should be reduced by proper maintenance of the material and well

training of the employees.

105

4.3 CONCLUSION

The growth of the company is increasing year by year but it has been decreased in the year

of 2009. It has to be improved by reducing the scrap and material cost and proper training

to employees and the machineries should be maintained properly to reduce the scrap.

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