Chapter:1 Executive Summary

Steel is a product of capital intensive and complex industry that requires national attention for its development. The demand of steel is a basically derived a demand, growth in the industry is dependent on the level of activity of the steel consuming industries specifically the construction, automotive, appliances and other consumer durables. The steel industry is in the threshold of a new era. The departure from a regime of control of free marker, from protection to completion, from public sector to private investment and from an Inward marketing policy to a global vision has all placed. The industry in a course of development and that has been endless opportunities and also at the same time stiff challenges and a terrain of uncertainty to improve its strength and competitive edge to product good quality products at lower prices. Steel is crucial to the development of any modern economy and is considered to be the backbone of human civilization. The level of per capita consumption of steel is treated as an important index of the level of socio economic development and living standards of the people in any country. It is a product of a large and technologically complex industry having strong forward and backward linkages in terms of material flows and income generation. ll ma!or industrial economies are characterized by the existence of strong steel industry and the growth of many of these economies have been largely shaped by the strength of their steel industries in their initial stages of development.
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BSRM Steels ltd. is a part of BSRM group. The owner of BSRM group (Mr. Akberali A. Africawala) introduced BSRM Steels ltd. BS M Steels is a plant! where producing plain bars. Plain bar is a "ost i"portant raw "aterial construction. As we know that ho"e is an essential need for e#er$ hu"an and rod is essential for e#er$ hu"an and rod is essential for building ho"e. BSRM steels want to achie#e a lucrati#e "arket. %e think the$ can fulfill their target. The$ can take "arket b$ o#erco"e all barriers. Their "ain barrier is their co"petitors. The$ can o#erco"e tier weakness and handle their threat. The purpose of this research is to find out the & p's (product! place! price and pro"otion) which "ake it totall$ e(ceptional fro" others. )or this anal$sis! we had to find target "arket! "arket seg"entation! positioning and "arketing "i(! their "a*or co"petitors and so far. +n product the$ gi#e so "an$ ser#ices which gi#e the satisfaction to their custo"er and the$ ha#e so "an$ #erities and don't co"pro"ise in ,ualit$. The$ take so "an$ steps to set up right price for their product which don't disturb their custo"er and so "an$ steps in pro"otion and place. The basic finding fro" the anal$sis what we ha#e got is! BSRM steels is the "arket leader! the$ are #er$ concern about their ,ualit$ which we had said and the$ ha#e own brands and the$ are tr$ing to "ake "ore new brands. The$ ha#e alread$ co#ered "ost or seg"ent of "arket. At last the$ alwa$s tried to keep their brand in top of the "ind or custo"ers.

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Introduction
BSRM Steels ltd. pro#ides a #aluable ingredient for construction. BSRM (Bangladesh Steel Re.rolling Mills) group! the first co"pan$ which set up four "anual rolling "ills in 1/0- in the countr$. The$ are the first of "aking plain bars for construction. +n 1/12 an auto"atic billet based rolling "ill was installed with continuous up gradation. +t has a portfolio of business. 3ow the$ ha#e an own billet "aking plat! Meghna ngineering %orks. The two highwa$ bridges o#er the fi#ers Meghna and go"uti! the 4hittagong airport! the kafco fertili5er factor$ and so "an$ high prestigious pro*ects were then built with BSRM bars. BSRM Steels ltd. is a part of BSRM group. +t is the first co"pan$ of producing brand product and TMT (Ther"o Mechanical Ti") bar. +t was certified b$ +S6. +t "anufacturing factor$ is in )ou5derhat. The e,uip"ent of the "ill is fro" abroad. +t has a good brand i"age. )or that the$ are controlling leadership of "arket. BSRM Steels ltd. is also a public co"pan$ registered with both the 7haka and 4hittagong Stock (changes.

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Billet which con#erts fro" scrap in their sisters concern Meghna ngineering %orks is the "ain raw "aterials. The$ ha#e so "an$ products but the product which the$ ha#e onl$ is grade 099w. This is their brand product. The$ are tr$ing to produce "ore new brands for construction and the$ tr$ to produce their product keep the future en#iron"ent position in "ind.

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&

Chapter: 2

Company Background
BSRM Steel ltd. is a co"pan$ of BSRM groups. BSRM group was started its work in 1/0-. At that ti"e it was known b$ ast Bengal Steels ltd. Mr. Akberali A. Africawala was the founder and chair"an of it and Mr. Alihussain Akberali is the

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present chair"an of it. The$ ha#e portfolio of business. The$ ha#e the business of producing re.bars. There is so"e selected co"pan$'s na"e BSRM Wires ltd. BSRM Recycling ltd. Meghna Engineering Works ltd. (MEW) Karnaphuly Engineering Works ltd. (KEW) Chittagong power company ltd. (C C!) Their target "arket is indi#idual ho"e builders! engineer and architecture. %hen the$ co"e to the "arket the$ ha#e no co"petitors but now the$ ha#e so "an$ co"petitors but the$ are in top position in "arket fro their best ,ualit$. The$ alwa$s tr$ to fulfill their custo"ers de"and. At last there is ,uestion can rise to e#er$one's "ind and that is :7o the$ e(port their product:. The answer is ;3o! the$ don't e(port their product to abroad<.

Mission Statement
The$ don't define their "ission state"ent to gi#e it in "arket but the$ are working on it. The$ use a slogan for their product ;The ne(t generation steel<.

Strategic Vision
BSRM steels ha#e so"e strategic #ision. The$ tr$ to fill up their following #ision.
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 Be the "ost acceptable brand all o#er the countr$. >eep the "arket leadership and raise their i"age to their custo"ers. Produce 199? ha#ing ,ualit$ product. Aware to inno#ate new product! which has a strong de"and in "arket.

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Market Segmentation
+t "eans di#iding the "arket based on different characteristics. Market seg"entation is #er$ necessar$ for a co"pan$ to start a business. %ithout "arket seg"ent "ost of the co"panies cannot adopt a profitable business. The$ di#ide the "arket based on geographic and ps$chographic seg"ent.

@eographic Seg"ents
The$ deli#er their product inside of Bangladesh such as 7haka! Ra*shahi etc.

Ps$chographic Seg"ents
+n this seg"ent the$ "aintain the social class such as ngineer! Architect! indi#idual ho"ebuilders.

Target Marketing
All seg"ents are not e,uall$ profitable. A co"pan$ has to select one or two profitable seg"ents and BSRM steels seg"ent all the indi#idual builders.

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ositioning
Market positioning "eans how a co"pan$ wants to see their brand in the "ind of consu"er. Because custo"er look the perfor"ance and results of a co"pan$. There is positioning graph of BSRM Steels with their co"petitors.

Position Based on Price and Aualit$

)ro" abo#e the graph we can see that BSRM steel is fist in the position of their consu"er "ind and sa"e position is ha#ing in ,ualit$. >SRM is "ediu" in those two.

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Position Based on Production 4apacit$ and Ti"e

According to this graph! BSRM steels factories production capacit$ is in "ediu" le#el and their ti"e of producing product is in low side. That's "ean the$ don't need so "uch ti"e to produce. Their production capacit$ is 89!999". ton per "onth.

Positioning of Price
%e are sorr$ to sa$ we couldn't price positioning graph because the price depends on international "arket.

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!eve"oping Marketing Mix

&'ps is the i"portant part of an$ co"pan$ to go in a perfect position. %e ha#e done our work on these &' ps of BSRM Steel ltd.

Product 1. Barit$ -. Aualit$ 8. 7esign &. Si5e 0. )eatures =. Brand 3a"e 2. Ser#ice 1. %arrant$

Price 1. -. 8. &.

Cist Price 7iscount Allowance Pa$"ent Period 0. 4redit Ter"

Marketing Mi(
Pro"otion 1. Ad#ertising -. Personal Selling 8. Sales Pro"otion &. Public Relation Place 1. -. 8. &. 0. =. 4hannel 4o#erage Assort"ent Cocation +n#entor$ Transportation

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roduct
Product "eans the good and ser#ices co"bination the co"pan$ offered to target "arket attention! ac,uisition! use or consu"ption that "ight satisf$ a consu"er want or need. Product is tangible thing.

Product Bariet$
BSRM Steel ltd. has different t$pes of grade. These t$pes of grade are #arieties b$ its used and strength. Because different t$pes of grade and strength are need for different construction. Product @rade 099w @rade . =9 @rade F &9 Dse Eea#$ 4onstruction Mediu" 4onstruction 3or"al 4onstruction Strength 2-!099 psi =9!999 psi &9!999 psi Gpsi (pound per s,uare inches)

Aualit$
Aualit$ is the "ain ke$ to their success. BSRM Steel produce 199? ,ualit$ produce. +n different grade 199? ,ualit$ is "aintain b$ adding ;4arbon<. Adding "ore ;4arbon< the strength of Steel is increase. The$ "aintain the international Standard. )or better ,ualit$ the$ test their product on BD T. Their product is certified b$ +S6 =/80 and BD T.

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7esign
As we know there is no such design in steel. Although their finished good is raw "aterial for contraction work. So it is not necessar$ for design. To identif$ BSRM bar logo is e"bossed on the rod surface with ;7+A 6) BARS R6CCC 7<.

Si5e
6n international standard and Bangladesh Building code the length of steel is 11 F 18 "eter. But BSRM Steel also supplies perfect 1- "eter and different si5e on consu"er de"and.

)eature
The bars ha#e superior bend abilit$ and can be safel$ bent without cracking. All bar si5es are rolled to a #er$ close tolerance (possible on a 7A3+ C co"puteri5ed rolling "ill) so that custo"ers get "ore "eters of steel per ton F "ore #alue for "one$ without ha#ing to sacrifice structural integrit$. esti"ate sa#ingsH 9.0? 7e.scaled bars ha#e better bonding with concrete and less wastage at site. esti"ated sa#ingsH 9.0? Itre"e bars are safel$ wieldable under field conditions. Another 9.0? to 1.0? of steel is sa#ed b$ a#oiding large splices. The bars are needle.straight! thanks to the 7anieli ATB process. no need for straightening on the construction site.

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Brand 3a"e
BSRM Steel ltd. has the "ost do"inated na"e ;Itre"e<. %hen people think the$ need steel for construction the$ think about ;BSRM Itre"e< for their Brand 3a"e. Because BSRM Itre"e is the first and onl$ high strength bar in Bangladesh.
@rade 099w @rade =9 @rade &9

Ser#ice
BSRM steel has an engineer group who gi#e consu"er opinion. The$ go the$ construction site and pro#ide consu"er that which grade and how "an$ steel are need for construction. To a#ailable their product the$ ha#e = depots out of 4hittagong di#ision. The$ ha#e "ore than 19 dealers all o#er the Bangladesh and the$ going to set up & own testing laborator$ of an$ product for their consu"er. And there are so"e dealer na"es in ne(t page.

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%arrant$
BSRM Steel gi#e consu"er warrant$ that there product is tested and pro#ed b$ BD T engineer and certified b$ +S6 =/80. To satisf$ consu"er that their product is good for construction! consu"er in future can test this of other co"pan$ product in BSRM own test laborator$ free of cost.

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rice
The second "a*or "arketing tool is pricing. Price is the a"ount of "one$ charged for product or ser#ice. %hen an$ one set a "ission for establish a business then first of all he has to thing about price. Because price is the "a*or factor for affecting bu$er choice. Through price should be gi#en based on product ,ualit$. +f the product ,ualit$ is high then price will be high and if the ,ualit$ is low then price will be low.

Cist Price
+f a co"pan$ has selected its "arkets and positioning carefull$ then price will be ease set. BSRM Steel decide that the$ want to achie#e product ,ualit$ leadership in the "arket so far their best ,ualit$ their price is high then their co"petitor but at first the$ low price for entering the "arket and when the$ get response fro" custo"ers then graduall$ the$ increase their price. As all we know that price is one of the "ost fle(ible ele"ents of "arketing "i(! it can be change ,uickl$. BSRM Steel has standard price list but their price are #ar$ according to international "arket. Eere so"e prices areH. rice per Metric "on including #$" % !oading Charges
SL # Product Name Product Size Ex-Factory Chittagong

"#

$%&'()%$ -"". $%&'()%$ -"".

* (S * (S

+treme,

/ mm to 23

T0.12,""" T0.12,-"" T0 12,""" T0. 13,""" T0.17,""" T0. 18,"""

+treme, 3/ mm mm / mm / mm 7 mm -.7 mm

"3

$%&'()%$ * (S 45(,1""6 $%&'()%$ * (S 45(,2""6

"2

$%&'()%$ * (S 45(,7-6 $%&'()%$ * (S 45(,7-6

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$%&'()%$ * (S 45(,7-6

1.- mm

T0.18,"""
Last updated: August 2 ! 2""

Allowances
BSRM Steel is selling directl$ to their custo"ers or dealer. The agree"ent of dealer with BSRM is that if he increases sell then he will get allowance. The percentage of allowance is not fi(edJ it depends on the salsas a"ount.

Pa$"ent Period
Pa$"ent is an option gi#e b$ co"pan$ for their custo"er ad#antage. But no co"pan$ gi#es long ti"e pa$"ent period as it highl$ risk$ to the". The$ collect their "one$ b$ cash or check before deli#er$ the product! and the$ gi#e preferences to recei#e cash.

4redit Ter"s
BSRM Steel belie#es non credit ter"s.

"ace
Place is one of the parts of "arketing "i( which includes co"pan$ acti#ities that "ake the product a#ailable to target consu"ers. 4o"pan$ needs to ha#e so"e steps to do these acti#ities perfectl$. The steps areH channels co#erage assort"ents locations in#entor$ transportation

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4hannels
#er$ co"pan$ has channels to sell products and sta$ connected with consu"ers. BSRM Steels ha#e two kinds of channels. Alwa$s +n this chart factor$ sell their product to their selecti#e dealers and those dealers sell it to consu"ers. Most of the ti"e the$ follow this line. So"eti"es The$ ha#e si( own depots to sell their product which we can sa$ as another channel of the".

4o#erage
%e are showing their co#erage in three wa$s. 6ne is the co#erage of their dealers! second is depots and third one is "arket share co#erage.

7epots
The$ ha#e si( depots. Those are in Ra*shahi! >hulna! Bogra! Molo#iba5ar and 7haka.

Market Share
The third one is about "arket share. The$ are not sure about their "arket share. The$ are working on it! but their guess a"ount is abo#e -0?.

Assort"ents
BSRM Steels produce their product keep all the sectors of Bangladesh in "ind. The$ di#ide their products based on grades and strength like grade 099w! =9 grades and &9 grades. These ha#e different strength. Cike for three stored building grade 099w needs 099 tons where =9 grades need 299 tons and &9 grade needs 1999 tons.

Cocation
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Eead 6ffice Their head office is in 1128K1-92! Ali Mansion! Sadarghat! 4hittagong. )actor$ There "anufacturing factor$ is in )ou5derhat industrial area! 4hittagong.

+n#entor$
BSRM Steels is running their production around the $ear. So the$ need to ha#e so"e stock. The$ ha#e three t$pes of in#entor$ and the$ areH 1. Raw."aterials -. )inished products 8. Machiner$

Raw."aterials
)or their production the$ need so "an$ raw."aterials. The i"portant one without which the production can't run is scarp of ships. The$ i"port their raw "aterials fro" Australia! 4anada! Russia! South Africa and so"e ti"e fro" Bangladesh Ship Braking Lard. Then the$ con#ert the" into ;Billet< in their sister concern M % that is Meghna ngineering %orks ltd.

Machiner$
The$ i"port their "achiner$ fro" +tal$.

)inished Products
)inished product "eans! product that co"es finall$ for" "achine. After finishing finished product the$ keep it for 1 or - da$s! because so"eti"es in case of e"ergenc$ custo"er wants a lot with in few da$s. Most of the ti"e the$ don't need to keep finished product.

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Transportation
Transportation is an i"portant part of a co"pan$ because good transportation ser#ice raises co"pan$'s reputation. BSRM Steels ha#e onl$ one wa$ transportation and that is land. The$ use truck or lorr$ in land transportation but the$ ha#e no own transportation.

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romotion
Pro"otion is one of the parts of "arketing "i(. %ithout pro"otion no co"pan$ can grow up. So pro"otion is one of the i"portant parts that help to increase the sell. As a pro"otion the$ are following so"e steps! such as F

Ad#ertising
#er$ co"pan$ needs to ad#ertise their product to increase their sales. BSRM Steel ad#ertise their product in different wa$ like F BillboardH the$ use billboard in different location like rural or cit$ areas to know their product. TB showH the$ also use T.B show to people. Se"inarsH se"inars can be another part to create awareness to consu"ers about their product ad#ertise"ent. 3ewspaperH BSRM Steel keep touch their consu"er with their product b$ using newspaper.
%ebsiteH the$ ha#e website that helps to know about their product. And the

website address is www.bsr".co"

Personal selling
To know about their product the$ use a group of people who pro#ides infor"ation to different co"pan$ or custo"ers. B$ personal selling the$ can know about their custo"er's needs and wants. )or doing it! the$ can tell the" about different #ariet$ of rods. +t helps to de#elop their production.

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Sales Pro"otion
At present BSRM Steel ob*ecti#e is to increase their sales. Sales pro"otion increases the #olu"e of product. )or their sales pro"otion the$ are using ad#ertising! se"inar and gi#ing different pri5es to dealer.

Public Relation
To "ake strong relations co"pan$ arrange se"inars of ca"paigns with custo"ers. The$ entertain the" also. +t helps the" to keep and increase their custo"ers. +t can "ake a good relationship with the". The$ usuall$ help so"e "os,ue! charitable organi5ation! orphanage etc for social purpose. So"eti"es the$ help so"e organi5ation whose are like to arrange social or cultural function. Besides! a good relationship it also helps the" for a good identit$.

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Chapter: #
F#NANCE $EPA%&'EN& The finance function deals with the procurement of money at the time when it is needed and its effective utilization in the enterprise. )oney is the lifeblood to purchase of any enterprise, as it is required to purchase machines and materials to pay wages and salaries to employee and to allow credit facilities to customers. The event of capital,intensive techniques has increased the importance of finance. The ambition plans of an industrial undertaking will remain mere dreams unless adequate finance is available to convert them into reality. Therefore it has become an important function of management to provide for adequate finance for the functioning of the enterprise. &or companies, which carry on production and distribution on a large scale provision of adequate finance, is a very challenging task. It affects all the business decisions where money is involved, since the large commercial and industrial undertakings are set up in the form of companies, the problem of finance for modern business is for all practical purposes of the problem of corporate finance. Functions: Purchase9 :ompany fixes the target to the producer of Iron and Steel of how many tones of raw iron to be purchased, based upon that the finance manager has to plan to buy them. The payment has to be done before, in order to deliver the raw materials to the producer of Iron and Steel. The purchase of spares and accessories is done based on the orders placed by the concerned managers.
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Stoc( )a*uation: ;aluation of the raw materials, spares, accessories are done on market value of the iron and steel in international trade. Financing: The producer of Iron and Steel is an agent for the financiers who are in the firm. The financiers fix the target amounts to be financed based on which the finance manager has to fix monthly target finance amounts, considering the sales forecast done by the Sales < )arketing department. +,-ecti.es o/ /inancia* department:Since financing is one of the functional are of any business enterprises, the ob!ective of financial management must be in tone with the over all ob!ectives of the enterprise. The ob!ectives of the finance department should be devised they contribute directly towards the achievement of overall organizational ob!ectives. %nsuring regular and efficient supply of capital to the business. %nsuring a fair rate of return on capital to the supplier. %nsuring better utilization of capital by following the principles of liquidity, profitability and safety. :oordinating the activities of the finance department with those of other department. 'f the enterprise. 'anager o/ account0s and /inance:&inance and account manager is concerned with measurement of Income=expenditure for specific periods of time such as month and year 4income=expenditure statement6 financial reports at the end of the period. &inancial manager is responsible for overall financial planning and for rising capacity he has following functions ma!or activities are forecasting, fund )anagement and auditing capital budgeting.

Accounting o//icer:-

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ccounting officer is concerned to give sufficient position of the business frequently to finance manager. It is concerned with determining relevant cost and performing other analysis like preparation of budgets and performance analysis based on budget. >olicies9, ;aluation of inventories like raw materials stores and spares are valued at weight age average method. &inished goods including traded goods are stated at cost= net realizable value. ccountants are prepared on historical cost and on going concern basis the company has adopted accurate concept in preparation of financial statements. &ixed asses are stated at costless depreciation. %xpenditures during construction period are debited to his capital work in progress and the same will be allocated. $epreciation of fixed assets is provided straight,line method at the rates and in the manner specified in schedule +I; ti tge companies? act #8-@ and the relevant accounting standards issued by the I: I. *orrowing costs attribute to the acquisition and construction of assets are capitalized as part of such assets up to the date when such assets are ready for its intended use. Practices1procedure :ompanies contribute to >& and super annual fund as per the rules of >.&. ct not excluding #3A of the basic salary. 5ratuity will be limited to half a month?s salary for each completed year of service. The company has already implemented the code of corporate governance as required by the listing agreement introduced by securities exchange. The quarterly, half yearly and yearly financial results of the company are sent to stock exchange immediately after the board approves them.
Manufacturing costs: Most manufacturing companies divide manufacturing cost into three broad categories. Direct material, Direct labor and Manufacturing overhead.

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Direct material: Direct materials are those materials that become an integral part of the finished product and that can be physically and conveniently traced to it. For example: Panasonic use electric motor in its CD Players to ma e the CD spin. Direct labor: !he term direct labor is reserved for those labor costs that can be easily traced to individual product. Direct labor is sometime called touch labor, since direct labor "or ers typically touch the product "hile it is being made. For example the labor cost of machine operator. Manufacturing overhead: Manufacturing overhead the third element of manufacturing cost, includes all cost of manufacturing except direct material and direct labor. #o, "e can say that all costs associated "ith operating the factory are included in the manufacturing overhead category. #uch as indirect material, indirect labor, maintenance and repairs on production e$uipment etc.

Role in decision-making Manufacturing cost is used to determine the inventory valuation on the balance sheet and cost of goods sold on the income statement of external financial reports. %ssume that total manufacturing cost of one unit is &'( ta a, "here Direct material: Direct labor: M+,: !otal )(( t *'( t -(( t &'( t

.o" from this manufacturing cost the company can decide that ho" much they "ant to ma e profit and set a selling price based on that. #uppose they "ant to ma e /(0 profit on manufacturing cost then their selling price "ill be *(/( t . 1ut after setting selling price they see that one of their competitor sales their product at 2'( t . 3n this situation the company can 4ustify the manufacturing cost that "here the "rong is going on. 3f their material price is high then they can buy the ra" material from other supplier at lo" cost to reduce the access cost. 3f their labor cost is high, then they can hire labor from other at lo" cost or can cut the number of employee to reduce the cost. 1y ta ing this corrective action the company can maintain the manufacturing cost to stay in the mar et. Non-manufacturing costs: 5enerally non6manufacturing costs are sub6classified into t"o categories, 7*8 #elling costs, 7/8 %dministrative costs

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Selling costs: #elling cost include all costs necessary to secure customer orders and get the finished product on service into the hand of the customer. !his cost is also no"n as mar eting cost. 9xample: %dvertising, #hipping, #ales travel etc. Administrative costs: 3t includes all executive, organi:ational and clerical costs associated "ith the general management of an organi:ation rather than "ith manufacturing and selling. 9xample: #ecretarial, compensation, public relation and other this types of costs Role in decision-making .on6manufacturing cost is playing a great role in decision6ma ing. 3n income statement "e deduct non6manufacturing cost or operating cost from gross margin to get net profit. #uppose "e expect ;<= amount of money as net profit. 1ut if the net income falls belo" than our expectation, then "e must reduce operating cost to gain more profit. >e can give one example to clear this idea. #uppose our net income is less than our expectation. .o" "e have to reduce price. >e can ta e advertising cost as a sample. 3n case of advertising our first motive is to identify our target consumer then "e have to select the advertising media. #uppose "e ma e one types of product and our target consumers are fishermen. 3n this case "e must use radio as an advertising media rather than television and it "ill cost less. 1y this "ay "e can save non6manufacturing cost. 3n this purpose "e can also reduce the cost of shipping, sales travel, compensation, public relation cost, sales salary etc. to increase net profit. Fixed costs: % fixed cost is a cost that remains constant in total, regardless of changes in the level of activity. %s the activity level rises and falls, the fixed cost remains constant in total amount unless influenced by some outside force, #uch as price changes. !here are t"o types of fixed cost. ( ! "ommitted fixed cost: Committed fixed costs relate to the investment in facilities, e$uipment and the basic organi:ational structure of a firm. 9xample: ?ent. (#! Discretionar$ fixed cost: Discretionary fixed cost usually arise from annual decisions by management to spend in certain fixed cost areas. 9xample: %dvertising. Role in decision-making Cm per unit.@sually fixed cost is used to determine brea 6even point. !he formula for brea 6even point is A fixed cost #uppose our fixed cost A B /(,((( #elling price A B /'( Cariable cost A B *'( 7/'( D *'(8E!hen brea 6even unit A F/(,((( A /(( unit 3n the brea 6even point there is no profit as "ell as no loss at all. >e have calculated brea 6even point to determine the sales level and using this method "e can also calculate the number of unit to gain our expected profit. ?eduction of fixed cost is also very important to increase net income. 3f "e reduce fixed cost per unit then it "ill contribute to net income. #uppose our production is not running in our full capacity level then "e can increase production in order to reduce our fixed cost per unit. For example: Capacity: )(( @nits Production: -(( @nits Fixed cost: B/(,((( Cariable cost: B*'( #elling price: B/'(

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Current income statement #ales A BG',((( /'(87-(( 768 C. cost A B)',((( *'(8 7-(( Cm B-(,((( 768 F. cost A B/(,((( .et income B*(,((( ,ere "e see that in the current situation "e have a net income of B*(,(((. .o" "e get an offer from outside to deliver *(( extra units at B/((. 3n this case our proposed net income as follo"s: Proposed income statement #ales A B2',((( /((8/'(8 H 7*((7-(( 768 C. cost A BI(,((( *'(8 7)(( Cm B-',((( 768 F. cost A B/(,((( .et income B*',((( )((8 A B'(.((, #o here "e see that ho" fixed cost plays effective role in decision6ma ing. -((8 A BII.IG to 7/(,((( 3n this case "e "ill accept the proposal because our proposed net income is greater than the current net income. !hough the proposed selling price is less than current one but "e can generate more income because in this case fixed cost goes do"n from 7/(,(((

%ariable cost: % variable cost is a cost that varies in total, in direct proportion to changes in the level of activity. !he activity can be expressed in many "ays, such as units produced, units sold, miles driven, lines of print and so forth. % good example of variable cost is direct material. 3t is important to note that "hen "e spea of a cost as being variable, "e mean the total cost rises and falls as the activity level rises and falls. !here are t"o types of variable cost. ( ! &rue variable cost: Direct material is a true variable cost because the amount used during a period "ill vary in direct proportion to the level of production activity. (#! Ste'-variable cost: % cost that is obtained only in large chun s and that increases or decreases only in response to fairly "ide changes in the activity level is no"n as step6variable cost. Maintenance cost is an example of step6variable cost. Role in decision-making Cariable cost plays a great role in decision6ma ing "e no" that if "e increase our production then our variable cost "ill also increase. #o "e have to concentrate on reduction of total cost and in this case "e must consider fixed cost also. 3f "e increase our production "ithin our capacity, our unit cost of production "ill decrease. 1ecause as production increase variable cost "ill also increase but fixed cost per unit "ill decrease. #uppose, Cariable cost A B*

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Fixed cost Capacity Production unit ' *( *'

A B*( A /( unit Cariable cost per unit * * * Fixed cost per unit / * .'I !otal cost per unit / *.'I

,ere "e see that as production increases total cost per unit decrease because fixed cost per unit continuously decreases. #o, in case of reducing total cost "e must increase the production level. %nd as "e no" variable cost is constant so "e must try to reduce the total cost from other sector to generate more profit. !hus variable cost has a significant impact on selling price. Cariable cost is also used to calculate cm per unit, cm ratio, margin of safety, degree of operating leverage and other this types of important things.

Absor'tion costing: % costing method that includes all manufacturing costs, direct materials, direct labor and both variable and fixed overhead as part of the cost of a finished unit of production. For example in this method the unit cost is as follo"s: (nit cost Direct material: Direct labor: Cariable M+,: Fixed M+,: (/

((/ (-

!otal B *( per unit ,ere fixed and variable M+, both are considered. Role in decision-making %bsorption costing is the generally accepted method for preparing mandatory external financial reports and income tax returns. %bsorption costing treats fixed manufacturing overhead as a product cost. 3f fixed costs are treated as period costs and there is a lo" level of sales activity in a period then a lo" profit or a loss "ill be recorded. 3f there is a high level of sales activity there "ill be relatively high profit. %bsorption costing creates a smoothing of these fluctuations by carrying the fixed costs for"ard until the goods are sold. Many firms use the %bsorption approach exclusively because of its focus on full costing of units of product.

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%ariable costing: 3n variable costing, only variable costs of production are allocated to products and the unsold stoc is valued at variable cost of production. Fixed production costs are treated as a cost of the period in "hich they are incurred. For example in this method the unit cost is as follo"s: (nit cost Direct material: Direct labor: Cariable M+,: &otal

((/ (B (& per unit

,ere fixed M+, is not considered. Role in decision-making Cariable costing is used internally for planning purposes. @nder Cariable costing, only those production costs that vary "ith output are treated as product cost. !his includes direct material, direct labor and variable overhead. Fixed manufacture overhead is treated as a period cost and charged off against revenue as it is incurred, the same as selling and administrative expenses. @nder Cariable costing, the profit for a period is not affected by changes in inventory. !his cost is particularly important for company having cash flo" problems. +ne thing is very important that "hen Cariable costing is in use profits move in the same direction as sales. >e can also ta e the data for CCP analysis directly from a contribution margin format income statement that are not available on a conventional income statement based on absorption costing. !he Cariable costing approaches are often indispensable in profit planning and decision6ma ing. )''ortunit$ costs: +pportunity cost is the potential benefit that is given up "hen one alternative is selected over another. For example: #uppose 3 "or ed in a company and it gives me /(,((( ta a per month. 1ut suddenly 3 leave that 4ob and get admitted in .orth6#outh @niversity for M.1.%. !hen my salary /(,((( ta a is my opportunity cost "hich 3 sacrificed for further education. Role in decision-making +pportunity cost is a very important item, "hich is playing an effective role in decision6ma ing. 1y considering opportunity cost "e can determine the real cost of production. >e can give an example to clear this idea. Jet, Direct material : B- 7%voidable8 Direct Jabor : B/ 7%voidable8 #upervisor salary : B* 7%voidable8 Factory rent : B* 7@navoidable8 Depreciation : B/ 7@navoidable8 %llocated general 9xpense : B- 7@navoidable8 !otal cost per unit : B*/ %voidable cost @navoidable cost : 7-H/H*8 A BI : 7*H/H-8 A BI

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,ere "e see that if "e ma e the material the cost of per unit "ill be B*/. .o" "e get an offer from outside at B& per unit. 3f "e "ant to buy "e have to consider some other things because there are some unavoidable cost that "e cant ignore. 3t "ill add to the buying cost. .o" "e see that if "e buy it "ill costs 7&HI8 A B*) per unit. #o "e can easily determine that "e "ill go for ma ing not buying. 3n this case "e have to consider opportunity cost. #uppose the room, "here "e "ill ma e our production, the rent of that room is B/(,((( and "e get an offer for ',((( unit. Ma e B*/ BI(,((( B/(,((( B&(,((( 1uy B*) BG(,((( 666666 BG(,(((

@nit cost For ',((( unit 7H8 +pportunity cost !otal cost

,ere "e see that if "e go for ma ing it "ill cost more and if "e buy ra" material from outside "e can generate B*(,((( as a profit. #o, in this case "e "ill definitely go for buy not ma e. Sunk costs: % sun cost is a cost that has already been incurred and that cannot be changed by any decision made no" or in the future. #o, they should be ignored "hen ma ing decision. 9xample: #uppose "e buy a machine costs '(,((( ta a to produce one ind of goods. 1ut no" there is no longer demand of that product. #o "e buy another ne" machine costs G(,((( ta a. .o" there is no use of old machine and "e have already incurred that cost. #o, here '(,((( ta a is sun cost, "hich "as paid for purchasing of old machine. Role in decision-making #un cost does not play any role in decision6ma ing. +n the other hand it plays a great role in decision 6ma ing. @sually "e deduct the sun cost from both eep old machine K purchase of ne" machine. 1y this "ay "e can sho" the proper fixed cost. #uppose our sun cost is B'(,((( but the salvage value of that machine is B/(,(((. .o" if "e dont consider the sun cost then it "ill sho" us B/(,((( income and if "e consider sun cost, ultimately it "ill sho" us -(,((( losses. !hus sun cost plays an effective role to sho" proper income. #un cost is also playing a great role in another criteria. 3f "e dont deduct the sun cost from fixed cost then our fixed cost "ill be greater and our unit cost "ill increase also. 3n this case "e cannot compete "ith our competitors. #o "e must deduct sun cost from our account. *roduct costs: Product costs include all the costs that are involved in ac$uiring or ma ing a product. 3n the case of manufacturing goods these costs consist of direct material, direct labor and manufacturing overhead. Product costs are initially assigned to inventories. #o, they are no"n as inventoriable costs. Role in decision-making 3f an organi:ation "ant to minimi:e their inventory cost they can fallo" 4ust in time process. 3n this process the cost of inventory is less than the normal process. #o, the product cost is minimi:ed and it "ill help to generate more profit. 3f an organi:ation follo"s normal process for manufacturing goods, then they must reserve material for future and it "ill cost a lot. #uch as rent for place, guard salary, maintenance cost. %nd it "ill reduce net income. #o, they must follo" 4ust in time process to increase the net income.

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*eriod costs: Period costs are all the costs that are not incurred in product costs. !hese costs are expensed on the income statement in the period in "hich they are incurred, using the usual rules of accrual accounting. Period costs are not included as part of the cost of either purchase or manufactured goods. 9xample: #ales commission, +ffice rent. Role in decision-making Depending on period cost "e can also ta e some corrective action. .ormally sales commission, office rent and other these types of cost are included in period cost. #uppose our net income is lo"er than our expectation then "e can increase our net income by reducing period cost. Jets ta e office rent. 3f our office rent is high then "e can reduce the rent by shifting office place. ,o"ever for many decision6ma ing purposes the period costs are seen as being non6controllable in the short6term, so that attention may focus on product cost. Differential costs: % difference in costs bet"een any t"o alternatives is no"n as differential cost. % differential cost is also no"n as incremental cost. !echnically an incremental cost should refer only to an increase in cost from one alternative to another. Decreases in cost should be referred to as decremental costs. #o here "e see that differential cost is broader term consist of both incremental cost K decremental cost. Role in decision-making Differential cost can be either fixed or variable. !o illustrate assume that Leya cosmetics ltd. is thin ing about changing its mar eting method from distribution through retailer to distribution by door6to6door direct sale. Present cost and revenues are compared to pro4ected costs and revenues in the follo"ing table:

?etailer Direct sale Differential cost Distribution Distribution and revenue ?evenue B'((,((( BI((,((( B*((,((( Deduct AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA Cost of good sold B*'(,((( B/((,((( B'(,((( %dvertising B'(,((( B/',((( B7/',(((8 Commission 6(6 B/(,((( B/(,((( Depreciation B/',((( B'(,((( B/',((( +ther expenses B/(,((( B/(,((( 66 ( 66 !otal B/)',((( B-*',((( BG(,((( .et income B/'',((( B/&',((( B-(,((( AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA %ccording to the analysis the differential revenue is B*((,((( and the differential cost is BG(,((( leaving a positive differential net income B-(,((( under the proposed mar eting plan. From the given table the company can easily decide that "hich mar eting plan they should follo". %s "e see in the above analysis the net income under door6to6door is B-(,((( higher than the previous one. %nd they can get it simply focusing on differential cost, revenue and net income. 1y this "ay differential cost helps in decision6ma ing. Standard costs:

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#tandard costs are target costs, "hich should be attained under specified operating conditions. !hey are expressed as a cost per unit. For example: ,ospitals have standard cost 7for food, laundry and other items8 for each occupied bed per day, as "ell as standard time allo"ance for certain routine activities, such as laboratory test. Role in decision-making #tandard cost is used to integrate costs in the planning and pricing and pricing structure of a business. +nce the #tandard cost has been decided, the actual cost may be compared "ith the standard. 3f it e$uals the standard then the actual outcome has matched expectations. 3f the actual cost is different from the standard cost allo"ed, then there "ill be variance to be investigated, "hether it is favourable or unfavourable. >hen the actual cost is less than the standard cost then it is called favourable and "hen the actual cost is greater than the standard cost then it is called unfavourable. 3n case of favourable term management "ill accept the proposal and in case of unfavourable term, they "ill re4ect it. Direct cost K 3ndirect cost Direct cost: % direct cost is a cost that cannot be easily and conveniently traced to the particular cost ob4ect under consideration. !he concept of direct cost extends beyond 4ust direct material and direct labor. 9xample: #uppose "oodland company is assigning costs to its various regional and national sales offices. !hen the salary of the sales manager in its 1ombay office "ould be a direct cost of that office. +ndirect cost: %n indirect cost is a cost that cannot be easily and conveniently traced to the particular cost ob4ect under consideration. For example: 3gloo company ma es varieties ice6cream. !he factory managers salary "ould be an indirect cost of a particular variety such as igloo chocbar. Role in decision-making Direct cost includes direct material, direct laborM on the other hand indirect cost includes indirect material and indirect labor. !hey are playing a great role in decision6ma ing, but not individually. !hey have a significant impact on manufacturing cost, because these costs are included in manufacturing cost. #o ultimately they are playing role in setting selling price. Mixed cost: % mixed cost is one that contains both variable and fixed cost elements. Mixed costs are also no"n as semi6variable cost. Mixed cost is calculated by follo"ing e$uation. bx+N A a ,ere N A !otal cost a A fixed cost b A Cariable cost x A !otal unit. !he fixed portion of a mixed cost represents the basic, minimum cost of 4ust having a service ready and available for use. !he variable portion represents the cost incurred for actual consumption of the service. !he account analysis and the engineering approach is used to estimate the fixed and variable portion of a mixed cost.

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For example: !he cost of providing <6ray services to the to patients at the PO5 hospital is a mixed cost. !here are substantial fixed costs for e$uipment depreciation and for salaries for radiologists and technicians but there are also variable costs for <6ray film, po"er and supplies. Role in decision-making Mixed costs also have some role in decision6ma ing because this cost is a combined form of fixed and variable cost. %s "e no" fixed costs are constant but variable cost differs "ith the production level. #o, by reducing the variable cost "e can decrease total unit cost and it "ill help to increase net income.

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Budget&
Budget is that which is essentially a projected profit and loss statement. It shows expected revenues (forecasted no of units sold and the average net price) and expected cost (of production, distribution and marketing). he difference is the

projected profit. !nce approved by higher management, the budget becomes the basis for materials buying, production scheduling, personal planning and marketing operations.

Items of budget rade fair .ifts and promotion 1eminar and meeting 1ponsorship 'dvertising 4oupons

"ay# !ct ()*,*** tk /-,,)** tk /(,/**tk )/,***tk (,,,*,***tk /**,***tk

$ov#%an +,*,*,***tk -*0,,**tk (0,(**tk +,(,***tk 0,22*,***tk (**,***tk

&eb# 'pril +,-**,***tk +,+),,***tk ++(,***tk ,+*,***tk +3,33*,***tk +,***,***tk

ME$S'REME(" )* ER*)RM$(CE&
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5e can measure performance of an organi6ation through financial ratios. hese ratios are given below7 1olvency 8atios 9fficiency 8atios :rofitability 8atios

@R6%TE M ASDR M 3TH

@rowth "eans de#elop"ent and "aturit$. 6n the other hand! growth is an increase in si5e! nu"ber! #alue or strength etc.

%e can "easure growth of an organi5ation through profitabilit$ ratios. The profitabilit$ ratios are used to e#aluate the fir"'s profits with respect to a gi#en le#el of sales! a certain le#el of assets or owner's in#est"ent. These profitabilit$ ratios include the followingH

@ross Profit Margin 6perating Profit Margin 3et Profit Margin arnings Per Share Return on Total Assets Return on ,uit$

S6CB 34L RAT+6S

Ci,uidit$ refers to the sol#enc$ of the fir"'s o#erall financial position. the ease with which it can pa$ its bills. The li,uidit$ of a fir" "easures its abilit$ to satisf$ its short.ter" obligations. The three basic "easures of li,uidit$ are as followsH 3et %orking 4apitalH 3et working capital is used to "easure the fir"'s o#erall li,uidit$. +t is e(pressed as followsH
3et %orking 4apital M 4urrent Asset F4urrent Ciabilities

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 4urrent RatioH The current ratio "easures the fir"'s abilit$ to "eet its short.ter" obligations. +t is e(pressed as followsH
4urrent Ratio M
Current Assets 4urrent Ciabilities

Auick RatioH The ,uick ratio is si"ilar to the current ratio e(cept that it e(cludes in#entor$! which is generall$ the least li,uid current ratio. @enerall$ low li,uidit$ of in#entor$ results fro" two pri"ar$ factorsH 1) Man$ t$pes of in#entor$ cannot be easil$ sold because the$ are partiall$ co"pleted ite"s! special purpose ite"s and the likeJ -) +n#entor$ is t$picall$ sold on credit. +t is e(pressed as followsH
Quick ratio =
Current Assets . +n#entor$ 4urrent Ciabilities

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))+4+ 34L RAT+6S

'ctivity 8atios are used to measures the speed with which various accounts are converted into sales or cash.

+n#entor$ Turno#erH +n#entor$ Turno#er "easures the li,uidit$ of a fir"'s in#entor$. +t is e(pressed as followsH
Inventory Turnover =
Cost of @oods Sold +n#entor$

7ebtors 4ollection PeriodH The 7ebtor 4ollection period is useful in e#aluation of credit and collection policies. +t is e(pressed as followsH
7ebtors 4ollection Period M
7ebtors 8=0 Total 4redit Sales

4reditors Pa$"ent PeriodH The A#erage Pa$"ent Period "easures the a#erage a"ount of ti"e needed to pa$ accounts pa$able. +t is e(pressed as followsH
4reditors Pa$"ent Period M
4reditors 8=0 Total 4redit Purchase

)i(ed asset Turno#erH The )i(ed asset Turno#er "easures the efficienc$ with which the co"pan$ has been using its fi(ed Assets to generate sales. +t is e(pressed as followsH
)i(ed asset Turno#er M
Sales 3et )i(ed Assets

Total Asset Turno#erH The Total Asset Turno#er indicates the efficienc$ with which the fir" uses all its assets to generate sales. +t is e(pressed as followsH
Total Asset Turno#er M
Sales Total Assets

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PR6)+TAB+C+TL RAT+6S
Measures of profitabilit$ relate the returns of the fir" to its sales! assets! e,ualit$! or share #alue. These "easures allow the anal$st to e#aluate the fir"'s earning with respect to a gi#en le#el of sales! a certain le#el of assets! the owner's in#est"ent! or share #alue. @ross Profit MarginH The @ross Profit Margin "easures the percentage of each sales 7ollar K Taka re"aining after the fir" paid for its goods. +t is e(pressed as followsH
@ross Profit Margin M
@ross Profits 199 Sales

6perating Profit MarginH The 6perating Profit Margin "easures the percentage of profit earned on each sales 7ollarKTaka before interest and ta(es. +t is e(pressed as followsH
6perating Profit Margin M
6perating Profits 199 Sales

3et Profit MarginH The 3et Profit Margin "easures the percentage of each sales 7ollar K Taka re"aining after all e(penses! including ta(es! ha#e been deducted. +t is e(pressed as followsH
3et Profit Margin M
3et Profits After Ta(es 199 Sales

Return 6n Total Assets (R6A)H The Return on Total Assets (R6A) "easures the o#erall effecti#eness of "anage"ent in generating profits with its a#ailable assets. The R6A is called the Return on +n#est"ent. +t is e(pressed as followsH
Return on Total Assets M
3et Profits After Ta(es 199 Total Assets

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 Return 6n ,uit$H The Return on ,uit$ "easures the return earned on the owners' (both preferred and co""on stockholders') in#est"ent in the fir". +t is e(pressed as followsH
Return on ,uit$ M
3et Profits After Ta(es 199 StockholdersN ,uit$

arnings Per Share ( PS)H The arnings per share represents the nu"ber of 7ollars K Taka earned on behalf of each outstanding share of co""on stock. +t is e(pressed as followsH
PS M 3u"ber of Shares of 4o""on Stock 6utstanding
arnings a#ailable )or 4o""on Stockholder

A3ACLO+3@ 7 BT RAT+6S
4reditors clai"s "ust be satisfied before earning are distributed to the shareholders! so it is in the best interested of the present and prospecti#e shareholders to pa$ close attention to the indebtedness of a corporation. 7ebt RatioH The 7ebt Ratio "easures the proportion of total assets financed b$ the fir"'s creditors. The higher this ratio! the financial le#erage the fir" the fir" has. +t is e(pressed as followsH
7ebt Ratio M
Total Ciabilities Total Assets

7ebt.To. ,uit$ RatioH The 7ebt.To. ,uit$ Ratio indicates the relationship between the long.ter" funds pro#ided b$ creditors and those pro#ided b$ the fir"'s owners. +t is e(pressed as followsH
7ebt.To. ,uit$ Ratio M StockholderN s ,uit$
Cong Ter" 7ebt

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 Ti"es +nterest arned RatioH +t "easures the fir"'s abilit$ to "ake interest pa$"ents. +t is e(pressed as followsH
Ti"es +nterest arned Ratio M
arnings Before +nterest And Ta(es +nterest

)i(ed Pa$"ent 4o#erageH The )i(ed.Pa$"ent co#erage Ratio "easures the fir"'s abilit$ to "eet all fi(ed pa$"ent obligations! such as loan interest and principal! lease pa$"ents! and preferred stock di#idends. +t is e(pressed as followsH
)i(ed.Pa$"ent co#erage Ratio M
B+T + Cease Pa$"ents +nterest + Cease Pa$"ents + S(Principal + Preferred Stock 7i#idend) R1K1 . T)PQ

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