G2 - Fly Ash Brick Assignment FINAL.docx - TABLE OF...

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TABLE OF CONTENTS 1INTRODUCTION22PROBLEM STATEMENT23ANALYSIS43.1Fixed Cost43.2Variable Cost63.3Cost Volume Profit (CVP) Analysis73.4Estimated Profit Analysis83.5Target Profit Analysis94RECOMMENDATION AND SUGGESTION105SUMMARY121.INTRODUCTIONThe case introduces the business of manufacturing Fly Ash Brickswhose business might potentially serve as a tool to decrease the pollutionlevels in the environment. The area of operation in India is full withcompanies who are using coal as fuel, hence fly ash is produced in largeamounts and based on research this amount could support all the demand1
for Fly Ash Bricks. The main advantage of the project are the continuoususage of coal to be used as the prime fuel for many more years, resulting ingreat amount of fly ash generation and large support from the government.The construction business is increasing in India with the continuous growth ofpopulation, therefore, the demand for bricks will increase with it. 2.PROBLEM STATEMENTRajiv Sharma who is the visionary behind this project has a strongbelief that it will be a success in the near future, but he has to convince hisfriend Alok Gupta to join strengths with him to develop the project. Sharmadecided to set up a plant that would have the capacity to manufacture 4million bricks per year and they estimated that 2.4 million bricks could be soldannually at an average selling price of Rs7,000 per 1,000 bricks. The life ofthe project was estimated to be five years. The initial investment of thebusiness would cost them Rs10 million, out of which Rs6 million would beinvested by the partners from their own resources and a local bank hadagreed to provide a loan for the remaining balance at an interest rate of 12per cent per annum against the mortgage of the equipment. Sharma himselfwould work full time in the business and would draw a salary of Rs50,000 permonth. Gupta had some concerns about the feasibility of the project,therefore, Cost Volume Profit analysis is needed to determine whether it'sworth to invest in the project. It is necessary to determine the breakevenpoint to understand how many bricks the business needs to make in order towork within their capacity and cover all the costs. The break-even analysis2
will also provide insight into how many bricks are needed to be made toreach the desired profit level.

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