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Money doesn't create man but it is the man who created money.
-Warren Buffet
WELCOME TO ALL OF YOU
RAHUL JAIN(Striving for excellence)BCOM (H), MBA, ACS
Cost
Any expense incurred during the operations for providing the good or service to get the output into the hands of the customer
The customer could be the public (the final consumer) or another business
Controlling costs is essential to business success
Costing and Management Accounting
A field of accounting that provides economic and financial information for managers and other internal users.
Computing the cost of providing a service or manufacturing a product
Determining the behavior of costs and expenses as activity levels change
Analyzing cost-volume profit relationships within a company
Assisting management in profit planning and budgeting
Providing a basis for controlling costs and expenses by comparing actual results with
planned objectives and standard cost
Accumulating and presenting relevant data for management decision making
Need of Costing
Apparel Products Value ChainBy Lyn Fernando
Product Development
Selling & Distribution (Agents)
Outbound logistics
Manufacturing (cut, sew & finishing)FOB 10-25% of
Retail
Buyer (Retailer)
Raw materials /Accessories –40-70% of FOB
Design
Non availability of advanced product development facilities
Lack of Advanced Manufacturing
Technology
Lack of Specialty fabrics & Accessories
-Lack of Direct contacts/ Access to Retailer.
-Long lead time
- Cost of Agents
Proximity to market, regular sailings -sea &
Air. Electronic Data Interchange for documentation
• High Cost Structure ( Labour, Utility) Wastage use of CAD/CAM
• Labor Laws, Invest in Human Resources
• Lack of Skilled Management
•Low productivity,
• Proximity to Suppliers
•High energy cost
Need to develop strong networks & lobby groups. Free Trade Agreements,
concessionary tariffs
Dependency on imported raw material, long lead times,delays
at customs, documentation, EDI
Lack of design capabilities
Sourcing
100%
Basic elements of Cost
Material
Labor
Expense
Key terms
Tangible costs or benefits are those costs or benefits that an organization can easily measure in dollars.
Intangible costs or benefits are costs or benefits that are difficult to measure in monetary terms.
Direct costs are costs that can be directly related to producing the products and services .
Indirect costs are costs that are not directly related to the products or services , but are indirectly related to them.
Key terms
Opportunity cost What you give up for certain in exchange for a
chance at something better. Interest The cost of borrowed money
Costs Fixed – are not influenced
by the amount produced but can change in the long run e.g., insurance costs, administration, rent, some types of labour costs (salaries), some types of energy costs, equipment and machinery, buildings, advertising and promotion costs
Variable– vary directly with the amount produced, e.g., raw material costs, some direct labour costs, some direct energy costs
Semi-fixed – where costs not directly attributable to either of the above, for example, some types of energy and labour costs
COST SHEET
Prime Cost
Direct Material Consumed+ Direct Labor+ Direct Expense
MANUFACTURING COSTS DIRECT MATERIALS
Materials
Raw materials• The basic materials and parts that are used in the
manufacturing process• Raw materials physically and directly associated
with the finished product are called direct materials
INDIRECT MATERIALS
• Indirect Materials are raw materials which cannot be easily associated with the finished product.• Not physically part of the finished product • Cannot be traced because their physical
association with the finished product is too small in terms of cost
• Accounted for as part of Manufacturing Overhead
LABOR and Expenses
Factory Labor
• Direct Labor: The work of factory employees which is physically and directly associated with converting raw materials into finished goods.
• Indirect Labor: Efforts which have no physical association with the finished product or it’s impractical to trace the costs.
Direct Expenses: directly associated with cost centerIndirect Expenses• Classified as Manufacturing • Overhead
Prime cost -ExampleCONTENT AVG. CONSUMPTION/ SHIRT AVG.PRICE/UNIT
(Rs.)TOTAL COST(Rs.)
Fabric 2.10mts. 56 117
Thread 200mts. 9/spool 4.5
Button 11pcs. 0.25 2.75
Label 3pcs 0.20 0.60
Polybag 1pcs 2.10 2.10
Collar band card board 1pcs 0.10 0.10
Card board 1pcs 0.80 0.80
Clips 4 pcs 0.10 0.40
Pin 8 pcs. 0.05 0.40
Butterfly 1 pcs. 0.35 0.35
collarbone 2 pcs. 0.25 0.50
fusing 25 cm 30/mt 7.50
Direct Labor cost35.66 35.66
Direct expenses 11 11
Prime cost 219.21
MANAGERIAL COST CONCEPTS
• Manufacturing: Activities and processes that convert raw materials into finished goods.
• Manufacturing Costs include:– Direct materials
– Direct labor
– Direct Expense
– Manufacturing overhead
MANUFACTURING OVERHEAD
•Consists of costs that are indirectly associated with manufacturing the finished product.•Includes:
• Indirect materials • Indirect labor • Indirect expenses such as Depreciation on factory buildings and machines • Insurance, taxes, maintenance on factory facilities
Manufacturing Overhead
FACTORY OVERHEADS- Examples
Salary paid to merchandiser Salary paid to production manager Floor incharge salary Q.A. + Q.C. Plotting boy CAD operator Salary paid to fabric head Salary paid for line supervisor Salary paid to machinery maintenance House keeping Guard Medical care taker Fuel Electricity Water consumption Oil and Consumables Needles Rent/Depreciation on Factory Assets
OFFICE AND ADMINISTRATION OVERHEADS: Examples
Salary paid to: chairman MD GM Receptionists HR persons Accountants Purchases Dept. Persons Office Boys Telephone Expenses Stationary Expenses Electricity Expenses of office Rent/Depreciation on Office Assets
SELLING AND DISTRIBUTION OVERHEADS- Examples
Salary paid to selling and marketing staffAdvertisement costSample distribution Export documentation Testing expense Buying agent commission ConveyanceTrade Fair and other Promotional expensesWebsite and ecommerce expenses