Futuristic Fortune Company Ltd.

Topic: Break-even analysis and published information for decision making

Futuristic Fortune Company Ltd. is floated in the year 2019 on April 1. The Managing Director,
Marketing Manager, Finance Manager, Human Resources Manager, and other key executives of the
company are fresh MBA graduates from premier institutes. All the executives decided in a meeting
called by the Managing Director to translate the vision of the company into accomplishable goals
and objectives.

The Marketing Manager, Finance Manager, and Human Resource Manager formed a sub-committee
to design, develop and document the goals and objectives of the company. During the discussions
and deliberations, the following information was made available:
• There are very few players in the market manufacturing and providing services for this highly
integrated and converging technology project.
• Technology is the latest and highly innovative.
• It is highly capital-intensive and requires a huge number of investments.
• Even though demand can be created, investors perceive the project as highly risky.

The committee opined that the quantification process of various activities and programmes of the
company is not an easy job because the various activities are to be performed for the first time.
Therefore, the committee decided to collect information of other players in the market. Because the
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project is highly risky, the committee felt that a return of 33 (3) % on the cost of goods
manufactured and sold is required to sustain in the industry. The meeting of the committee was
postponed without transacting other issues due to the non-availability of other important
information.

The committee members started exchanging notes on vital information. The Marketing Manager
could gather some information from the market regarding the turnover of competitors. The
members of the committee felt that the previous year’s average turnover of the two competitors
should be considered for the purpose of the budget which is an integral part of documenting the
goals and objectives of the company. The Cost Accountant could inform on the cost behaviour of the
project and said that the fixed costs are INR 20 lakhs more than that of competitors (who have
identical fixed costs). One of the competitors by the name Fortune India Ltd., a listed public
company, published the audited financial results for the previous year with a turnover of INR 1,500
lakhs and bottom line of INR 300 lakhs. The Finance Manager could collect information regarding
profits and turnover of other competitors, which is in the ratio of 1:6, respectively. Regarding the
variable cost structure, Fortune India Ltd. had 20% lesser than that of its competitor whose profit
was INR 350 lakhs. All the companies have identical selling prices of INR 10.

Prepare the budgeted profitability statement of the company assuming profits given above are
profits before tax.