Cost and Management Accounting

Company name: Vikram Thermo India Ltd.

 Table of Contents

Sr. Topic Page

No. No.
1. Introduction
2. Part A (Classification of
Costs)
3. CVP Analysis
4. Variable and fixed costs
5. Calculations
6. Findings from analysis
7. Suggestions
8. Annexure
9. References

Acknowledgement

We would like to offer our deepest gratitude to all those people who not only gave us this
wonderful opportunity but also helped and assisted us in completing this report. The completion
of the Cost and Management Accounting Group Assignment gives us much delight and
satisfaction. We would firstly like to extend our gratefulness to Prof. Bhoomi Mehta (Faculty –
Cost and Management Accounting) for her constant assistance at all the levels of the assignment
and his generosity in clarifying all our doubts and concepts, which not only helped us in
conceptual clarity of the respective topic but also proved to be a great aid in completing our
report. Moreover, her guidelines also served as an unending and provided a robust foundation to
the completion of our report.
Further it becomes imperative to mention the crucial role of the other staff members of the
institute who not only attended us out of their valuable time but also provided us with all the
relevant information related to the topic. We would also like to thank the staff members of the
Institute of Management, Nirma University library which turned out to be a database and
storehouse of information.
We would also like to offer our deepest regards to all those people who have directly or
indirectly guided us in this project report and also gave us a zeal and deep inspiration in
continuously improving our assignment.

Vikram Thermo India Ltd.

Introduction
Vikram Thermo (India) Limited is dedicated to discovery, development, manufacturing and
marketing of research based life influencing products since 1985. Company has dedicated force
to reckon with catalyst of need driven innovation and agent of change in pharmaceutical,
chemical and cosmetic industries.
The company is an optimally environment friendly enterprise with an equally sharp focus on the
safety. Vikram thermo (India) Limited owns two well established brands under pharma
excipients segment DRUGCOAT- Methacrylic Acid Copolymer based basic pharma polymer
& DRCOAT – Customized Ready-mix Pharma Polymer.
Company is pioneer in India for manufacturing its products. It is the fastest growing entity at a
CAGR more than 17%. Vikram Thermo (India) Limited is founded, led and inspired by Mr.
DHIRAJ PATEL, Visionary entrepreneur and ardent science aficionado
Vikram Thermo (India) Limited has over the years emerged as a very powerful brand
synonymous with top quality product in India. Now it runs to emerge as a truly global
pharmaceutical excipients manufacturer and benchmark setter in quality, safety, reliability and
technical assistance. The company made considerable progress in terms of production volume,
efficient good manufacturing practices, market development and sales established through
dealer’s network in major industrial centers in India as well as in the international markets, like
Kenya, Europe & U.S.A. 
The company past a pride inspiring performance and create continually increasing value for our
stakeholders, partners, customers and the community at large. On our way of achievement, we
are always thankful for support and encouragement of stakeholders, partners and internal &
external customers. At large we are here to play significant role in preserving planet earth’s most
precious resource: Human Lives.

Products of the company:

DrugCoat: Methacrylic acid based basic pharma polymer
DRcoat: Customised ready to use Pharma Polymer
By Application: Complete solutions for various applications in coating segment
Diphenyl Oxide (Aromatic Chemical): Used as Perfumery Stabilizer and for
manufacturing Heat Transfer Fluid.

ANALYSIS
A.Classification of Costs for the year 2016-17

1. Classification of costs on the basis of Nature of Cost

Materials Labour Expenses

 Methacrylic Acid  Direct wages  Consumable Stores Expenses
 Ethyl Acrylate  Insurance Expenses
 Phenol  Machinery Spare parts and
  MCB Repairs
 Packing Material  Power, Fuel & Water
Charges
 Building Repairs
 Excise Duty
 Other Manufacturing
Expenses
 Depreciation Expenses
 Advertisement Expenses
 Freight Outward Expenses
 Sales Commission
 Other Selling & Distribution
Expenses
 Legal and Professional Fees
 Rates & Taxes
 Travelling and Conveyance
Expenses
 Payment to Auditors
 CST/VAT
 Other Repairs
 Other Administrative
Expenses

2. Classification on the Basis of Relation to Cost Centre

Direct Costs Indirect Costs

 Material: Labour:
 Methacrylic Acid  Salaries
 Ethyl Acid  Contribution to provident fund
 Phenol  Staff welfare expenses
 MCB  Auditor’s Remuneration
 Packing Material Expenses:
Labour:  Insurance Expenses
Direct Wages  Advertisement Expenses
Expenses:  Depreciation Expenses
 Power fuel and water charges  Freight outward
 Consumable Stores Expenses  Sales commission
 Building Repairs
 Machinery spare parts and repairs
 Travelling and Conveyance Expenses

3. Classification on the Basis of Functions

Production Cost Administration Selling/ Distribution R & D Cost

Cost Marketing Cost Cost
 Consumable  Legal and  Advertisement  Freight  R&D
Stores Expenses Professional Fees Expenses Outward expenses*
 Insurance  Rates & Taxes  Sales Expenses
Expenses  Travelling and Commission  Other
 Machinery Conveyance  Other Selling Distribution
Spare parts and Expenses expenses Expenses
Repairs  Payment to
 Power, Fuel & Auditors
Water Charges  CST/VAT
 Building Repairs  Other Repairs
 Other  Other
Manufacturing Administrative
Expenses Expenses
Assumption: * The R & D expenses are not clearly mentioned in the report, however since it
is a pharmaceutical company and the company claims to be running R & D Centre’s, it is bound
to have incurred R & D expenses. As stated in the report:
RESEARCH AND DEVELOPMENT EXPENSES: Expenditure relating to capital item is
debited to fixed assets and depreciated at applicable rates. Revenue expenditure is charged to
Profit and loss account for the year in which they are incurred.

4. Classification on the Basis of Behaviour

Fixed Cost Variable Cost Semi-Variable

Cost
 Insurance  Methacrylic Acid  Travelling and
conveyance
 Depreciation Ethyl Acid
expenses
Expenses Phenol
 Advertisement
 Sales
MCB Commission
expenses
 Rates and Taxes
Packing Material

 Salaries &wages  Power Fuel and water

charges
 Contribution to
Provident and Other  Consumable stores
Funds expenses
 Staff Welfare  Machinery and Spare
Expenses parts
 Payment to Auditors  Freight outward
 Legal and expenses
Professional Fees
 Building Repairs

5. Classification on the Basis of Product Cost & Period Costs:

 Product Costs
 Methacrylic Acid
 Ethyl Acrylate
 Phenol
 MCB
 Packing Material
 Salaries and wages
 Consumable Stores Expenses
 Insurance Expenses
 Machinery Spare parts and Repairs
 Power, Fuel & Water Charges
 Building Repairs
 Other Manufacturing Expenses
B. C-V-P Analysis from 2012-13 to 2016-17
1. Variable and Fixed Costs
Period Costs
 Advertisement Expenses
 Sales Commission
 Other Selling expenses
 Freight Outward Expenses
 Other Distribution Expenses
 Legal and Professional Fees
 Rates & Taxes
 Travelling and Conveyance Expenses
 Contribution to Provident and Other
Funds
 Staff Welfare Expense
 Payment to Auditors
 CST/VAT
 Other Repairs
 Other Administrative Expenses
2012-2013
Fixed cost Amount (in Rs.) Variable cost Amount (in Rs.)
Insurance 345213 Cost of materials 199382983
consumed
Depreciation expenses 7845581 Power fuel and 9525251
water
Advertising Expenses 722029 Consumable stores 539343
Expenses
Rates & Taxes 104841 Machinery & Spare 5543521
parts
Employee Benefit 28157595 Freight outward 3261799
Expenses expenses
Payment to auditors 139700
Legal and professional 2954391
Building repairs 1740440
TOTAL 42009790 TOTAL 218252897

2013-2014
Fixed cost Amount (in Rs.) Variable cost Amount (in Rs.)
Insurance 283016 Cost of materials 247,156,988
consumed
Depreciation expenses 8483767 Power fuel and water 11714944
Advertising Expenses 783441 Consumable stores 465707
Expenses
Rates & Taxes 66303 Machinery & Spare 2160862
parts
Employee Benefit 33439654 Freight outward 5421852
Expenses expenses
Payment to auditors 165495
Legal and professional 4354697
Building repairs 4176046
TOTAL 51752419 TOTAL 266920353

2014-2015
Fixed cost Amount (in Rs.) Variable cost Amount in (Rs.)
Insurance 310575 Cost of materials 243373489
consumed
Depreciation expenses 8703224 Power fuel and 10703634
water
Advertising Expenses 775485 Consumable stores 380115
Expenses
Rates & Taxes 54643 Machinery & Spare 935559
parts
Employee Benefit 36665664 Freight outward 4577762
Expenses expenses
Payment to auditors 171280
Legal and professional 2908650
Building repairs 516802
TOTAL 50106323 TOTAL 259970559

2015-2016
Fixed cost Amount (in Rs.) Variable cost Amount in (Rs.)
Insurance 280979 Cost of materials 205333039
consumed
Depreciation expenses 12631885 Power fuel and 12708174
water
Advertising Expenses 751242 Consumable stores 484267
Expenses
Rates & Taxes 81175 Machinery & Spare 1195181
parts
Employee Benefit 40843277 Freight outward 4256055
Expenses expenses
Payment to auditors 207902
Legal and professional 3469844
Building repairs 2269453
TOTAL 60535757 TOTAL 223976666

2016-2017
Fixed cost Amount (in Rs.) Variable cost Amount in (Rs.)
Insurance 442714 Cost of materials 247278865
consumed
Depreciation expenses 13465817 Power fuel and 17030625
water
 Advertising Expenses 1183166 Consumable stores 582926
Expenses
Rates & Taxes 64546 Machinery & Spare 1681235
parts
Employee Benefit 49283156 Freight outward 5329399
Expenses expenses
Payment to auditors 161304
Legal and professional 6271806
Building repairs 2613730
TOTAL 73486239 TOTAL 271903048

Findings
2012-13
The variable cost for the year accounted for Rs. 218252897 against a fixed cost of Rs. 42009790
which showed that the company had control expenditure in terms of fixed cost. This was also
because the company had lease rent instead of itself purchasing and owning the premises. P/v
ratio accounted for 42.110% which is great for a well-established company like this. The BEP
sales revenue is also less because of the monitored low fixed and variable cost and thus keeping
the margin of safety at 35.416%. Thus, the overall functioning of the year was good.

2013-14
In the year 2013-14 the company increased its scope of business and thereby increased its
expenditure in terms of fixed and variable cost. Fixed cost increased by one-fourth time the
expenditure of the previous year. This showed that to increase the span of business, fixed cost
was incurred. This increase was mainly in the employee benefit area i.e. salaries and wages,
employee compensation, etc. Profit came down reducing the P/v ratio to 38.287%, increased
break-even point and reduced percentage of margin of safely.

2014-15
During the year 2014-15, the company faced a significant increase in its production process. The
cost of materials consumed increased along with an increase in consumable store expenses and
power fuel. With increase in revenue from operations the contribution also increased. The P/v
ratio came down because of low proportional increase because of which the percentage of MOS
also decreased, making it a difficult phase of the business.

2015-16
For the first time in the year 2015-16 the variable cost reduced because of decrease in the cost of
materials consumed and thus the total contribution. This also led to a significant increase in the
P/v ratio from 30.139% to 41.718%. But due to decreased margin of safety against cost, the
margin of safety percentage even decreased to 26.467% than that of the previous year.

2016-17
The company experienced good revenue from operations from the previous years in the year
2016-17 because of its increase in operations leading to higher fixed and variable cost.
Production was increased leading to higher contribution but the P/v ratio fell as there was an
inequality in the increase in proportion of contribution to sales. Low cost and high revenue lead
to increased margin of safety, increasing its percentage to 27.436%.
Thus, bringing the company back on track from its decreased percentage of margin of safety in
the previous year.

Analysis for the five years:

The company has grown its business significantly over these years. The company has controlled
its fixed costs to a great extent and has relied more functioning on the variable costs. Looking at
the overall company performance, the company Vikram Thermo Ltd has constantly been
increasing its variable costs over the past 5 years in order to support its overall mission of
expansion and growth over the years.
The contribution and the fixed cost showed a decrease during the year 2014-15 as the revenue
fell as compared to production than the previous years. The year 2012-13 had a high P/v ratio
which subsequently went on decreasing because of increased variable cost and less proportional
increase in the revenue from operations i.e. Sales revenue.
The Break-even point kept on increasing because of increased cost of production except for the
year 2015-16 since the company managed to substantially reduce its variable cost. This lead to
an increase of point where the company faced a no profit and no loss situation. The margin of
safety also decreased due to increased cost and increased break-even point value. This has been
the trend since the margin of safety and the percentage of margin of safety had decreased in the
third year and is followed in all the subsequent years. This shows that the company is having
lower sales revenue than it should be when compare to the sales revenue. Also, the profit was not
as high as the previous years when compared to the P/V ratios of the previous years.
Decreased margin of safety is leading to a decrease in the percentage of margin of safety and
thus increasing the risk factor for the Organisation. Thus, the company after increasing its scope
for the business has increased its level of risk for the purpose of expansion and growth.

Suggestions
 The company has a very strong hold in Gujarat and can capitalize to a greater extent it
can invest more in R & D and gain a greater market share with new products with greater
audience.
 The company enjoys Percentage of Margin of Safety in every year of around 30% which
is quite risky as compared to the pharmaceutical industry and the company can try and
stabilize its functioning as well as position in the market.
 The company can try and expand its geographical markets since it is trying to globalize
itself which can be done in a much stronger way by investing more globally.
 The company can also work on increasing its P/V Ratio since it has not seen a constantly
rising trend which leads to lesser profit. This can be controlled by reducing the variable
costs and the fixed costs which will lead to greater contribution and thus greater profits.
 The company can grow substantially and can compete with giant firms in the
Pharmaceutical industry if it focuses more on production than just on marketing and
trading since greater production capacity will lead to greater valuation and thus expansion
of company.
ANN
EXU
RES
References
http://www.vikramthermo.com/company.html
http://www.vikramthermo.com/investor-relation.html
http://www.investopedia.com/terms/v/variablecost.asp
https://www.accountingtools.com/articles/what-is-a-semi-variable-cost.html