Be Project Final Ppt

8/2/2019 Be Project Final Ppt .

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UNDER THE GUIDANCE OFPROF SRIRAM SANE

SUBMITTED BY

NEERAJ PC JAIN (071154)

DEPARTMENT OF INDUSTRIAL ENGINEERING

V I S H W A K A R M A I N S T I T U T E O F T E C H N O L O G YPUNE 411037

2011-12


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In the modern business world, the nature andfunctioning of business organizations have becomevery complicated.

They have to serve the needs of variety of parties whoare interested in the functioning of the business. These parties constitute the owners, creditors,

employees, government agencies, tax authorities,

prospective investors, and management of thebusiness. The business has to serve the needs of these different

category of people by way of supplying variousinformation from time to time.


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The history of cost accounting can be traced back to the fourteenth century. In thecourse of its evolution it passed through following stages.

(1) In the first stage of its development, cost accounting was concerned only withthe three prime cost elements, viz., direct material cost, direct labour cost anddirect expenses. For recording the transactions relating to materials the importantdocuments used were(a) stores ledger,(b) a material requisition note, and(c)materials received note.To account for labour cost, employee time card andlabour cost card were devised by Mr. Metcalfe.

Later on a distinction between manufacturing and non-manufacturing costwas made by Mr. Norton. Thus material cost, labour cost and manufacturing costconstituted prime cost.


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(2) Secondly, In 19th century , the importance of nonmanufacturingcost (overheads) was recognized as one of the distinct element ofcost. The method of charging non-manufacturing cost to theproduction cost was devised under this stage.

(3) Thirdly, the techniques of estimation and standards are devised.Instead of using actual cost, standard costs are used and bycomparing with the actual cost the differences are noted, analysedand disposed off accordingly

(4) Fourthly, the costing principles and techniques were applied to alltypes of business undertakings.

(5) In modern times the development of electronic data processinghas occupied significant stage in the growth of cost accountingsystem.


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Awareness of cost accounting in manufacturing

industry (i.e. water storage tanks). To develop standard costing for manufacturing

industry (i.e. water storage tanks). Determining selling price, Controlling cost Providing information for decision-making

Ascertaining Costing profit Facilitating preparation of financial and other

statements.


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Costing involves the classifying, recordingand appropriate allocation of expenditure for

the determination of costs of products orservices; the relation of these costs to salesvalue; and the ascertainment of profitability.


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Cost accounting is the process of determiningand accumulating the cost of product or activity.

It is a process of accounting for the incurrence

and the control of cost. It also coversclassification, analysis, and interpretation of cost. In other words, it is a system of accounting,

which provides the information about theascertainment, and control of costs of products,or services.

It measures the operating efficiency of theenterprise.


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Costing, Cost Accounting,

Cost Control Techniques, Budgeting and Cost Audit.


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These are predetermined costs. They aretarget costs that should be incurred under

efficient operating conditionson a per unitbasis Standard costing is most suited for

organisations where the activities arecommon or repetitive. The examples we shalluse will be for manufacturing organisations.


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The term standard cost refers to the cost thatmanagement believes should be incurred to

produce a good or service under anticipatedconditions. The primary benefit of a standardcost system is that it allows for comparison of

standard versus actual costs. Differences arereferred to as standard cost variances andshould be investigated if significant.


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Basic cost standardsLeft unchanged over long periods of time. Helps to

establish efficiency trends. Seldom used, as they donot represent current target costs, so not very useful

for control. Ideal standards

Represent perfect performance. Minimum costsunder the most efficient operating conditions. Can bedemotivating and unlikely to be used in practice.

Currently attainable standardsCosts that should be incurred under efficient

operating conditions. Difficult, but not impossible, toachieve. Can be set at various levels of difficulty.


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At the outset, it is important to understand thesubtle differences in definitions of standard cost

and budgetedcost.

Standard cost: the standard cost of a single unit.

Budgeted cost: the cost, at standard, of the totalnumber of budgeted units.


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Standard costs are developed in a variety ofways they are:

Specified by formulas or recipes. Developed from price lists provided by

suppliers. Determined time and motion studies

conducted by industrial engineers. Developed from analyses of past data.


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In developing standard costs, there are two schoolsof thoughtIdeal standards: developed under the assumption

that no obstacles to the production process will beencountered. They are sometimes referred to asperfection standards.

Attainable Standards: developed under theassumption that there will be occasional problemsin the production process such as equipmentfailure, labor turnover, and materials defects.


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An analysis of the difference between a standardcost and and actual cost is called varianceanalysis. The process decomposes the differencein two components.For direct material: materials price andmaterials quantity variance.

For direct labor: labor rate (price) and laborefficiency (quantity) variance.For overhead: overhead volume variance andcontrollable overhead variance.


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The material price variance is expressed as (APSP)AQpwhere:(AP) = actual price per unit of material.(SP) = standard price per unit of direct material.(AQp) = actual quantity of material purchased.

If actual price > standard price, then the variance

is unfavorable.If actual price < standard price, then the varianceis favorable.


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The material quantity variance is expressed as(AQuSQ)SPwhere:

(AQu

) = actual quantity of material used.(SQ) = standard quantity of material allowed.(SP) = standard price of material.

If actual quantity > standard quantity, then thevariance is unfavorableIf actual quantity < standard quantity, then thevariance is favorable.


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The labor rate (price) variance is expressed as (ARSR)AHwhere:

(AR) = actual wage rate (price).(SR) = standard wage rate (price).(AH) = actual number(quantity) of labor hours.

If actual rate > standard rate, then the variance isunfavorable.If actual rate < standard rate, then the variance isfavorable.


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The labor efficiency (quantity) variance isexpressed as (AHSH)SRwhere:

(AH) = actual number of hours worked.(SH) = standard number of hours worked.(SR) = standard labor wage rate.

If actual hours > standard hours, then the varianceis unfavorable.If actual hours < standard hours, then the varianceis favorable.


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The controllable overhead variance is expressed as(actual overhead - flexible budget level ofoverhead) for actual level of production.It is referred to as controllable because managersare expected to control costs so they are notsubstantially different from budget.

If actual > budget, then the variance is unfavorable.If actual < budget, then the variance is favorable.


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The overhead volume variance is expressed as(flexible budget level of overhead for actual

level of production - overhead applied toproduction using standard overhead rate).This variance is solely the product of more orless units being produced than planned in thestatic budget. Its usefulness is limited.


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It is important to note that standard costvariances are not a definitive sign of good or

bad performance. These variances are merelyindicators of potential problems which must beinvestigated. And there are many plausibleexplanations for them.


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In a standard costing system, the costs added tothe Raw Materials Inventory, Work in ProcessInventory, Finished Goods Inventory, and Cost of

Goods Sold accounts are all recorded at standardrather than actual cost. Variances are alsocalculated and recorded for managements use in

performance evaluation.


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Purchase of raw materials inventory:Account dr. cr.Raw Material Inventory (std.) xMaterial Price Variance x

Accounts Payable (actual) x(This is an unfavorable price variance)

Usage of raw materials inventory:Account dr. cr.Work in Process Inventory xMaterial Quantity Variance x

Raw Material Inventory x(This is an unfavorable quantity variance)


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Account dr. cr.Work in Process Inventory (std.) xLabor Rate Variance xLabor Efficiency Variance x

Salaries Payable (actual) x(Note: both the labor rate variance and efficiency variance are

unfavorable)


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Recording manufacturing overhead in a standard costing system is athree-step process:

1. Actual overhead is recorded in the manufacturing overhead account.2. Overhead is applied to Work in Process Inventory at the standard

cost.3. The difference between actual overhead and overhead applied at

standard is closed and overhead variances are identified.More


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To record actual overhead cost:

Account dr. cr.Manufacturing Overhead x

*Various Accounts x

*Various accounts include indirect wages payable, utilities payable andaccumulated depreciation.


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To apply overhead cost to work in process inventory at cost:

Account dr. cr.Work in Process Inventory x

Manufacturing Overhead x


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To close out manufacturing overhead cost to work in process inventory atcost:

Account dr. cr.Manufacturing Overhead x

Overhead VolumeVariance xControllable OverheadVariance x


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To apply overhead cost to work in process inventory at cost:

Account dr. cr.Cost of Goods Sold x

Finished GoodsInventory x


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At the end of the accounting period, the temporary variance accountsmust be closed. As a practical matter this is usually accomplished bydebiting or crediting the variances to cost of goods sold.Account dr. cr.Cost of Goods Sold xOverhead Volume Variance xControllable Overhead Variance x

Material Price Variance xMaterial Quantity Variance xLabor Rate Variance x

Labor Efficiency Variance x


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It has been incorporated in 1989 Small trading firm of various building

material such as pvc pipes, cement, waterstorage tanks, fitting etc In 2011, started it new division UPKAR

POLYMER manufacturing of water storagetank


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The production basis for a typical tiny unitwould be as under:

Working hours/day : 12 (1 shift) Working days in a month : 30 Monthly Production capacity : 500 ltrsTank : 1800 pcs.


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Description TC TFC TVC FC PERUNIT

VC PERUNIT

TC PERUNIT

Material cost 2052000 2052000 1140 1140

Color granules 51750 51750 28.75 28.75

Fuel diesel 135450 135450 75.25 75.25

Direct labour 39600 39600 22 22

Screening& lids 97200 97200 54 54

Manufacturing 214750 88550 126200 49.14 70.11 119.25


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goverhead

475 55 49 4 7 9 5

Administrativeoverhead

65000 30000 35000 16.67 19.44 36.11

TC per unit 65.81 1409.55 1475.36

+ Desired profit 15% 15%

Desired sellingprice / unit

1700


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PARTICULARS TC COST PER UNIT1.Direct material

+Opening stock of raw material

+ Material purchased during the year 1504000 1193.65

+ Material purchased 37800 30

- Closing stock at the end -82720 -65.6

2. Direct wages 31500 25

3. Direct expense 68040 54

PRIME COST 1520820 120

4.Work expense 151200 120

+ Indirect expense

- Sale of scrap 151200 120


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5.+ Opening work in progress

6.- Closing work in progress

WORK COST 1357

7.Administrative expense

Office salaries, rent 115523 91.68

COST OF PRODUCTION 1448.68

8.+ opening stock of finished goods

9.- Closing stock of finished goods

COST OF GOODS SOLD

10.Selling and Distribution Overhead

Carriage outward, commission, bad debt 72520 57.54

COST OF SALES 1506.22

+ profit(Balancing Figure) 225.93

SALES 1732


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BASIC CALCULATION

STANDARD FOR 1800 UNITS ACTUAL FOR 1260 UNITS

Materialused Rate Amount Materialused Rate Amount

A 21600 1140 2052000 15120 1128 1421280

B 450 115 51750 315 120 37800

2103750 1459080


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Material Cost Variance = (SC of actual output AC)

= (1472625.00 1459080.00)

MCV = Rs.13545 (F) Material Price Variance = (SP AP) AMaterial A = (1140 1128) 15120= Rs.181440.00 (F)

Material B = (115

120) 315= Rs. 1575.00 (A)MPV = Rs. 179865.00 (F)


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Material Usage Variance =(Standard for actual output Actual ) SP

Material A = (21600*(1800/1260)-15120)*1140=Rs. 17940343.00(F)Material B = (450*(1800/1260)-315)*115

=Rs. 37703.57 (F)

MUV= Rs.17678047 (F)


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PARTICULARS

Standard time for job 252 Hours

Standard rate per hour RS 110

Actual time taken 258 hours

Actual wages paid 31500

(a) Std. labour cost(252 hours Re. 110) 27720Rs

(b) Actual wages paid 31500Rs(c) Actual rate per hour: Rs. 31500/258 hours 122Rs


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Labour Rate variance = Actual time (Std. rate Actual rate)

= 252 hours (Re.110 Re.122) = Rs. 3054 (A)

Labour Efficiency variance = Std. rate per hr. (Std.

time

Actual time)= Re.110 (252 hrs. 258 hrs.) = Rs.660 (A)

Total labour cost variance = Std. labour cost

Actual labour cost

=Rs 27720 Rs 31500 = Rs 3780 (A)


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Company has established the followingstandards for factory overheads.

Variable overhead per unit: Rs. 89.55/- Fixed overheads per month Rs. 1,18,550/- Capacity of the plant. 1800 units/month

The actual data for the month are as follows: Actual overheads incurred Rs. 1,88,043/- Actual output (units) 1260 units


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Required:Calculate overhead variances viz :(i) Production volume variance(ii) Overhead expense variance

Solution:

Unutilised capacity : 1800 units less 1260 units= 540 unitsStandard fixed overheads per unit = Rs. 65.86 per unitProduction volume variance = 540 units Rs. 65.86

= Rs. 35,564.5 (Adverse)Std variable overheads for actual production : Rs. 89.55 1260 units

= Rs. 1,12,833

Std fixed overheads = Rs. 118550Total overheads on standards for actual production = Rs. 231383Actual overheads incurred = Rs. 1,88,043Overhead expense variance = Rs. 43,340


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The following information was obtained from

the records of a manufacturing unit usingstandard costing system.

Standard ActualProduction 1800 units 1260 unitsWorking days 30 21.5

Fixed Overhead Rs.118550 Rs.98,000Variable Overhead Rs 161200 Rs 90,043


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(a) For Variable Overhead Variance:

Actual variable overhead = Rs.90, 043Standard variable overhead for production (Budgeted output Std.variable overhead

rate per unit) = (161200/ 1800) 1260= Rs.112,840Variable overhead variance: Actual variable overhead Standard

variable overhead= Rs.112840 Rs.90043= 22797 (A)(b) For Fixed Overhead Variance:Actual fixed overhead incurred = Rs. 98000Budgeted fixed overhead for the period = Rs. 118550

Standard fixed overhead for production (Standard output for actualtime Standard FixedOverhead per unit)= (Rs.118550/ 1800 units) 1260 units= Rs.82,985


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Variances: (i) Fixed Overhead Expenditure Variances: Actual fixed overhead Budgeted fixed

overhead = Rs.98000

Rs.118550 = 20,550 (ii) Fixed Overhead Volume Variance : Budgeted

fixed overhead Standard fixed overhead = Rs.118550 Rs.82,985 = Rs.35565 (A) (iii) Fixed Overhead Variance : Actual fixed

overhead Standard fixed overhead = Rs.98000 Rs.82985 = Rs.15, 015 (F)


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Product BudgetQuantity

QuantityBudgeted Price

ActualQuantity

Actual

PriceRs. Rs.

Upkar tank 1800 1700 1260 1732

Product

priceBudgeted

priceActual

priceBudgeted

Quantity

sales

Actual

Quantity

sales

Budgeted

salesActual

Sales at

Budgeted

price

Actual

sales

a b c d e = a*c f = (a*d) g = (b*d)

Upkar tank 1700 1732 1800 1260 3060000 2142000 2182320

SolutionBasic Calculation :


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Sales price variance =

Actual quantity (Actual price Budgeted price)= Actual sales Standard sales

= Rs. 2182320

Rs. 2142000 = Rs. 40320(F)

Sales volume variance =Budgeted price (Actual quantity Budgeted quantity)

= Std. sales Budgeted sales

= Rs. 26,000

Rs. 25,000 = Rs. 1,000 (F) Total variance = Actual sales Budgeted sales

= Rs. 2182320 Rs. 3060000= Rs.877680 (A)


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