1

CHAPTER 1: INTRODUCTION ASPECTS

1.1 Background At present real estate sector (RES) is one of the booming sectors in Bangladesh. Day by day as time passes on, this sector is becoming healthier since the substantial growth of population is creating a tremendous housing problem and due to the increase in demand of commercial spaces this sector has come into being. his sector pro!ides an integrated and planned pac"age to resol!e these problems. Real estate business especially apartment pro#ects has started in late $%&'s in Dha"a (ity. But from early )'s the business started to grow and flourish. At present, more than *+' companies are acti!e in business but %+, business is still dominated by top$' companies. .resent mar"et is growing at the rate of $+,.
Real estate business especially apartment projects has started in late 1970s in Dhaka City. But from early ' 0s the business started to !ro" and flourish. #t present$ more than %&0 companies are acti'e in business but 9&( business is still dominated by of top 10 Companies. )resent market is !ro"in! at the rate 1&(. Reasons for de'elopment of the industry* +he main reasons "hy real estate business de'eloped in Dhaka city are as follo"s* a, -carcity of open space in the important areas of the city b, .a/ards of purchasin! land c, .a/ards of construction of buildin! d, Rapid increase in population of Dhaka e, Decrease in the rate of bank interest f, )rice of land and apartments is increasin! day by day !, Rent of the apartments is comparati'ely hi!her than the rent of pri'ately constructed flats h, 0pen 1arket 2conomy. Remittance of forei!n currency is 'ery easy i, -ecurity j, -er'ice facilities such as !arba!e disposal$ central satellite +3 connection$ apartments ser'ices sa'es time$ roof top facilities$ lift and so on

($.*) /b#ecti!e and Scope of the study0

The sco e o! "he s"ud# $s %$&$"ed '$"h$n ro er"# (us$ness $n Bang%adesh. I" $s a%so %$&$"ed '$"h$n "he organ$)a"$on o! SAN*AR ro er"$es +$&$"ed. And !or "ha" reason $n!or&a"$on 'as ,er# &uch res"r$c"$,e '$"h$n "he organ$)a"$on as "he rea% es"a"e (us$ness $s go$ng "o (e ,er# &uch co& e"$"$,e. Here I d$scuss '$"h "o $cs re%a"ed "o "he ro!$%e o! Recru$"&en"- Se%ec"$on and Per!or&ance A ra$sa% rac"$ces o! SP+. In "h$s regard $n!or&a"$on has (een co%%ec"ed !ro& "he e& %o#ees 'ork$ng $n "he SP+ as "he# are !a&$%$ar '$"h organ$)a"$on.

1.. *e"hodo%og#

($.1) 2imitation
3ith lots of opportunity it has some limitation too, what 4 face preparing the term paper. he limitations are gi!en below0

Data 4nsufficiency0
The co& an# does no" ha,e su!!$c$en" source o! secondar# da"a and co%%ec"$ng o! da"a 'as no" s&oo"h.

ime (onstraint0
The "$&e 'as no" su!!$c$en" "o !$nd ou"- scru"$n$)e a%% "he necessar# da"a and ar"$cu%a"e $" $n "he re or".

5ob .ressure0
The e& %o#ees are ,er# (us# $n "he$r 'ork. So $" $s ,er# d$!!$cu%" !or "he& "o g$,e "he necessar# da"a as I re/u$red. 0or huge 1o( ressure I ,$s$"ed &ore "han "'en"# one cons"ruc"$on %an" '$"h$n "'o da#s. Th$s 'as ,er# %$&$"ed "$&e !or &e "o co%%ec" a%% necessar# da"a !ro& SP+ cons"ruc"$on %an".

Restriction to disclose0
So&e da"a are ,er# &uch con!$den"$a% !or "he organ$)a"$on. So $" $s no" oss$(%e "o ge" a%% sor"s o! $n!or&a"$on. Su ose "he !$nance de ar"&en" d$dn2" or"un$"# $n ro,$de &e "he c%ear $n!or&a"$on a(ou" "he ro!$" and %oss o! "he co& an#. In s $"e o! "he %$&$"a"$on- I "r$ed &# %e,e% (es" "o use a%% "he o co%%ec"$ng "he "rue $n!or&a"$on.

CHAPTER 2: +ITERATURE RE4IE5

E*ER7ENCE O0 REA+ ESTATE SECTOR IN BAN7+ADESH

he concept of RES is de!eloped to resol!e the residential facility which is a big problem in a densely populated country li"e ours. Especially the cities where una!ailability of land tends to rise the tendency of high rise apartments rather than pri!ate dwellings.

At present the housing condition of urban area in Bangladesh, in general, is 6uite unimpressi!e. 4n all metropolitan cities, there is acute shortage of housing supply and the bac"log is continually on the increase. 4nade6uate supply of dwelling units for middle and low income people and high rental !alue are among the most se!ere challenges afflicting urban li!ing in Dha"a. At present in our country the annually re6uired shelter !aries from 7 la"h to +.+ la"h units. Bangladesh will need to construct appro8imately 1 million new houses annually to meet the future demand of the ne8t *' years. 9ow Dha"a needs +',''' new houses annually to accommodate its growing population. But the e8isting annual supply is only *',''' units. So there is a huge bac"log and it is increasing e!ery year.

4n Bangladesh, the rate of urbani:ation is !ery high further aggra!ated by high population growth rate and rapid rural-urban migration. he current trend of urban growth in this country is about +,-;, per annum. his will change and increase demand for habitat. At present *), of the population of Bangladesh li!e in urban areas, which will be 71, in *'*+. he present estimated population of Dha"a is $' million and estimated growth rate is 1.&, per annum. All these people need shelter. o satisfy the housing of this huge e8plosi!e population Dha"a has attempted to e8pand !ertically. <ere comes the need of real estate sector. hey ha!e been playing !ery important role in pro!iding housing regardless of high, middle and low-income people since the past two decades.

Rea% Es"a"e De,e%o &en" 4n our country real estate business started in Dha"a in late se!enties. he Eastern <ousing of 4slam =roup is the pioneer in this business. During $%&'s there were fewer than + companies in Bangladesh engaged in this business. 4n $%)) there were 1* such de!elopers wor"ing in Dha"a and now in *''+ there are about *+' companies engaged in this business. >rom the early $%)'s the business has started to flourish and in $%%'s it has reached its pea". owards the end of year *''' there was slight downfall in real estate sector. 4n *''7 this sector started showing growth again. o strengthen the role of real estate sector some pioneer real estate companies together built up an association named RE<AB in $%%$. At present it has $'' members.

As the RES de!eloped, necessity of an association arose sharply. RE<AB is the outcome of that need. RE<AB resol!es the dissimilarities among the real estate de!elopers and tries to maintain a standard thus pulling all the de!elopers in the same !essel. 0or&a"$on o! REHAB Real Estate de!elopment in pri!ate sector in this country started in pre-liberation days when Eastern <ousing 2td. in the mid ;'s undertoo" land de!elopment pro#ect "nown as ?.allabi .ro#ect@ for housing purpose in the Airpur area of the Dha"a city. he concept of apartment de!elopment started in the late part of the &'s when >ree School .roperty De!elopment 2td. started de!elopment of ownership apartment in the Siddeswori and Aoghba:ar areas of the Dha"a city followed by Eastern <ousing 2td. During the )'s a number of companies came into e8istence and engaged in ownership apartment de!elopment. 3ith the number of companies increasing gradually and !arious problems concerning the housing sector ha!ing cropped up re6uiring early solution, necessity was strongly felt for the formation of a trade association of the Real Estate business. he real estate de!elopers met together in a meeting held on December $*, $%%$ at the (onference <all of the Dha"a (hamber of (ommerce and 4ndustries and formed an association under the nomenclature of Real Estate and <ousing Association of Bangladesh or briefly RE<AB. /n December $*, $%%$ a &-member Ad-hoc committee was formed with Aa#. =en. (Retd.) Am:ad Bhan (howdhury as .resident, Ar. A.S. Alam as =eneral Secretary and Brig. (Retd.) A.<.A. Abdul Aomen, as reasurer amongst others with the tas" of

forming a constitution for the new association. he Aemorandum and Articles of Association of RE<AB was due at the earliest possible time. =o!ernment appro!al to the formation of RE<AB was recei!ed in 5une, $%%*. 4n /ctober, $%%* the Association was incorporated with the Registrar of 5oint Stoc" (ompanies, Bangladesh as a trade association and in 9o!ember, $%%* RE<AB was enlisted as an ?A@ class member of the >ederation of the (hambers of (ommerce and 4ndustries (>B((4) with +-members representing RE<AB in the general body of >B((4. hereafter election of the first E8ecuti!e (ommittee comprised of the following0 $. *. 7. 1. +. ;. &. ). %. $'. $$. Brig. (Retd) A.<.A. Abdul Aomen Dr. oufi6 A. Sera# Ar. 4fte"har A. Bhan (.intu Bhan) Ar. A.S. Alam 2t. (ol. (Retd) Aahtabuddin Ahmed Ar. Arshi <aider Ar. 9asrul <amid Ar. Aeer Show"at Ali Ar. A.B.A. Sahidullah Ar. (howdhury Ad. Shafi Ar. Aan#urul Ahsan (howdhury .resident Senior Cice .resident Cice .resident =eneral Secretary reasurer Aember Aember Aember Aember Aember Aember

REHAB : ITS INPUT IN THE 7O4ERN*ENT PO+IC; *A<IN7

RE<AB by its name has the function not only to control and go!ern RES but also some influences in go!ernment policy ma"ing about housing that fa!ours the o!erall ob#ecti!es of RES. 4n a sense it can be said that RE<AB acts as an arbitrator in between de!elopers and the =o!ernment of Bangladesh. Dec%ara"$on o! Hous$ng as an Indus"r# o obtain recognition for the <ousing Sector as an industry, efforts of RE<AB ha!e met with partial success but there is hesitation in its implementation for lac" of necessary regulating orders. RE<AB is pursuing the matter with authority concerned but there appears to be inhibition in the mind of the authority concerned to the issuance of regulating orders. <owe!er, RE<AB will "eep up its efforts.

>

4AT Cat was to be reco!ered at the rate of $+, of the cost of an apartment. But RE<AB too" up the case with 9BR and succeeded in con!incing the 9BR with all facts and figures to affect actual deduction of $.%), of the price of an apartment. his is because CA is being paid at !arious stages of material procurement. CA has been enhanced since 5uly, $%%% to 7,. 4n fact in the process of wor"ing out the CA enforcement, there de!eloped a good understanding between 9BR and RE<AB.

1@

Chapter: 3
0$nanc$a% Po%$c# !or Hous$ng Sec"or RE<AB succeeded in this respect in a limited way in that it could con!ince the <ouse Building >inance (orporation (<B>() about a close cooperation between the de!elopers and the <B>(. After few meetings the <B>( Board and RE<AB succeeded in enlisting its members with <B>( for financing the pro#ects by offering loan to prospecti!e buyers through simplification of procedure and shortening the period of processing of loan ad!ance. RE<AB made efforts but failed to con!ince the authority concerned to set aside as percentage of total loan ad!ance by schedule ban"s for apartment purchase. he obser!ation of the authority was that no directi!e could be gi!en in the days of liberali:ation. But it is emphasi:ed that housing or shelter is one of the basic needs and the =o!ernment must ta"e appropriate steps to ensure easy access to financial assistance to its citi:ens. Na"$ona% Hous$ng Po%$c# Representati!es of RE<AB were in!ited to participate in the formulation of 9ational <ousing .olicy during $%%7. 4t can be said with satisfaction that the recommendations of RE<AB were 6uite constructi!e and were gi!en due considerations in the policy. <owe!er, it is stated that RE<AB must be represented in any discussion relating to housing sector, but many a times this has not happened. *$n$s"r# o! Pu(%$c 5orks and RA?U< he RE<AB members ha!e met Ainisters D /fficials of the Ainistry of .ublic 3or"s and RA5EB many a times to put forward its !iews on policy guidelines on housing, e8pansion of housing sector targeting the low and low-middle income group through distribution of de!eloped land by =o!ernment, compulsory membership of all de!elopers of RE<AB and uniform transfer modalities of land and apartment by Ainistry of .ublic 3or"s and RA5EB. A determined effort of RE<AB ha!e succeeded in some cases but there still remain some problems which are neither at all conduced to the growth of housing sector nor appropriate to offer opportunities to all for some "ind of shelter. <owe!er, RE<ABFs efforts are continuing to con!ince authorities concerned to be pragmatic and rationales in !iewing RE<ABFs recommendations.

11

REA+ ESTATE DE4E+OPERS

o fulfill the need of housing problem se!eral business organi:ations ha!e in!ol!ed in RES. <ere only the discussion is focused on those business organi:ations which are associated with RE<AB.

8.1 Na&e o! "he REHAB &e&(ers here are $1$ members in RE<AB. heir names are enlisted bellow. 9ame of the members0
$. *. 7. 1. +. ;. &. ). %. $'. $$. $*. $7. $1. $+. $;. $&. $). $%. *'. *$. **. *7. Aangina (onstruction 2td. AB( Real Estates 2imited Abode .roperties 2td. Ad!anced De!elopment (onsultants 2td. Ad!anced De!elopment echnologies, Agrani Apartment 2td, Al-<assan De!elopers 2td. AlamFs Real Estate 2imited, Amicus (orporation 2imited Amin Aohammad >oundation 2td, Amin Aohammad 2ands De!elopment 2td, Anwar 2andmar" 2td, A9G .roperties 2imited Apartment Design De!elopment (.!t.) 2td, Arcadia .roperty De!elopment 2td, Artisan Apartments 2imited Asset De!elopments <oldings 2td, Assurance De!elopments 2imited, Atlantic De!elopments 2td, A!enue Builders 2td, Banani .roperty De!elopment (.!t.) 2td, Bangladesh De!elopment (ompany 2td. Bashati (onsortium 2td, *1. *+. *;. *&. *). *%. 7'. 7$. 7*. 77. 71. 7+. 7;. 7&. 7). 7%. 1'. 1$. 1*. 17. 11. 1+. 1;. 1&. 1). 1%. +'. Basic .roperties 2td, Bay De!elopments 2td, Bay ower 2imited Blue Bonnet 2td, Bora" Real Estate (.!t) 2td, BRA( (oncord 2ands 2imited Building De!elopment And Design 2td, Building >or >uture 2td. Building echnology 4deas 2td, (entury Realty 2imited, (haruta <omes 2td, (ity A8is 2td, (oncord (ondominium 2td, (oncord Real Estate , De!elopment 2td, (oncord Real Estate, Building .roducts 2td, (onfidence Builders 2td, (onfigure Engineers D (onstruction (o. 2td, (orolla .roperties 2imited, (rescent <oldings 2td, De!elopment Entrepreneurs 2td, Dha"a Shelter (.!t) 2td, Dom 4nno, East 3est .roperty, De!elopment (.!t.) 2td. Eastern <ousing 2td, Ena .roperties, E6uity .roperty Aanagement (.!t.) 2td,

12

+$. E!erest <oldings echnologies 2td, +*. >amily 2i!ing 2td, +7. =. B.Builders, +1. =. A. .roperties 2td. ++. =.A. Real Estate (ompany (.!t.) 2td, +;. =lobe (onstruction 2imited, +&. =old <unt De!elopment (o. , +). =rameen Bangla <ousing 2imited, +%. =reen Delta <ousing And De!elopment (.!t.) 2td, ;'. <abitat Builders 2imited, ;$. <assan And Associates 2imited, ;*. <amid Real Estate (onsruction 2td, ;7. <appy <omes 2td, ;1. <i- ech Associates 2td, ;+. <i!ertech 2imited , ;;. 4deal <ome Builders 2imited ;&. 4ntimate <ome Builders 2td, ;). 4onic Builders 2td, ;%. 5amuna Builders 2imited, &'. 5apan =arden (ity 2td, &$. 5ib (onstructions 2td, &*. Bashba <ousing .ri!ate 2imited, &7. Beari 2imited, &1. Bs Engineering echnology, &+. Busholi 9irmata 2imited, &;. 2atif Real Estate 2td, &&. 2i!ing .lus 2imited, &). 2i!ingstone 2imited, &%. A .roperties )'. A-Ar" Realtors 2imited, )$. Aega Builders 2td. )*. Aetro Aa"ers De!elopers, )7. Aomen Real Estates 2imited, )1. Aorphosis De!elopments 2imited, )+. Atc .roperties 2td. Aultiplan 2imited, );. 9. A. <ousing 2td, 9agar Builders 2td. )&. 9agar <omes 2td, )). 9andan Banon <ousing 2td. )%. 9a!ana Real Estate 2td, %'. 9eer 2td, %$. 9eptune .roperties, %*. 9eptune 2and De!elopment 2td, %7. 9ew =eneration (onstruction (o. 2td, %1. 9oboudoy <ousing 2imited, %+. 9orthern >oundation 2imited, %;. /riental Real Estate 2td, %&. .acific <ousing 2imited, %). .alli .roperties .te. 2imited,

%%. .aradise De!elopment (onstructions 2td, $''..ar!in .roperties echnologies 2td, $'$..raasad 9irman 2td, $'*..roperty De!elopment 2td, $'7.HueenFs =arden, $'1.Rangs .roperties, $'+.Realta <omes And Apartments 2td, $';.Reliance De!elopment Associates 2td, $'&.Remco (.!t.) 2td, $').Ridge .ar" <oldings 2td, $'%.Riead .roperties 2td, $$'.Royal .roperties (.!t.) 2td, $$$.Rupayan <ousing 2imited, $$*.Rupayan Real Estate 2td, $$7.Russel 2odge <oldings 2td, $$1.Sagufta (ity De!elopers 2td, $$+.Samycon .roperties 2td, $$;.Shah#ahan =roup, $$&.Shah#alal .roperty 2td, $$).Shamsul Alamin Real Estate 2td, $$%.Shapta" =rihayan 2imited, $*'.Sheltech(.!t.) 2td. $*$.Sheltech owers Apts.(.!t.) 2td, $**.Shinepu"ur <oldings 2td, $*7.Si:a De!elopment (ompany 2td, $*1.S"y Ciew >oundation 2td, $*+.South Bree:e <ousing 2td, $*;.SS Builders And De!elopers 2td, $*&.Su!astu De!elopment 2imited, $*).Sumona .ri!ate 2imited, $*%.Swadesh .roperties 2td, $7'. amanna Real Estate 2td, $7$. anin Bun#a <ousing .ro"alpa, $7*. he (i!il Engineers 2td, $77. he Structural Engineers 2td, $71. ropical <omes 2td, $7+.Enion (onstruction, $7;.Enion De!elopment D echnologies 2td, $7&.Enitech <oldings 2imited, $7).Enited .acific Builders 2td, $7%.Erban Design D De!elopment 2td, $1'.C.4.. .roperties 2td, $1$.3estern De!elopers 2td

1.

De"er&$nan" o! Pr$c$ng De!elopers consider some factors to price their products. Area0 4t is a crucial !ariable for pricing a property. 4n our country its significance is more important than any other country. Depending on the area price fluctuate incredibly. Ta(%e I: Co& ar$son o! de!eren"$a% r$ce (ased on area ABroad C%ass$!$ca"$onB Area Dhanmondi Uttara Gulshan Banani Mohammadpur Source: REHAB P%o" %oca"$on: his !ariable affect the pricing decision of de!eloper to a great e8tent. 3ithin a particular area based on the road number or sector price of flat building !aries accordingly. Ta(%e II: Co& ar$son o! de!eren"$a% r$ce (ased on %o" %oca"$on Price (taka per square foot) *1'' $++' **'' $%'' $&''

Dhan&ond$
Road 9o. .rice (ta"a per s6uare foot) .CA Ao%dB *1'' .CA Ane'B *'%* 1@CA $%'' 28 $%%% Source: REHAB Ta(%e III: Co& ar$son o! de!eren"$a% r$ce (ased on %o" %oca"$on

7u%shan D2
Road 9o. 1@6- CENA0B .rice (ta"a per s6uare foot) $%%+

13

111- CENAHB>@ Source: REHAB

7''' 71**

S$)e: As the norms depending on the si:e, price of apartments !aries by a direct proportion. 4n some cases this proportion does not remain constant. 0ac$ng: >acing of the apartments is also an important !ariable in the pricing pattern of those apartments. 2i"e south facing or north facing flat of a particular apartment building differs hugely in price0 Ta(%e I4: Co& ar$son o! de!eren"$a% r$ce (ased on %o" !ac$ng >ace Sou"h !ace Nor"h !ace Source: REHAB .rice (ta"a per s6uare foot) 7''' *+''

16

4$e'0 Depending on the !iew of flats price can also !ary. Ta(%e 4: Co& ar$son o! de!eren"$a% r$ce (ased on %o" ,$e' Ciew Sou"h 0ac$ng +ake 4$e' Nor"h 0ac$ng +ake 4$e' Eas" 0ac$ng +ake 4$e' Eas" 0ac$ng 5es" 0ac$ng +ake 4$e' 5es" 0ac$ng Source: REHAB .rice (ta"a per s6uare foot) 7+'' *)'' **'' *''' *$'' $%''

0%a" 0ea"ure: >lat feature of the apartments is also an important !ariable in the pricing pattern of apartments. 4t consists of the interior design and fittings. he mentioned factors affect the pricing of the apartments. 0%oor: 4t is also a prominent factor that hea!ily induces the pricing of flat. he price decreases as the number of story increases. Ta(%e 4I: Co& ar$son o! de!eren"$a% r$ce (ased on !%oor >loor .rice (ta"a per s6uare foot) 1s" **'' 2nd *7'' .rd *1'' 3"h *1+' 6"h *7+' 8"h **+' 9"h *$'' Source: REHAB Cons"ruc"$on Eua%$"#0 his includes materials used for construction, roof design, column design etc. As the buyers are becoming sophisticated day by day this !ariable becomes important to the de!elopers at the time of pricing. +and O'ner2s Share: 9owadays most of the apartments are de!eloped by !arious real estate firms in the form of #oint !enture. 4n this !enture land owners and de!elopers share total number of flats in a particular apartment. 4n the most of the cases the ratio of sharing flats is 1'0;'. 4n case of lucrati!e areas this ratio is often +'0+'. Besides these landowners also demands a certain amount of cash benefit for staying away from their own home at the time of construction. EF$s"ence o! A&use&en" P%ace: E8istence and non e8istence of amusement place also affects the pricing of flat building.

18

Se%ec"$ng Procedure o! Co& ara(%e Pro er"#0 o select a property with which a real estate firm wishes to compare its new establishment sur!eys the mar"et and uses its personal communication procedure. =enerally a de!eloper tries to ma"e product to product comparison in respecti!e of competitor. A de!eloper generally uses both of its sub#ecti!e and ob#ecti!e #udgments in course of setting attributes, which are used to ad#ust at the time of pricing. Pr$c$ng o! Car Park$ng: (ar par"ing is fully independent with the o!erall price of any apartment. 4t is priced as per the current mar"et price. 9owadays it ranges from * to 7 la"h. Any apartment holder wishing to purchase more than one car par"ing space has to pay a higher amount than the normal range. 4t !aries according to the !ariation of area. 9...1. *a$n"enance G Secur$"#: After the hand o!er of an apartment, its maintenance is no more a responsibility of a de!eloper. he same is applicable for the security purpose. hese two responsibilities are handed o!er to the buyers association of a particular apartment with a hand o!er of flats to them.

Rea% Es"a"e : Con"r$(u"$on "o "he Econo&$c 7ro'"h

/!er the last $+ years the RES has made significant contributions to many sectors of our economy. Since $%)+ this sector has created homes for o!er $*''' families in the metropolitan city. Additionally, thousands of acres of land ha!e been de!eloped into housing estates where lower middle and middle income families can construct their own dwellings.

19

Ta(%e 4II: Con"r$(u"$on o! RES "o "he Econo&# (ontribution to =D. *''*-*''7 In Percen"age ).1) In Taka $%7&1 Source: Bangladesh Economic Review, !!" *''7-*''1 ).71 *'$$$

Since $%)+ this sector has procured construction materials worth o!er ". $,''' crore. 4t gi!es employment to about $*,''' construction wor"ers and pays wages to construction wor"ers amounting to about ". 1+ crore annually appro8imately " * crore is paid annually by this sector towards professional fees for architects and consultants. he sector employs about +,''' management staff li"e accountants, sales personnel, engineers, super!isors, administrati!e staff and others and pays appro8imately ". *+ crore to these people in annul salaries. he fact that many cement manufacturing industries ha!e now been set up in Bangladesh is a reflection of the impetus the RES has gi!en to our economy. 4n the last decade many steel mills would ha!e shut down had it not been due to the support of the RES. Se!eral new mechani:ed construction material manufacturing industries ha!e recently come up due to the e8istence of this sector. oday about *'' architects and consulting engineers are directly supported by this sectorI o!er +'' graduate engineers are holding management positions in this sector and almost *,+'' diploma engineers are engaged in this sector.

1=

Sa& %e en"er r$se:

1>

(*.$) Bac"ground of S.20

7enera%%# SP+ kno'n as a rea% es"a"e de,e%o er co& an#. Bu" a" "he !$rs" "$&e $" 'as no" a rea% es"a"e de,e%o er co& an#. In 1>>3 $" s"ar"s $"s 1ourne# as a s ec$a%$)ed sh$ $ng co& an#. No' SAN*AR HO+DIN7 $s aren" co& an# 'h$ch es"a(%$shed $n "he or" c$"# o! Ch$""agong $n 1>>>. 5$"h

change o! "$&e SAN*AR HO+DIN7 d$,ers$!$ed $"s (us$ness $n nu&erous sec"or %$ke- Res$den"$a%- Co&&erc$a% and +and De,e%o &en"- Cons"ruc"$on o! *u%"$s"or$ed Res$den"$a% and Co&&erc$a% A ar"&en"s- Arch$"ec"s and des$gnSh$ $ng Agenc#Agro Bus$nessPro er"# *anage&en"Ca $"a% *anage&en"- and In"erna"$ona% Trad$ng. SP+ $s no' %ead$ng %uFur# ro1ec"s $n "he Ch$""agong c$"#. ro,$der o!

Aission0
HThe co& an# a$&s "o ha,e de,e%o &en" ro1ec"s "ha" 'ou%d (e "rea"ed as "rue $cons- re!erence o$n"s !or crea"$,$"# and $ngenu$"# and "ake $"s cor ora"e res ons$($%$"# "o a ne' %e,e% $n "he rea% es"a"e de,e%o &en" sec"or o! "he coun"r#.I

Cision0
HThe co& an# en,$sages "o (e one o! "he &os" ,a%ua(%e %$!es"#%e de,e%o ers $n "he coun"r# and %ac$ng $"s cor ora"e $den"$"# so&e'here (e#ond &ere rea% es"a"e de,e%o &en". I" a$&s "o ha,e de,e%o &en" sche&es $n "he &os"

2@

des$ra(%e and eFc%us$,e %oca"$ons and "o (u$%d such sche&es "o a h$gh /ua%$"# s ec$!$ca"$on "ha" 'ou%d (eco&e s#non#&ous '$"h "he grou .I

21

(*.*) /rganogram of the company

>ig $0 /rganogram

22

(*.7) Associate (oncern of SA9AAR0

San&ar $s a grou o! co& an#. The# !ocus on nu&erous sec"ors. The a%% sec"or are sho'n (e%o' (# a !$gure.

>ig *0 (oncern of SA9AAR

Bey erms0
San&ar Pro er"$es +$&$"ed San&ar +and De,e%o &en" +$&$"ed San&ar Cons"ruc"$on +$&$"ed San&ar Arch$"ec"s +$&$"ed Ra$n(o' Sh$ $ng +$nes San&ar Ca $"a% *anage&en" +$&$"ed San&ar Agro G P%an"a"$on SP+ S+D+ SC+ SA+ RS+ SC*+ SAP

2.

(*.1) 3or" En!ironment0

I! I s"ar" "a%k$ng a(ou" $dea% en,$ron&en"- "here 'ou%d (e nu&erous organ$)a"$on "ha" 'e can "h$nk a(ou" and I ersona%%# "h$nk "ha" SP+ $s one o! "hose organ$)a"$on 'here an e& %o#ee !ee% &aF$&u& sa"$s!ac"$on $n re!erence "o "he en,$ron&en". To ge" &ore ou" o! "he e& %o#ee2s roduc"$,$"# SP+ 'ou%d o!!er so&e r$)es on h$""$ng sa%es. *anage&en" a%'a#s "r$es "o &o"$,a"e "he$r sa%es "ea& "o (oas" u "he$r sa%es. Sa%es eo %e are "hose 'ho are genera"$ng re,enue !or "he organ$)a"$on- '$"hou" "he& $" $s no" oss$(%e "o &o,e !or'ard. Here I !ound e& %o#ee ar"$c$ a"$on $s a%'a#s a rec$a"ed o en door o%$c# a%ong '$"h a ro er rocess $s de!$ned !or e,er# e& %o#ee "o co&&un$ca"e '$"h "o %e,e% &anage&en" and $! needed- e,en "he CEO A*.I <hasruB. Th$s conce " o!!er$ng co& %e"e con!$den"$a%$"# and su or" !or an# sugges"$on or co& %a$n"s d$rec"%# &ade "o "he head o! de ar"&en"- and !ocused on "he $& ro,e&en" o! "he s#s"e& and 'ork$ng en,$ron&en" a" SP+. Pos$"$,e organ$)a"$on (eha,$or!o%%o'$ng "he h$erarch#os$"$,e co&&un$ca"$on sk$%%- and "ea&'ork- !o%%o'$ng "he ru%es and crea"$ng se%! e"h$cs !or our o'n success- !ac" (ased dec$s$on &ak$ng and crea"$ng /ua%$"# and cus"o&er sa"$s!ac"$on 'h$%e eFceed$ng "he organ$)a"$on and &os" $& or"una"e%#- co&&$"&en" %o#a%"# and hard 'ork are "he ke# %earn$ng o! &# "$&e I ha,e s en" 'ork$ng '$"h "he SP+. Hu&an Resource &anage&en" $s no" 1us" h$r$ng or !$r$ng eo %e- (u" $"s &ore "han "ha" &ore de&and$ng and re/u$res co&&un$ca"$on sk$%% eo %e dea%$ng and unders"and$ng sense. +$ke e,er# hu&an $s d$!!eren" and "here &a# (e d$!!eren" res onse !or an# s$"ua"$on (# d$!!eren" eo %e. O,era%% "he 'ork en,$ron&en" $s ,er# %$,e%# and !r$end%#.

23

(*.+) Sanmar .roperties 2imited0

San&ar Pro er"$es +$&$"ed s"ar"s $"s 1ourne# on 1>>>. I"2s "he core ro er"# de,e%o &en" co& an# o! San&ar Ho%d$ngs. SP+ $s "he &os" success!u% and ro&$nen" rea% Es"a"e co& an# $n Ch$""agong. No' SP+ are d$,ers$!#$ng "he$r (us$ness $n Dhaka c$"# a%so. SP+ ro1ec"s are (u$%" on 1o$n" ,en"ure %and shar$ng (as$s as 'e%% as on co& an#2s se%! o'ned ro er"#. SP+2s roduc" or"!o%$o co& r$ses &a$n%# o! res$den"$a% a ar"&en"s $n o!!$ce s ace. res"$g$ous and sough":a!"er %oca"$ons o! Ch$""agong and a%so $nc%udes sho s and co&&erc$a%

<anded /!er .ro#ect0 In Residential ro1ec" SP+ handed o,er S$F"een A18B
(eg$nn$ng. These San&ar

ro1ec"s !ro& $"s

ro1ec"s are: San&ar Ro(e#a- San&ar +e%an"a- San&ar As"or$aAs"or$aSan&ar *a%,ar$,aSan&ar 4$nnn$gsSan&ar

Ter$&akas$ah- San&ar Park A,enue- San&ar 4e%%one- San&ar 4a%enc$aSan&ar 6"h A,enue- San&ar R$,er$a- San&ar S$gnor$a- San&ar *$ner,aSan&ar S$%,ano- San&ar S r$ng 4a%%e#- and San&ar Bonan"o. In (ommercial ro1ec" SP+ handed o,er on%# "'o A2B ro1ec"s "hese are: San&ar Ocean C$"# G San&ar S r$ng 7arden

/ngoing .ro#ect0
San&ar a%'a#s g$,e r$or$"# "o "he res$den"$a% ro1ec". No' SP+ has s$F"een A18B Ongo$ng res$den"$a% The ongo$ng Residential ro1ec". 5here so&e ro1ec" $s ,er# near "o co& %e"$on and so&e has (een s"ar"ed ear%$er. ro1ec"s are: San&ar Sorren"o- San&ar 7arden 7roo,e- San&ar 7rand <ar$&- San&ar *a#!a$r- San&ar *ona($- San&ar A&adora- San&ar A&ran"e- San&ar San"$no- San&ar *and$ra- San&ar A,en"$no- San&ar *agno%$a.

26

28

Epcoming .ro#ect0
SP+ $s go$ng "o s"ar" so&e ne' A>B on hand res$den"$a% ro1ec" $n d$!!eren" %ucra"$,e area $n

Ch$""agong. I" '$%% (e s"ar"ed $n shor"es" oss$(%e "$&e. No' SP+ ha,e N$ne ro1ec". The ro1ec" are : San&ar *ah!u) *anorSan&ar 7reen Park- San&ar *ahanagar- San&ar S$eera- San&ar Ba%%ar$aSan&ar R+ Park 4$e'- San&ar Tasn$&- San&ar Pa%& 7roo,e- San&ar Ana& P%a)a- San&ar S$dd$/u$ Cro'n.

S2D20
S2D2 is another arm of Sanmar <oldings, which is only deal with 2and Related issue. S2D2 only loo" after the land. 4t might be plot or where a building will be constructed. S2D2 recei!e the land from landowner and figure out e!erything about the particular land. =enerally S2D2 obser!e that whether the land is coming from the original owner or is there any difficulty with land they do it with help of 2egal Ad!isor. Sanmar already handed o!er plot in Bhatiyari while de!elopment of few other land pro#ects in (hittagong.

S(20
All constructional wor" of S.2 has done by the S(2 department. hey construct Residential pro#ect, (ommercial .ro#ect.S(2 enriched by a pool of highly competent and 6ualified ci!il, electrical and mechanical engineers. Sometimes S(2 wor" for other corporate houses with pro!iding the highest 6uality and higher Standard.

SA20
SA2 is the design arm of Sanmar <oldings. (omprising of a pool of reputed architects, structural engineers and interior designers, SA2 offers one stop ser!ice for architectural, structural and interior design solutions of Sanmar pro#ects. SA2

29

design also e8tends to designing building e8teriors and landscaping and Dri!ing Range of =olf (lub.

RS20
Ra$n(o' Sh$ $ng +$ne 'as "he !$rs" concern o! San&ar 'h$ch one $ng agenc# $ncor ora"ed $n "he #ear o! 1>>3. San&ar has $n"erna"$ona% sh$

(us$ness and regu%ar%# hand%es ocean go$ng ,esse%s ha,$ng 9@@@ *CTons "o 8@-@@@ *CTons o! cargo carr#$ng ca ac$"# a" "he &ar$"$&e or" o! Ch$""agong carr#$ng %$/u$d (u%k co&&od$"$es %$ke CDSO- a%& o$% and o"her ed$(%e o$% and gra$n cargo %$ke 'hea"- ra' sugar- ra e seed- &us"ard seed- eas- ce&en"!er"$%$)er and s"ee% cargo e"c. There are "'o s$s"er concern o! Ra$n(o' sh$ $ng +$ne. These are: AA Balam D (ompany 2imited and Ra$n(o' G raders 2imited. *A ka%a& G Co& an# %ook a!"er "he genera% $ng un$". The co& an# o'ns a %$censed Shamim

s"e,edor$ng (us$ness ar& o! "he Sh$

or" s"e,edor$ng house "ha" $s ac"$,e%# $n,o%,ed $n ac"$ng as "he genera% cargo hand%$ng o era"or a" "he &ar$"$&e or" o! Ch$""agong and $s one o! "he %arges" S"e,edor$ng 0$r& o era"$ng a" "he &ar$"$&e or" o! Ch$""agong. And Ra$n(o' G Sha&$& Traders +$&$"ed $s "he Cus"o& Brok$ng (us$ness '$ng o! San&ar 'h$ch $s ac"$,e%# $n,o%,ed $n "he Cus"o& C%ear$ng (us$ness. The Cus"o& Brokerage house o! San&ar ac"s as "he ded$ca"ed Cus"o&s Broker !or one o! "he %arges" co&&od$"# cargo $& or"er o! "he coun"r# and a%so !or "he s$ng%e %arges" $& or"er o! assenger e%e,a"ors $n Bang%adesh.

S(A20
San&ar Ca $"a% *anage&en" +$&$"ed $s a '$ng o! San&ar "ha" o'ns a %$censed s"ock (rokerage house !or "rad$ng on shares and s"ocks o! co& an$es en%$s"ed '$"h Ch$""agong S"ock EFchange. The co& an# has a ded$ca"ed s"ock "rad$ng o!!$ce "ha" $s &anaged (# Ca $"a% *anage&en" ro!ess$ona%s.

2=

Sanmar Agro D .lantation0

San&ar Co& an# has . ru((er %an"a"$on ro1ec"s under Ch$""agong H$%% Trac"s and regu%ar%# su %$es ru((er "o a &u%"$:na"$ona% shoe &anu!ac"urer $n Bang%adesh. The ro1ec" a%so has eF"ens$,e "$&(er %an"a"$on '$"h$n "he ro1ec" s$"e o! "he ru((er %an"a"$on.

(*.;) >inancial 4nformation0

The au"hor$)ed Ca $"a% o! SP+ $s 1@ Crore Taka. The a$d u ca $"a% $s 1@ +akh Taka. De(" and E/u$"# ra"$o are 1:1.3. SP+ are no" %$s"ed '$"h SEC. So no ca $"a% co%%ec"ed !ro& "he &arke" and no" au"hor$)ed (# share. De("s are co%%ec"ed !ro& "he !o%%o'$ng Bank.

Ban" 9ame0

/ne Ban" 2imited South-East Ban" 2imited 9ational (redit and (ommerce 2imited Enited (ommercial Ban" 2imited rust Ban" 2imited he (ity Ban" 2imited

Ban"Alfalah2imited

2>

(*.&) S3/ Analysis0

Bey Strength0
SP+ has so&e ke# s"reng"h (# 'h$ch SP+ d$!!er !ro& o"her co& e"$"or. Th$s S"reng"h are descr$($ng (e%o':

/n ime Deli!er0
SP+ $s ,er# &uch consc$ous a(ou" h$s Pro1ec" De%$,er#. The ro1ec" handed o,er on s"$ u%a"ed da"e. Res ec"$,e de ar"&en" o! "he SP+ he% s "he eng$neer$ng de ar"&en" "o co& %e"e "he$r ro1ec" on "$&e. And a%% eng$neer o! SP+ con"$nuous%# co&&un$ca"e '$"h "he$r h$gher au"hor$"# a(ou" "he$r 'ork rogress$on. The# "ake he% !ro& ,ar$ous de ar"&en"s.

Ensuring Huality0
SP+ ne,er co& ro&$se '$"h $"s /ua%$"#. I" a%'a#s shou%d (e good. Because SP+ (e%$e,e "ha" a good /ua%$"# roduc" can re"a$n "he cus"o&er and (r$ng ne' cus"o&er a%so. 0or &a$n"a$n "he h$ghes" /ua%$"# SP+ roduc" r$ce $s so&e'ha" h$gher "han $"s coun"er ar".

Effecti!e Sales eam0

SP+ has a good and e!!ec"$,e sa%es "ea&. The# con"$nuous%# search "he &arke" !or "he$r ros ec"$,e c%$en". The# co&&un$ca"e '$"h "he$r cus"o&er o,er hone- e:&a$% and se%! ,$s$". To &o"$,a"e cus"o&er "he sa%es erson send g$!" "o "he$r eF$s"$ng cus"o&er $n s ec$a% occas$on A$.e. ($r"hda#- ann$,ersar#B.

.@

E8clusi!e (ustomer (are0

Cus"o&er Care core 'orks s"ar"s a!"er se%%$ng an a ar"&en"s or +and. SP+ 7$,es h$ghes" su r$or$"# "o "he$r c%$en". SP+ has h$gh%# "ra$ned and 'e%%: ro,$de "he groo&ed "ea& o! Cus"o&er Ser,$ce EFecu"$,es $s on hand "o

or" $n an# area. And "he# &a$n"a$n %$neage '$"h a%% cus"o&er. The# hear

!ro& "he cus"o&er and g$,e "he& a ro& " so%u"$on regard$ng "he$r ro(%e&.

3ea"ness0 >re6uent Aar"et >luctuation0

*arke" !%uc"ua"$ons are ,er# &uch $n de,e%o er sec"or. Because "he r$ce o! S"ee%- Sand- +and are $ncreas$ng '$"hou" an# r$or no"$!$ca"$on.

2ac" of A!ailable of .roduction >ield0

Co& e"$"or nu&(ers are ,er# ($g so ge""$ng "he good %oca"$on "o s"ar" a ne' cons"ruc"$on $s ,er# d$!!$cu%".

/pportunities0

Strong >inancial (ondition >undamental .rinciples or core !alues of the business remain constant (ontinuous di!ersification of business

hreats0

(ompetition from ri!als 4ncreased D >luctuate .rice

Ne' Dec$s$on *ade (# RA?U< and CDA

.1

Accoun"s c#c%e The accoun"$ng c#c%e o! SP+ are as !o%%o's

The accounting cycle, also commonly referred to as accounting process, is a series of procedures in the collection, processing, and communication of financial information. As defined in a lesson earlier, accounting involves recording, classifying, summarizing, and interpreting phases. Financial information is communicated through the financial statements the end products of an accounting system. Before the financial statements can be prepared, accountants need to gather information about accountable transactions, record and collate them to come up with the values to be reported in the reports. The cycle does not end with the presentation of financial statements. Several steps are needed to be done to prepare the accounting system for the ne t cycle. The following diagram presents the nine steps in the accounting cycle.

#ccountin! Cycle -teps

1. 4dentifyin! and #naly/in! Business +ransactions The accounting process starts with identifying and analyzing business transactions and events. !ot all transactions and events are entered into the accounting system. "nly those that pertain to the business entity are included in the process. For e ample, a loan made by the owner in his name that does not have anything to do with the entity is not accounted for.

.2

The transactions identified are then analyzed to determine the accounts affected and the amounts to be recorded. The first step includes the preparation of business documents, or source documents. A business document serves as basis for recording a transaction. %. Recordin! in the 5ournals A #ournal is a boo$ paper or electronic in which transactions are recorded. Business transactions are recorded using the double%entry boo$$eeping system. They are recorded in #ournal entries containing at least two accounts &one debited and one credited'. To simplify the recording process, special #ournals are often used for transactions that recur fre(uently such as sales, purchases, cash receipts, and cash disbursements. A general #ournal is used to record those that cannot be entered in the special boo$s. Transactions are recorded in chronological order and as they occur. )ence, #ournals are also $nown as Books of Original Entry. 6. )ostin! to the 7ed!er Also $nown as Books of Final Entry, a ledger is a collection of accounts that shows the changes made to each account as a result of past transactions, and their current balances. This is the core of the classifying phase. After the posting process, the balances of each account can now be determined. For e ample, all #ournal entries made to *ash would be transferred into the *ash account in the ledger. +ncreases and decreases in cash will be entered into one ledger account. Thus, the ending balance of *ash can be determined. 8. 9nadjusted +rial Balance A trial balance is prepared to test the e(uality of the debits and credits. All account balances are e tracted from the ledger and arranged in one report. Afterwards, all debit balances are added. All credit balances are also added. Total debits should be e(ual to total credits. ,hen errors are discovered, correcting entries are made to rectify them or reverse their effect. Ta$e note however that the purpose of a trial balance is only test the e(uality of total debits and total credits and not to determine the correctness of accounting records. Some errors could e ist even if debits are e(ual to credits, such as double posting or failure to record a transaction. &. #djustin! 2ntries Ad#usting entries are prepared as an application of the accrual basis of accounting. At the end of the accounting period, some e penses may have been incurred but not yet recorded in the #ournals. Some income may have been earned but not entered in the boo$s.

..

Ad#usting entries are prepared to have the accounts updated before they are summarized into the financial statements. Ad#usting entries are made for accrual of income, accrual of e penses, deferrals(income method or liability method), prepayments (asset method or expense method), depreciation, and allowances. :. #djusted +rial Balance An adjusted trial balance may be prepared after ad#usting entries are made and before the financial statements are prepared. This is to test if the debits are e(ual to credits after ad#usting entries are made. 7. ;inancial -tatements ,hen the accounts are already up%to%date and e(uality between the debits and credits have been tested, the financial statements can now be prepared. The financial statements are the end%products of an accounting system. A complete set of financial statements is made up of a Statement of *omprehensive +ncome or Income Statement and Other and !otes to Financial Statements. . Closin! 2ntries Temporary or nominal accounts, i.e. income statement accounts, are closed to prepare the system for the ne t accounting period. Temporary accounts include income" expense" and #ithdra#al accounts. These items are measured periodically. The accounts are closed to a summary account &often, +ncome Summary' and then closed further to the appropriate capital account. Ta$e note that closing entries are made only for temporary accounts. /eal or permanent accounts, i.e. balance sheet accounts, are not closed. 9. )ost<Closin! +rial Balance +n the accounting cycle, the last step is to prepare a post%closing trial balance. +t is prepared to test the e(uality of debits and credits after closing entries are made. Since temporary accounts are already closed at this point, the post%closing trial balance contains real accounts only. =Re'ersin! 2ntries* An optional step at the beginning of the new accounting period /eversing entries are optional. They are prepared at the beginning of the new accounting period to facilitate a smoother and more consistent recording process. +n this step, the adjusting entries made for accrual of income, accrual of e penses, deferrals under the income method, and prepayments under the e pense method are reversed.
Manufacturing costs:

omprehensi!e Income , Statement of *hanges

in -(uity, Statement of Financial .osition or Balance Sheet" Statement of *ash Flows,

.3

Most manufacturing companies divide manufacturing cost into three broad categories. Direct material, Direct labor and Manufacturing overhead. 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 !ongi national company produce fan. !he 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 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.

.6

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 non6 manufacturing 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 6 even 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 6 even 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/'(

.8

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.

.9

#uppose, Cariable cost A B*

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. %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

.>

,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.

3@

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. *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 non6 controllable 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

31

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: #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

32

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. 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.

Conc%us$on

3.

Real estate de!elopers opened a new hori:on for the small families and the people of moderate income. /wning a house in Dha"a city is not a dream anymore. Easy installments and lower prices compared to build a house made it easier to fulfill lots of peopleJs lifelong dream. here are many people who own a piece of land in the city but can not afford the e8penses necessary to build their own home. RES eliminated these incon!eniences. Recently many de!elopers are showing interest in e8panding their acti!ities in other ma#or cities in Bangladesh. hen people of those cities will also be able to en#oy the facilities of lu8urious apartments at reasonable cost. 9ow Real Estate De!elopers are organi:ed as RE<AB and coordinating their efforts to sol!e the housing problems for the city dwellers. RE<AB is wor"ing closely with the =o!ernment to create a sound housing policy for the country that will enable people ha!e a place that they can call as home. Along the way Real Estate De!elopers are creating a lot of #ob and becoming a ma#or player in our economy by contributing to our =D..

33

B$(%$ogra h#
$. *. .. 3. 6. Bangladesh Economic Re!iew, *''1 he 9ew 9ation, April *1, *''1 '''.'e((ang%adesh.co&Jrea%es"a"e '''.,e%k$.co&Jrea%es"a"e '''.reha(hous$ng.co&

A((re,$a"$ons
AD 2- Ad!ance De!elopment and echnology 2imited A4 - Annual 4ncome a8 B 4- Building echnologies and 4deas DD- Demand Draft =D.- =ross Domestic .roduct <B>(- <ouse Building >inance (orporation 9BR- 9ational Board of Re!enue 9RE2- 9a!ana Real Estate 2imited RA5EB- Ra#dhani Ennayan Bortripo""ha RE<AB- Real Estate D <ousing Association of Bangladesh RED- Real Estate De!ewlopers RES- Real Estate Sector - elephonic ransfer CA - Calue Added a8