A STUDY ON

COST-VOLUME-PROFIT ANALYSIS
OF
GORAKHAKALI RUBBER INDUSTRY LIMITED

A thesis Submitted to:

Office of the Dean
Faculty of Management
Trubhuvan University

In partial fulfillment of the Requirement for the Degree of Master of

Business Studies (MBS)

Submitted By:
Ganesh Man Rai
Central Departent of Management
T.U.Regd. No. 7-1-218-379-98
Roll No. 207/2062
Exam Roll No. 2845/064

Kirtipur , Kathamndu
March, 2009
 RECOMMENDATION

This is to certify that the thesis

Submitted by

Ganesh Man Rai

Entitled
Cost – Volume – Profit Analysis of Gorkhakali Rubber Industry limited has
been prepared as approved by this Department in the prescribed format of
Faculty of Management. This thesis is forwarded for examination.

……………….…….... …….....…………....... ….…………….

Bhawani Shankar Acharya Prof. Dr. Jay Krishna Pathak Pr. Dr. Dev Raj Adhikari
(Supervisor) ( Chairman, Research Committee) (Associate Professor)
( Lecturer, CDM) (Head of Department)

Date ………………………..
 VIVA – VOCE SHEET

We have conducted the viva-voce examination of the thesis

Submitted by

Entitled
Cost – Volume – Profit Analysis of Gorkhakali Rubber Industry limited.

And found the thesis to be the original work of the student and written according
to the prescribed format. We recommend this thesis to be accepted as partial
fulfillment of the requirements for Master of Business Studies (MBS)

Viva – Voce Committee

Chairman (Research Committee) ……………………………..

Member (Thesis Supervisor) ……………………………..

Member (External Expert) ……………………………

Head (Central Department of Management) ………………………………

Date ……………………………….
 DECLERATION

I hereby declare that the work reported in this thesis entitled “CVP analysis of
Gorkhkali Rubber Industry limited” submitted to the Office of the Dean Faculty of
Management, Tribhuvan University, is my original work. It is done in the form of
partial fulfillment of the requirements for the Master of Business Studies (MBS)
under the supervision and guidance of Lecturer Bhawani Shankar Acharya,
Central Department of Management, Kirtipur.

March, 2009

Ganesh Man Rai

Roll No: - 2845/065
Central Department of Management
Kirtipur, Kathmandu.
 ACKOWLEDGEMENT

The study entitled “Cost –Volume-Profit Analysis of Gorkhkali Rubber Industry

Limited” has been undertaken to meet the partial requirement of Master’s Degree
in management.

I am very much grateful to my Supervisor Bhawani Shankar Acharya, lecturer,

Central Department of management for his encouragement and constant support
throughout my studies. Without his continuous guidance this work would not have
been in the present form.

I wish to express my gratitude to all the staffs of Gorkhakali Rubber Industry

Limited, especially Mr sital kaji shrestha and Mr. Raj Kumar Mahato for their
valuable suggestions and necessary information.

I am heartily indebted to my parents and other family members for their

continuous support and encouragement for higher studies and their guidance and
support throughout the entire phase of my study.

I owe special thanks to my friends Jyoti Neupane, Govinda Poudel, Yuba Raj
Dahal, Saroj Subedi who helped me during completing this research work, deserve
my sincere thanks for their direct and indirect co-operation and encouragement.

I am alone responsible for any defects of analysis of errors in this thesis. Advices,
recommendations and suggestions are wholeheartedly welcomed

Date …………………… Ganesh Man Rai

CDM, Kirtipur
 Abbreviation

BEP Breakeven Point

BES Breakeven Sales
CNCCC China National Chemical Construction Corporation
CPPC Comprehensive Profit Planning and Control
CVP Cost – Volume – Profit
DDC Dairy Development Corporation
DOL Degree of Operating Leverage
EBIT Earning Before Interest and Tax
FY Fiscal Year
GP Gross Profit
GRIL Gorakhkali Rubber Industry Limited
HCIL Heatuda Cement Industry limited
MOS Margin of Safety
NOP Net Operating Profit
OP Operating Profit
PPC Profit Planning and Control
PVR Profit Volume Ratio
SPPU Selling Price per Unit
SR/TSR Sales Revenue / Total Sales Revenue
STCL Salt Trading Corporation Limited
T/FC Total / Fixed Cost
VC/VCPU Variable Cost / Variable Cost per Unit
WTO World Trade Organization
ZBB Zero Based Budgeting
CIMA Chartered Institute of Management Accounting
 Table of Contents
Page No.
Recommendation i
Viva-Voce Sheet ii
Declaration iii
Acknowledgements iv
Table of Contents v
List of Tables viii
List of Figures ix
Abbreviations x
Chapter I
Introduction
1.1 Background 1
1.2 Overview of Gorakhkali Rubber Industry Limited. 2
1.3 Statement of problem 4
1.4 Objectives of study 5
1.5 Significance of the study 5
1.6 Limitation of the study 6
1.7 Organization of the study 6
Chapter-II
Review of Literature
2. Conceptual Framework 8
2.1 Cost volume profit analysis and its use in PPC 8
2.2 Concepts of costs 9
2.2.1 Cost behavior and classification 10
2.3 Volume 12
2.4 Profit 13
2.5 Analysis 13
2.6 Cost–volume profit Analysis: a tool of
profit planning and control 13
2.7 Purpose of CVP analysis 15
 2.8 Application of CVP analysis in profit planning and control 15
2.9 Approaches to cost-volume-profit analysis 16
2.9.1 Contribution Margin Approach 16
2.9.2 Formula Approach: 17
2.9.3 The Graphic Approach to CVP Analysis: 18
2.9.3.1 Application of Break-even Analysis 19
2.9.3.2 Assumptions of Break-even Analysis 19
2.9.3.3 Limitations of Break-Even Analysis 20
2.10 Economic Characteristics of CVP Analysis 21
2.11 Margin of Safety 22
2.12 Cost-Volume-Profit-Analysis for a Multi-Product Firm 23
2.13 Break-even Point for Multi-product Company/Firm: 23
2.14 Cost-Volume-Profit analysis and Limiting Factors 24
2.15 CVP analysis with a single constraint 25
2.16 CVP analysis with Multiple Constraints 25
2.17 Assumptions Underlying CVP Analysis 25
2.18 Limitations of CVP analysis 26
2.19 Special Problems in cost- volume –profit analysis 26
2.20 Risk Measurement: the operating leverage 27
2.21 Sensitivity Analysis 28
2.22 Review of related studies: 28
2.23 Research Gap 35
Chapter III
Research Methodology
3.1 Introduction 37
3.2 Research Design 37
3.3 Period Covered 38
3.4 Nature and Sources of Data 38
3.5 Data Analysis Tools and Techniques 38
3.6 Research Variables 38
3.7 Research Question 51
 Chapter IV
Presentation and data analysis
4.1 Sales Plan of Gorakhhali Rubber Industry Limited 40
4.2 Time series analysis of sales revenues 42
4.3 variable cost analysis of GRIL 43
4.4 Fixed Cost Analysis of GRIL 45
4.5 Semi- variable cost Analysis 47
4.6 Profitability Analysis of GRIL 47
4.6.1 Gross profit Margin Ratio 49
4.6.2 Net profit Margin Ratio 50
4.7 Cost Volume Profit Analysis of Gorakhakali Rubber Industry Limited 51
4.8 Analysis of contribution margin ratio BEP and margin of safety 51
4.9 Measuring Risk: degree of operating leverage (DOL) 55
4.10 Sensitivity analysis; assessing the impacts of the changes in cost volume profit
variables. 56
4.10.1 Assessing the impact when selling price is changed. 56
4.10.2 Assessing the impact when variable cost is changed 57
4.10.3 Assessing impact when fixed case changed 59
4.11 Major findings 61
Chapter V
Summary, Conclusion and Recommendation
5.1 Summary 63
5.2. Conclusion 64
5.3. Recommendations 65
Bibliography 69
Appendices
 List of Tables
Page No.

Table No. 1: Sales Revenue of Gorakhhali Rubber Industry Limited 40

Table No. 2 :Variable cost analysis of GRIL 44

Table No.3 : Fixed Cost Analysis of GRIL 46

Table No. 4: Profitability analysis of GRIL 47
Table No. 5: Gross profit Margin Ratio of GRIL 49
Table No. 6 : Net Profit Margin Ratio of GRIL 50
Table No. 7: Income statement for the year 2060/61 to 2064/65 51
Table No. 8: Analysis of Contribution Margin Ration BEP and MOS 52
Table No. 9: Income statement and DOL of GRIL 55
Table No. 10: Income Statement by change in selling price 56
Table No. 11: Income Statement by change in variable cost 58
Table No. 12: Income Statement by change in fixed cost 59
Table No. 13: Product wise income statement 60
 List of Figures

Page No.

Graphical Approach to CVP 18

Cost Volume Profit Analysis 21
Total Sales Revenue 41
Time Series Analysis of Sales Revenue 43
Gross Profit, Operating Profit and Net Profit 49
Break even Point of GRIL 53