Performance analysis report for

Cheema Boilers Ltd.

Submitted By:-

Student ID:-

1 | P a g e

Content

1. INTRODUCTION 22. BACKGROUND 23. SITUATIONAL ANALYSIS 24. CONCLUSION 25. RECOMMENDATIONS 26. FORECAST 27. REFERENCES 2

2 | P a g e

1. Introduction:-

It is the process of identifying, measuring, accumulating, analyzing, preparing, interpreting, and communicating information that managers use to fulfill organizational objectives. Basic purpose of management accounting is ➢use information for short-term planning and controlling routine operations.➢use information for making non-routine decisions and formulating overall policies and long-range plans.➢use information for making decisions about the companyManagement accounting assists as a mechanism or provides a control device in that particular situation where the members of one organization do the work for accomplishing the same goal. Today’s technology is very much advanced and the traditional technology is questioned between among of us.

2. Background:-

Cheema Boilers Limited is a renowned name in field of process and power boilers. The company came into existence in the year 1998 and since then has shown multifold growth. The turnover has increased form INR 1 Cr. in year 2002 to 232 Cr. In year 2009 Company acquires international market in African continent apart from successful establishment in Asian continent. With northern India’s largest in-house manufacturing plant, two new units are waiting to be operational by year 2012. Company eyes at a turnover of more than INR 350 Cr in this financial year.

3. SITUATIONAL ANALYSIS:-

Cheema Boilers Limited along with its current manufacturing units is looking to take advantage of tax free operation for next 10 years in a backward region. The new manufacturing plant is 30 miles away from its current manufacturing plant. Also company proposes not to install a new plant and outsource the manufactured products instead.

CASE ONE: - INSTALLATION OF NEW PLANT.

Organizational changes expected: - in case of installation of new plant new manpower, infrastructure and machinery will be required. To run such a kind of machinery highly skilled labour is the other important aspect. But as company already runs similar business since last 10 years, appropriate sources of direct and indirect labour are known to them.

Cost behavior in relation to activity: - cost will remain under direct control of company in this case. Already raw material is bought in bulk quantity at discounted prices, so

3 | P a g e

additional inventory may be needed in special cases only. With more increase in activity better cost control is expected.

Cost, volume and profit analysis:-

Fixed cost: - this report observes fixed cost to be high in form of labour, testing, and manufacturing cost.

Variable cost: - variable cost are calculated based on the variable such as units produced as cost increases

Semi fixed cost:- semi fixed cost consist of expenses such as timely subscriptions etc. in this case electricity, water, telephone, internet expenses will constitute these expenses.

Risk and sensitivity analysis: - like every coin has two sides, there are always disadvantages along with any opportunities. Under slow market conditions and with advent of new technologies now days, market trends are changing day by day.

CASE TWO: - OUTSOURCING FINISHED PRODUCTS

Organizational changes expected: - The Company is manufacturing all its products under certain standards across national and international organizations; it needs to get its products manufactured from only such companies which adhere to those standards. So need of very sharp control over quality control is needed. It needs highly skilled personnel in quality control to be deployed. Also a separate vendor development team is needed to ensure smoother working with them.

Cost behavior in relation to activity: - cost varies from different vendor to vendor as each vendor manufactures on variable scale of manufacturing. Labour costs vary from INR 6 to INR 9 per kg of item with the market. So a variation of approximate 35% exists in market, which makes cost calculation a bit cumbersome process. High activity in this case does not ensure a discount as vendors management structure may be different compared to Cheems Boilers Limited.

Cost, volume and profit analysis: - with a decrease in overhead costs, total cost may reduce but extra transportation costs are supposed to cut some profits. Higher volumes with a single vendor may be seldom useful. Various aspects of cost, volume and profit analysis are explained below.

Fixed cost: - most of the vendors work generally on labour basis and not on material and labour basis. So the fixed cost is cost of material and labour cost.

4 | P a g e

Variable cost: - while outsourcing products from different vendors, transportation cost is major variable cost which fluctuates with the volume of production, world fuel prices, economic and political factors.

Semi fixed cost: - semi fixed costs are similar to those in case one.

Risk and sensitivity analysis: - this type of business greatly depends on production capacities of vendors. In case more volume of production is needed, the production capacities of vendor may not be sufficient to meet the requirements. In such a case either a new vendor is looker after or vendor is paid high prices to make ensure project completes in specified time. In certain cases financial condition of vendor is not strong enough to execute order. This may negatively impact the reputation of company and badly impact order book and profits.

4. CONCLUSION

From above report we may conclude that cheema boilers limited has the continuous large growth in the field of power boilers. This company wants to take the advantage of its background region which has the 10 years experience in this field. From this, cheema boilers have a plan to setup a new plant and also want to do the outsourcing of the finished goods. For testing these proposals certain principals are established for measuring their effectiveness. In case one, if company established a new plant then effective labour, machinery and certain aspects are required so this is very easy to collect for cheema boilers because this industry is in the same business from past many years. The other criteria of cost are also in the hand of the cheema boilers. But this proposal also have the negative side if the construction work will take too much time then it become very difficult to manage between the old technology and new technology.

In the case two, if the outsourcing of finished goods is going to start then the quality standards must be very high of these products. Other criteria of cost are also take place. For this numerous vendors are required. But if cheema boilers want to do the cost cutting then only one vendor should be preferred for this work. In this case the risk is that one vendor does not have the quality to provide the full material, so the need of second vendor is generally arise in this case.

5 | P a g e

7. References: -

www.cheemaboilers.com

http://www.duncanwil.co.uk/manacc/trial/trial2.htm

Aman khan, Case studies in public budgeting and financial management, 2007

6 | P a g e