Durga Auto Ltd is an auto spare parts manufacturing company in Jamshedpur . It was founded by two brothers Sumanta Chatterjee and Hemanta Chatterjee in 1982.
These two brothers completed their schooling till 11th & 12th Class respectively, and then dropped out from the formal education, because their parents wanted them to do something on their own instead of becoming a government employee.
EVOLUTION OF Durga Auto Ltd
They started a motor garage in 1977, then started their own spare part manufacturing unit for heavy vehicles in 1983.
CREATING TRUST : They started the business with just fourteen workers. It took them seven years to scale up, as gaining the trust of the customers was difficult. They were able to work with 60 workers, had Telco as their major customer and did a business of Rs 2 crore in 1990. As they gained confidence, they continuously scaled up and they even entered the car-auto segments by 2002.
The company had shown consistent performance till last year in the Indian market of Rs 6000-7000 crore . However in the last quarter of, the net profits and net sales dipped by 20 percent and 25 percent respectively.
The CFO of Durga Auto , Sumanta Chatterjee , directed the controller, Debashish Bose to present an account of the budgeted and actual performance of the company for the current month. Debashish with the help of Chief Account Accountant, Anand Singh presented the relevant cost/profit data summarised in Exhibit 1
Based on the above, the controller prepared a comparative profit statement to present to CFO. (Exhibit 2)
Question : Prepare a detailed variance analysis and highlight the remedial measures that Durga Auto should take to remedy the situation arising out of declining profitability and sales in recent months and fix responsibility for the variance.
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