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Project finance involves providing credit and other facilities to a borrower , for setting up new projects, expansion, diversification and modernization of existing industrial units. While considering the project for assistance, we evaluate technical feasibility, commercial and economic viability and financial soundness of the project. The repayment of the loans and facilities is normally fixed on case to case basis depending on projected cash flow of the borrower.

Road and Urban Development Power & Utilities Oil & Gas, Other natural Resources Ports and Airports Telecommunication

Non- Infrastructure
Cement, Steel, Mining, Engineering, Auto Components, Textile, Pulp & Paper, Chemicals, Pharmaceutical . Etc

Tourism & Hospitality, Educational Institutions Etc.

Various aspects of project analysis:

1. Technical Analysis. 2. Commercial Analysis Analysis of Demand forecast. 3. Financial Analysis I. Capital cost of Project & Sources of Finance. II. Financial Projections Cash Flow and profitability Estimates. III. Ratio Analysis IV. Break Even point V. IRR 4. Analysis of Management. 5. Monitoring

Technical Analysis:
Technical analysis is essential to ensure that necessary physical facilities required for production will be available and the best possible alternatives is selected to procure them. These are to be assessed by common sense, experience and discussions with the promoters 1. Manufacturing Process / Technology 2. Technical arrangement 3. Size of the plant 4. Product Mix 5. Selection of Plant and Machinery 6. Procurement of Plant and Machinery 7. Plant lay out 8. Location of the plant. I. Land II. Raw Material III. Market IV. Labour V. Utilities such as water, Power, fuel etc. VI. Effluent disposal VII. Transportation 9. Schedule of Project Implementation

1. Manufacturing Process / Technology If a product can be manufactured by using alternative raw materials with alternative process routes, a comparative study should be done to choose the most suitable process depending upon the quality of product required, its end use. If a product is to be manufactured by a particular process for the first time in the country, necessary study should be done about the success of the process in other countries. 2. Technical arrangement Technical arrangement made to obtain technical know how required for the proposed project. Support to be provided by technical collaborators in planning and designing of the project Selection and procurement of equipment, installation and operation of the plant, training etc. Collaborator has agreed to provide the benefits of research and development. Any restriction imposed by collaborator (Exports etc.) 3. Size of the plant Size of the plant depends on the manufacturing process, availability of raw material, capital investment, size of the market. Size of the plant or capacity can be expressed in one of the following terms: 1 2 3 With Respect to the output ( quantity of finished product) With Respect to input ( quantity of main raw material used) With respect to number or machines Pulp and paper, Cement, Steel, etc. Sugar Mill, Cottonseed expeller unit, Solvent extraction plant.etc. Power looms, Spinning Mills, Textile Mills etc.

The concept of economic size of the plant changes with the changes in technology, price structure, availability of raw material, demand of the product and other circumstances.

4. Product Mix Product mix or product range depends upon market requirement of certain items may have to be done in different sizes and quality to suit different consumers. If plant may have flexibility to change product mix according to changes in the market conditions, such flexibility may need additional investment, its impact on the viability of the project be analysed. 5. Selection of Plant and Machinery Selection of plant and machinery should be done according to manufacturing process and size of the unit. Different stages of manufacturing process should have proper balance of capacity. A product has to pass through 4 stages and the capacity of proposed machinery for each stage is as under Raw Material I Stages Capacity 90 Production Cycle II 80 III 60 IV 80 Finished Goods

The total capacity of the plant in above case will be considered as 60 units because the capacity in the third stage of process is only 60 units. Equipments for utilities (Power, water, fuel etc) should also have sufficient capacity to meet the requirements of main plant and machinery. Adequate provisions should also be made for tools and spares. 6. Procurement of Plant and Machinery The machinery suppliers should be decided keeping in view the quality of the machine, the reputation of the suppliers, delivery schedule, payment terms , performance guarantee and other relevant matters. It is not always necessary to procure machinery from suppliers whose quotations are the lowest. If the project is being implemented on turnkey basis , the reputation of EPC contractor, main terms and conditions of contract to be analyzed. If promoters proposes to import second hand machinery a certificate from chartered Engineer giving details of its history, present performance,

valuation, economic life and suitability of second hand machinery should be obtained. In order to have uninterrupted production, it should be ensured that satisfactory arrangements for repair have been made and necessary spare parts will be available in time. 7. Plant layout Proper plant lay out can reduce manufacturing cost by savings time and money . Plant lay out be done in such a way that minimum time is taken in handling equipment , raw material, consumables, goods in process and finished goods. 8. Location of the plant. I. Land Land should be sufficient for the proposed project and the future expansion plans. Load bearing capacity of the land should be ascertained. Proposed land should be non agriculture and approved for Industrial use. II. Raw Material The requirement of raw material at full capacity should be ascertained and it should be ensured that necessary raw material will be available at reasonable price. If raw material is bulky and difficult to transport, it is better to locate the plant near the source of raw material. Regular supply of raw material is very necessary for the successful operation of the plant. III. Market While deciding location of the project, a comparative study regarding transportation of raw material and finished products should also be done. If transportation of finished products is more difficult than its raw material, it may be better to set up project near to the market.

IV. Labour Sometimes skilled labour is not available at a particular place. If labour has to be obtained from outside ,arrangements to provide housing facilities analyzed. V. Utilities such as water , Power, fuel etc. Arrangement for utilities power, water, fuedl etc to be ensured. If there is shortage of power supply alternative arrangement be way of Gen Sets etc be ensured. VI. Effluent disposal The problem of effluent differs from industry to industry depending on nature and quantity of effluent. It should be ensured that necessary treatment is provided the effluent unit. VII. Transportation If the proposed site is not connected with main road, an approach road may have to be laid from the site to the main road. The quality of road may be decided keeping in view the quantum of goods to be transported. If the unit proposes to buy their own vehicles cost benefit analysis be made, by calculating deprecation, interest and other expenses of maintaining vehicle compared to vehicles engaged on hire basis. 9. Schedule of Project Implementation The Project Evaluation and Review Technique ( PERT) or Critical Path Method (CPM) helps in proper planning , scheduling and controlling various activities essential for the execution of the project. All possible activities from project identification to commencement of production should be listed. It should be ensued that all the activities have been included and the time schedule given by the promoter is reasonable. Arrangement should be made to procure necessary raw material inputs like raw material, power, labour etc appropriate time so that plant does not remain idle and the implementation may commence soon as the installation of the plant is completed.

Commercial & Market Analysis: Major Headings

Demand Supply Distribution Pricing External forces

Information Needed
Product, Uses, the consumers, actual consumption, likely consumption in future and exports Production Capacity, actual production, Capacity utilization, Imports and likely future capacity. Channels of Distribution involved, the cost of distribution and the mode of transport Domestic and international price trends, control on prices, duties and taxes Government Policies regarding industrialization, exports, imports, foreign collaboration, Plan outlay etc.

Financial Analysis:
1. Capital Cost of Project I. II. III. IV. V. VI. VII. VIII. Land and Site Development. Buildings Plant and Machinery Engineering and consultation fees Miscellaneous Fixed Assets Preliminary and Pre operative Expenses Provisions for contingencies Margin Money for Working Capital

2. Sources of Finance. 3. Financial Projections I. Profitability Estimates II. Cash flow Estimates III. Projected Balance Sheet 4. Ratio Analysis I. Debt Equity Ratio II. Current Ratio III. Debt Service Coverage Ratio IV. Fixed Assets Coverage Ratio 5. Break Even Point

Capital cost of Projects and sources of Finance

Estimation of capital cost of the project provides the basic information to decide its pattern of financing and viability. If cost of project is not estimated correctly, the preparation of cash flow and profitability estimates will be futile exercise because the amount of deprecation , interest and dividend will change with the change in the capital cost of the project. Lenders generally are taking an undertaking from the promoter to meet the cost over run , if any, in the implementation of the project. But such an undertaking does not have much practical meaning. Many a times a promoter is not in a position of tobring additional resources sto finance the overrun, ultimately Lenders have to provide the additional resources to safeguard the money already invested in the project. Overestimation of the cost of the project is also equally bad as underestimation. If the cost of a project is overestimated, the Financial Institution may have to make unnecessarily higher commitments and the promoters may divert resources for other purposes

Estimation of the capital cost of the project is necessary not only in the interest of the promoter but also in the interest of the lender. DETAILS OF CAPITAL COST OF PROJECT AND METHODS OF ANALYSIS Sr No

Land and Site Development

Items to be included
Cost of Land Legal Charges and Registration Cost of levelling Cost of laying Roads Cost of fencing Cost of Gates

Documents/Particulars Scrutinized

to be

Ascertain from plant layout and proposed construction of buildings that land is sufficient for the project and possible future projections. Agreement for purchase of land Rates of legal charges Total area of road and cost per sq meter. Total area of fencing and the basis on which provision has been made.

Sr No B

Particulars Buildings

Items to be included Main factory building Ancillary factory building Administrative building Godowns Canteen, Guest Houses etc. Quarters for essential staff Soils , tanks, wells etc Garages Cost of sewers, drainages ec Architects fee

Documents/Particulars to be Scrutinized Design of buildings Different types of construction and area under each type of construction Ascertain from plant outlay whether proposed construction of building is sufficient and also no unnecessary construction is done. Rate per square meter of each construction Agreement with building Contractor, if any A note on past record of building contractor and Architect. Documents/Particulars to be Scrutinized

Sr No C

Particulars Plant

Items to be included

and Imported Plants

Machinery FOB value of plant to be imported Shipping, freight and insurance Import duty Clearing Loading , unloading and transportation charges Foundation and installation charges Ensure that proposed plant is necessary Ensure that necessary stores and spares are also imported. Quotations of plant to be imported Orders, if already placed of plant to be imported. Import license Report of an independent Engineer, if second hand plant is being imported. List of main items of machinery to be purchased Ensure that all items ae included and they have proper balance of capacity Cross check with some reputable potential suppliers From whom the promoters could have asked, but have not asked to bid or quote Selection should be done on the basis of not only price but also technical sophistication, reputation of suppliers, delivery dates credit terms, etc. Orders of machinery if any placed Contact entered between the company and machinery suppliers.

Indigenous Plant Main Plant and other Machinery Machinery stores and spares Sales tax Transportation charges Foundation and installation charges

Sr No D

Particulars Engineering & Consultancy Fees

Items to be included Expenses of foreign technicians Expenses of training for Indian technicians Technical Know how fees Expenses on drawings Consultancy fees for preparing project report. Items to be included Furniture Office machinery and equipments Vehicle Cars, trucks etc. Cost of electric installation Equipments and pipes for distribution of water , air and steam Laboratory Equipment Workshop Equipment Fire fighting Equipments Effluent collection, treatment and disposal arrangements Misc fixed assets.

Sr No E

Particulars Misc Fixed Assets

Documents/Particulars to be Scrutinized Contract between company and foreign collaborator Contract between company and consultants A note on past record of consultants Relationship, if any, between promoters of a project and consultants. Documents/Particulars to be Scrutinized Details of various items of furniture, office machinery, equipment, etc and cost thereof. Ascertain whether it is necessary to invest in vehicles for the project. Estimate cost of maintaining vehicles (s) and compare with transportation charges to be paid , if outside vehicles are hired. Contract regarding electric installation, piping etc. Price list of equipment , equipment etc. laboratory workshop

Sr No F

Particulars Preliminary and Pre operative Expenses

Items to be included

Documents/Particulars to be Scrutinized Market Survey, Find the total amount of Feasibility Report, Capital Issue and Project Report calculate charges thereon Brokerage and Commission on capital issue Find the construction period and calculate Other Capital issue interest for that period Expenses

Sr No G

Calculate other expenses during construction period. Particulars Documents/Particulars to be Scrutinized Provisions for Probable increase in cost due to Divide total cost Contingencie new additions estimates into two s groups considered Probable increase in cost due to Firm and Non Firm rise in prices, sales tax, excise duty, transportation charges, Make provisions for fluctuation in foreign exchange contingencies for non rates etc. firm items of cost at the rate of 5% to 15% depending upon inflationary trend and period of project implementation. Longer the project implementation, higher the contingencies required. Particulars Items to be included Documents/Particulars to be Scrutinized Margin Indigenous Raw Material Calculate total requirement of money for working capital on the basis of required. working expected production in first Capital Imported Raw Material year. However, if profitability estimates of first year indicate required cash loss, take working capital requirement on the basis of the Consumable stores production for second or third Stock of goods in process year when the project is likely to get the profit. Outstanding debtors. The level of raw materials, consumable stores, goods in process, finished goods and debtors should be decided

Commitment charges Interest on Term Loans during construction period Mortgage Expenses Misc Expenses during construction period Cash losses if any Items to be included

Calculate the amount of mortgage expenses.

Sr No H

keeping in view of production requirements, process time and practice prevailing in the industry. 25% of the total current assets should be financed by long term resources and included in the capital cost of the project.

Means of Finance:
1. Promoters contribution 2. Debts

Promoters contributions
The minimum promotor's contribution envisaged in the project is worked out on the basis of Debt-Equity norm and the security margin norm applicable at the time of sanction of the loan. The debt equity ratio is the ratio of loan component and the equity contribution in the total project cost. The maximum amount of assistance shall be lower of the two amounts worked out on the basis of Debt-Equity norm and the security margin norm. The normal lending norm for debt- equity is 2:1, however in some specific schemes this norm may be flexible. The entire promoter's contribution envisaged in the project is desired to be raised by way of capital before first disbursement of the loan installment. However in case the promoters are short of own capital, some amount may be raised as unsecured loans in the form of quasi-capital. The quantum is ascertained during the appraisal of loan proposal.

Promoters contributions include;

1) 2) 3) 4) 5) Share Capital to be subscribed by promoters Unsecured Loans from promoters Equity shares issued as rights to existing share holders Convertible debentures/bonds issued as rights to existing share holders. Cash Accruals. Central or State Subsidy is treated as equity for debt equity ratio, however, it is not counted as promoters contribution because the finance does not come from promoters. If it is felt that the Subsidy form center or state will not be available during the project implementation period, bridge loan to be set off against the subsidy receivables may be considered. Debt equity ratio is generally allowed about 2;1 depending upon nature of the project , its location, promoters background etc. Higher debt equity is allowed for projects promoted by Technocrats, capital intensive projects, projects located in backward areas etc.

Profitability Estimates
Profitability estimates are estimates of expected sales realizations and expenses to be incurred by the unit. Excess of sales realization over expenses indicates the expected profit of the unit. Items to be included in profitability estimates: Sales Realizations Raw Materials and Consumable Stores. Utilities ( Power, fuel, Water etc) Repair and Maintenance Wages and salaries Rent insurance etc. Depreciation 5% on Building 10% on Plant and Machinery ( Add 5 % for every extra shift) 20% on Misc fixed Assets Contingencies provided in the estimation of capital cost of project should be added to the fixed assets proportionately to ascertain the value of fixed assets for calculating depreciation. Preliminary expenses upto a limit of 2.5% of the project cost ( excluding margin money for working capital ) can be written off from profits at the rate of 10% every year over a period of 10 years. If preliminary expenses are more than 2.5% of capital cost , the excess portion and also pre operative expenses should be added to fixed assets proportionately to ascertain that value of fixed assets for calculating deprecation on them. Depreciation to be calculated on straight line method for the purpose of profitability estimates and on written down method for the purpose of tax calculations. Administrative expenses Selling Expenses Interest on Term Loan Interest on Bank Borrowings Profit.


Cash flow estimates are prepared to ensure that unit will have necessary cash with it and it will not face liquidity problems While profitability estimates are prepared only from the year in which unit os likely to commence production, Cash flow estimates are necessary for the construction period also to ensure availability of cash according to the requirement of the project.

Sources of funds:
1) Share Capital 2) Term Loans/ Debentures 3) Net profit after deprecation and writing off preliminary expenses but before interest and taxes. 4) Depreciation 5) Preliminary Expenses written off. 6) Deferred Credits 7) Trade Credits 8) Bank Borrowings 9) Capital Subsidy from Government. 10) Development Loans / Sales Tax Loans in notified areas. 11) Unsecured Loans and deposits. 12) Any other Source. It is presumed that level of production , current assets, and current liabilities will remain in the same proportion once the utilization of capacity and expected production is presumed stable at a particular level after first 2, 3 or 4 years.

Uses of funds:
Capital Expenditure Preliminary Expenses. Curent assets Increase in level of inventories/ deferred credits. Decrease in Term Loans /debentures/deferred credits Decrease in secured loans/ public deposits. Repayment of bank borrowings Interest Taxation

Dividends Any other items. The level of inventories and book debts will increase in first 2-3 years with the increase in the level of production. Decrease in Term Loans/debentures/ unsecured loans /deferred credits is to be shown as per proposed repayment schedule. The difference between sources and uses of funds indicates the net cash surplus or deficit arising out of movement of funds in the year.

Projected Balance Sheet

Projected balance sheets are prepared on the basis of profitability estimates and cash flow estimates. The position of share capital , term loans, sundry creditors, bank borrowings, current assets etc is ascertained at the end of each year, according to the movement shown in cash flow and profitability estimates. Fixed Assets are taken after deducting depreciation provided in profitability estimates. Preliminary expenses are taken after deducting the amount which is already written off from the expected profits of the unit. Cumulative surplus shown in profitability estimate represents the position of reserve at the end of each year. Closing balance shown in cash flow estimates represents the position of cash and bank balances at the end of each year.

Ratio Analysis:
Debt Equity Ratio: Current Ratio: Debt/ Equity Current Assets/ Current Liabilities

Debt Service Coverage Ratio: The ratio indicates the capacity of the unit to repay term debt and interest thereon . Profit after tax + Depreciation+ Interest on term Debt + Lease rentals if any Repayment of term debt + Interest on term debt + lease rentals if any. The ratio is calculated for the entire repayment period separately for each year and also as an average for the entire repayment period.

Fixed Asset Coverage Ratio:

Term Loans are generally sanctioned against the security of fixed assets. The excess of fixed assets over Term Loans secured by them provides margin on security. In order to find out the available security cover , Fixed Asset coverage Ratio is calculated as under:

Net Fixed Assets + Capital work in progress Deferred Credits + Term Loan + Secured Debentures + other loans having first charge on fixed assets. In case of exiting units , fixed assets to be created for implementation of the project are added to the present fixed assets, similarly Proposed term loans are added to existing term loans if both have pari passu charge on fixed assets. If any fixed asset is having specific charge for a particular Loan, the amount of such fixed asset and loan should be excluded.

In case of New units, proposed fixed assets will cover the proposed Term Loan. Proposed fixed assets will be equal to the entire capital cost of the project except those preliminary expenses which will not be capitalized. The fixed assets coverage ratio depends on debt equity ratio. Higher the debt equity ratio, lower will be the margin available because the amount of term loan will be higher for creation of fixed assets.

Break Even Point.

Break even point is the point at which the unit is neither earns profit nor incurs losses. The cost of production is just recovered at break even point. The cost of production is divided into two categories: Fixed Cost and Variable Cost. The break up of fixed and variable cost:

Fixed Cost:
I. Salaries and wages II. Repairs and Maintenance III. Administration and Misc Expenses IV. Fixed portion of selling expenses V. Fixed Royalty and know how payments VI. Interest on Term Debt VII. Depreciation on straight line basis. Variable Cost: I. Raw materials II. Consumable Stores and spares III. Packing material IV. Power fuel and water V. Royalty payments linked to sales VI. Variable selling expenses VII. Interest on working capital

VIII. Other variable expenses varying directly in proportion to output.

Break Even Point: =

Fixed Cost Contribution

Contribution: Difference between sale price and variable cost is called contribution. The contribution helps a unit to recover its fixed cost. The level of production at which the contribution recovers entire fixed cost is called break even point. Fixed Cost Rs. 6000.00 Sale Price Rs. 12 per unit Variable Cost Rs. 6 Break even Point = Fixed Cost Sale Price Variable Cost = 6000 =1000 12-6

The break even point will be at 1000 units, the contribution of Rs. 6 per unit will recover the entire cost of Rs. 6,000 at the production of 1000 units. Break even point can be expressed in terms of : 1) Volume of production : BEP is multiplied by volume of production 2) A percentage of installed capacity : BEP is multiplied by % age of capacity utilisation 3) Amount of sales.: BEP is multiplied by sales realization.

Internal Rate of Return

Internal Rate of Return (IRR) is that rate of discount which would equate the present value of investments (Cash Outflows) to the present value of benefits ( Cash in flows) over the life period of the project. IRR can not be determined by just looking at the cash flows. It is calculated by trial and error method. Various discounting rates are applied to the net present cash flows until a rate is found that reduces the net present value to zero.

Management Analysis
A project which is considered technically feasible, economically viable and financially sound may run into difficulties if it is not backed by sound and efficient management. Man behind the project is very important. Experience shows that may of the projects have been rendered sick owing to inefficient or dishonest management. Therefore , proper evaluation of management is a highly essential part of appraisal 1. Qualities of an entrepreneur I. II. III. IV. V. VI. VII. VIII. IX. X. Honesty and Integrity Involvement in the project Financial Resources Competence Initiative Intelligence Drive & Energy Self confidence Frankness Patience

2. Various forms of organization. II. Proprietary Concern I. Partnership firm III. Corporate Sector

Qualities of Entrepreneur
Each promoter has to come in contact with the appraising officer several times for discussion regarding the project. Appraising officer should evaluate the qualities of the promoter after interviewing him two three times. A check list giving 10 qualities of an entrepreneur is given below to judge promoter of a project. Although the same is highly subjective , it gives and idea about the qualities of the promoters. Excellent (20) Honest and keep its word under all circumstances Highly Involved Only source of Income Has enough financial resources to meet not only the requirement of promoters contribution but also to finance small overrun in the project cost Has knowledge and experience relating to the project. Excellent (10) Highly alert to opportunities Very quick in understanding pertinent points of a problem Good (12) Makes sincere efforts to honour his words Has other source of Income Has sufficient financial resources to meet the requirement of promoters contribution Poor (4) Does not bother much to honour his words Does as part time activities May have to borrow to meet the requirement of promoters contribution

1 2 3

Character Involvement in the project Financial Resources


Has knowledge or experience relating to the project. Good (6) Performs work with just the general guidance Understand the problem after reasonable explanation

5 6

Initiative Intelligence

Has neither experience nor knowledge relating to the project. Poor (2) Routine worker, awaits decisions Takes time to understand the implications of any action

7 8 9 10

Drive & Energy Self Confidence Frankness Patience

Always highly energetic Believes strongly in himself and his abilities Talks frankly about the weak points of the project Has patience and does not expect quick results

Fairly Energetic Has faith in his abilities Prepared to talk on weak points of the project Appreciates the time taken by lending institutions in appraisal

Avoids Hard work Believes in luck Avoids talking on weak points of the project Wants quick results.

Term Loan component in the total advances ( As per Schedule 9 of the balance sheet ) has been at 51.17 % as on 31.03.2007 Commitment charges of 1% applicable on undrawn portion of Term Loan. (LAC 80 dtd. 11.07.2007) End use of Funds in borrowal accounts Verification of the end use of funds is a basic requirement in lending. As per the Banks guidelines, the end use of funds has to be ensured in all cases. The Central Statutory Auditors in their preliminary audit reports for the year 2006-07 have pointed out that in several cases branches are relying upon Chartered Accountant Certificates in ensuring end use of funds in borrowal accounts. It is also observed that in some cases, particularly Term Loans, the disbursements were made to the credit of borrowers Current Account instead of direct payment to the suppliers. In this regard, branches are advised to ensure that disbursement in borrowal accounts is made strictly as per the terms of the sanction as per the Banks extant guidelines. Though Chartered Accountant Certificate helps in assessing the end use of funds but in any case it does not dispense with our own assessment for confirming end use of the funds lent unless specifically provided in the sanction. Similarly, disbursement of Term Loans through current account should be avoided as far as possible as it is difficult to track end use of funds in such cases. 2. Monitoring of Industrial Projects under implementation In terms of RBI guidelines on income recognition, asset classification and provisioning on advances, the date of completion of the project should be clearly spelt out at the time of financial closure of the project. In such cases, if the date of commencement of commercial production extends beyond a period of 6 months after the completion of the

project as originally envisaged at the time of initial financial closure of the project, the account should be treated as Sub-standard Asset. In view of the above guidelines, there is a need to decide the date of commencement of commercial production very discretely and realistically. At the time of financial closure, date of implementation of the project/commencement of commercial production envisaged initially should be reviewed afresh and final decision should be taken and documented under intimation to sanctioning authority. It is also important to monitor the progress of the project under implementation on an ongoing basis to ensure commencement of commercial production in time and as per the schedule approved at the time of financial closure/sanction. Exercise for Break even point: Installed Capacity : 80 lakhs jewels Capacity utilization: 93.75% ( III rd year of operation) Production : 75 Lakhs Jewels Sales Realisation: Rs. 41.25 Lakhs.

The Cost of production: Particualrs Raw material Consumable Stores Power fuel water etc Repairs and maintenance Wages and Salaries Selling Expenses Interest on working Capital Rent Insurance etc Depreciation Administrative Expenses Interest on Term Loan Total Calculate BEP in terms of volume of production % age of Installed Utilization Amount of Sales Rs/ Lakhs 5.25 4.50 1.15 0.75 4.86 1.50 0.95 0.75 2.92 1.30 3.13 27.06

A. Variable Cost: Particulars Raw material Consumable Stores Power fuel water etc Selling Expenses Interest on working Capital Total B Fixed Cost: Particulars Repairs and maintenance Wages and Salaries Rent Insurance etc Depreciation Administrative Expenses Interest onTerm Loan Total C. Sales Realisation : D. Contribution : (C A) Rs/ Lakhs 0.75 4.86 0.75 2.92 1.30 3.13 13.71 41.25 27.90 X Production = 13.71 X 75 Lakhs jewels 27.90 Rs/ Lakhs 5.25 4.50 1.15 1.50 0.95 13.35

BEP Production = Fixed Cost Contribution

= 36.85 lakhs Jewels

BEP % age of Capacity = Fixed Cost X Capacity Utilised Contribution = 13.71 27.90 X 93.75 = 46.07 % of installed capacity

BEP % age of Capacity = Fixed Cost X Sales Contribution = 13.71 27.90 X 41.25 = 20.27 Lakhs