Bus247 Case 1

Bus- 247
Introductory Management Accounting
Case 1: Nipponply
Submitted by- Yuvraj Singh Grewal, 300186803
Submitted to- Prof. Diksha Kakkar
Date due – 11th February 2022
Submitted on- 11th February 2022
1
TABLE OF CONTENTS
Acknowledgement.........................................................3
Summary.......................................................................4
Questions/Answers........................................................5
Ques1...........................................................................5
Ques2...........................................................................6
Ques3...........................................................................7Ques4:
..........................................................................7
CONCLUSION.............................................................9
ACKNOWLEDGEMENT
2
I would like to express my gratitude to Diksha Kakkar for her
constant support during the case study and research, as well
as for her tenacity, passion, and vast expertise. Throughout
the research and drafting of this case, her guidance was
essential.
Summary
3
With Nipponply, Ketan Thakkar began his commercial career in
1994, selling plywood, veneers, laminates, and flush doors. He has 25
years of expertise and, in 2017, he planned to expand his business
geologically into the provinces of Rajasthan, Maharashtra, and
Madhya Pradesh. He needed to look into the cost-volume-profit
(CVP) method of achieving success. He needed to expand his
business since he offers a wide range of plans, all of them are made
with natural ingredients. In addition, his child would be joining the
company shortly, and the company needed to grow. Third, expansion
will reduce their dependency on Gujarat clients while increasing
production. The underlying projection for this extension project is
around Rs. 29.965 million, and the task's duration is estimated to be
15 years. The goal is to produce 45,000 units each year. Furthermore,
29,250 units are expected to be sold at an usual cost of Rs. 2,200.
Nipponply might include with a 65 percent restriction usage of 29,250
units in the first year, an 85 percent limit use of 38,250 units in the
second year, and a 100 percent limit use of 45,000 units in the third
year.
QUESTIONS / ANSWERS
Q2. . Determine the fixed cost of Nipponply for the period of one
4
year.
Ans. Total investment = IT infrastructure + Plant and machinery +

Building
= 1,575,000 + 1,250,000 + 26,100,000
= 28,925,000
Depreciation = (28,925,000 – 250,000)/15
= 1911667
Interest on bank loan = 8,050,000x 11%
= 885,500
Fixed Cost of Nipponply for a period of one year:
= personnel cost + routine expenses + interest on bank loan +
depreciation
= 2,952,000 + (70,000 x 12) + 885,500 + 1,991,667
= 6,589,167
Fixed expense of Nipponply for one year = Rs 6,589,167
Q3. Find the break-even point of Nipponply.
Ans.
65% 85% 100%
Number of units 29,250 38,250 45,000
5
29250 x 38,250 x 45,000 x
Sales 2200=6435000 2200 = 2200 =
84,150,000 990,000,000
Variable expense (1870 per 54,697,500 71,527,500 84,150,000

unit)
Contribution Margin (330 per 9,652,500 12,622,500 14,850,000
unit)
Variable expense per unit = 7012500/3750

= 1870
Contribution Margin = Revenue per unit – Variable expense per unit
= 2,200 - 1,870 = 330
Contribution Margin ratio = (330/2200) x 100
= 15%
Break-even point in units sold = Fixed expense/ unit contribution
margin
= 6,589,167/330
= 19,967
Breakeven point for Nipponply = 19,967 units
Breakeven point in dollars = Break even in units x revenue per unit
= 19,967 x 2,200
= 43,927,400
Q4. How many units need to be sold to earn a target profit of Rs. 3
Million per year?
Ans. Unit Sales for target profit = (Fixed expenses + Target profit) /
Contribution
Margin Per unit
= (6,589,167 + 3,000,000)/330
= 29,058
6
They needs to sell 29,058 units to earn a target profit of Rs. 3 Million
per year
Dollar Sales for target profit = unit sales for target profit x revenue
per unit
= 29,058 x 2,200
= 63,927,600
Q5. Calculate the return of investment at current level of operations

and if company operates at 85% capacity level.
Ans.
65% 85% 100%
No. of units 29,250 38,250 45,000
Contribution 9,652,500 12,622,500 14,850,000

Margins
- Fixed Expense (6589167) (6589167) (6589167)
Net Operating 3063333 6033333 8260833

Income
ROE = 13.97 27.53 37.69
(NOI/Equity) x
100
ROI =
Operating 13.70 23.08 30.52
income before
tax/ Total
capital
Income/Total 10.22 20.13 27.56
Capital
7
Summary
Gujarat-based Nippon Distributors Private Limited.

Rajasthan, Maharashtra, and Madhya Pradesh are
among the western Indian states targeted for growth. In
housing, business, and industrial developments, vast
amounts of plywood were required. Production target:
45,000 units per year (real production will be
determined by demand). Estimated annual sales: 29,250
units, average price: $2,220 per unit, and CVP study to
determine viability. Developed a variety of plywood
8
products, veneers, laminates, and flush doors, and
earned a reputation for the quality of its materials.
Products last longer than rivals' (an essential attribute
for retailers and customers). Provided competitive rates
as well as design and customization possibilities.
Manufacturers who are close to high-quality raw
materials have an advantage.
In Gujarat, it has a powerful and well-connected
distribution network. Expansion will enable for
economies of scale to offset expenses of maintaining
high-quality, production, and distribution by offering
their products through B2B and B2C sales.
Expansion will boost the company's profitability and
minimise its reliance on the Gujarati market. To achieve
easy administration, use an enterprise resource planning
tool. For each of the three states, a hierarchical
organisational network is used. Potential consumers are
expanding as India's infrastructure and urban growth
improves. Two new opportunities have emerged: a new
initiative launched by the Indian government to provide
more affordable housing by 2022 (estimated at 114
million houses), and changes in market trends in the
plywood industry, including rising incomes,
urbanisation, real estate investment, and western
influence.
Final Decisions-Trading Capacity: 45,000 units per year
(real output depends on demand), 29,250 units sold per
year at an average price of $2,200, Year one: 29,250
units at 65 percent capacity, Year two: 38,250 units at
9
85 percent capacity, and Year three: 45,000 units at 100
percent capacity.
Initial investment: $29.125 million, with 721.915
million coming from internal resources and 78.05
million coming from a bank loan with an interest rate of
11%. Project duration: 15 years, with a salvage value of
$250,000 at the end of that time.
10

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Bus- 247

Introductory Management Accounting

Submitted by- Yuvraj Singh Grewal, 300186803

Submitted to- Prof. Diksha Kakkar

Date due – 11th February 2022

Submitted on- 11th February 2022

Ans. Total investment = IT infrastructure + Plant and machinery +

Q3. Find the break-even point of Nipponply.

Number of units 29,250 38,250 45,000

Variable expense (1870 per 54,697,500 71,527,500 84,150,000

Variable expense per unit = 7012500/3750

Q5. Calculate the return of investment at current level of operations

65% 85% 100%

No. of units 29,250 38,250 45,000

Contribution 9,652,500 12,622,500 14,850,000

- Fixed Expense (6589167) (6589167) (6589167)

Net Operating 3063333 6033333 8260833

Gujarat-based Nippon Distributors Private Limited.

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