Resource Book on Horticulture Nursery Management

the project. The project with the highest IRR would be considered the best in case of
comparison between projects with all other equal factors.
Break-Even Point (BEP): This is another important tool. The break-even point is
the level of activity where the total contribution is equal to the total fixed cost.
Contribution is the excess of sales over variable cost, i.e.
Contribution = Sales - Variable Cost
Contribution is a type of surplus that is generated in a business after paying the
variable costs fully from the sales revenue.
The break-even point is the point of activity where all cost (variable as well as fixed)
is recovered from the sales values. At the break-even point the nursery business,
therefore, does not make profit or loss. When any nursery business is below the breakeven,
it incurs loss. The business makes a profit above the break-even value. So, when
the business fully pays for the total fixed cost from contribution, the unit can be said to
have achieved the BEP. When contribution fully pays for fixed cost, the business is said
to have achieved break-even. Several formulae have been evolved to calculate breakeven:
1. BEP = Total Fixed Cost___________________
(In quantum of activity) Contribution per unit of activity
2. BEP = Total Fixed Cost
(In Sales value) Contribution per unit of activity
The BEP indicates the risk involved in a project. Normally, nursery enterprises
achieving breakeven sales level at higher capacity utilization are considered to be more
risky, while those achieving it at a lower level of capacity utilization are safer. The thumb
rule is lowering the break-even betters the proposition.
Debt-Equity Ratio: This ratio indicates the extent to which the funds of promoter
are leveraged to procure loans. The formula of DER is:
____Total long-term debt_____
Total promoter‟s fund (includes subsidy)
A higher debt equity ratio indicates more risk due to a higher fixed cost of interest.
The BEP of such enterprises will go up. It would be desirable to maintain the DER at a
judicious level, say, varying between 2:1 and 3:1 for any nursery enterprise.
� Budgeting in Nursery Enterprise
It is important to perform budgeting of expenditure and income in nursery enterprise
to make the nursery business economically viable and profitable.
Budgeting is the process of making a logical estimate of probable expenditure heads
like fixed assets during the establishment phase and of operational costs during
subsequent years and also perform estimate of income from various sources like sale of
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X Sale price per unit