# Depreciationof asset per annum value of asset

• Test Prep
• 18
• 100% (3) 3 out of 3 people found this document helpful

This preview shows page 3 - 9 out of 18 pages.

Depreciationof asset per annum = Value of asset salvagevalue number of lifespan Depreciationof asset per annum = Rs. 8 million 0 5 years Depreciationof asset per annum = Rs. 1.6 million B. Routine Expenses 3
Routine expenses per month Indian Rupees Building rent 50,000 Administrative cost 10,000 Office supply 5,000 Electricity (for lighting) 10,000 Miscellaneous 20,000 Total 95,000 Table 2: Routine expenses in Indian Rupees Routine expenses per annum = Monthly expensesx 12 months Routine expenses per annum = Rs. 95,000 x 12 months Routine expenses per annum = Rs. 1.14 million C. Personnel Salary Personnel cost per month Indian Rupees Workers 100,000 Office assistant 20,000 Watchman 15,000 Drivers 25,000 Project Manager (Sharma) 50,000 Total 210,000 Table 3: Personnel cost in Indian Rupees Personnel cost per annum = Monthly salary x 12 months Personnel cost per annum = Rs. 210,000 x 12 months Personnel cost per annum = Rs. 2.52 million D. Interest Expense Local bank agrees to provide a loan of 4 million rupees with 12 per cent of annual interest. 4
Interest expense per annum = Totalloan x interest rate per annum Interest expense per annum = Rs. 4 million x 12 Interest expense per annum = Totalloan x interest rate per annum Interest expense per annum = Rs. 0.48 million Total ¿ cost =( Rs. 1.6 + Rs. 1.14 + Rs. 2.52 + Rs. 0.48 ) million Total ¿ cost = Rs. 5.74 million Variable Cost A cost that changes in total as the units of production changes is defined as variable cost. Examples of variable cost are manufacturing labor wage, supplies used in production and shipping cost. Sharma and Gupta estimate the monthly volume of brick production to be 0.2 million. Production expenses Indian Rupees Fly ash 250,000 Gypsum 250,000 Lime 300,000 Sand 40,000 Electricity 10,000 Labour 50,000 Total 900,000 Table 4: Production cost in Indian Rupees 5
Variablecost per unit of brick = Totalvariable cost Brick production Variablecost per unit of brick = Rs. 900,000 200,000 Variablecost per unit of brick = Rs. 4.50 per brick BREAK-EVEN POINT ANALYSIS The break-even point is usually expressed as the amount of revenue that must be realized for the firm to have neither profit nor loss. In simple term, it is the point of sale where the 6
operating income is zero or total revenue equals to total cost. The break-even point is useful for managers in determining the minimum amount of revenue. Revenue per unit of brick = Rs. 7,000 1,000 Revenue per unit of brick = Rs. 7.00 per brick Total Break evenvolume = ¿ Cost ¿ ( Revenue Variablecost ) per brick Break evenvolume = Rs. 5.74 million ( Rs. 7.00 Rs. 4.50 ) per brick Break evenvolume = 2.296 million of bricks Break evenrevenue = 2.296 millionof bricks x Rs. 7.00 Break evenrevenue = Rs. 16.072 million Break evenvariable cost = 2.296 millionof bricks x Rs. 4.50 Break evenvariable cost = Rs. 10.332 million 7
Figure 1: Break-even analysis According to Figure 1, the 2.296 million of bricks are required to achieve the break-even point while the break-even revenue would be Rs. 16.072 million .
• • • 