REPORT

ON

LOSSES INCURRED

BY

KARACHI PLASTIC PRODUCTS LTD

January 31, 2019

 KARACHI PLASTIC PRODUCTS LTD
Galaxy Towers, M.A. Jinnah Road
Karachi

January 5, 2019

The Director,
Mr. Alpha Consultants,
Sigma Plaza,
Karachi.

Dear Sir,

This refers to our meeting a fortnight back when you were appraised about the losses
suffered by our company during the last four years.
The Board of Directors of our company has approved the appointment of your firm as
the consultants in this important matter. On the terms and conditions communicated to you.
After completing a thorough examination of the problem, you may kindly send me a
report along with your recommendations.
You may contact any officer or Department of our company for completing this enquiry.

Yours Truly
Ahmed Hussain
Managing Director
 ALPHA CONSULTANTS
Sigma Plaza, Tariq Road
Karachi

January 31, 2019

The Managing Director,

Karachi Plastic Products Ltd,
M.A Jinnah Road,
Karachi.

Dear Sir,

This refers to your letter of January 5, 2019.

We have conducted a thorough enquiry into the reasons for the losses suffered by your
company during the last four years.
The officers and staff of your company extended the fullest cooperation to our experts
during the investigation. All the information required was readily provided.
Our recommendation for remedying the situation are given at the end of this report. We
sincerely hope that the suggestions, if implemented, will solve the problem.

Yours truly,
Hamza Ameen
Director
TABLE OF CONTENT

Pages

Letter of Authorization a

Letter of Transmittal b

TEXT OF THE REPORT

Introduction 1

Findings 2

Conclusion 3

Recommendation 4
 INTRODUCION

Karachi Plastic Products Ltd. Engaged in the manufacture and sales of the
plastic goods, was established in 2015, as a public limited company. The present
paid up capital of the company is Rs. 50 lakhs.
During initial four years of its operation, the Company’s earnings were 25 to
30 percent of the Owner’s Equity. 2015 onwards a sharp declining trend of profits
was noticed and by 2017 losses appeared. Inspite of the best efforts of the
management, the trend of increasing losses could not be arrested. The average
annual losses for 2015 to 2017 were Rs. 2.25 lakhs.
On the request of the company, a thorough enquiry was conducted into the
reasons for the losses. For this purpose all the department of the company were
conducted, the officers and staff in these department extended their utmost
cooperation.
 FINDINGS
1. The Sales Revenue has consistently shown an increasing trend during the 10
years of it existence. The average rate of increasing in sales has been steadily
maintained @12% annually.
2. During 2015-17, the selling price of the company products has increased at an
annual rate of 5%.
3. The C&F cost of the imported Raw materials has gone up by about 4% annually.
4. The number of skilled workers in the production department has increased
yearly by 5% approx.
5. The number of units sold, shows an increase of only 1.5% annually.
6. The strength of the worker and supervisory staff in all the departments has
gone up by about 5% annually.
7. The 2015 issue of 8% Debentures, amounting to Rs. 15 lakhs, has placed a
perpetual burden of interest on the ready strained financial position of the
company.
 CONCLUSIONS

1. Increase in Sales revenue from year to year (without a corresponding increase I

the number of units sold), merely indicates a rise in the selling prices. During the
last five years, the company does not exhibit any significant increase in either
output or turnover.
2. The steady rise oi the number of workers in the production department is not
justified by the stagnant level of production.
3. Similarly, the annual increase in the number of supervisory staff shows an
almost perfect positive correlation with the increase in the number of workers,
rather than with the output or turnover.
4. The burden of interest on Debentures—Rs. 150,000 annually – would not have
mattered if the amount borrowed were utilized in productive avenues.
 RECOMMENDATIONS
1. The salesman and the sales supervisor should be given monthly and annual
targets in their respective areas.
2. The strength of worker as well as supervisors in the production department
may be conveniently reduced by 15% each.
3. Increased sales volume will directly result in increased production – thus
reducing the burden of fixed costs per unit.
4. The shift-wise analysis indicates very low production in the third shift.
Production may be carried on in the First and second shifts only: the third shift
may be discontinued without any delay.