Page 143 - DMGT521_PROJECT_MANAGEMENT

Project Management

Notes financial institutions in India). The estimates of working results may be prepared along the
following lines:
A. Cost of production

B. Total administrative expenses
C. Total sales expenses
D. Royalty and know how payable
E. Total cost of production (A + B + C + D)

F. Expected sales
G. Gross profit before interest
H. Total financial expenses
I. Depreciation

J. Operating Profit (G – H – I)
K. Other income
L. Preliminary expenses written off
M. Profit/loss before taxation J + K – L)

N. Provision for taxation
O. Profit after tax (M – N)
Less Dividend on
Preference capital

Equity capital
P. Retained profit
Q. Net cash accrual (P + I + L)
These are explained below:

1. Cost of Production: This represents the cost of materials, labour, utilities, and factory
overheads as calculated earlier.
2. Total Administrative Expenses: This consists of (i) administrative salaries,
(ii) remuneration to directors, (iii) professional fees, (iv) light, postage, telegrams, and
telephones, and office supplies (stationery, printing, etc.), (v) insurance and taxes on office
property, and (vi) miscellaneous items.
3. Total Sales Expenses: The expenses included under this head are: (i) commission payable
to dealers, (ii) packing and forwarding charges, (iii) salary of sales staff (which may be
increased at 5 percent per annum), (iv) sales promotion and advertising expenses, and
(v) other miscellaneous expenses.
4. The selling expenses: Depend mainly on the nature of industry and the kind of competitive
conditions that prevail. Typically, selling expenses vary between 5 and 10 percent of sales.
The experience of similar firms in the industry may be used as a basic guideline.
5. Royalty and Know how: Payable Royalty and know how payable annually may be shown
here. The royalty rate is usually 25 per cent of sales. Further, royalty is payable often for
a limited number of years, say 5 to 10 years.

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