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Cost Accounting Project on Small and Medium Sector Industry
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Submitted to Submitted by
Prof. Gauri Shankar Neelutpal Saha Shan Lal Mrinmoy Sarkar Pankaj Srivastava
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ACKNOWLEDGEMENT
We would like take this opportunity to express our profound gratitude and deep regards to our guide Professor Gouri Shankar for his exemplary guidance, monitoring and constant encouragement throughout the course of this project.
We also take this opportunity to express a deep sense of gratitude to Mr Rajkumar, owner RajKumar Paper Mills, for his cordial support, valuable information and guidance, which helped us in completing this task through various stages.
Neelutpal Saha Shan Lal Mrinmoy Sarkar Pankaj Srivastava
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Contents
INTRODUCTION TO SME INDUSTRY
GENERAL INFORMATION OF COMPANY
COST ACCOUNTING POLICY
PRODUCT GROUP DETAILS
QUANTITATIVE INFORMATION
ABRIDGED COST STATEMENT
OPERATING RATIO ANALYSIS
MARGINAL COSTING AND ANALYSIS
ABSORPTION COSTING
ANALYSIS OF PROFIT VOLUME RATIO
RECOMMENDATIONS
CONCLUSION
BIBLIOGRAPHY
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INTRODUCTION
Micro, small and medium enterprises (MSME) sector has been recognized as an engine of growth all over the world. The sector is characterized by low investment requirement, operational flexibility, location wise mobility, and import substitution. In India, the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 is the first single comprehensive legislation covering all the three segments. In accordance with the Act, these enterprises are classified in two:- (i) manufacturing enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the Industries (Development and regulation) Act, 1951. These are defined in terms of investment in plant and machinery; (ii) service enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.
India has a vibrant micro and small enterprise sector that plays an important role in sustaining the economic growth, by contributing around 39 per cent to the manufacturing output and 34 per cent to the exports in 2004-05. It is the second largest employer of human resources after agriculture, providing employment to around 29.5 million people (2005-06) in the rural and urban areas of the country. Their significance in terms of fostering new entrepreneurship is well-recognized. This is because, most entrepreneurs start their business from a small unit which provides them an opportunity to harness their skills and talents, to experiment, to innovate and transform their ideas into goods and services and finally nurture it into a larger unit.
Over the years, the small scale sector in India has progressed from the production of simple consumer goods to the manufacture of many sophisticated and precision products like electronics control systems, microwave components, electro medical equipment, etc. The process of economic liberalization and market reforms has further exposed these enterprises to increasing levels of domestic and global competition. The formidable challenges so generated for them have led to a novel approach of cluster development for the sector. As a result, private and public sector institutions, both at the Central and State levels are increasingly undertaking cluster development initiatives.
Clusters are defined as sectorial and geographical concentration of enterprises, particularly, small and medium enterprises, faced with common opportunities and threats which give rise to external economies; favour the emergence of specialized technical, administrative and financial services; create a conducive ground for the development of inter-firm cooperation to promote local production, innovation and collective learning. Clustering and networking has helped the small and medium enterprises in boosting their competitiveness. India has over 400 SME clusters and about 2000 artisan clusters.
It is estimated that these clusters contribute 60 per cent of the manufactured exports from India. Almost the entire gems and jewellery exports are from the clusters of Surat and Mumbai. Some of the small scale enterprise clusters are so big that they account for 90 per cent of India's total production output in selected products. For example, the clusters of Chennai, Agra and Kolkata are well known for leather and leather products.
The Government has been encouraging and supporting the sector through policies for infrastructural support, technology upgradation, preferential access to credit, reservation of products for exclusive manufacture in the sector, preferential purchase policy, etc. It has been offering packages of schemes and incentives through its specialized institutions in the form of assistance in obtaining finance; help in marketing; technical guidance; training and technology upgradation, etc.
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GENERAL INFORMATION OF COMPANY
Name of the company: o Rajkumar Paper Mills Limited
Registered office address: o Chinchwad, Pune 411 039.
Corporate office address: o R.S.Gandhi Marg, Fort, Mumbai 400080
Company's financial year to which the Cost Audit Report relates: o 1st April 2011 to 31st March 2012
E-mail Address of the Company: [email protected]
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COST ACCOUNTING POLICY
1.0 Cost accounting policy adopted by the company for the following areas are as
under: 1.1 Basics of Costing Policy
The company follows the historical process cost convention on accrual basis of accounting in accordance with the Generally Accepted Cost Accounting Principle (GACAP) and Cost Accounting Standards keeping in view the requirements of the Companies (Cost Accounting Records) Rules, 2011, the Companies (Cost Audit Report) Rules, 2011.
The preparation of cost statements requires that the management of company makes reasonable estimates and
assumptions that affect the allocation / apportionment and absorption of expenses recognized in the period to
determine correctly the cost of production / operation, cost of sales realization and margin of the product /
activity groups separately of the unit / plant.
1.3 Identification of cost centers/cost objects and cost drivers:
The company emphasis on direct identification of expenses with product / plant and common expenses as classified overheads as under:
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Accounting for material cost including packing materials, stores and spares etc., employee cost, utilities and other relevant cost components.
1.4 Material and Stores Accounting :
Material Cost
Indigenous materials and stores receipts are valued at landed cost inclusive of all expenses incurred for the
procurement of the materials. Imported material are accounted at the custom exchange rates prevailing at the
time of receipts an includes all incidental expenses like, insurance, freight, import duty, clearing charges, etc.
The Stores' issue is booked at moving weighted average rate / FIFO. Normal shortages/excesses observed during
physical stock verification are periodically adjusted in consumption of respective materials.
Packing Material
Packing material used for packing of reels and reams are identified on the basis of packing recipe & charged to product. Secondary packing like palatisation, etc.is considered as dispatching cost.
Consumption of wrapping paper manufactured and consumed as packing material is transferred and valued at COP during the year.
Stores & Spares
Consumable Stores and spares are identified with consumption cost centre. Machinery spares issues are treated as repairs to Plant & machinery.
1.5 Employees Cost
Employee Records are maintained Cost center wise for direct allocation of employee cost. Employee cost
includes benefits payable available such as over time, incentives, payment & provision for leave salary,
Company's contribution to Provident / Pension Fund and Employees State Insurance, linked insurance, Provision
for bonus & Gratuity, etc.
The engagement of contractor's labour for certain specific jobs/operations are identified and allocated as direct labour cost. The Common labour payment is considered as either Works Overhead or Administration overhead as per the nature of work.
1.6 Utilities :
The cost of each utility like power, raw water, treated water, steam, Power generation plant, cooling water and
ETP is worked out for each of the above cost centres. The utilization of utilities allocation / apportionment is
done on the basis of monthly utilization of these facilities by recipient plants on technical basis and are
reconciled.
Repairs & Maintenance
Machinery spares and repairs job labour bills are identified with respective plant and machinery. Repairs to building are apportioned on the basis of area and other repairs are considered as plant overheads or administration overheads.
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1.7 Accounting, allocation/apportionment and absorption of overheads
Expenses are identified with cost center / activity / product as far as possible. In case where it is not possible to identify directly, the same is considered as production / administration / selling and other overheads based on nature & purpose of expenses in the inbuilt system of Financial Accounting on the basis of Generally Accepted Cost Accounting Principles.
1.8 Absorption (into product cost)
Factory Overheads
The total conversion cost of the production departments including factory administration overheads are then divided by the Machine Hours worked during the year to obtain Machine Hour Rate for each production department. The actual time taken for each lot are recorded in the Departmental log books from where total time worked during the year for producing each variety of paper is ascertained. This cumulated time multiplied by the Departmental Machine Hour Rate gives the total conversion cost for each variety of paper produced whereas, finishing and packing department expenses are absorbed on the basis of tonnage packed in reels and reams. Corporate Administrative Overheads
The Corporate administrative overheads are absorbed directly into the variety of paper on the basis of sales realization of paper sold.
Selling and Distribution Overheads
The element wise selling and distribution overheads are absorbed either on the basis of quantity sold or the net
sales realization depending upon nature of expense. Commission on Sales is identified with each type of paper.
Cost of the samples is ascertained separately & considered as Selling & Distribution expenses.
1.9 Accounting for Depreciation/Amortization
Depreciation on machinery & building has been provided on straight line method and on the other assets on
written down value method in accordance with Schedule XIV of the Companies Act, 1956 as in force as on the
date of Balance sheet. Depreciation on all assets is in the first instance departmentalized, based on the locations
of the assets. Depreciation on Buildings is apportioned on the basis of area occupied by each cost centers.
Depreciation on Machinery is allocated on the basis of identification. Depreciation on furniture, office
equipment and fixtures, vehicles etc. is considered as overheads depending upon location and usage.
Accounting for by-products/joint-products, scraps, wastage etc.
There are no by-products or joint products generated while manufacture of paper. Broke is waste generated
while finishing of paper which is reused as pulp. Broke is valued at average cost of waste paper purchased since
the sales realization of Broke is not feasible and quality of broke resembles waste paper. The scrap generated
due to sale of empty drums, MS scrap, etc. is analyzed and credited on appropriate basis.
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1.10 Basis for Inventory Valuation Raw material, Packing material, Stores & Spares are valued at landed cost on moving weighted average / FIFO method. Semi-finished and Finished goods is valued at variety / gram age wise cost of production according to the stage of completion and location where stored excluding any taxes and duties.
1.11 Methodology for valuation of Inter-Unit/Company and Related Party transactions
Direct Cost of job work processing of Pulp and Steam plus share of fixed overheads allocated / apportioned and absorption on the basis of normal capacity utilization and reasonable profit margin. Raw material is at landed cost of purchases at relevant time and sale of finished goods at comparable price on arms-length basis.
Share of common utilities and services in respect of security, communication, Quality Control, Space utilization, etc. on the appropriate cost basis considering common cost of salaries, direct allocated expenses, etc. for each type of services. Interest received is on account on loan given is charged at the prevailing bank rate.
1.12 Treatment of abnormal and non-recurring costs including classification of other non-cost items.
In case of significant under-utilization normal conversion cost per production is considered for absorption of labour & overheads. Non cost / Non recurring income and expenses such as Provision for obsolete items, Loss on Sale of Fixed
Assets, Donations, Provision of doubtful Debts and Bad Debts written off, etc. and Other Income such as
Exchange diff, interest / Dividend on Investments, etc.
1.13 Other relevant cost accounting policy adopted by the Company
Treatment of Foreign exchange gain (/Loss) on Plant & Machinery, imported material, sales of FG, etc. Company Social responsibility Treatment of expenditure during construction period. Financial Cost Interest on term loans, premium on redemption of Debenture/Debts, interest on working capital.
1.14 Revenue sales recognition
Domestic Realization Export realization Export benefits Central excise duty and service tax
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PRODUCT GROUP DETAILS (for the company as a whole)
Sr. Name of each Product Group Names of Net Sales (net of
taxes,
no. Products/ Duties, etc.) (Rs.
Lakh) Activities included in the Product Group
2011-12 2010-11
A Manufactured Product Groups
Maplitho,
1 White Printing Paper M.G. Poster, 3507.98 etc.
2 Tissue Paper Sanitary
4016.01
Tissues
3
4 etc.
Sub-Total (A) - 7523.98
B Services Groups
1 Nil
Sub-Total (B) - -
C Trading Activities (Product Group-wise)
1 Nil
Sub-Total (C) - -
D Other Incomes
1 Dividend, Interest 12.57
2 Profit on Sales of Fixed Assets 2.07
3 Misc., Scrap Sales, etc. 5.20
Sub-Total (D) - 19.84
E Total Income as per Audited Annual Report (A+B+C+D) - 7543.82
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QUANTITATIVE INFORMATION
Name of the Company : Rajkumar Paper Mills Limited
Name of the Product Group : White Printing Paper
Name of the Products covered in the Product Group : Paper (Qty. in MT) Financial Year 2011-12 2010-11 S.N. Particulars Cur. Year Prev. Year
1. Available Capacity
(a) Installed Capacity 9000 9,000
(b) Capacity enhanced during the year, if any
(c) Capacity available through leasing arrangements, if 0
(d) Capacity available through loan license / third parties
(e) Total available Capacity 9,000 9,000
2. Actual Production
(a) Self-manufactured - 8086
(b) Produced under leasing arrangements
(c) Produced on loan license / by third parties on job work
(d) Total Production - 8086
3. Production as per Excise Records - 8086
4. Capacity Utilization (in-house) - 90
5. Stock Purchased for Trading
(a) Domestic Purchase
(b) Imports - 0
(c) Total Purchases - 0
6. Stock & Other Adjustments
(a) Change in Stock of Finished Goods - -40
(b) Self / Captive Consumption (incl. samples etc.) - 0
(c) Other Quantitative Adjustments, if any (wastage etc.) - 0
(d) Total Adjustments - -40
7. Total Available Quantity for Sale [2(d) + 5(c) - 6(d)] - 8046
8. Actual Sales
(a) Domestic Sales (manufacturing) 8046
(b) Domestic Sales (trading)
(c) Export Sale (manufacturing)
(d) Export Sale (trading)
(f) Total Quantity Sold - 8046 Notes: The variation in the utilization of installed capacity is due to change in the product mix which is dependent upon
demand of various types and gram mage of paper and on account of loss due to set up time for the lot change from
time to time
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The variation in the utilization of installed capacity is due to change in the product mix which is dependent
upon demand of various types and grammage of paper and on account of loss due to set up time for the lot
change from time to time.
Name of the Company : Rajkumar Paper Mills Limited Name of the Product Group : Tissue Paper
Name of the Products covered in the Product Group : Paper (Qty. in MT)
Financial Year 2011-12 2010-
11
Sr. Particulars Cur. Year Prev. Year
1. Available Capacity
(a) Installed Capacity 10,000 10,000
(b) Capacity enhanced during the year, if any
(c) Capacity available through leasing arrangements, if - -
(d) Capacity available through loan license / third parties
(e) Total available Capacity 10,000 10,000
2. Actual Production
(a) Self-manufactured 8865
(b) Produced under leasing arrangements
(c) Produced on loan license / by third parties on job work
(d) Total Production - 8865
3. Production as per Excise Records - 8865
4. Capacity Utilization (in-house) - 89
5. Stock Purchased for Trading
(a) Domestic Purchase
(b) Imports
(c) Total Purchases - -
6. Stock & Other Adjustments
(a) Change in Stock of Finished Goods - -124
(b) Self / Captive Consumption (incl. samples etc.)
(c) Other Quantitative Adjustments, if any (wastage etc.)
(d) Total Adjustments - -124
7. Total Available Quantity for Sale [2(d) + 5(c) - 6(d)] - 8741
8. Actual Sales
(a) Domestic Sales (manufacturing) - 8726
(b) Domestic Sales (trading)
(c) Export Sale (manufacturing) - 15
(e) Export Sale (trading)
(f) Total Quantity Sold - 8741 Notes:
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ABRIDGED COST STATEMENT
(for product group - Paper) White Printing Paper In Rupees
Sr.n Particulars Units Quantity Rate Amount Cost Rate per Unit
2010-11 2009-10
1 Materials Consumed
a) Imported (MT) 2873 26802 76992685 9557 3768
b) Indigenous Purchased (MT) 2228
c) Self-Manufactured / Produced (MT) 6639 24309 161398272 20034 18955
Total (a to c) 9512 238390957 29591 24951
2 Process Materials/Chemicals
a) Sizing & Loading Materials 526332 10994790 1365 1307
b) Dyes & other chemicals 47211 13181430 1636 1393
Total (a to b) 24176220 3001 2700
3 Utilities Power (KWH) 5548908 5 27855518 3458 3848 Steam (MT) 21182 961 20360626 2527 2431 Water (KL) 324531 5 1460390 181 151 E.T.P. 643407 80 45
4 Direct Employees Cost 6273267 779 750
5 Direct Expenses(cutting & Reeling chgs) 2672679 332 337
6 Consumable Stores & Spares
2351715
292 338
7 Repairs & Maintenance 1300530 161 96
8 Quality control
9 Research & Development Exps 210618 26 15
10 Technical know-how Fee / Royalty, if any
11 Depreciation/Amortization
3378804
419 591
12 Other Production Overheads 3067995 381 419
13 Total (1 to 12) 336416430 41759 37062
14 Add/Less: Work-in-Progress Adjustments 23 1590414
15 Less: Credits for Recoveries, BROKE 431 -6203652
16 Primary Packing Cost 6177045 767 1025
17 Cost of Production/Operations (13 + 14 to 16) 8086 337980237 41798 37475
18 Increase/Decrease in Stock of Finished Goods -40 -4225392 -1400
19 Less: Self/Captive Consumption (incl. Samples, etc.)
20 Other Adjustments (if any)
21 COP of Goods/Services Sold (17 + 18 to 20) 8046 333754845 41479 37471
22 Administrative Overheads 4273704 530 390
23 Secondary Packing Cost
24 Selling & Distribution Overheads 6769785 841 770
25 Interest & Financing Charges 2100081 261 205
26 Cost of Sales (21 + 22 to 25) 8046 342624711 42581 39036 Increase in margin is due to increase in sales realization
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ABRIDGED COST STATEMENT (for product group - Paper) Tissue Paper In Rupees
Sr.n Particulars Units Quantity Rate Amount Cost Rate per Unit
2010-
11 2009-10
1 Materials Consumed
a) Imported (MT) 2193 26063 57156758 6471 3859
b) Indigenous Purchased (MT) 1755 22897 40193234 4551 3424
c) Self-Manufactured / Produced (MT) 6927 23915 165666176 18757 18681
Total (a to c) 10876 263016168 29779 25964
2 Process Materials/Chemicals
a) Sizing & Loading Materials 156707 5085646 576 696
b) Dyes & other chemicals 25564 9388018 1063 1079
Total (a to b) 14473664 1639 1775
3 Utilities Power (KWH) 9638311 5 48384321 5478 5529 Steam (MT) 37017 961 35581481 4029 3647 Water (KL) 513454 5 2310543 262 215 E.T.P. 1017957 115 64
4 Direct Employees Cost 10362714 1173 1077
5 Direct Expenses 960035 109 20
6 Consumable Stores & Spares 6153481 697 681
7 Repairs & Maintenance 2347438 266 154
8 Quality control
9 Research & Development Exps 237437 27 16
10 Technical know-how Fee / Royalty, if any
11 Depreciation/Amortization
3928990
445 586
12 Other Production Overheads 4526362 512 548
13 Total (1 to 12) 398361209 45103 40704
14 Add/Less: Work-in-Progress Adjustments 32 1259649
15 Less: Credits for Recoveries, BROKE -11191839
16 Primary Packing Cost 6500614 733 811
17 Cost of Production/Operations (13 + 14 to 16) 8865 394929633 44549 39197
18
Increase/Decrease in Stock of Finished Goods -124 -9422853 -1400
19 Less: Self/Captive Consumption (incl. Samples, etc.)
20 Other Adjustments (if any)
21 COP of Goods/Services Sold (17 + 18 to 20) 8741 385506780 44102 38986
22 Administrative Overheads 5060618 573 428
23 Secondary Packing Cost
24 Selling & Distribution Overheads 8287341 948 902
25 Interest & Financing Charges 2428609 278 220
26 Cost of Sales (21 + 22 to 25) 8741 396222730 45328 40916 There is no significance variance since increase in cost is compensated by increase in sales realization
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OPERATING RATIO ANALYSIS Tissue Paper
Sr. Particulars Units 2011-12 2010-11 2009-10 no.
Ratio of Operating Expenses to Cost of Sales
1 Materials (incl. Process Materials) Cost % 67.21 67.79
2 Utilities Cost % 22.03 23.11
3 Direct Employees Cost % 2.62 2.63
4 Direct Expenses % 0.24 0.05
5 Consumable Stores & Spares % 1.55 1.66
6 Repairs & Maintenance Cost % 0.01 0.38
7 Depreciation / Amortization Cost % 0.99 1.43
8 Packing Cost % 1.64 1.98
9 Other Expenses % 0.06 0.04
10 Stock Adjustments % (1.47) (4.20)
11 Production Overheads % 1.14 1.34
12 Administrative Overheads % 1.28 1.05
13 Selling & Distribution Overheads % 2.09 2.20
14 Interest & Financing Charges % 0.61 0.54
15 Total % 100.00 100.00
Note: There are no significance variance in operating ratio
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White Printing Paper
Sr. Particulars Units 2011-12 2010-11 2009-10 no.
Ratio of Operating Expenses to Cost of Sales
1 Materials (incl. Process Materials) Cost % 73.08 74.22
2 Utilities Cost % 14.34 17.38
3 Direct Employees Cost % 1.79 2.01
4 Direct Expenses % 0.76 0.90
5 Consumable Stores & Spares % 0.67 0.91
6 Repairs & Maintenance Cost % 0.37 0.26
7 Depreciation / Amortization Cost % 0.96 1.59
8 Packing Cost % 1.76 2.75
9 Other Expenses % 0.06 0.04
10 Stock Adjustments % 1.58 (4.85)
11 Production Overheads % 0.87 1.12
12 Administrative Overheads % 1.22 1.05
13 Selling & Distribution Overheads % 1.93 2.07
14 Interest & Financing Charges % 0.60 0.55
15 Total % 100.00 100.00
Note: There are no significance variance in operating ratio
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MARGINAL COSTING AND ANALYSIS The increase or decrease in the total cost of a production run for making one additional unit of an item. It is computed in situations where the breakeven point has been reached: the fixed costs have already been absorbed by the already produced items and only the direct (variable) costs have to be accounted for.
White Printing Paper *in rupees Cost Rate Per Unit
Amount 2010-11 2009-10
Net Sales Realization(A) 350797659 43597 37257
Cost of Sales(B) 342624711 42581 39036
Margin [P/(L) as per Cost
Accounts]= (A-B)
8172948 1016 -779
There was a loss in cost price for each unit in 2009-10, but it recovered well by its profits on 2010-11
Tissue Paper *in rupees Cost Rate Per Unit
Amount 2010-11 2009-10
Net Sales Realization(A) 401600823 45943 41710
Cost of Sales(B) 396222730 45328 40916
Margin [P/(L) as per Cost
Accounts]= (A-B)
5378093 615 794
There has been a minor decrease in profit per unit item manufactured from 2009-10 to 2010-11
ABSORPTION COSTING Absorption costing means that all of the manufacturing costs are absorbed by the units produced. In other words, the
cost of a finished unit in inventory will include direct materials, direct labor, and both variable and fixed manufacturing
overhead. As a result, absorption costing is also referred to as full costing or the full absorption method.
Absorption costing is often contrasted with variable costing or direct costing. Under variable or direct costing, the fixed
manufacturing overhead costs are not allocated or assigned to (not absorbed by) the products manufactured. Variable
costing is often useful for management's decision-making. However, absorption costing is required for external financial
reporting and for income tax reporting.
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White Printing Paper *in rupees Cost Rate Per Unit
Amount 2010-11 2009-10
Net Sales Realization(A) 350797659 43597 37257
Cost of Production(B) 337980237 41798 37475
Absorption [P/(L) as per
Cost Accounts]= (A-B)
12817422 1799 -218
Profitability as per absorption costs has increased in subsequent years after initial loss.
Tissue Paper *in rupees Cost Rate Per Unit
Amount 2010-11 2009-10
Net Sales Realization(A) 401600823 45943 41710
Cost of Production(B) 394929633 44549 39197
Absorption [P/(L) as per
Cost Accounts]= (A-B)
6671190 1394 2513
Profitability as per absorption costs has decreased in subsequent years.
CALCULATION AND ANALYSIS OF PROFIT VOLUME RATIO A profit-volume ratio is one financial calculation used in operating a business to determine profitability and to make decisions about the future of the business. The profit-volume ratio, as it suggests, compares the profit earned based on the volume of your product sold and examines how the two figures relate at different values. The profit-volume ratio can help you determine at what size your business will be most profitable.
Cost Rate Per Unit (in rupees) White Printing Paper Tissue Paper
Change in Profit 1016-(-779)=1795 615-794=-179
Change in Sales 43597-37257=6340 45943-41710=4233
P/V ratio= Change in profit/change in sales
0.28 -0.04
The ratio shows a negative loss that is a loss in case of production of Tissue paper, whereas the white printing paper
shows a slight amount of growth in P/V ratio
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RECOMMENDATIONS
Reduce Labor Costs
If physical labor is the biggest expense in manufacturing your product, controlling labor costs will give you the quickest path to increased profits. Labor cost reductions can be generated by lowering the dollars paid to factory workers or by making workers more efficient. Although low-cost labor can be obtained by employing unskilled labor, another way to decrease labor costs is to improve the efficiency of experienced labor. Study all production practices to eliminate wasted steps in the process. Reduce the time required to produce an average unit by providing specialized training that allows employees to work at a faster pace. Offer incentives to employees who can introduce labor-saving techniques into your production facility.
Reduce Material Costs
When material costs dominate product expense, focus on ways to procure materials for less money or find ways to use less material in the building process. Purchase materials in large lots to drive down unit costs. Research and determine the right type of material required; if features are not vital to the function or quality of your goods, don’t pay for them. Provide documentation, training and proper tooling to reduce the amount of material scrapped during production. Deploy lean manufacturing initiatives such as like Six Sigma to evaluate opportunities for savings.
Reduce Overhead Costs
Monitor and control the expenses associated with running the factory – often referred to as overhead costs. Building, utility, supply, storage, handling, travel, supervisory and administrative costs all add to manufacturing costs. Set budgets for these support costs and review them on a weekly, monthly and yearly basis. Research purchase versus rental options for cost savings. Limit employee costs to those that benefit production or increase sales. Keep debt and interest expense as low as possible. Review and shop for the lowest employee benefit costs each year. Monitor tooling and supply costs, and keep them in a secure area to deter loss.
Invest in Capital
Sometimes the way to save money is to spend money. Investing in equipment that makes the manufacturing process faster can actually lower the production costs in the long run. Likewise, machinery that uses less material can also lower costs. However, it is imperative to thoroughly research potential capital investment benefits versus costs required before purchasing new equipment. Determine the return on investment by computing the gain from the investment less the cost of the investment divided by the cost of the investment.
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Process control and supply chain management
If profit margins are narrow, reduced manufacturing and supply chain costs can often be the difference between profit and loss.
Improve management of work in process Reduce inventory Optimize availability and use of production tools Minimize distribution of non-conforming products
Scalability, low cost, and easy deployment enable manufacturers to incorporate machine vision systems and industrial ID as part of the production process itself in order to catch and correct assembly errors before scrap is made, or reject flawed parts before adding value by further processing.
CONCLUSION
As we have seen, cost is a complex subject that reaches far beyond the individual budget of any given project. Different areas of the company use cost information in different ways, and the information must be formulated to suit the company area that it serves.
When project managers are planning a project, and in particular are creating a project budget, knowledge of the different kinds of costs that the project will incur is essential to successful budgeting. In addition, an understanding of overall cost at a particular company in a specific industry will help project managers create budgets that take cost into proper consideration and deliver winning results.
Cost accounting information is designed for managers. Since managers are taking decisions only for their own organization, there is no need for the information to be comparable to similar information from other organizations. Instead, the important criterion is that the information must be relevant to decisions that managers operating in a particular environment of business including strategy make. Cost accounting information is commonly used in financial accounting information, but first concentrating in its use by managers to make decisions
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BIBLIOGRAPHY
1. Annual Report of Rajkumar Mill
2. Management Accounting, 1/e by Paresh Shah
3. Management Accounting - Khan & Jain
4. http://www.smechamberofindia.com/
5. http://www.indiasmeforum.org/
6. http://msme.gov.in/
7. http://www.casbicwai.org/casb/index.asp
8. Principles of Cost Accounting, 16th ed. By Edward J. Vanderbeck