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Depreciationof asset per annum=Value of asset−salvagevaluenumber of lifespanDepreciationof asset per annum=Rs.8million−05yearsDepreciationof asset per annum=Rs.1.6millionB. Routine Expenses3
Routine expenses per monthIndian RupeesBuilding rent50,000Administrative cost10,000Office supply5,000Electricity (for lighting)10,000Miscellaneous20,000Total95,000Table 2: Routine expenses in Indian RupeesRoutine expenses per annum=Monthly expensesx12monthsRoutine expenses per annum=Rs.95,000x12monthsRoutine expenses per annum=Rs.1.14millionC. Personnel SalaryPersonnel cost per monthIndian RupeesWorkers100,000Office assistant20,000Watchman15,000Drivers25,000Project Manager (Sharma)50,000Total210,000Table 3: Personnel cost in Indian RupeesPersonnel cost per annum=Monthly salary x12monthsPersonnel cost per annum=Rs.210,000x12monthsPersonnel cost per annum=Rs.2.52millionD. Interest ExpenseLocal 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 annumInterest expense per annum=Rs.4million x12Interest expense per annum=Totalloan x interest rate per annumInterest expense per annum=Rs.0.48millionTotal¿cost=(Rs.1.6+Rs.1.14+Rs.2.52+Rs.0.48)millionTotal¿cost=Rs.5.74millionVariable CostA 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 andshipping cost.Sharma and Gupta estimate the monthly volume of brick production to be 0.2 million.Production expensesIndian RupeesFly ash250,000Gypsum250,000Lime300,000Sand40,000Electricity10,000Labour50,000Total900,000Table 4: Production cost in Indian Rupees5
Variablecost per unit of brick=Totalvariable costBrick productionVariablecost per unit of brick=Rs.900,000200,000Variablecost per unit of brick=Rs.4.50per brickBREAK-EVEN POINT ANALYSISThe 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.7,0001,000Revenue per unit of brick=Rs.7.00per brickTotalBreak−evenvolume=¿Cost¿(Revenue−Variablecost)per brickBreak−evenvolume=Rs.5.74million(Rs.7.00−Rs.4.50)per brickBreak−evenvolume=2.296million of bricksBreak−evenrevenue=2.296millionof bricks x Rs.7.00Break−evenrevenue=Rs.16.072millionBreak−evenvariable cost=2.296millionof bricks x Rs.4.50Break−evenvariable cost=Rs.10.332million7
Figure 1: Break-even analysisAccording to Figure 1, the 2.296 million of bricksare required to achieve the break-even point while the break-even revenue would be Rs. 16.072 million.