Business Case Tyre

The General tyre in Pakistan. The company has set up a plant near Bin-Qasim. The Plant has a capacity of 2,000,000 tyres. It is expected that the company will utilize 80% of the Plant. The average price of a tyre is Rs.5,500. The sales tax is 17%. The discount and incentives to the dealer is 1% of the sales. The rise in no. of units is 1% per annum. The rise in price is 3% per annum The raw materials include Natural Rubber (44%), Nylon tyre fabric (19%), Carbon Black (12%),Rubber Chemicals (5%), Butyl Rubber (4%), Others (16%). The inventory details of raw material for 31-Dec-2012 is as follow :
Stock at beginning of the year Purchases Material Available Less: Indirect materials consumed Stock at end of the year Total Material Consumed 1,371,295 4,592,172 5,963,467

12,647 1,212,969 1,225,616 4,737,851

The stock at end of the year is 20.34% of Material available. This ratio will remain constant for the rest of the 30 years. The rise in purchases and rise in indirect material consumed is 5% on an annual basis. The details of the cost of goods manufactured are as follow. The numbers are in 000.
Cost of goods manufactured Opening stock of work-in-process Raw materials consumed Stores and spares consumed Salaries, wages and benefits Travelling, conveyance and vehicles maintenance Legal and professional charges 31-Dec-12 156,314 4,737,851 206,689 676,907 20,550 1,643

Power and fuel Rent, rates and taxes Insurance Repairs and maintenance Tyre replacement allowance Depreciation Amortisation Printing and stationery Postage and telephone Freight and insurance Other manufacturing expenses Total Work-in-process at end of the year Cost of goods manufactured

363,481 2,875 15,517 34,668 20,933 140,473 87 3,552 1,909 35,786 4,210 6,423,445 (176,008) 6,247,437

The details of rise in these cost is given in the following schedule.

Work in Process ending percentage to the cost of goods manufactured Stores and spares consumed Salaries, wages and benefits Travelling, conveyance and vehicles maintenance Legal and professional charges Power and fuel Rent, rates and taxes Insurance Repairs and maintenance Tyre replacement allowance Printing and stationery Postage and telephone Freight and insurance Other manufacturing expenses 0.0274 1.03 1.09 1.08 1.05 1.1 1.05 1.05 1.06 1.03 1.05 1.05 1.03 1.06

The beginning finished good inventory is Rs.752,803,000. The ending finished good inventory is 7.89% of cost of goods manufactured. Short-term finance facilities available from various commercial banks aggregate to Rs.2000 million. These finance facilities carry mark-up of 15% and are secured against pari passu charge over fixed assets, stocks and trade debts of the Company. These facilities are expired on an annual basis. The rise in short term finance is 5% and assume constant rate of 15% per annum with annual payment. Prepare income statement in Rs. and in US $.