MANAGEMENT ACCOUNTING

PROJECT REPORT ON COST ANALYSIS ON SETUP OF A NEW ATM MACHINE FOR ‘STATE BANK OF INDIA’

SUBMITTED TO: SUBMITTED BY: (SECTION A)

Dr Ritesh Srivastava Sandeep Yadav

Karnika Ghildiyal

ACKNOWLEDMENTWe take this opportunity to express our profound sense of gratitude and respect to all those who helped us throughout this endeavor.

We owe our regards to Prof. Dr Ritesh Srivastava, IILM-GSM, Greater Noida, for his cooperation and valuable support and for giving us the opportunity to undertake this project and providing the necessary infrastructure.

We would like to express our heartfelt thanks to Minto and Bisender for helping us in various printouts of the project.

Our heartiest thanks to Mr. Shailender Girdher, Mr. Ajay Verma and Mr.Pradeep Vats, Mr.Suresh Bansal for their cooperation and help wherever it was required.

Last but not the least, we owe our overwhelming gratitude to our families and friends who gave us constant support and motivation to continue with this endeavor.

CONTENTS

Introduction………………………….……………………….. 4

Objectives…………...………………………………………… 5

Requirements for an ATM business………….….... 6

Cost sheet……………..……………………………………….8

Analysis of the cost sheet ……………………………..10

SWOT Analysis of an ATM business………………15

INTRODUCTIONAs financial technology improves at an ever-increasing rate, there is less and less need for individuals to carry large amounts of cash to buy things. In fact, it seems the younger generations have moved to almost entirely electronic transactions where no physical money is ever used. However, in this world of credit and debit cards, there will always be a need for good old-fashioned cash. A smart businessman can make a nice profit supplying cash to those who underestimate the need for it by simply placing and managing automated teller machines (or ATMs).

Now, there are reasons why an ATM is considered to be a good business deal. The reasons are:-

no inventory to purchase or stock no store front or rental space needed guaranteed, fixed profit on each transaction scalable, i.e., you can start with one machine and expand

slowly (or quickly) as you earn your profits low investment needed to start investment costs are usually returned within 1 year (six

months or

OBJECTIVES

To setup a new ATM machine under the small scale

industries category

To ascertain the various costs that go into starting such a

business

To spend within the limit of Rs. 5 crore to 10 crore.

To prepare a cost sheet of all the costs to be incurred

To analyze the cost sheet and come to a conclusion

regarding the business

REQUIREMENTS FOR AN ATM BUSINESS

Items Cost/Machine (Rs.)

ATM (4 Machines) 4000000

Air Conditioners (6 units) 300000

UPS (4 units) 1,60,000

Stationery 30,000

3 Guards (Rs.5000/month for 1 guard for day shift + Rs.8000/month/guard for 2 guards for night shift)

2,52,000

Furnishing (Lighting, Flooring, Laminates, Signboard, Drop boxes, Brochure holders)

4,50,000

Cleaner (Rs.500/month) 6000

Electricity

Lighting (10 tube lights – 10 units/day – Rs.2.45/unit for 1 year)

6 Air conditioners (225 units/day, Rs.3.1/unit)

4 UPS (20 units/day, Rs.3.1/unit)

89,425

15,27,525

90,520

Security Van (Rs.50000/month)

6,00,000

Annual Maintenance Contract (ATM)

4,00,000

Insurance Premium (Rs.500/day for 4 machines)

7,30,000

Paper roll for account balance receipts (Rs.8000/month/machine)

3,84,000

Websites promotion 10,00,000

Telephone charges 50,000

Internet charges 1,50,000

COST SHEET

Particulars Total Cost

PRIME COST ------

+ Work Expenses:-

Depreciation:-

Machine (10%) 4000000

Air conditioner (10%) 300000

UPS (10%) 160000

Other expenses:-

Salary to watchman 2520000

Furnishing expenses 4500000

Paper roll for account balance receipts(Rs.80000/month/machine)

3840000

Salary to cleaner 60000

Electricity charges:-

6 Air conditioners (225 units/day @ Rs. 3.1/per unit )

15,27,525

4 UPS (20 units/day @ Rs.3.1/- per unit)

90,520

Lighting (10 Tube lights- 10units/day @ Rs.2.45/unit)

89,425

Security Van (Rs.500000/month) 6000000

WORKS COST 38454700

+ Office and Administration Expenses:-

Insurance Premium 7300000

Telephone charges 500000

Internet charges 1500000

Stationery 300000

OFFICE COST 48054700

+ Selling & Distribution Expenses:-

Websites promotion 10000000

Annual Maintenance Contract 100000

Security Van Charges 6000000

TOTAL COST 6,50,54,700

+ Profit (Rs.3000000/machine) 12000000

SALES 7,70,54,700

ANALYSIS

With the idea of starting a business of ATM at a place like Jagat Farm, Greater Noida, where the average number of transactions is very high, the proposal prepared by us shows an estimated cost of Rs.6,50,54,700 for 4 ATMs. Whereas, the State Bank of India is providing us with Rs.77054700 on an average to meet our expenses. Therefore, our approximated profit comes out to be Rs.3000000 per ATM.

1. Profit as a % of sales = Profit x 100

Sales

= 3000000 x 100 = 11.6 %

25684900

Our expected net profit ratio is 11.6 %. It’s above boundary line. Our company will increase its net profit as we can’t operate at just BEP (Break even point). The ideal percentage for net profit ratio is 10%. We are currently at

safe level of 11.6%. It means that we have demand of our product in market.

Cost-Volume Profit Analysis

2. Profit volume ratio (P/V Ratio) = Sales – variable Cost x100

Sales

= 77054700-(2520000+ 60000) x 100

77054700

= 96.65%

The difference between sales and marginal cost, i.e. contribution, bears a relation to sales and the ratio of contribution to sales remains constant at all levels, as, the sales and marginal costs vary directly with the number of units sold or produced. The higher the P/V Ratio better is for company prospects. We have a very high P/V Ratio (96.65%), implying we have better prospects.

3. Breakeven point (in Rs.)= Fixed Cost =

P/Ratio 4000000+300000+160000+4500000+3840000+1527525+90520+89425+7300000+500000+1500000+300000+10000000+1000000+6000000

96.65%

= Rs. 58432177.9

BEP is the point at which cost and revenue are equal: one has "broken even". Therefore has not made a profit or a loss. After this level (Rs. 5843217.79) our firm will start earning profit.

4. Margin of Safety (MOS) = Actual Sales – Sales at BEP

= Rs.77054700 – Rs.58432177.9

= Rs.18622522.1

In break-even analysis, margin of safety is how much output or sales level can fall before a business reaches its break-even point (BEP).Larger the margin of safety, more sound is the position of the business in respect of profit earning. Our MOS is Rs.18622522.1 which is higher from BEP. MOS has a direct relation with profit.

SWOT ANALYSIS OF AN ATM BUSINESS

STRENGTHS

Video on demand

In-built cameras in ATMs

Provides timely access to network resources

Supports message traffic of variable length

Provides higher transmission speeds

Provides self-routing capabilities for multiple traffic types

Supports new data communications and telecommunications applications

Offers guaranteed network access for voice and video applications

Enables users to request a desired level and quality of service

Provides protection mechanisms against network congestion conditions

WEAKNESS

Threat of cross border ATM crimes like debit card fraud

Skimming and ATM scams, perpetrated in many cases by highly mobile crime syndicates

OPPORTUNITIESMerchants receive three things when allowing you to place an ATM in their business. One, they will be offering an added convenience to their customers. Two, they will save money on credit card fees due to customers using cash, and three, they will be able to profit from the ATM by receiving a percentage of the surcharge revenue without any of the expenses or liabilities.

THREATS

1. Eavesdropping

Eavesdropping refers to the threat that the attacker connects or taps into the transmission media and gain unauthorized access to the

data. It is one of the most common attacks to the network. Since most ATM networks are connected with optic cables, some people might get the wrong impression that is not so easy to tap a ATM network.

2. Spoofing

Spoofing attack means that an attacker tries to impersonate another user’s identity and take advantages. However, since a network will be connected to many untrusted networks via the Internet, it's impossible to prevent a hacker from getting this access permission or even trace the people with this particular access permission. ATM is being implemented in public domain.