Cost Analysis of Apollo Tyres

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TABLE OF CONTENTS

ACKNOWLEDGEMENT.................................................................................................................................3
EXECUTIVE SUMMARY.................................................................................................................................4
INTRODUCTION...........................................................................................................................................5
APOLLO TYRES LTD:.................................................................................................................................5
COST SHEET.................................................................................................................................................5
CLASSIFICATION OF COSTS..........................................................................................................................5
Prime cost:...............................................................................................................................................5
Factory/Works Cost:................................................................................................................................6
Cost of Production (COGM):....................................................................................................................6
Cost Of Goods Sold (COGS):.....................................................................................................................7
ASSUMPTIONS AND CRITERIA FOR ALLOCATION OF COST......................................................................8
ANALYSIS OF COST SHEET: 2008..................................................................................................................9
Break-up of Raw Material consumed:...................................................................................................10
ANALYSIS OF COST SHEET: 2009................................................................................................................11
Break-up of Raw Material consumed:...................................................................................................12
ANALYSIS OF COST SHEET: 2010................................................................................................................13
Break-up of Raw Material consumed:...................................................................................................14
COST ANALYSIS:.........................................................................................................................................15
Prime Cost Analysis:..............................................................................................................................15
Work Cost Analysis:...............................................................................................................................17
Cost of production:................................................................................................................................17
Cost of Goods Sold:...............................................................................................................................18
Fixed costs:............................................................................................................................................18
Variable Costs:.......................................................................................................................................20
Analysis of the Sales, Variable costs, Fixed costs, Contribution, P/V Ratio and Break-even point:........22

2
ACKNOWLEDGEMENT

This report has been very important to us as it has given us an opportunity to learn how to go
about analysing the cost structures and various financial sheets of a company. It has also given us
a opportunity to learn a few nitty gritties about the India tyre industry and how Apollo being a
Local player is making its presence felt globally. It has also helped us in think about all the
scenarios which could affect our study, which we will be able to carry forward in our lives. For
all this we would like to thank Prof. Subha Kant Padhi , our course instructor, who apart from
going about the course in a wonderful manner has also been was very forthcoming with any
guidance or clarification that we required and also giving us hints from time to time.

We would also like to thank our friends, family and compatriots here at XIMB for giving their
valuable support and ideas on how to go about the analysis.

3
EXECUTIVE SUMMARY

This review and study focuses on the various cost components over the last 3 financial years
starting from 2007-08 till the last financial year 2009-10.

The global economic downturn during 2008 had impacted businesses worldwide. The Apollo
Tyres Ltd. was a no different case where operations and profitability also have been affected.
The high price of raw material in the fiscal year was a precursor to the slowdown that was seeded
by the sub-prime crisis in the USA. The prices of natural rubber shot through the roof taking its
toll on the profit margin. The steep fall in demand coupled with the steep price of raw materials,
eroded what could has been a very profitable two years. Despite the fall in raw material prices
over the years, the average procurement cost remained high but the company was still able to
register a profit due to judicious planning and sales.

The major concern was the spiralling prices of natural rubber to current all time highs, which
have sharply impacted the Indian operations, the company has been quick to react to the
changing environment as it has been able to liquidate the inventories, as a result of which it is
uniquely poised to take advantage of the softer raw material prices in the coming year. Though
the natural rubber prices were high locally they couldn’t even import the resource due to the new
duty policy of the Indian government and hence led to the increase in price to the customers.
This had led to them believing that there are more opportunities abroad than in India and that
also proved right by the successful takeover of Dunlop in South Africa and revamping it to
obtain profits. Overall the company has increased its operational efficiencies and fine tuned its
manufacturing processes. The awarding of the Gold Certificate to Apollo at the India
Manufacturing Excellence Awards is a reflection of company’s endeavours.

4
INTRODUCTION
APOLLO TYRES LTD:

Apollo tyres Ltd. the 15th largest tyre manufacturer, with annual revenues of Rs. 81 million (US$
1.8 million) as of December 2010 was commissioned by Peramba, Kerala in 1976 when it got
itself registered, and from there on it has gone on to become one of the largest industrial houses
in India. After the acquisition of Dunlop Tyres International of South Africa in 2006 it now has
four manufacturing units in India at Cochin in Kerala, Limda in Gujarat, Perambra in Kerala,
Chennai in Tamil Nadu, two in South Africa at Durban and at Harare, one in Bulawayo,
Zimbabwe and one in Europe at Enschede in Netherlands. In India it houses 4000 dealership and
2500 exclusive outlets and in South Africa it has 900 dealership outlets of which 190 are Dunlop
Accredited dealers.

Apollo tyres garner 58% of its revenue from India, 28% from Europe and 13% from Africa and
plan to become the 10th biggest player in the tyre industry with annual revenues of $5 million.

COST SHEET
Cost Sheet is a statement, which shows various components of total cost of a product. It
classifies and analyses the components of cost of a product. Previous period’s data is given in the
cost sheet for comparative study. It is a statement which shows per unit cost. The details of total
cost presented in the form of a statement are termed as Cost sheet.

CLASSIFICATION OF COSTS
Prime cost:

It is defined as the cost of material and labour to make a product.

It consists of only the direct costs and not the overheads. 3 main components of Prime costs are:-
1. Direct Materials
2. Direct Labour
3. Direct Expenses

Direct Materials: Cost of those materials which enter into and form part of the product.
Direct materials include:
 All materials used for a particular process
 All components used in production
 All primary packing materials

Direct Labour: Cost of wages paid to operatives who help in the construction, composition
and conformation of the product manufactured by the concern.

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 Direct Expenses: Cost directly identified with a job, process or operation but are neither
direct material cost nor direct labour cost.These expenses are not incurred while the job is in
process of execution.

Factory/Works Cost:

It is defined as the sum of prime cost and absorbed production overheads.

Absorbed Production Overhead: Refers to the production overhead which, by means of

absorption rates, is included in costs of specific products or saleable services in a given
period of time. There are various components of production overhead such as:
 Repair & Maintenance Cost
 Power & Fuel cost
 Rents
 Taxes
 Depreciation of building, plants, machineries etc.
Net Factory/Works Cost is obtained by adding opening work-in-progress (WIP) and
subtracting closing work-in-progress (WIP) to Gross Factory/Work Costs.

Cost of Production (COGM):

It is defined as total costs during an Accounting Period of all goods produced, which includes
costs of material, labour, and overhead, whether fixed or variable. Mathematically, it is the sum
of Factory/Works Cost and administration overheads.

Administration Overhead: It refers to the cost of management, and of secretarial, accounting

and administrative services, which cannot be directly related to production, marketing, and
research or development functions of the enterprise. In short, administration expenses are in
the nature of indirect expenses and include the following:
 Salaries of office staff, accountants, directors, etc.
 Maintenance of factory estate.
 Rents, rates and depreciation of office buildings.
 Postage, stationary, telephone, etc.
 Office supplies and expenses.
 General administration expenses.
Cost of production available for sale can be obtained by adding opening finished goods and
subtracting closing finished goods to cost of production (COGM).

Cost Of Goods Sold (COGS):

6
The direct costs attributable to the production of the goods sold by a company. This amount
includes the cost of the materials used in creating the good along with the direct labour costs
used to produce the good. It excludes indirect expenses such as distribution costs and sales force
costs. COGS appear on the income statement and can be deducted from revenue to calculate a
company's gross margin. Mathematically, cost of goods sold (COGS) is the sum of cost of
production (COGM) and marketing cost or selling and distribution overhead.

Selling & Distribution Overhead: The cost incurred in researching the potential markets and
promoting products in suitably attractive forms and at an acceptable prices. These are further
analyzed into:
1. Selling Cost
2. Publicity Cost
3. Distribution Cost

Selling Cost: It refers to the cost incurred in securing orders, usually including salesman’s
salaries, commissions and travelling expenses. Other examples are: rent of sales rooms and
offices, training of salesman and sales staff, cost of preparing tenders for special sales, cost of
after-sales services etc.

Publicity Cost: It represents:

 Cost incurred in advertising and promotion as aids to eventual sales of goods and
services.
 Cost incurred in advertising and promotion of an entity as distinct from its products or
services (public relation).

Distribution Cost: It is the cost incurred in warehousing saleable products and in delivering
products to customers. It includes rent, rates and depreciation of warehouses, cost of
insurance, freight, export duty, parking, shipping, maintenance of transport vans, etc.

ASSUMPTIONS AND CRITERIA FOR ALLOCATION OF COST

 The cost sheet and comparative study has been done for one product (storage media)
produced by the company from the financial statements.
 Sales volume is not given in financial statements and we have used mechanism of inventory
adjustment using FIFO to find the number of units sold.

Formula for calculating number of units sold

Units Sold = Opening Inventory Units (Last Year Price) + Number of Units Produced –
Closing Inventory Units (Current Year Price)

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 Packing material includes protective film (as per Annual reports) used for storage material
and thus relates to primary packaging expenses and thus it has been considered in Direct
Expenses.
 Royalty is paid for production rights and thus it is considered in direct expense.
 Depreciation cost has been apportioned as per cost elements from Schedules available in
Annual Report of the company.
 Cost of software, technical know-how and copyrights are indirect costs to production and
have been therefore included in Administration Overheads.
 Marketing and Distribution rights cost has been included in Selling and Distribution
Overheads.
 General staff expenses like director’s fees and remuneration to auditors have been included
in Administration Overhead as they represent indirect supervision and management cost.
 Details for miscellaneous expenses are not available in annual reports and same has been
considered in factory cost by us.

ANALYSIS OF COST SHEET: 2008

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Cost-sheet-2008 Rs (in million) %of total cost
Direct Material
Raw materials Consumed 23930.19
Less: Scrap Recoveries 80.59
23849.6
Change in inventory level -513.24
Purchase of finished goods 1035.08
24,371.44 75.6%
Direct Labour
Salaries, wages and bonus 1855.75
Contribution to provident and other funds 115.38
Welfare expenses 299.42
2,270.55 7.04%
Direct Expense
Direct expense

Prime Cost 26,641.99 82.65%

Production/Factory Overheads
Stores and machinery spares consumed (including loose tools) 270.81 0.84%
Power and fuel 1348.15 4.18%
Insurance 65.58 0.20%
Repairs and maintenance
(a) Buildings 21.03 0.07%
(b)Plant and machinery 66.26 0.21%
(c)Others 122.56 0.38%
Rent 93.8 0.29%
Lease Rent 200 0.62%
Conversion Charges 448.91 1.39%
Research and Development 107.42 0.33%

2744.52 8.51%

9
`

Administration/office overheads
Legal and professional charges 101.15 0.31%
Travelling expenses 394.04 1.22%
Miscellaneous 407.16 1.26%
Director sitting fee 0.92 0.00%
Rates and Taxes 74.88 0.23%
Postage and telephone 63.86 0.20%
Bank Charges 48.61 0.15%
1090.62 3.4%

Cost of Production 30,477.13

Sales & Distribution Overheads

Advertisement/Promotion 859.48 2.67%
Freight 851.15 2.64%
Commision 43.57 0.14%
Provision for doubtful advances 2.25 0.01%
1756.45 5.4%

Cost of Goods Sold 32,233.58

Among all cost units in comparison to total cost, Raw Materials cost is highest and is around 75.6% of
total cost which is an expected phenomenon in a manufacturing company. The cost of direct labour is
around 7.04% which is again within standards of manufacturing companies. The prime cost is around
82.65% of the total cost. The factory overheads are totalling up to 8.51% while the Cost of Production is
around 94.6% of the total cost. Hence the Selling and distribution overheads form 5.4% of the total cost,
which is justified as tyre manufacturers need not spend too much on advertising and promotions and
distribution on account of their direct tie-ups with automotive manufacturer companies.

Break-up of Raw Material consumed:

%of total raw
Tonnes Rs(in million)
Particulars material cost
Fabric 24929.93 4193.56 15.0%
Rubber 139664.3 13490.96 48.1%
Chemicals 21460.37 1953.54 7.0%
Carbon Black 69256.16 2817.91 10.0%
Others 1474.22 5.3%
Total 23930.19

This kind of a distribution is in line with manufacturing industry like tyres where the major costs are
incurred in manufacturing, a small part of the costs is in Sales and Distribution and Administrative &
Factory overheads for only a small part of the total costs.

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ANALYSIS OF COST SHEET: 2009

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Cost-sheet-2009 Rs (in million) %of total cost
Direct Material
Raw materials Consumed 28,042.63
Less: Scrap Recoveries 95.99
27946.64
Change in inventory level 374.09
Purchase of finished goods 1162.04
29,482.77 78.5%
Direct Labour
Salaries, wages and bonus 1654.32
Contribution to provident and other funds 129.31
Welfare expenses 291.83
2,075.46 5.52%
Direct Expense
Direct expense

Prime Cost 31,558.23 84.01%

Production/Factory Overheads
Stores and machinery spares consumed (including loose tools) 271.69 0.72%
Power and fuel 1492.94 3.97%
Insurance 60.26 0.16%
Repairs and maintenance
(a) Buildings 27.63 0.07%
(b)Plant and machinery 59.48 0.16%
(c)Others 126.89 0.34%
Rent 103.01 0.27%
Lease Rent 250 0.67%
Conversion Charges 539.09 1.44%
Research and Development 195.75 0.52%

3126.74 8.32%

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 Administration/office overheads
Legal and professional charges 140.1 0.37%
Travelling expenses 434.04 1.16%
Miscellaneous 223.06 0.59%
Director sitting fee 0.98 0.00%
Rates and Taxes 74.11 0.20%
Postage and telephone 64.63 0.17%
Bank Charges 61.14 0.16%
998.06 2.7%

Cost of Production 35,683.03

Sales & Distribution Overheads

Advertisement/Promotion 913.69 2.43%
Freight 879.37 2.34%
Commision 50.04 0.13%
Provision for doubtful advances 38.87 0.10%
1881.97 5.0%

Cost of Goods Sold 37,565.00

From the analysis of cost sheet we see cost of direct material which includes raw material as well as cost
of finished goods constitute about 78.5 % of total cost. This is also attributed to continued increase in the
cost of natural rubber which touched a peak of Rs 142 /kg in August 2008. Also Crude oil touched a high
of US $ 145 per barrel in July 2008. As evident from break-up of raw materials quantity of Rubber and
Fabric used has reduced from 2008 to 2009 but despite that the costs have increased.

Break-up of Raw Material consumed:

%of total raw
Tonnes Rs(in million)
Particulars material cost
Fabric 23131.64 4450.73 15.9%
Rubber 131090.1 16225.1 57.9%
Chemicals 20795.05 2041.15 7.3%
Carbon Black 64344.1 3447.97 12.3%
Others 1877.68 6.7%
Total 28042.63

The cost of direct labour is around 5.52% which is again within standards of manufacturing companies.
The prime cost is around 84.01% of the total cost. The factory overheads are 8.32% while the Cost of
Production is around 95% of the total cost. Hence the Selling and distribution overheads form 5.0% of the
total cost, which is justified as tyre manufacturers need not spend too much on advertising, promotions &
distribution on account of their direct tie-ups with automotive manufacturer companies. This kind of a
distribution is in line with manufacturing industry like tyres where the major costs are incurred in
manufacturing and a small part of the costs is in Sales and Distribution.

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ANALYSIS OF COST SHEET: 2010

14
Cost-sheet-2010 Rs (in million) %of total cost
Direct Material
Raw materials Consumed 30,579.03
Less: Scrap Recoveries 129.36
30449.67
Change in inventory level -261.74
Purchase of finished goods 1516.83
31,704.76 74.8%
Direct Labour
Salaries, wages and bonus 2,374.33
Contribution to provident and other funds 144.35
Welfare expenses 376.07
2,894.75 6.83%
Direct Expense
Direct expense

Prime Cost 34,599.51 81.58%

Production/Factory Overheads
Stores and machinery spares consumed (including loose tools) 343.67 0.81%
Power and fuel 1634.7 3.85%
Insurance 53.22 0.13%
Repairs and maintenance
(a) Buildings 27.17 0.06%
(b)Plant and machinery 72.77 0.17%
(c)Others 183.17 0.43%
Rent 134.78 0.32%
Lease Rent 250 0.59%
Conversion Charges 711.41 1.68%
Research and Development 229.27 0.54%

3640.16 8.58%

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 Administration/office overheads
Legal and professional charges 262.09 0.62%
Travelling expenses 454.74 1.07%
Miscellaneous 494.28 1.17%
Director sitting fee 0.9 0.00%
Rates and Taxes 90.93 0.21%
Postage and telephone 80.63 0.19%
Bank Charges 73.72 0.17%
1457.29 3.4%

Cost of Production 39,696.96

Sales & Distribution Overheads

Advertisement/Promotion 1541.5 3.63%
Freight 1124.41 2.65%
Commision 40.78 0.10%
Provision for doubtful advances 8 0.02%
2714.69 6.4%

Cost of Goods Sold 42,411.65

This year also the cost structure is similar as expected. Cost of Direct material constituted around 74.8%
which was again the biggest chunk of total cost but relatively less than last fiscal. It was highest because
again rubber continued to move upward as evident from the fact that rubber prices jumped from Rs100/kg
in June 2009 to Rs 140/kg in December 2010. But it was relatively less than last year as crude oil prices
remained stable at US$ 70-80 per barrel.

Break-up of Raw Material consumed:

%of total raw

Particulars Tonnes Rs(in million) material cost
Fabric 29971.98 5316.18 17.4%
Rubber 161008.8 17124.96 56.0%
Chemicals 25802.94 2348.81 7.7%
Carbon Black 78388.82 3698.15 12.1%
Others 2090.93 6.8%
Total 30579.03

The cost of direct labour is around 6.83% which is again within standards of manufacturing companies.
The prime cost is around 81.58% of the total cost. The factory overheads are totalling up to 8.58%
while the Cost of Production is around 93.6% of the total cost. Hence the Selling and distribution
overheads form 6.4% of the total cost.

This kind of a distribution is in line with manufacturing industry like tyres where the major costs are
incurred in manufacturing, a small part of the costs is in Sales and Distribution and Administrative &

16
Factory overheads for only a small part of the total costs.

COST ANALYSIS:

Prime Cost Analysis:

As can be observed from the data the prime cost initially increased by 18.4% from 2008 to 2009 and then
increased by 9.63% from 2009 to 2010. A closer look at the data reveals the following:

 The primary reason for the increase is due to increase in the purchase of raw materials. This could
be probably be due to the fact that the company was moving out of recession because of which Sales was
increasing and thus to meet the demand more raw materials needed to be procured.

 In the year 2009 the inventory is actually reduced, this could be because the company was
conservative in their growth estimate. Their sales expectations were not very high but with the economy
recovering the company used a part of its inventory to meet its demand.

 In the year 2009, there is a decrease in the cost of labour by 12.2 % whereas it increased by
43.5%. This data again corroborated with the global recession. Due to recession there were certain cost
control measures like employee layoff. Due to this there is a reduction in the cost of wages of employees.
However in 2010, the growth is due to hiring of employees to meet the new demand as the economy was
reaching pre-crisis growth levels.

Prime cost consists of Direct Material and Direct Labour. The former contains components of cost such as
the purchase of raw materials and finished goods. Also it captures the change in inventory over the
financial period. The latter consists of salaries, wages and bonuses of employees/workers apart from the
benefits that they are entitled to such as PF and welfare expenses.

The change in the cost components of Direct Material over a period of three years is as shown below:

17
 40,00...

30,00...
2009-2010
20,00...
2008-2009

2007-2008
10,00...

.
R

...
g..

ch
an

r
Pu
Ch

-10,00...

We can observe a rising trend in the raw materials component, while there is a marked reduction in the
inventory levels in 2010 which can be attributed to an increase in demand, requiring quantity to be taken
out of inventory in hand.

Similarly, the change in cost components of Direct Labour over the last three years is as below:

2,500.00

2,000.00
2009-2010
1,500.00
2008-2009
1,000.00

500.00 2007-2008

0.00

There has been a significant increase in the salaries, wages and bonuses component in 2010 as compared
to the previous year.

Work Cost Analysis:

As can be observed from the data the work cost decreased by 13.92% from 2008 to 2009, whereas it
increased by 16.42% in the year 2010.

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 The increase in the year 2010 is largely due to the increase in the cost of 26.5% in the stores and
machinery spares used. This is again due to the increase in the production to match the increase in the
demand.

 The power and fuel costs have also shown an increase of 9.5% in the year 2010 which was offset
by a decrease in the cost of insurance by about 11.6%

 The cost of rent has also been increased by a huge percentage of 30.84% and the other cost of
repair and maintenance has also increased by an amount of 44%.

Cost of production:

As can be observed from the data the cost of production increased by 17.1% in the year 2009, whereas it
increased by 11.2% in the year 2010. A closer look at the data reveals the followings:

 Apart from the reasons mentioned above, the cost of production is impacted because of the
following reasons. In the year 2010 the increase is due to the increase in the miscellaneous expenses by a
tremendous amount of 321.6%.

 There is also an increase in the legal and professional charges by 87.07% in the year 2010. This
along with the increase in the miscellaneous expenses is one the prime reasons from the increase in the
administration overhead costs.

 Thus the raw materials procurement, along with salaries and other cost used to produce goods
have shown an increase in the year 2010. The main reason is that the economy was moving out of the
recession and increase in growth boosted sales thereby increasing production.

 The conversion charges have also shown a tremendous increase of 31.96% in the year 2010 due
to which there is an increase in the cost of production.

The changing trend in production cost can be seen from the below diagram.

19
 35,000.00 2009-2010
30,000.00
25,000.00 2008-2009
20,000.00
2007-2008
15,000.00 2007-2008
10,000.00
2008-2009
5,000.00
0.00 2009-2010
. ... .
-5,000.00 a.. n s, ..
m ei ie
Ra
w
an
g lar
Ch Sa

Cost of Goods Sold:

 The advertisement cost has increased tremendously by about 68.71%, which is primarily due to
an aggressive advertisement and promotion campaign used by the company in the recent year.
 The increase in freight charges is primarily due to increase in the quantity of sales in the year
2010.
 There has been a huge decrease of 79% in the provision for doubtful advances in the year of
2010, this again shows that the company was getting increase confidence in the economy.

Fixed costs:

The Fixed Costs for Apollo Tyres consists of various components which is not surprising for a well
established company. From the chart it is evident that the major contribution to Fixed Costs is from
Advertising and promotion efforts taken over the year. This is complemented with an increase in sales for
the year which indicates that the promotional efforts have paid off. Also, the company is paying a
substantial amount on rent for its various premises across the country, both leased as well as owned.

20
It is also evident from the figure below that when compared over the last three years, very few costs have
gone up in the year 2010 as compared to the previous two years. The most significant increase is in the
advertising and promotions component. Other costs have remained almost constant.

A minor increase in rates, taxes, bank charges and rent can be attributed to the increase in lending rates by
the Central Bank of India as anti-inflationary measures. This has resulted in an increase in certain fixed
costs for all companies with production centres in India. This trend is visible from the figure below which
shows a slight increase in certain fixed cost components.

21
 1600
1400
1200
1000
800 2009-2010
600
400 2008-2009
200
2007-2008
0
e s y s t t s s s e s e s n s
anc ing ner ther Ren Ren rge rge ou g fe axe on rge tio nce
r ild hi e a a e n T p h a o a
su Bu ac O as Ch ch lan tti d le Ch om dv
In m Le ion nal scel r si s an d te ank /Pr ul a
nd rs sio Mi ecto Rate an B ent btf
n ta n ve fes ir g e m ou
Pl
a Co pro D sta tise r d
Po r o
nd ve n f
la a Ad isio
g ov
Le Pr

Variable Costs:

Variable Costs have a significant bearing on the total cost of production for the company. The various
components of variable costs for Apollo Tyres can be viewed in the figure above along with their
respective percentage shares in the total variable cost. It is evident that major cost component is Direct
Materials which can be attributed to the cost of raw materials. There is also a marked decline in the
inventory of goods thus indicating an increase in demand levels which were met by inventory on hand.
There were also some purchases of finished goods.

The second biggest contributor to variable costs is the Direct Labour component which includes salaries,
wages and bonuses of workers, apart from the benefits provided to them such as PF and welfare expenses.

22
 Direct Materials

Direct Labour

Stores and machinery

spares consumed
(including loose tools)

Power and fuel

Research and
Development

Travelling expenses

Freight

Commision

A comparison of the different cost levels of variable cost components in the last three years is as shown
below. From this we can infer that there has been a steady rise in the cost of Direct Materials over the last
three years.

35000
30000
25000
20000
15000
10000 2009-2010
5000 2008-2009
0 2007-2008

23
Analysis of the Sales, Variable costs, Fixed costs, Contribution, P/V Ratio and Break-even
point:

 The total sales value has been increasing over the years. It showed a growth of 7.12% in 2009
whereas a growth of 19.25% in 2010. Thus the company sales have been a positive growth; however the
growth percentage more than doubled in 2010 primarily due to the increase in the demand in the world
economy.
 The total variable costs too have increased over the years. It increased by 17.71% in 2009 as
compared to 10.2% increase in the year 2010. This is largely due to the increase in the cost of raw
materials like fabric rubber, chemicals and carbon black along with the increase in the cost of labour. It
should be noted that the increase in the cost of materials in 2009 was higher compared to the increase in
2010 due to which the percentage growth in 2010 is lower when compared to that in 2009.
 The fixed cost did not show much deviation in 2009; however in 2010 there was a huge increase
in the fixed cost by about 42.42%. This is primarily because of increase in the production which increased
factory costs. To expand production new factories and machines were used which increased factory rent
costs as well as machine repair and maintenance costs.
 The contribution decreased in the year 2009 by 16.34%. An important issue to note here is that
although sales increased by 7.12% in 2009, contribution actually decreased. This is primarily due to the
increase in the variable costs. The variable cost increased by a greater percentage as compared to sales
due to which the contribution actually decreased in 2009. In 2010 the contribution increased by huge
amount of 47.38%. The reason for this was an increase in the sales value by 19%. The variable cost
however increased by only about 10%. It was primarily thus due to this reason that the contribution
increased tremendously in 2010. The reason could also be given to the growth in the economy post the
recession. The demand of the products increased which boosted sales, and also provided economies of
scale in production.
 The P/V ratio also showed a reduction in the year 2009. It stood at a value of 24% as compared to
31% in 2008. This is largely due to decrease in the contribution and increase in sales during the period.
Decrease in contribution and increase in sales both led to a reduction in the contribution. However in the
year 2010 the contribution again increased to a value of 30% of sales.
 The Break-even point has shown a constant increase over the years. In 2008 the value was at
10195.56 million rupees, whereas in 2009 it was 12835.56 million rupees and 14791.22 million rupees in
2010. The break-even point increased in 2009 due to a reduction in the P/V ratio. However it increased in
the year 2010 due to an increase in the fixed cost as compared to 2009. Thus the break-even point has
shown an upward trend in the last three years.

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