Cost Accumulation Procedure if Navana

Contents Page

Preface .................................................................................... ERROR! BOOKMARK NOT DEFINED. Acknowledgement .............................................................................................................................. 3

Executive Summery .............................................................. ERROR! BOOKMARK NOT DEFINED. Origin Of The Report........................................................................................................................ 5

Objectives Of The Report ................................................................................................................. 5

Methodology Of The Report ............................................................................................................ 6

Limitations Of The Report ............................................................................................................... 6

Introduction ........................................................................................................................................ 7

Navana Furniture Limited ............................................................................................................... 7

Mission ................................................................................................................................................. 7

Profile................................................................................................................................................... 8

Costing Method ..................................................................... ERROR! BOOKMARK NOT DEFINED. Forecasting Sales And Production .................................................................................................. 9

Forecasting Materials Needed ......................................................................................................... 9 1. Purchase Requisition.................................................................................................................................. 10 2. Purchase Order .......................................................................................................................................... 10 3. Receiving Report ........................................................................................................................................ 10 4. Materials Requisition ................................................................................................................................. 10

Direct Labor ..................................................................................................................................... 10

Factory Overhead ............................................................................................................................ 10

Selling Overhead Expenses ............................................................................................................ 11

Administrative Overhead Expenses .............................................................................................. 11

Distribution Overhead Expenses ................................................................................................... 12

Costing Of Product .......................................................................................................................... 13

Pricing Of Product........................................................................................................................... 14

Cost Of Goods Sold Statement ...................................................................................................... 15

Income Statement ................................................................. ERROR! BOOKMARK NOT DEFINED. Conclusion .............................................................................. ERROR! BOOKMARK NOT DEFINED. Bibliography .......................................................................... ERROR! BOOKMARK NOT DEFINED.

R e p o r t o n C o s t i n g P r o c e d u r e o f N A V A N F u r n i t u r e L t d

Page 2

After the successful completion of the course named “Cost & Managerial Accounting (F-

302)” of the BBA program, preparation for the term paper provides us an opportunity to reduce

the gap between the theoretical knowledge & practical experience. To enhance the analytical

competence, we were given the onus to prepare term paper on “Product costing and accounting

procedures of NAVANA Furniture Limited” which has undoubtedly put fresh impetus to our

understanding of the budgeting of costs, determining the cost of goods sold, calculating net

profit, finding up profitability, and margin of safety of a manufacturing company.

We tried to demonstrate the objective of the term paper which is to illustrate how to

determine and to prepare cost of goods sold statement and income statement.


Page 3

Acknowledgement

Our work on preparing a term paper on “Product costing and accounting procedures of

NAVANA Furniture Limited” has been a great experience for us in light of the course “Cost and

Manegerial Accounting”. We strongly believe works like this will surely help us to have a clear

concept about “Product costing and accounting procedures of NAVANA Furniture Limited”. In the

different steps of preparing this report, we thank our course teacher Muhammad Salauddin

Chowdhury, ACA for providing us proper guidelines to prepare the report. We also thank them

for assigning us such a practical report that has boosted our knowledge from different aspects.

We are also thankful to Engr. Md. Showkat Kamal, Production Deputy General

Manager of NAVANA Furniture Limited, who has provided us necessary information and data

of the company.


Page 4

The purpose of the term paper is to show a proper overview of roduct costing and

accounting trocedures oN eA AeA durniture tiuited. We have prepared this term paper on the

basis of the data about costing procedures, coating method, income statement, and cost of goods

sold statement of eA AeA durniture tiuitedand tessute oN eA AeA durniture tiuited . This

term paper also focuses on the costing of manufacturing company.

Cost accounting is an approach to evaluating the overall costs that are associated with

conducting business. Generally based on standard accounting practices, cost accounting is one of

the tools that managers utilize to determine what type and how much expenses is involved with

maintaining the current business model. At the same time, the principles of cost accounting can

also be utilized to project changes to these costs in the event that specific changes are

implemented.

When it comes to measuring how wisely company resources are being utilized, cost

accounting helps to provide the data relevant to the current situation. By identifying production

costs and further defining the cost of production by three or more successive business cycles, it is

possible to note any trends that indicate a rise in production costs without any appreciable

changes or increase in production of goods and services. By using this approach, it is possible to

identify the reason for the change, and take steps to contain the situation before bottom line

profits are impacted to a greater degree.

As business became more complex and began producing a greater variety of products, the

use of cost accounting to make decisions to maximize profitability came under question.

NAVANA Furniture limited calculates costs of goods sold on the basis of standard

costing method. In this method, different types of costs are determined base on the preceding

year cost data. First, it calculates cost as the percentage of sales and then based on the standard

present year costs are determined.

http://www.wisegeek.com/what-is-a-business-model.htm

http://www.wisegeek.com/what-are-goods-and-services.htm


Page 5

ORIGIN OF THE REPORT

As a requirement of BBA Program under Finance Department, University

Of Dhaka, the report entitled- “Product costing and accounting procedures of NAVANA

Furniture Limited” has been prepared.

Our honorable course instructor Muhammad Salauddin Chowdhury,

ACA, Department of Finance, University Of Dhaka, has assigned us to prepare this report.

OBJECTIVES OF THE REPORT

This report has been prepared with a view to analyzing - “Product costing and accounting

procedures of NAVANA Furniture Limited”, this report has been composed to obtain the

following objectives:

Enhance individual performance

To improve our skills on report writing.

To meet the curiosity in this stated subject.

To focus on the key factors that influence implementation of the government project.

To acquire practical knowledge.


Page 6

METHODOLOGY OF THE REPORT

LIMITATIONS OF THE REPORT

There are some limitations to do any types of work. We have also faced a number of problems

that may be turned as the limitation of the study. The problems are given below:

Lack of availability of information regarding actual numerical figure.

Lack of experience acted as constraints in the way of meticulous exploration on

the topic.

Insufficient data: The data required for sufficient analysis for writing report

couldn’t collect due to the excessive torkload.

Identifying Data Sources

Final Report Preparation

Findings of the Study

Collection of Data

Classification, Analysis, Interpretation and Presentation of

Data


Page 7

Introduction

Cost accounting establishes budget and actual cost of operations, processes, departments or

product and the analysis of variances, profitability or social use of funds. Managers use cost

accounting to support decision-making to cut a company's costs and improve profitability.

NAVANA FURNITURE LIMITED

NAVANA Group comprises of a number of companies and over a decade the group has

established itself as one of the leading, fast growing & highly diversifying group of

conglomerates in Bangladeshi Market. It is one of the leading furniture manufacturer and retailer

in Bangladesh. We sell stylish, high quality and great value Office solutions, Home solutions,

Medical and Lab solutions, Industrial solutions and also Interior Designing Furniture. We

employ over a thousand people in and out of Bangladesh. We have more than 80 outlets across

Bangladesh and also expanding business internationally.

NAVANA Furniture is the Brand Name of the Navana furniture Ltd. of Aftab Automobile Ltd.

Founded in 2002, NAVANA furniture possesses capabilities that are fully integrated, from

designing, prototyping, material selection and moulding through testing, assembling and

distribution. Abreast of being a strong leading player in the market, all our -produced furniture

are guaranteed to have met the stringent quality and standards.

NAVANA Furniture has its own factory in Savar. Operating in a combined area of more than

12,000 sq.m of factory and warehousing. Using fully mechanized system, imported raw material,

modern technology for manufacturing furniture of contemporary designs.

All our Products are tasteful, durable, functional and of competitive price. We offer a wide

product range that can be tailored for customer requirement and most suitable for modern

offices.

Mission

Customer Focused

To take customers interest at heart

Excellence in Design

To strive for high creativity and conceptual breakthrough in design Service

Uncompromising Quality Standard

To constantly set high quality standards for products

Advanced Technology

To leverage on advanced technology for competitive advantage

http://en.wikipedia.org/wiki/Cost

http://en.wikipedia.org/wiki/Profit_%28accounting%29


Page 8

Profile

Name of the Company Navana Furniture Ltd

Brand Name NAVANA Furniture

Company Status Public Limited Company,

Enlisted in DSE Belongs to Navana Group

Registered Head Office 125/A, Motijheel C/A, Dhaka

Display Center

64, Gulshan Avenue , Gulshan-1, Dhaka

Islam Chamber, 125/A, Motejheel C/A, Dhaka

37, Agrabad C/A, Chittagong

8/C Panthapath, Dhaka

And in all major cities & towns of Bangladesh

Through over 25 franchises

Plant Raj-Fulbariah, Savar, Dhaka

Factory Land Area 12,000 sqm

Number of Staff &

Employees

513

There are three methods to calculate the cost of production. Which method is appropriate and

properly applicable for a manufacturing company to determine unit cost as well as total cost of

production is totally depended on the nature production and business of that company.

Engr. Md. Showkat Kamal, Production Deputy General Manager of NAVANA Furniture

tiuited, said “There are 2000 uodels oN diNNerent troducts in our industry and approximately

800 different types of materials are used in troduction systeu.”

NAVANA Furniture Limited follows neither job order costing method nor process costing to

calculate cost of production. It follows standard costing method because there are so many

variations in the production line & length. In this method, different types of costs are determined

base on the preceding year cost data. First, it calculates cost as the percentage of sales and then

based on the standard present year costs are determined.


Page 9

Forecasting sales and production

NAVANA Furniture Ltd. forecasts future needed production based on the forecasted

demand of products. The hypothetical budget of production of NAVANA Furniture Limited of

six months of the year 2012

Products 2012 Total June July August September October November December

Chairs 5000 5420 4960 4790 6035 5560 3750 35515

Computer Tables 3200 3000 2850 2500 2790 2850 2400 19590

Tables 2400 2610 2150 2350 2275 1890 1750 15425

Dressing Table 1450 1375 1225 1360 1050 1145 1360 8965

Cupboard 3580 4510 3850 3590 3760 3600 3200 26090

Bed & Bed Side

Cabinet

850 700 600 950 1000 1300 1200 6600

Rocking Chair 2575 2360 2150 2245 2450 2350 2000 16130

Dining Table & Chair 550 500 650 490 520 560 600 3870

Total 19605 20475 18435 18275 19880 19255 16260 132185

Forecasting Materials Needed

NAVANA Furniture Ltd. forecasts future needed amount of raw materials to satisfy the

future required production.

Name of

Raw

material

Beneficiary Cost of Raw materials In BDT July August September October November December Total

Edging &

Fittings

Scanwolf/M

alaysia

50,000 45,000 55,000 60,000 60,000 70,000 340,000

Chair Components

Green Tool/

Malaysia

36,000 37,000 40,000 36,000 37,000 148,000 334,000

Wooden

Shell

Weaden/

Malaysia

8,000 9,500 10,000 10,500 9,500 9,000 56,500

Lock Siam

Interlock/

Thailand

17,000 18,000 20,000 21,000 18,000 19,000 113,000

Total Value 111,000 109,500 125,000 127,500 124,500 246,000 843,500

http://www.navanafurniture.com/product-list.php?actn=expand&pid=129&rootid=0








Page 10

1. Purchase requisition

Production department of NAVANA Furniture Limited issues purchase requisition after determining the

budgeted amount of raw materials on the basis of production requirement.

2. Purchase Order

NAVANA Furniture Limited finds out the appropriate supplier of raw materials in terms of

price, delivery date, payment system, and terms &condition. Then sends purchase order to the

selected raw material supplier by indicating the amount of materials, no of units, delivery time,

discount amount, description of the materials.

3. Receiving Report

After receiving the ordered raw materials, store keeper keeps record of the raw materials

including the amount, weight, and color of the materials.

4. Materials Requisition

Store keeper requisites the needed materials for the factory and keeps the record.

Direct Labor

NAVANA Furniture Limited calculates the wages of the employees who are directly related to

the production process as the direct labor cost. There are 450 employees in NAVANA Furniture

Limited who are engaged production.

Factory Overhead

NAVANA Furniture Limited accounts the indirect factory costs which are not directly related to

production as factory overhead.

NAVANA Furniture Limited

Factory Overhead

For The Month Of March, 2012

Particulars Amount

Supervisor Salary 1,875,425

Repair 750,170

Electricity 2,250,510

Insurance 482,252

Total Factory Overhead 5,358,357


Page 11

Selling Overhead Expenses

Navana Furniture Limited Selling Overhead


Particulars Amount

Discount 189,550

Advertising 267,985

Repairing And Warrentte 45,753

Packaging 150,333

Total Selling Overhead 653,621

Administrative Overhead Expenses

Navana Furniture Limited Administrative Overhead


Particulars Amount in BDT

Salary Of Managers 798,095

Electricity 172,138

Insurance 93,894

Depreciation 266,032

Maintainnce 109,542

Stationary & Printing 31,298

Postage 15,649

Miscellanious 78,245

Total Administrative Overhead 1,564,892


Page 12

Distribution Overhead Expenses

Navana Furniture Limited Distribution Overhead


Particulars Amount

Wages Of Distributor 394,881

Maintenance Of Lorry 86,681

Fuel 250,412

Salary Of Driver 163,731

Tax On Lorry 67,419

Total Distribution Overhead 963,124


Page 13

Costing of Product (NAVANA Furniture Limited calculates the cost of each unit production based on the

standard costing method which is built based on the past year cost of production.)

Navana Furniture Limited

Product Costing

Name : Altum

Product Category: Bed

Model : Hbk0812 Date: March, 2012

Sl.

#

Particulars Basis Last

Year %

Total

Amount

% Of

Sales

1 Direct Raw Materials

A. Raw Materials BOM 20,615 46%

B. Fitting & Fixing Materials BOM

C. Packing Materials BOM

D. Safety Allowance 6% On (A) 1,237 3%

2 Total Direct Raw Materials Cost 21,852 46%

3 Direct Labor 3,672 8%

4 Prime Cost (2+3) 25,524 54%

5 Variable Factory Overhead Cost 1.50% 712 1%

6 Total Variable Cost Of Goods Sold (4+5) 26,236 55%

Fixed Factory Overhead Cost 7.91% On Prime Cost 4.25% 2,018 4%

Production Cost 28,254 60%

Administrative Overhead Cost 6.51% On Prime Cost 3.50% 1,662 4%

7 Ex-Factory Cost 29,916 63%

8 Variable Selling & Distribution

Overhead Cost

5.50% On Sales 5.50% 2,612 6%

9 Fixed Distribution Overhead Cost 1.00% On Sales 1.00% 475 1%

10 Fixed Selling Overhead Cost 7.50% On Sales 7.50% 3,561 7%

11 VAT 6.00% On Sales 6.00% 2,849 6%

12 Discount 13.00% On Sales 13.00% 5,698 12%

13 Total Cost Of Sales (7 To 12) 45,111 95%

14 Margin 5.00% On Sales 5.00% 2,374 5%

15 Proposed Selling Price(13+14) 47,485 100%

Check Point: 2.17

Price (Without Discount) 6,173 13%

Price (Without Profit & Discount) 39,413 83%


Page 14

Pricing of Product

The pricing method of NAVANA Furniture Limited is not similar to that of other manufacturing

company. The dissimilarities are:

It counts the discount as the cost of production.

It deducts VAT from the recommended selling price.

It gets Gross Contribution Margin (CM) after deducting Variable Cost Of

Goods Sold from the net sales.

From Gross Contribution Margin (CM) it deducts Variable Selling Overhead

and calculates the Net Contribution Margin (CM).

By deducting Fixed Overhead Cost from Net Contribution Margin (CM)

NAVANA Furniture Limited get Net Income.

Net income of NAVANA Furniture Limited is 4% of sales amount

Navana Furniture Limited Product Costing

Name : Altum

Product Category: Bed

Model : Hbk0812 Date: March, 2012

Position Breakdown Per Unit BDT %Of Sales

Recommended Price 47,485 100%

Discount 6,173 13%

VAT 2,849 6%

Net Sales 38,463 81%

Variable Cost Of Goods Sold 26,236 55%

Gross Contribution Margin (CM) 12,227 26%

Variable Selling Overhead 2,612 6%

Net Contribution Margin (CM) 9,615 20%

Fixed Overhead Cost 7,717 16%

Net Profit 1,898 4%


Page 15

Cost of Goods Sold Statement

NAVANA Furniture Limited Cost Of Goods Sold Statement


Particulars Note Amount In BDT

Opening Stock Of Materials 2,564,951

Add: Purchase During The Month 8,356,016

Materials Available For Use 10,920,967

Less: Closing Stock Of Materials (4,956,315)

Materials Including Dead Stock 5,964,652

Less: Sale Of Dead Stock (50,617)

Materials Consumed 5,914,035

Add: Direct Labor 7,382,045

Prime Cost 13,296,080

Add: Factory Overhead 1 5,358,357

Works Cost 18,654,437

Add: Oppening Stock Of Work In Process 3,649,715

Less: Closing Stock Of Work In Process

22,304,152

(4,756,471)

Cost Of Goods Manufactured 17,547,681

Add: Oppening Stock Of Finished Goods 3,919,645

Less: Closing Stock Of Finished Goods (5,148,965)

Cost Of Goods Sold 16,318,361


Page 16

NAVANA Furniture Limited Cost Of Goods Sold Statement


Particulars Note Amount in BDT % of

Sales

Gross Sales 25697965 100.00%

Less: Discount 3340735 13.00%

Less: Return Inward 287435 1.12%

Less: VAT 1541878 6.00%

Net Sales 20527917 79.88%

Less: Cost Of Goods Sold 16,318,361 63.50%

Gross Income 4,209,556 16.38%

Less: Administrative Overhead 1 1564892 6.09%

Less: Distribution Overhead 2 963124 3.75%

Less: Selling Overhead 3 653621 2.54%

Net Income From Operation 1027919 4.00%

Add: Non-Operating Income 245987

Net Income 1273906


Page 17

Cost accounting establishes budget and actual cost of operations, processes, departments

or product and the analysis of variances, profitability or social use of funds. Managers use cost

accounting to support decision-making to cut a company's costs and improve profitability. There

are variations between theoretical and practical cost procedures in real world.

In modern cost accounting, the concept of recording historical costs was taken further, by

allocating the company's fixed costs over a given period of time to the items produced during

that period, and recording the result as the total cost of production. This allowed the full cost of

products that were not sold in the period they were produced to be recorded in inventory using a

variety of complex accounting methods, which was consistent with the principles of GAAP

(Generally Accepted Accounting Principles).

As business became more complex and began producing a greater variety of products, the

use of cost accounting to make decisions to maximize profitability came under question.

http://en.wikipedia.org/wiki/Cost

http://en.wikipedia.org/wiki/Profit_%28accounting%29

http://en.wikipedia.org/wiki/GAAP


Page 18

Person Muhammad Salauddin Chowdhury, ACA

Course Instructor,

Faculty of Business Studies,

Department of Finance

University of Dhaka

Engr. Md. Showkat Kamal,

Production Deputy General Manager,

NAVANA Furniture Limited

Website www.navanafurniture.com

www.google.com

www.cama.com

Books Cost accounting,

By Murtz & USRY

http://www.navanafurniture.com/

http://www.google.com/

http://www.cama.com/

Documents

Cost Accumulation Procedure if Navana