Cost Accounting

KIM’s Factory Hattar

Foundation University Rawalpindi Campus

Presented to : Sir. Talha Aziz

Presented by: Rehab Butt

Hassan Tariq

Osman Ahmed

Flahta Bin Rashid

Syeda Kanwal Noreen

Date : 29th December, 2014

ContentsDedication........................................................................................................................................3

Acknowledgement...........................................................................................................................4

Executive Summary.........................................................................................................................5

Introduction......................................................................................................................................6

About the Project.............................................................................................................................7

Methodology for completion of study.............................................................................................7

Type of Business..............................................................................................................................8

Follows job order cost.....................................................................................................................8

Cost on Direct Material, Direct Labor and FOH.............................................................................8

Fixed Cost....................................................................................................................................9

Variable Cost...............................................................................................................................9

Formula Used for Total Variable Costs...........................................................................................9

Usage of Scraped Goods..................................................................................................................9

Payment of Taxes..........................................................................................................................10

Labor Facilities..............................................................................................................................10

Cost Volume Profits......................................................................................................................11

Break Even Analysis......................................................................................................................11

Conclusion.....................................................................................................................................12

Recommendation...........................................................................................................................12

Reference.......................................................................................................................................12

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Dedication

I would like to dedicate this report to Sir Talha Aizaz, for giving us this wonderful project.

Previously we had not done any project like this. This was the first of its kind and we enjoyed it

so much that I can’t even explain it in words. Furthermore I would thank my Dear good friends

Kanwal Noreen, Osman Ahmed, Hassan Tariq for their necessary hard work and support. Rehab

butt was also present at the scene but not so much hard work was observed. Hands up to all you

people.

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Acknowledgement

We would like to thank Mister Qadir Mahmud for giving us the opportunity to visit the factory.

Giving us the permission to survey and allowing us the privilege of completing our project

easily. Usually the companies and factories don’t give or allow the use of video cameras and

other utilities in their premises, but through his reference we completed our work with ease. We

would like to thank Sir Talha Aizaz and the Foundation University for giving us this wonderful

opportunity to visit this amazing factory and many of its subsidiaries. Furthermore I would thank

all my group members for all their hard work and eagerness to complete this report/project as

soon as possible. It was a very good and helpful experience as it will also help us in our future

when we go into the professional life.

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Executive Summary

This report unfolds the study of different processes of KIMS Factory Hattar. Some of its food

manufacturing processes are discussed in detail and information is provided about them along

with the conclusion and recommendations.

Kim’s is no doubt doing a splendid job and hence, contributing in economy with a handsome

hand. Hattar is situated in the province of KPK which is enrich with respect to Man power and

natural resources. That counts a winning point for the business too but here, the fact of

transportation problems cannot ignored as KIM’s has to distribute its product country wide.

Coping along with such a situation and providing outstanding results are mark able not only for

the industry but for the nation as well.

Additionally, it is essential to quotes the study will reveals the internal process, financial

indicators, business types, breakeven analysis etc. that builds the foundation of any business

success.

This report is written after getting sound facts and analysis are made about the manufacturing

business hence, the data is based on true facts.

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Introduction

Silver Lake foods was established in 1995 with the partnership of four people. It is located in

industrial sector Hattar, Plot number 50. Its growth rate was steady in start and gradually

increased with time. It had 2 subsidiaries from 2000, KIMS and DEER. Many of its initial sales

were abroad. It took orders from big companies and produced the designated quality under that

brands name. Cadbury and some other famous organizations were their main customers.

In 2008, due to increase price of many primary resources required for producing biscuits and

toffees, it almost went bankrupt like many other small industries. From 2009 onwards the

organizations continued sales at break-even point. In 2013 it was acquired by volca foods and

industries. The new owner invested heavily in the project and soon the sales boomed. One more

subsidiary was added which is known as Giggly in the local market of Pakistan. Now the

company only does sales in local market rather than exporting. The profit margin was 1.5 Crore

in the month of November 2014. The company sells products under 3 brands at the present,

KIMS, Giggly and DEER.

The company since 2013 has bought four more factories. Now its different products are:

Biscuits

Candies

Wafers

Chocolates

Nimco

Jelly

Fruit cakes

Chocolate cakes

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About the Project

The project is assigned to the Teams consist of five members, to visit, analyses and study a

factory that carries the whole supply chain management. Make a comprehensive video of the

process and collect necessary information for study.

Methodology for completion of study

For the completion of this report, verity of methods has been used for analysis, recommendations

and conclusions. Initially data was collected on quantitative interview, face to face meeting was

held in Silver Lake Foods. Email remain a mode of communication for further required

information. A handsome data for analysis and study was gathered on Thursday, November 20,

2014, involved 6 people.

This document is prepared with the help of collected data and the subject under study. To the

degree of precision, this reports covers the required aspects at the extent of information available

till the date 1st January 2015.

Ultimately, writing this report with believe that the research is fully conducted via using

confidential information, precise analysis and effective discussion. The study bring the facts in

the site of reader about the benefits KIM’s Factory and its effective outcomes.

Further conclusion are made after evaluating and analyzing the collected information. Moreover,

recommendation are proposed further for updating software in order to make it more efficient

and error free.

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Type of Business

KIM’s Factory belongs to the manufacturing category. Its main production items are related to

snacks and eatables. Products that don’t require any baking or cooking. Main products being

currently manufactured by the company include

Biscuits

Candies

Wafers

Chocolates

Nimco

Jelly

Fruit cakes

Chocolate cake

Distribution has been all across Pakistan since January 2013. ISO certification 9000: 2008, ISO

14001: 2400 and HACCP certification has been awarded to the certified company. The following

certificates are awarded to factory in terms of Food, Health, Tax, labor rights, safety and

Working environment provided by the company.

Follows job order cost

Kim’s follow job order costing by assigning a manufacturing cost to an individual product or

batches of products. Generally, it is used only when the products manufactured are sufficiently

different from each other.

Cost on Direct Material, Direct Labor and FOH

Direct material cost PRs. 929 per carton

Raw materials PRs. 496 per carton

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FOH PRs. 111 per carton

Direct labor cost PRs. 55 per carton

Fixed Cost

Fixed costs are the cost that is independent of output.

Their fixed cost is Rs.11596000

Variable Cost

They are the costs that vary with output.

Their variable cost is Rs.6404000.

Formula Used for Total Variable Costs

=Total quantity of output* variable cost per unit of output/Inventory

According to them their inventory is not just in time because of the political conditions we are

facing in Pakistan. So to overcome this problem in future they have to store the raw materials

and inventory to be used further.

Usage of Scraped Goods

They have a proper quality department where their manager supervises their quality and in case

of a scraped good they utilize it and selling it in different packaging with fewer prices. Some

other scrap materials that aren’t related to food are gathered in one place and later sold to the

highest bidder. This adds a considerable amount in the revenues.

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Payment of Taxes

Establishment of the factory and 1995, rules set by the top management clearly stated that the

factory will pay 100% taxes allotted to the company and were registered by FBR. Even the tax

authority counselor stated that in Pakistan, no other factory/company pays 100% taxes and make

huge revenues and profits simultaneously. He even argued against his better judgment that they

don’t pay more than 50% of the tax but the management refused and stated that they were going

to set new benchmark standards in the Pakistan business evnironment.The tax paid by Kims

Factory in the preceding year was 20, 25,708.

Labor Facilities

Facilities given to the labor are:

Medical Facilities

Transport facilities

Distribution of payrolls and taxes

Accommodation facilities

Allowances / Bonuses / Rewards

The Allowances and rewards vary with the performance. The tax reduction also vary with the

post of the employees and different levels appointed to certain people. The distribution of payroll

is carried out according to the total profit or revenue generated by the company per year. Labors

are paid according to the hours they work and which is 80rs per hour. And payment of Sales tax

17%.

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Cost Volume Profits

Cost-volume-profit (CVP) analysis is used to determine how changes in costs and volume

affect a company's operating income and net income. In performing this analysis, there are

several assumptions made, including:

Sales price per unit is constant.

Variable costs per unit are constant.

Total fixed costs are constant.

Everything produced is sold.

Costs are only affected because activity changes.

If a company sells more than one product, they are sold in the same mix.

CVP analysis requires that all the company's costs, including manufacturing, selling, and

administrative costs, be identified as variable or fixed.

Break Even Analysis

Break-even point is the point at which cost or expenses and revenue are equal. After they reach

break-even point they go for profit margin in the department where they have more return it does

not base on sales instead it’s based on the profit they are getting on different product and

promote it further.

Break-even point = fixed cost ÷ variable cost per unit

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Conclusion

There were many defects and flaws we observed during our trip. If the factory implements them

in the near future then its growth rate will increase significantly quicker than the present rate.

The points are being listed in the recommendation section.

First of all, there was a huge time wastage of employees moving from one place to another. The

environment in which labors were working would have made their hands sweaty and in turn

questions the healthiness of the products.

Recommendation

Workers should be wearing disposable gloves while working in then factory.

Communication between the labors should be kept to the minimum.

Elevators should be installed instead of stairs because the workers and labors waste a lot of time

going from one point to another.

Software being used to calculate the loss of each process is too outdated and should be swapped

with a newer version.

Overburden for labors should be avoided by setting specific time for work and break.

Warehouse/Safe houses should be constructed in each major point of the country so that the

distribution becomes easy.

Reference

Silver Lake Foods LTD.

Mr. Qadir Mehmud

Executive Director.

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