PHILLIPINE CHRISTIAN UNIVERSITY

GRADUATE STUDIES
Master of Business Administration

Student Name: Edlie Vanessa A. dela Cruz

Julie Anne S. Inabangan
Jenine D. Macabale
Henry L. Aquino
Apple Ignacio
Topic Presented: Decision Analysis – CVP Analysis
Name of Project: Fly Ash Bricks Case Study
Background of the Study: In 2013, there were more than 13 thermal power plants in India
and to cope with the increasing demand for electricity, more
thermal power plants may be set up. 72% of India's power
plants are coal based. These power stations generate nearly 40
million tons of fly ash annually. Fly ash contains Co2 emitted
from Thermal power plants, industries using coal as a fuel
emits unwanted ash and smoke from which fly ash is
produced. In all the power plants and industries, they separate
the fly ash by using the cyclone converter. This fly ash is then
used as a raw material for manufacture of bricks.

Fly ash bricks are hi-tech well-improved quality bricks used

for the construction of brick masonry structures. It was used as
replacement for normal clay bricks and has better properties.
Fly ash bricks came from Fly ash, also known as flue ash, coal
ash, or pulverized fuel ash is a coal combustion product
obtained as waste material from modern thermal stations
where a mixture of air and powdered coal is burnt. It is a by-
product of many thermal power stations and other plants using
pulverized coal or lignite as a source of heat for boilers.

Due to the increasing demand of bricks in India. Rajiv Sharma,

an individual, who has an experience in construction industry,
has been doing research to study the fly ash brick’s potential in
the market. Mr. Rajiv’s friend, Alok Gupta shared the same
interest in regard with the said project that leads to a thorough
discussion on planning to invest that leads to a thorough
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Master of Business Administration

discussion on planning to invest as it was estimated that there

would be a substantial shortfall in the availability of different
types of building materials, including bricks.

According to Dr. Abdul Kalam, a former Indian President,

who has concerns over the disposal of fly ash said, “The use of
coal for power generation results in increased quantum of fly
ash production, which has reached over 100 million tons per
year. All-out efforts are needed to utilize this fly ash not only
for environmental considerations, but also to avoid land usage
of fly ash dumping.” Getting rid of fly ash was one of the
primary concerns in India, since it occupies a huge area of
land. Also, it is dangerous for the health of the individuals and
may cause environmental pollution and deforestation.

After further analysis, although the proposed plant had the

capacity to produce four million bricks per year, the actual
production would depend on market demand and may
overutilize the equipment. Sharma and Alok have concluded to
have an estimated sales volume of 2.4 million bricks that could
be sold per year with a selling price of Rs 7 per unit.
Statement of the Problem In relation to the assigned topic which is the Cost-Volume
Profit that focuses on the varying levels of volume and cost
that has a big impact on the company’s operating income, we
identify the number of bricks needed to be sold in order to
evaluate the feasibility of this study. We also determine the
break-even point which will identify the sales volume where
there is no loss and profit. And after further evaluation, we
have come up with a question:

“Would the Fly ash brick project be financially profitable in

5-year time, considering its loan obligations and expenses?”

FORECAST OF PROFIT/LOSS FOR 5 YEARS USING CVP ANALYSIS

 PHILLIPINE CHRISTIAN UNIVERSITY
GRADUATE STUDIES
Master of Business Administration

FLY ASH BRICK PROJECT

Manufacturing Company
Projected Income Statement for 5 years
* Assumptions:
* all sales are made in cash
* Water Supply Arrangement is accounted as minor expense, therefore it should be included on 1st year fixed administrative expense
FORECAST BASED ON THE ESTIMATED SALES VOLUME
Units 2,400,000.00

Y1 Y2 Y3 Y4 Y5 Total
Sales 16,800,000.00 16,800,000.00 16,800,000.00 16,800,000.00 16,800,000.00 84,000,000.00
Variable Cost 10,800,000.00 10,800,000.00 10,800,000.00 10,800,000.00 10,800,000.00 54,000,000.00
Contribution Margin 6,000,000.00 6,000,000.00 6,000,000.00 6,000,000.00 6,000,000.00 30,000,000.00
Fixed Cost 5,820,000.00 5,720,000.00 5,720,000.00 5,720,000.00 5,720,000.00 28,700,000.00
Operating Income 180,000.00 280,000.00 280,000.00 280,000.00 280,000.00 1,300,000.00

*This forecast is based on the indicated estimated number of bricks to be sold annually. Based on the computation, we can see that annually the
project is gaining a profit but it was not sufficient enough to earn more to return the initial investment of 10M Rupees. Therefore, it will only
result as a loss to the Partners with the amount of 8,700,000 Rupees.
*This forecast is based on the indicated estimated number of bricks to be sold annually. Based
on the computation, we can see that annually the project is gaining a profit, but it was not
sufficient to return the initial investment of 10M Rupees. Therefore, it will only result to loss
with the amount of 8,700,000 Rupees.

FLY ASH BRICK PROJECT

Manufacturing Company
Projected Income Statement for 5 years
* Assumptions:
* all sales are made in cash
* Water Supply Arrangement is accounted as minor expense, therefore it should be included on 1st year fixed administrative expense

FORECAST BASED ON PLANT MANUFACTURING CAPACITY

Units 4,000,000.00

Y1 Y2 Y3 Y4 Y5 Total
Sales 28,000,000.00 28,000,000.00 28,000,000.00 28,000,000.00 28,000,000.00 140,000,000.00
Variable Cost 18,000,000.00 18,000,000.00 18,000,000.00 18,000,000.00 18,000,000.00 90,000,000.00
Contribution Margin 10,000,000.00 10,000,000.00 10,000,000.00 10,000,000.00 10,000,000.00 50,000,000.00
Fixed Cost 5,820,000.00 5,720,000.00 5,720,000.00 5,720,000.00 5,720,000.00 28,700,000.00
Operating Income 4,180,000.00 4,280,000.00 4,280,000.00 4,280,000.00 4,280,000.00 21,300,000.00

*Assuming all 4,000,000 manufactured bricks can be sold annually, the proposed project will
earn a total profit of 11,300,000 after the payment of bank loan with principal amount of Rs
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Master of Business Administration

4,000,000 and returning the Rs 6,000,000 Partners' Investment.

FLY ASH BRICK PROJECT

Manufacturing Company
Projected Income Statement for 5 years
* Assumptions:
* all sales are made in cash
* Water Supply Arrangement is accounted as minor expense, therefore it should be included on 1st year fixed administrative expense

FORECAST BASED ON 80% PLANT MANUFACTURING CAPACITY

Units 3,200,000.00 3,200,000.00

Y1 Y2 Y3 Y4 Y5 Total
Sales 22,400,000.00 22,400,000.00 22,400,000.00 22,400,000.00 22,400,000.00 112,000,000.00
Variable Cost 14,400,000.00 14,400,000.00 14,400,000.00 14,400,000.00 14,400,000.00 72,000,000.00
Contribution Margin 8,000,000.00 8,000,000.00 8,000,000.00 8,000,000.00 8,000,000.00 40,000,000.00
Fixed Cost 5,820,000.00 5,720,000.00 5,720,000.00 5,720,000.00 5,720,000.00 28,700,000.00
Operating Income 2,180,000.00 2,280,000.00 2,280,000.00 2,280,000.00 2,280,000.00 11,300,000.00

* Based on the computation based on the 80% Plant Manufacturing Capacity, the Bank Loan and Investment of partners can be returned after its
5-year term (which consist of 4M Bank Loan, 6M investment). However, the total income earned from year 1 to year 5 will only result to
1,300,000 Rs after the return of investment and payment of loan.
*This computation is based on the 80% Plant Manufacturing Capacity, the Bank Loan and
Investment of partners can be returned after its 5-year term (which consist of 4M Bank Loan,
6M investment). However, the total income earned from year 1 to year 5 will only result to
1,300,000 Rs after the return of investment and payment of loan.
Alternative Course of UTILIZATION OF LOW-COST MATERIALS
Action 1
Advantage/s: To reduce expenses, the company may opt
to use low-cost materials. Instead of
buying materials from merchandiser, they
may choose to buy materials from direct
supplier which can offer lower price. When
the production costs are lower, the price of
the finished product will also be lower than
the other competitors, which results to
more profit and creates interest among
buyers.
Disadvantage/s The negative side of using low-cost
materials is the high demand. Because of
the lower price, the direct supplier may
experience a shortage on supplying
materials especially if many are availing
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Master of Business Administration

due to its low price.

Alternative Course of MARKETING STRATEGY
Action 2
(TO PROMOTE PRODUCTS THROUGH
ADVERTISEMENTS
Advantage/s Since the company is new and introducing
a new product to the market,
advertisements will be helpful in
disseminating information. This will allow
the company to give exposure to the
product that can be of help in finding the
right audience. While doing so, it will also
educate the customers about the positive
impact of using fly ash bricks.
Disadvantage/s As a new business, advertising is an
important way to promote a product, but it
can be also expensive. It will serve as a
great way to get the word out about a
product however it will not guarantee the
sales. This strategy can create a positive
buzz about the company but will not
necessarily lead to any sales.
Alternative Course of EXPLOIT OPPORTUNITIES (JOINT VENTURE)
Action 3
Advantage/s Consider working in partnership with other
businesses that may offer complementary
services to yours may help them in
reaching their goals in a short period of
time.
Disadvantage/s One challenge that a budding business can
go through is to develop business beyond
their capacity. High demand from partners
may result to insufficient supply, which
may lead to breach of contract or penalty.
Recommendation To answer the Statement of the Problem whether this project
be financially profitable in 5-year time, considering its loan
obligations and expenses, we’ve come up with 3 questions in
regards with the decision, forecast and course of action.
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Master of Business Administration

Should they push through the business?

Our answer is Yes, if this will be based on our forecast on the
plant manufacturing capacity. However, considering this
forecast may result to the over utilization of the equipment.

Which forecast should be recommend?

Our final recommendation is to make at least 80% of plant’s
capacity which may produce a profit of 1,300,000 after paying
bank loans and returning the partners investment.

Lastly, what is our alternate course of action?

We recommend Sharma and Alok to exploit opportunities and
consider working in partnership with other businesses, for
them to have a consistent client who they can directly supply
bricks. This action will also result to more employment in the
fly ash brick sector, boosting the economy and will also help
the government’s problem regarding the waste from thermal
power plants.
Key Takeaways Information Technology Sector: INNOVATION

“THE BEST WAY TO PREDICT THE FUTURE IS BY

CREATING IT."

Effective business processes and IT systems share the same

goals: to provide efficiency, and objective data to make
appropriate business decisions. For Vanessa, having a career in
the Information Technology sector is almost like being a
businessman, ONE MUST INNOVATE TO THRIVE. Much
like setting up a manufacturing plant, developing and
maintaining websites and systems also needs proper planning,
thorough research and enough resources. To provide
convenience to the client and making sure that the information
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Master of Business Administration

they need will be accessible online is number one priority.

Human Resource: INVESTMENT

"WHEN INVESTING, WHAT IS COMFORTABLE IS

RARELY PROFITABLE"

Working in the Human Resource department is almost the

same as investing, as it entails finding the most effective ways
of developing and nurturing people while making sure that the
company is thriving. When they refer to the decision making
in HR, it means all people processes are involved. The
decisions taken within this function or by it, cover the entire
employee's lifecycle from the time potential talent is identified,
to the hiring, performance management, compensation and
offboarding. Much like using CVP Analysis, HR professionals
use data to understand how employees work at their best, and
what factors affect their work behavior. This analysis helps
them in understanding employee needs, sorting out employees
who are performing well and those who need further training,
as well pointing to which HR practices are successful and
which need to change.

Finance Department: CASH MANAGEMENT

“MAKING MORE MONEY WILL NOT SOLVE YOUR

PROBLEMS, IF CASH FLOW MANAGEMENT IS YOUR
PROBLEM”

Proper cashflow management is one of the keys for future

PHILLIPINE CHRISTIAN UNIVERSITY
GRADUATE STUDIES
Master of Business Administration

growth of the company. Even if a company is making a profit

by making more revenue than it incurs in expenses, it will have
to manage its cash flow correctly to be successful. Since
“cash” is the primary asset used to pay obligations, Julie
Anne's role also deals with the proper management of money
in order to maximize earnings. Processing payments, cash
budgeting and collecting income is the primary responsibility
which has a big impact in the agency’s operation. In relation to
the case study, Rajiv and Alok will need someone to help them
manage the company’s cash inflow and outflow in the future.

Audit Department: DATA ANALYSIS

"YOU CAN'T IMPROVE WHAT YOU DON'T MEASURE”

Starting a business can be likened to performing an audit

engagement, in which a comprehensive plan is prepared to
achieve the audit objectives. Just like costs, the scope of the
audit engagement is identified, and the required days are
measured to complete all the tasks at hand. These factors help
the leadership decide on additional staffing or limiting the
audit scope to achieve the audit objectives and meet the
management's expectations.

From Finance Department: DECISION MAKING

"WHENEVER YOU SEE A SUCCESSFUL BUSINESS,

SOMEONE ONCE MADE A COURAGEOUS DECISION”
PHILLIPINE CHRISTIAN UNIVERSITY
GRADUATE STUDIES
Master of Business Administration

Business success depends on the decisions made by its leaders

and managers. As companies focus on achieving goals, many
factors like time and budget come into play. Making mistakes
is costly, so businesses need to be cautious when it comes to
making decisions. The decision-making process sets out to
lead organizations to their desired outcomes. Decisions have to
be clear and definite. They need to outline goals, methods,
processes, and even potential challenges. Establishing a clear
and organized process helps in reducing setbacks along the
way.