Management Accounting and

Controlling
Group Assignment

Submitted By – Submitted To –

 Mansi Agrawal (202121006) Dr. P.J. Ramudu Sir

 Anwar Jamal (202121009)
 Manisha Tripathi (202121019)
 Manan Lodha (202121020)

Topic – Cost Analysis of Maruti Suzuki

Ltd.
 About Company –

Maruti Suzuki India Limited is India's largest passenger car maker. Maruti
Suzuki India Limited, formerly known as Maruti Udyog Limited, is a New
Delhi-based Indian automobile manufacturer. It was founded in 1981 and was
owned by the Indian government until 2003, when it was sold to Suzuki Motor
Corporation. Maruti Suzuki has a 49 percent market share in the Indian
passenger car market as of September 2021. Maruti Suzuki, which began with
the iconic Maruti 800 car, now has a diverse portfolio of 16 car models with
over 150 variants. Maruti Suzuki's product line includes everything from entry-
level small cars like the Alto 800 and Alto K10 to the luxury sedan Ciaz. Other
activities include pre-owned car sales, fleet management, and car financing.
Maruti Suzuki has 3,598 sales outlets in 1,861 Indian cities. Maruti Suzuki
increased its consolidated profit by 2.05 percent year on year to Rs 1,419.6 crore
in the September quarter of FY21 (Q2FY21), while revenue increased by 10.34
percent to Rs 18,755.6 crore. In comparison, the company reported revenue of
Rs 16,997.9 crore and profit of Rs 1,391 crore in the previous quarter.
Classify the expenses into variable and fixed throughout the study period –

A Variable Cost changes directly according to changes in its cost driver. For
Example, Power and Fuel Cost decreases when Maruti Suzuki decreases its power
consumption (in units). Whereas a Fixed Cost doesn’t change according to
changes in its cost driver. For example, Interest is charged at a fixed rate.
Classification of different costs are as follows –

Type of Cost
Cost
Raw Materials
Power & Fuel Cost
Variable Cost
Employee Cost
 Salaries, Wages & Bonus Fixed Cost
 Contribution to funds
 Staff Welfare Expenses
Depreciation
Interest
Tax
Selling and Administration Expenses
 Rent, Rate and Taxes paid
 Others
 Insurance
 Advertisement
 Distribution Expenses
 Other Selling Expenses
 Audit Expenses
 Royalty and technical fees
Miscellaneous Expenses
 Loss on Sale of Assets
 Loss on forex transactions
 Other provisions and write offs
 Other Miscellaneous Expenses
Study and analyse the trend in individual (like material labor, electricity etc..)
and total variable expenses as percentage of sales throughout the study period –

Analysis of all the variable cost has been done using the regression analysis using
Sales as independent variable and Cost as a Dependent Variable. All the
calculations are provided in the Regression Analysis sheet of Excel Workbook
provided.

Analysis of trend and changes of variable cost are as follows –

 Raw Material Cost Analysis using Regression –

 Multiple of R – 1
From this statistic, we can conclude that Raw material cost
changes by around 100% due to 100% change in Sales of Maruti
Suzuki.

 Power and Fuel Cost analysis using Regression –

 Multiple of R – 0.6463
Using regression analysis, we can see that Multiple of R is 0.6463
which means that Power and Fuel cost changes by 64% when there is
100% change in Sales of Maruti Suzuki.
 Variable Expenses and Total Expenses
as Percentage of Sales
Varia Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar-
ble 12 13 14 15 16 17 18 19 20 21
cost
Raw 71.50 66.28 64.17 64.45 59.47 60.97 67.00 68.98 70.62 71.86
Mater % % % % % % % % % %
ial
Powe 0.58 1.01 1.22 1.29 1.06 0.67 0.82 1.00 0.92 0.68
r& % % % % % % % % % %
Fuel
Cost
Total 81.69 77.35 75.29 75.82 70.55 71.13 78.03 82.16 85.34 86.20
0% 5% 1% 1% 3% 9% 5% 6% 0% 3%

Classify the expenses into direct and indirect throughout the study period –

Costs that can be identified specifically and exclusively with a given cost object in
an economically feasible way are called as Direct Cost. Whereas costs that cannot
be identified as specifically and exclusively to a given object in an economically
feasible way are called as Indirect Cost. Classification of Different Cost into
Direct and Indirect Cost is as follows –
 Nature of
Cost Cost
Raw Materials
Tax Direct Cost
Employee Cost
Power and Fuel Cost
Selling and Administration
Expenses In-direct
Miscellaneous Expenses Cost
Interest
Depreciation

Compute and Analyse operating leverage throughout the period –

 Operating Leverage refers to the sensitivity analysis of firms profit to changes

in Volume of sales. Firms with lower fixed costs and higher variable costs tend
to have lower operating leverage.
 From the Calculations in Cost volume Profit analysis sheet of Excel Workbook
provided, we can see that M a r u t i S u z u k i . I t has lower operating
leverage which means that there would be less effect of change in sales on
profit of the company.
 It was highest in March 2021 which was 1.923 which was due to s l i g h t l y
l o w e r contribution and slightly higher fixed which brought the profit to
low. So, from this very example we can see that operating leverage shows the
sensitivity of the profit on sales.
 Operating Leverage = Contribution Margin / Profit

Particular Operating Leverage

March-12 1.21309
March-13 1.20508
March-14 1.23454
March-15 1.29602
March-16 1.27245
March-17 1.27109
March-18 1.56867
March-19 1.68989
March-20 1.78991
March-21 1.9236

To carry out cost volume profit analysis for every year throughout the study
period. Thereby carrying out year wise comparative analysis of break-even sales,
margin of safety etc. –
 Contribution Margin Ratio –
Contribution Margin ratio refers to the ratio of Contribution margin and Sales.
From the table given below we can see that contribution margin has been
increasing and decreasing during the study period. It was highest in March 2016
which was 29.45% because of higher sales and lower variable costs. In March
2021 which was 13.80%, it was the lowest because of the higher variable costs
in 2021.

Contribution Margin Percentage = Contribution Margin / Sales * 100

Year Contribution Margin Percentage
March-12 18.31%
March-13 22.64%
March-14 24.71%
March-15 24.18%
March-16 29.45%
March-17 28.86%
March-18 21.97%
March-19 17.83%
March-20 14.66%
March-21 13.80%
  Break Even Sales in Rupees –

o Break Even Point refers to the level of sales at which revenue is equals
total cost and net income is zero. Basically, we find out the level of sales
at which the firm is operating at zero level of profit and able to cover its
all costs.
o Break Even Sales in rupees has been increasing in the given study
period which can be a point of issue in the Maruti Suzuki. It is highest in
March 2019 because of the high fixed cause although contribution margin
percentage was not low.

Break-even Sales in Rupees = Fixed Cost / Contribution Margin

Percentage

Year Break-even Point in Rupees

March-12 6937.73
March-13 8354.18
March-14 9275.56
March-15 12592.8
March-16 13929
March-17 16479.1
March-18 29724.5
March-19 35117.5
March-20 33367.9
March-21 33769.6

 Margin of Safety in Rupees –

o Margin of Safety refers to Planned Units sales less Break-even Sales. It is

a measure of how far sales can fall below the planned level before losses
occur.
o We can see from the table given below that margin of safety has been
decrease during the study period. It was highest in March 2017 because
of the high sales and low break-even sales.
 Margin of Safety = Planned Units Sale – Break-even sales

Year Margin of Safety in rupees (in crores)

March-12
32,557.57
March-13 40,735.82
March-14
39,548.74
March-15 42,540.80
March-16 51,125.56
March-17
60,787.14
March-18 52,269.89
March-19
50,902.76
March-20 42,242.67
March-21 36,562.90
Bibliography –
 https://www.marutisuzuki.com/corporate/about-us
 Pearson’s Introduction to Management Accounting by Horngren, Sundem,
Schatzberg, Burgstahler Book.
 https://imtnagpurelibrary.informaticsglobal.com:2130/SiteFrame.aspx?
id=1
 https://www.capitaline.com/