JTEKT India Ltd.
INDIVIDUAL ASSIGNMENT MANAGEMENT
ACCOUNTING
Deepanath C
1811311
Section E
Company Name: JTEKT India Ltd. (Auto Ancillaries - Gears Sector)
Based on financial data collected from capitaline.com for last 10 years for JTEKT India Ltd.,
cost structure analysis was done to find out the variable costs and fixed costs. Contribution
margin, operating leverage factor, break-even point and margin of safety have been calculated
along with the schedule of COGM & COGS and tabulated in next page.
Insights from Analysis:
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Fixed cost of production is very small portion only 10% of total cost, which consist of
depreciation in PPE (82%). These are major fixed cost in this industry. Company has
to focus on more of its investments in increasing the fixed costs as in gears industry
this will be spread across huge volume and could increase the losses.
Variable cost of production has been split in Raw material cost (69.53% of sales) &
other expenses (rest of sales). Because of negative intercept value in relation between
other expenses and sales, fixed portion of this head has been considered 0.
Mostly these variable costs reflect in pricing of product of this industry (around 89.7%
of total sales).
Closing inventory has always been maintained with a minimum required amount,
therefore, some of the current year production would be kept for meeting future
demand’s uncertainties.
Contribution margin is 10.3% (good as per industry average) and operating leverage
factor of 1.33 is also very good compared to the industry standards. Maintaining this
factor will help in future when demand would rise and accordingly profit will increase.
Sales of 2017 & 2018 are almost equal and last year the company was in profit remains
in a similar scale throughout. It is also to be noted that the sales has dropped over the
years and its peak was during 2015.
Break-even-point occurs at 267. This shows that company is doing good in its business
despite falling trend of demand. It also gives enough margin of safety to company to
get a decent profit over total revenue.
Recommendation:
Cost structure of this company seemingly looks good and the company has to focus more on
their sales as it is dropping down in the last couple of years. So, they need to try to increase
their fixed costs a bit and reduce the variable costs.
Conclusion:
The company has good metrics like contribution margin and operating leverage in par with the
industry standards (average of the companies in the same sector as capitaline.com). There is
a very low fixed costs and high portion of indirect labour. The company should focus more on
the fixed costs and how to standardise the process to reduce the indirect labour.
Variable Cost
Fixed Cost
Corrected VC
Corrected FC
Raw Materials
69.53%
69.53%
Power & Fuel
1.54%
0.21169537
1.54%
3.59
Employee
Other
Manufacturing
Selling and
Administration
6.31%
6.42177487
6.31%
6.42177487
1.60%
3.16497283
2.95%
3.16497283
6.56%
-4.5669483
6.56%
0
Miscellaneous
-0.32%
2.54170863
0.00%
2.54170863
Depreciation
2.81%
11.85
2.81%
11.85
89.70%
27.5684563
Total
Fixed Cost
Current Sales
PBIT
Contribution
Contribution Margin
Operating Leverage Factor
BEP ( in Sales Value)
Margin of Safety
MOS/Current Sales
Schedule of COGM/COGS
Opening stock of Raw Material
Add: Raw material purchased
Less: Closing Stock of Raw Material
Raw Material Consumed
Direct Labor
PRIME COST
Manufacturing Overhead
Other Manufacturing Expense
Depreciation
Power and Fuel
Indirect labour
Total Manufacturing costs
Add: Opening WIP
Less: Closing WIP
COST OF GOODS MANUFACTURED
Add: Opening stock of Finished Goods
COST OF GOODS AVAILABLE FOR SALE
Less: Closing stock of Finished Goods
COST OF GOODS SOLD
27.56845633
192.47
14.90
19.82
10.30%
1.329945717
267.7659263
-75.30
-0.39120864
30.45
801.04
33.89
865.38
12.144857
877.524857
3.078729311
9.808507451
3.59
11.725143
905.7272368
13.86
-9.05
910.5372368
7.99
918.5272368
-8.40
910.1272368