Description
In linear programming, reduced cost, or opportunity cost, is the amount by which an objective function coefficient would have to improve (so increase for maximization problem, decrease for minimization problem) before it would be possible for a corresponding variable to assume a positive value in the optimal solution.
ACKNOWLEDGEMENT
I am very grateful to Mr.Jitendrabahi Gajjar the Proprietor of Matrukrupa pattern industries for providing me an opportunity to complete my summer training in the Matrukrupa pattern industries. Besides him, I am gratefully acknowledges the encouragement, inspirational and valuable suggestion received from the following well-wishers:
1. Ravi Panchal M.B.A. (Finance) 2. Manoj Hirani B.E (Mechanical Engineering) 3. Jayesh Vaghela B Com, CA
Last but not the least, we would like to thank the entire staff of the company for their help & support and for excellent hospitality they extended to us during the project
--Kaustubh Patel
i
PREFACE
“Theory without Practice has no fruits Practice without theory has no fruits”
The proverb is enough to understand the interdependence of theory and practical on each other. Teaching gives on insight into the theoretical aspects of management, but implementation of theory gives practical knowledge of the management field. Knowledge in itself is a continuous process. Getting practical knowledge is an important thing for any student or firm to enter into the real world.
Working smarter seems to be as important as working harder and longer. Hence practical exposure at a Master of Business Administration level offers training in all business aspects. This practical training develops awareness among the management students about the difficulties and challenges in the real corporate world. Apart from this we gain many other benefits like developing our communication skills, understanding the changing business scenario and employees’ preferences.
The project report on „Costing and Cost Reduction Techniques? has also given us a chance to get along with team spirit, which is a prerequisite for completion of any project or task.
iv
EXECUTIVE SUMMARY
This project includes Costing and Cost reduction techniques at Matrukrupa Pattern Industries.
Currently I am doing Cost and management Accountant from Institute of cost and work accountant of India (ICAI) and in Second year of MBA I am taking Finance as specialization. I think Production and Finance are core functions in any manufacturing industry, I have taken book knowledge of these two functions and so as to get practical experience I have chosen manufacturing industry instead of any bank. Proprietor of Matrukrupa Industries, Mr. Jintendra B Gajjar has helped me in carrying out this project report.
In first week, I was observing various works carried out in the factory and become familiar with all the functions carried out in the business. After that I started preparing cost sheet and finally I had study the various areas of cost reduction and sort the areas where cost reduction can be made.
iii
OBJECTIVE OF THE PROJECT
1) To Study the Cost analysis of the Matrukrupa pattern industries: It has started producing different pattern module in the year 1990.Proprietor Jitendrabhai Gajjar has quoted price of pattern according to market price. It was necessary to study the cost of the product, as due to wrong quoted price. 2) To learn about various concept and terminology related with the costing field. 3) To learn about cost reduction techniques.
SCOPE OF THE PROJECT
1) Cost sheet will be useful for price restructuring. 2) To study different techniques of cost reduction.
LIMITATION OF THE PROJECT
1) Due to Time constraint it was not possible to study the all areas of cost reduction. 2) Limited Access to the Financial and Costing Numerical Data. 3) This project is prepared with a Perfect balance of Theory and practical knowledge of costing subject.
iv
IMPORTANCE OF COSTING IN THE TODAY’S INDUSTRIES
It is Imperative for the business Concerns engaged in the provisions of the various services and production of goods to continuously strives to reduce costs and enhance the quality of their goods or services so that the discerning customers can receive better intrinsic value for money. Since competitions, either domestic or global provides customers with a much wider choice than under conditions of monopoly/Semimonopoly, only those entities which enhance customer satisfaction and afford better value to customer can hope to hold on to or increase their market share. The emphasis of industry in general has very rightly turned to reduction in costs while improving the internal efficiencies and product quality. This focus has become essential in today?s globally competitive business environment, and particularly in the context of emerging economies, where greater market access is a direct effect of the cost factor. However, there is a miss-conception for the quite sometimes that quality and cost are indirectly related. The industry will have to practice to optimize the quality for the given cost and minimize the cost for a given quality. Strategic cost management has gained utmost importance in view of spiraling costs of inputs that go into manufacturing. This burden of rising cost coupled with the effect of reducing selling prices due to better technology, cut throat competitions etc. are squeezing sales value volume and/or profit margins. In the current scenario it become difficult in the industry to sustain and survive unless the industry. In time of trade depression, the costing information will help the management to know the areas where economies may be sought, wastage to be eliminated and efficiency to be increased. The cost accounting facilities distinction of cost in to Fixed cost and variable cost, which can be used to determine the prices in the period of trade depression, by selling the product even at the below the total cost. In the period of competition costing information provides sufficient ground in location of inefficiencies, wastage etc. to exercise cost control and cost reduction programmers. This will help in reduction of selling price to meet the trade competition. --Cost and management by Ravi M Kishore (4th edition, taxmann?s)
v
INDEX S No. Chapter Name
Acknowledgement Preface Executive Summary Project Details? Objective, ? Scope and ? Limitation Importance of costing in the today?s industries Conceptual Background ? Definition of Cost ? Definition of Costing ? Cost Reduction and Cost Control ? Areas to be covered by Cost Reduction Profile ? Basic Information ? Product and Services Portfolio ? Requirement/Use ? Quality Check ? Brief introduction to Products Cost Sheet ? Natural classification or costs ? Cost sheet of the Matrukrupa ? Overhead Absorbed ? Job Sheet of pattern 26966 ? Job Sheet of pattern 20488 ? Job Sheet of pattern 88402 Cost reduction program me ? Basic information ? Purchase management ? Production planning and control ? Quality assurance function Business Policy SWOT Analysis Conclusion and Recommendation Bibliography/Webography Annexure ? Key Term Used ? Feedback form
Page No.
i ii iii iv
v 1 1 2 3 6 7 8 8 9 15 16 17 18 19 20
1
2
3.
4.
21
22 24 25
5. 6. 7. 8. 9.
26 31 32 33
34 36
TABLE Table Name Table A:Cost Control v/s Cost Reduction Table B:Company Information Table C
roduct and Services Portfolio Table D:Cost Sheet Table E:Job Sheet of pattern 26966 Table F:Job Sheet of pattern 20488 Table G:Job Sheet of pattern 88402 Page No. 2 7 7 17 18 19 20
CONCEPTUAL BACKGROUND
Cost is a general term. It is measured in terms of money. Cost does not carry any meaning unless some explanatory word attached to it. Example: Production cost, Total cost etc. In other words cost means expenses to be incurred or likely to be incurred for a specific objective. Money cost therefore related to the expenditure by the firm on the factors of production which enables the firm to produce and sell the product.
Definition of “Cost”
Cost may be defined as 1) the amount of expenditure (actual or notional) incurred on or attributable to a given thing or 2) to ascertain the cost of a given thing. Cost represents the resources that have been or must be sacrificed to attain the particular objectives. Sacrifice may be direct or indirect. Thus, cost is the amount of resources used for something, which may be able to measure in term in money. --Workbook on Cost and Management Accounting by Ravi M
Kishore 2008 Thus, Cost can be defined as,
? Tangible product such as job component or product obtained from a process. ? Service such as Transport, repairs, research, etc. ? Function such as Production, Selling, Distribution, etc.
Definition of “Costing”
Costing involves in classification, recording, allocation, appropriation of expenses incurred to facilitate the determination of cost of product and services. It includes the ascertainment of every order, job order contract, process and service unit. --Workbook on Cost and Management Accounting by Ravi M Kishore 2008
1
Cost reduction:The process of looking for, finding and removing unwarranted expenses from a business to increase profits without having a negative impact on product quality. Many business managers will engage in periodic cost reduction drives in order to make their company's operation more efficient and to boost profits. -- http://www.businessdictionary.com/definition/costreduction.html Cost reduction should not confuse with Cost Control. Cost Control is the regulation of costs of operating a business is concerned with keeping expenditure within acceptable limits. The major assumption in cost Control is that unless costs exceed the budget or standard by an excessive amount the control of cost is satisfactory. Cost Control is a routine exercise, which almost concurrently carried out for attainment of operational efficiency. Cost Reduction brings real and preventive savings by continuous and planned research.
Cost Reduction V/S Cost Control Cost Control
Concerned with adhering as closely as possible to the set standards. Standards are taken to be the desired state of efficiency. Attempts to be guided by what is the lowest cost for the conditions which prevail. Is generally effective only when some form of standards can be set.
Cost Reduction
Concerned with genuine cost savings. Existing costs, including standards, are challenged in an effort to reduce them. Standards are regarded as yardsticks which can be improved upon. They are viewed with suspicion. Recognizes that the operations of accompany are dynamic in nature. For this reason changes in costs are expected Can be effective for all types of conditions. It is not limited to where standard costing can apply.
Table: A
2
Areas covered by cost reduction: Following are reduction techniques: the critical areas of application of various cost
DESIGN:-The design function offers management the greatest potential for cost reduction as the impact of any economies or cost reduction effected at this stage shall be felt throughout the manufacturing life of a product. In other words application of value analysis method at the designing stage itself would go a long way in maximizing the profits. But this does not mean that the design cost reduction should be restricted solely to new products only. In fact, it should include critical analysis for all products within the product range of the organization.
PRODUCTION PLANNING AND CONTROL: - Production Planning and control function is a very large area for cost reduction scrutiny. It covers planning, inventory control, material handling and usage, and production offering considerable scope of savings. The four principal components of cost are material, labor, overheads and capital. An efficient cost reduction plan should aim at reducing the per unit costs on these counts by examining the following pointsa) Whether wastage of manpower and material is kept to the minimum. b) Whether any scope is there for reducing idle capacity and increase in productivity. c) Whether efficient system of inventory, inspection and stock taking is there. d) Whether the incidence of stock losses due to pilferage, deterioration, obsolescence and other causes are at minimum. e) Whether the storage, location and other associated costs are kept to minimum and best method of production has been adopted. f) Whether p r o d u c t i o n s c h e d u l e c a n b e i m p r o v e d t o m a t c h d e l i v e r y schedule. g) Whether there is any scope for reduction in indirect materials and lab our costs. h) Whether there is any scope for reduction in overhead costs.
3
FACTORY LAYOUT AND EQUIPMENT: - an effective arrangement of plant and machinery is a fundamental requirement. A successful plant layout shall contain following featuresa) Optimum use of space. b) Effective built in flexibility. c) Efficient control of work flows with least disturbances. d) Minimum material handling. e) Minimum waste. f) Work satisfaction and enhanced productivity.
UTILITY SERVICES: - utility services include power, water, steam, repair and maintenance and transport etc. The following points of consideration can lead to effective cost reductiona) Whether the utilities are supplied at economic costs or whether there is scope for any further increase in utilization. b) Whether the proper system for preventive and curative maintenance is there. c) Whether wastage and other losses in distribution have been kept to minimum. d) Whether work flow and loading factor has received due attention.
MARKETING: -the marketing function may not lead itself so easily to cost reduction as other business functions. But a number of techniques do exist for reducing such costs and these can result in substantial savings for business. This function includes selling function and distribution function.There can be
considerable scope for comprehensive r e o r g a n i z a t i o n o f existing methods a n d substantial reductions in costs.
4
FINANCE: - the effective employment of capital in a business is of paramount importance. For example, the investment in the right machinery at the right time can yield significant cost advantages. Following points are relevant in this connection: a) Whether the methods of funding capital expenditure are cost effective. b) Whether capital is secured at economical cost; and c) Whether the capital is economically employed so as to give the maximum return.
Major difficulties in cost reduction:The Following are the major difficulties suffered by the organization while implementing Cost reduction strategy: 1. Resistance by the employees of the organization to pressure to reduce costs usually because the nature and the purpose of the campaign has not been properly explained to them and they feel threatened by the change. 2. Efforts to cut material and Labor cost may erode confidence in established system for estimating material usage and labor productivity standards. 3. Cost r e d u c t i o n s are c a m p a i g n s are o f t e n introduced as a r u s h e d , desperate measure instead of a carefully organized exercise. Cost Reduction Program me may demand attention of a number of experts from different fields. A cost Reduction committee may be formed with representative of major departments or divisions like marketing, production planning, purchases, etc. A cost or management accountants acts in the capacity of an interpretation and advisor. The committee studies principle phases programmed for Cost Reduction. It decides the areas of potential savings and determines the priorities and allocates assignments to appropriate staff. Cost Reduction is possible with the help of unit cost reduction by curtailing expenditure and by increasing the productivity.
5
PROFILE
Established in the year 1990, “Matrukrupa Pattern Industries”, are counted among the prominent manufacturers and suppliers of Pattern, Dies & Mold, Casting Products and Machining Services. Our product range includes Match Plate Pattern, Wooden Pattern, Co2 Core Molding Pattern, Shell Core Molding Pattern, Aluminum & Cast Iron Metal Pattern and Wooden Pattern For Rubber Hose. We also offer Gravity Casting Dies, Investment Casting Dies, Investment Casting Products and C. I & M. S Casting in the market. Fabricated with premium grade aluminum, cast iron, mild steel and wood, our products are appreciated for their dimensional accuracy, innovative designs, corrosion resistance and longer life. The world-class infrastructure and team of skilled personnel holding expertise in die & pattern making have enabled them to deliver high grade products in the market. The designs of the molds are created by an expert team of creative design engineers who use latest versions of various global software?s like delcam & I-deas for developing innovative models & futuristic designs. These professionals also emphasize on delivering unsurpassed quality in our products and services. Every product is offered in quality packaging and that too within the stipulated time-frame. Owing to these factors, they have been successfully acquired a huge client-base across the nation. Some of the esteemed clients are Tirupati Engineering ltd. They are headed under the able guidance of our owner, “Mr. Jitendra Gajjar”. Owing to his acute business acumen, sharp strategies and proficiency in every aspect of this domain, they have acquired a huge clientele in Gujarat.
6
Name Address
Matrukrupa Pattern Industries 86, Rameshwar Industrial Estate, Near Jay chemical, Odhav, Ahmedabad-382415 Mobile:9879596271 Office:079-22890818 [email protected] Supplier and Manufacturer 1990 Sole Proprietorship (Individual) Approx. 65 lakhs Up to 10 People 24072700043 DT.01/07/2002 24572700043 DT.14/10/2008 Table: B
Email Id. Business Type Year of Establishment Ownership Type Annual Turnover Total Number of Employees TIN GST NO. TIN CST NO.
Matrukrupa pattern Industries are engaged in manufacturing and supplying Pattern, Dies & Mold, Casting Products and Machining Services. Their products are manufactured using superior grade aluminum, cast iron, mild steel and wood, and latest machines & equipment. We also test the entire gamut on various quality parameters for assuring their performance, tensile strength, reliability, impact resistance and tolerance. Product and Services Portfolio Comprises: Pattern Match Plate Pattern Wooden Pattern Co2 Core Molding Pattern Shell Core Molding Pattern Aluminum& Cast Iron Metal Pattern Wooden Pattern For Rubber Hose Gravity Casting Dies Investment Casting Dies Investment Casting Products C. I & M. S Casting Machining Job Work Product Assembly Service
Dies & Mold Casting Services
Table: C
7
This helps us to cater to the requirements of numerous industries and OEMs such as:
? ? ? ? ? ? ? ? ? ? ? ?
Railways Automobiles Earth moving machinery Plastic toys industry Air compressors industry Hydroelectric power plants Defense equipment manufacturers Power transmission industry Food processing machines manufacturers Water & slurry pumps industry Valves & pipe fittings manufacturers Machine tool industry
Our range is checked on the basis of the following parameters:
? ? ? ?
Insect resistivity (wooden patterns] Termite proof (wooden patterns] Durability Efficiency Resistant to corrosion
8
Brief introduction to Products Aluminum & Cast Iron Metal Patterns
They are instrumental in offering in the market. Manufactured at par with the prevailing market trends, the products are extensively used in many industries. The range is also liked by many clients due to its durability and cost effectiveness. They can also customize this product as per the specification laid down by the clients.
9
Wooden Pattern
Innovation is the forte and they strive to design and develop a precision engineered range of Wooden Patterns. This product is broadly used in many industries for manufacturing pumps, gear boxes, impellers, rubber hose & jigs, filtration & refineries and vacuum pumps.
10
Shell Core Moulding Pattern
Shell molding, also known as shell-mold casting, is an expendable mold casting process that uses a resin covered sand to form the mold. As compared to sand casting, this process has better dimensional accuracy, a higher productivity rate, and lower labor requirements. It is used for small to medium parts that require high precision. They have gained expertise in delivering a quality range of Shell Core Molding Pattern. This flawless range is enough to exhibit the engineering excellence of our organization. Their product stands higher on various quality tests based on several parameters like corrosion resistance and durability. Fabricated using superior grade raw material, the products are widely used in many industrial applications.
11
Investment Casting Dies
They have emerged as a prominent manufacturer and supplier of Investment Casting Dies. This is widely used in different industries for fabricating variety of surgical items, valves and other industrial components with high accuracy.
12
Machining Job Work
They also undertake Machining Job Work that includes fabrication job, turning, shaping, grinding and welding. The experts use various advanced machines and tools like shaping, milling, surface grinding, cylindrical grinding, drilling tapping & welding for flawless accomplishment of the tasks. The service is widely demanded in engineering, automobile and many other industries.
13
Co2 Core Moulding Pattern
They have in our store a versatile collection of Co2 Core Molding Pattern. This product is widely used in automobile and many other industries for making different motor parts. Available in many specifications, the product have won the acclamation of many clients owing to its durability and efficiency.
14
COST SHEET
Cost is the amount of expenditure, actual (incurred) or notional (attributable), relating to a specific thing or activity. The specific thing or activity may be a product, job, service or any other activity.
Natural classification or costs:The term natural classification refers to the basic physical characteristics of the cost in a manufacturing concern, generally, the following costs are incurred: 1. Direct material: - direct materials refer to the cost of the materials which are conveniently and economically traceable to the specific units of output. 2. Direct lab our: - direct lab our is defined as the lab our of those workers who are engaged in the production process. It is the labour expended directly upon the materials comprising the finished product. 3. Direct expenses (chargeable expenses):- these include any expenditure other than direct materials and direct labour directly incurred on a specific product or job. Such special necessary expenses can be identified with product or job and are charged directly to the product as part of the prime cost. 4. Factory overhead: - factory overhead, also called manufacturing overhead or factory burden may be defined as the cost of indirect materials, indirect labour and indirect expenses. They are production supplies and other materials that cannot conveniently or economically be charged to a specific unit o f output. 5. Selling, distribution and administrative overheads : - Selling and distribution overheads usually begin with when factory costs end. Such expenses are incurred when the product is in saleable condition. It covers they cost of making the sales and delivering/ dispatching the products.
15
Cost Sheet of the Matrukrupa Pattern Industries Particulars Amount( `) (in’000000)
Direct Material O/P Stock Purchase Carriage Inward Less Closing Stock Direct Wages Prime Cost Factory Overhead Loose Tools Indirect Wages Electricity Repairs and Maintenance Depreciation on Machinery Total Factory Cost/Work Cost Administration overheads Rent Depreciation on offices and furniture Printing and Stationery Insurance Bank charges Legal and Audit fees Total Cost of Production Selling and Distribution Cost Cost of Sales Profit Sales
3.25 25 0.35 -2.75 25.85 10.65 36.5 0.2 0.72 3 0.75 4.5 9.17 45.67 1.8 0.21 0.045 0.26 0.012 0.15 2.477 48.147 0.54 48.687 13.553 62.24
Table: D
16
% of Factory Overhead to Direct Wages
Factory Overhead/Direct Wages =9.17/10.65*100 =86.10%
% of Administrative Overhead to Work Cost
Administrative Overhead/Work cost =2.477/45.67*100 =5.42% % of Selling and distribution Overhead to Work Cost Selling and distribution Overhead Overhead/Work cost =0.54/45.67*100 =1.18%
% of Profit to sales Profit/Sales =13.55/62.44 =21.77% % of Profit to Cost of Sale 13.55/48.68*100 =27.83%
17
Pattern Number:26966 Particulars Height Lenght Width Time taken Top 45mm 319mm 255mm 30min. Bottom 115mm 319mm 255mm 24 min.
Job Sheet of Pattern Number:26966 Particulars Direct Material Direct Wages Prime Cost Factory Overhead 86.10 % of Direct Wages Factory Cost/Work Cost Administration overheads 5.42% of Work Cost Cost of Production Selling and Distribution Cost 1.18% of Work Cost Cost of Sales Profit Sales Amount( `) (in'000) 1.63 4.87 6.50 4.19 10.69 0.58 11.27 0.13 11.39 3.17 14.56
Table: E
18
Pattern Number:20488 Particulars Height Lenght Width Time taken Top 25mm 570mm 820mm 55 min. Bottom 80mm 570mm 820 mm 50 min.
Cost Sheet of the Pattern Number:20488 Particulars Direct Material Direct Wages Prime Cost Factory Overhead 86.10 % of Direct Wages Factory Cost/Work Cost Administration overheads 5.42% of Work Cost Cost of Production Selling and Distribution Cost 1.18% of Work Cost Cost of Sales Profit Sales Amount( `) (in'000) 2.50 5.92 8.42 5.10 13.52 0.73 14.25 0.16 14.41 4.01 18.42
Table: F
19
Pattern Number:88402 Particulars Height Lenght Width Time taken Top 152mm 1620mm 1820mm 2.5 hrs Bottom 180mm 1620mm 1820mm 2.7 hrs
Cost Sheet of the Pattern Number:88402 Particulars Direct Material Direct Wages Prime Cost Factory Overhead 86.10 % of Direct Wages Factory Cost/Work Cost Administration overheads 5.42% of Work Cost Cost of Production Selling and Distribution Cost 1.18% of Work Cost Cost of Sales Profit Sales Amount( `) (in'000) 16.32 18.80 35.12 16.19 51.31 2.78 54.09 0.61 54.69 15.22 69.91
Table: G
20
COST REDUCTION PROGRAMME
Cost reduction Program me carried out in Matrukrupa pattern Industries consists of following functions. 1. Purchase function 2. Production planning and control 3. Marketing function 4. Stores management 5. Quality assurance function There are other functions which the firm is performing like finance function, human resource function but due to time constraint these functions are excluded from the cost reduction Program me.
The procedure of cost reduction Program me. I carried out is as follows:-
“For
few days I had tried to recognize the
operations
carried out in the particular function then see the various documents handled in the particular function and lastly point out the weak areas of the particular function.
”
21
PURCHASE MANAGEMENT
The main function of purchase department is purchasing the necessary Raw Material, tools and accessories, sundries required for the production. The objective of this function is to find out new vendor who will supply the required raw material as per the requirement at reasonable cost. The new vendor is selected on the basis of following three criteria:1. Cost 2. Quality 3. Service as per the schedule. Following are the supplementary criteria for selection:1. Inspection facilities available at the Vendor s end. 2. Vendor s customer base
Areas of cost reduction in purchasing: On the basis of the observations and discussion with the proprietor, purchase found following alternatives for bringing further reduction in the cost incurred in purchasing. Use of just in time concept: Matrukrupa pattern industries should follow the just in time concept. They can purchase the wood from the Ganesh Plywood located at the Naroda approx.1.5 Km away from the manufacturing unit. But some problems associated in adopting just in time are as follows1. Suppliers are spread over a long distance, so that it is difficult to procure required materials at the right time and at right quality. 2. Receipt of good may be of inferior quality due to lesser time taken to manufacture the required material. 3. There may be shortage of raw material due to time taken to manufacture and transportation.
22
Making contract with the supplier: This is the main area where Matrukrupa Pattern Industries should concentrate. The contract should include the assurance to the supplier that the company will not purchase the contracted material from the competitors of the supplier.
ABC Analysis ABC Analysis provides a tool for identifying those items that will make the largest impact on the firm s overall inventory cost performance when improved inventory control procedures are implemented. A perpetual inventory system, improvements in forecasting procedures, or a careful analysis of the order quantity and timing decisions for A items will provide a larger improvement in inventory cost performance than will similar efforts on the C items. Therefore, ABC analysis is often a useful first step in improving inventory performance. ABC analysis helps focus management attention on what is really
important. Managers concentrate on the vital few (the A items) and spend less time on the trivial many (the C items). A type items should have one or two supplier who can supply quality products at optimum cost and at minimum time. There are two other Analysis which can used for the same: VED Analysis and FSDN Analysis
The internet and vendor scheduling: The internet provides several ways in which manufacturing companies and their vendors can share information for the purpose of improving the timing and reliability of supplier deliveries. For manufacturing companies the use of
information technology can provide improvements such as quicker delivery response to clients, improved delivery reliability, and reductions in operating costs involving both purchasing staff cost and inventory. These improvements have also had an important effect on the national economy. Rapid response times are a result of technological advances. Increased usage of real time information, such as
computerized order tracking, enables business to know when demand is shifting and to instantly change output schedules, work shifts, inventory levels, and capital spending plans. In this way quick reflexes can be a key factor for organization s success.
23
PRODUCTION PLANNING AND CONTROL
Function of production planning and control are as follows The function of production planning and control is beginning with this function. It is the preparation of monthly plan of production. This production plan is based on the schedules provided by the clients, and based on minimum inventory of finished goods stock. In this how many parts to be manufactured are found out. Raw material includes study of raw material in hand and expected material from supplier on this basis job is selected for production. Customer requirement planning is concerned with marketing function for determining the production plans as per requirement of the clients. This also concerned with planning the job priorities.
The Sole Proprietor can himself learn the Designs of the pattern and reduce the cost to the great extent. This is because a huge cost is incurred on the design specification of the patterns. Besides this a small mistake in the designs specification may cost a huge amount. Thus a huge care must be taken
Attempt should be made in reducing the time involved in materials handling and inventory control. This is because a huge time is wasted in loading, shifting and carrying the heavy semi-finished and finished goods
24
QUALITY ASSURANCE FUNCTION
Quality assurance function is playing vital role in purchasing raw material and selling finished goods. Functions are as follows: 1. Inspection of incoming m a t e r i a l a nd comparing it with specified s i z e , quality and quantity. 2. A greater emphasizes should be provided on the designs
specification. 3. Inspection department with in the manufacturing units for the finished goods should be more efficient in the inspecting the Quality of the product.
AREAS OF COST REDUCTION: 1. Arrangement o f proper and efficient Godown will reduc e t h e extra expenditure incurred on raw materials wastage during monsoon season. 2. The receipt of any complaint from any Client affects name and reputation of the Business. The owner must visit there major client to solve the problems.
25
BUSINESS POLICY
Business policy is the study of the function and responsibilities of organization, the crucial problems that affect success in the total enterprise, and the decisions that determine the direction of the organization and shape its future.
1. The purpose of Business policy: - the viewpoint adopted in business policy is different from that adopted in the functional area courses. For instance a marketing problem is not viewed purely as a problem of marketing but as an organizational p r o b l e m . A course in business policy helps in understanding a business as a system consisting of number of sub-systems. Any action taken on any sub-system has an impact on other sub-systems, a n d on the system as whole. It is of vital importance for the top management in any organization to adopt such a systems approach to decision making. Business policy helps management generalist by avoiding the narrow to become a
perspective generally adopted by the
specialists, and to deal with business problems from the viewpoint of the senior management.
2. Environmental appraisal: - since environment influences an organization in multitudinous ways, it is of crucial importance to understand it.
2.1 market environment: - The market environment consists of the factors related to the groups and other organizations that compete with impact on an organizations markets and business. Some of the important factors are:2.1.1 Customer or client factors, such as, the needs, preferences, perceptions, attitudes, values, Clients. bargaining power, buying behavior and satisfaction of and have an
26
2.1.2 Product factors, such as, the demand, image, features, utility, function, design, life cycle, price, promotion, distribution, differentiation, and the availability of substitutes of products or services. 2.1.3 Marketing intermediary factors such as, levels and quality of customer s service, middlemen, distribution channels, logistics, costs, delivery systems, and financial intermediaries. 2.1.4 Competitor-related factors, such as, the different types of competitors, entry and exit of major competitors, nature of competition, and the relative strategic position of major competitors.
2.2 Technological Environment: Technological Environment consists of those factors that are related to the knowledge applied and the material and the machine used in the production of goods in services which have an impact on business of organization. Some of the important factors are:2.2.1 Sources of technology, like, company sources, external sources, and foreign sources; cost of technology acquisition; collaboration in and transfer of technology. 2.2.2 Technological development, stages of development, change and rate of change of technology, and research and development. 2.2.3 Impact of technology on human beings, the man-machine system, and the environmental effects of technology. 2.2.4 Communication and infrastructural technology in management. 2.3 supplier environment: The supplier environment consists of factors related to the cost, reliability, and availability of the factors of production or service that have an impact on the business of an organization. Some of the important factors are:2.3.1 Cost, availability and continuity of supply of raw
materials, subassemblies, parts and components.
27
2.3.2 Cost and availability of finance for implementing plans and projects. 2.3.3 Cost, reliability, and availability of energy used in production. 2.3.4 Cost and availability and dependability of human resource. 2.3.5 Cost and availability and existence of sources and means for the supply of plants and machinery, spare parts and after sales service. 2.3.6 Infrastructural s u p p o r t and ease of availability of the different factors of production, the bargaining power of suppliers, and the existence of substitutes.
2.4 Economic environment:The economic environment consists of macro-level factors related to the means of production and distribution of wealth which have an impact on the business of an organization. Some of the important factors are:2.4.1 The economic stage at which a country exists at a given point of time. 2.4.2 The economic structure adopted, such as, a capitalist, socialist or mixed economy. 2.4.3 Economic policies, such as, industrial, monetary and fiscal policies. 2.4.4 Economic planning, such as, five- year plans annual budgets.
28
3. Critical Success Factors:Critical success factors are those critical factors which will lead to success for their organizations. Critical success factors sometimes referred to as strategic factors for success, are those which are crucial for organizational success. When strategists consciously look for such factors and take them into consideration for strategic management, the y are likely to be more successful, while putting in relatively lesser effort. Some of the Critical Success Factors related to patterns goods are:3.1 Cost efficiency. 3.2 Product mix 3.3 Superior product quality. 3.4 low cost financial sources. 3.5 Regular availability of vital raw material in sufficient quantities.
4. Competitive advantage:If the firm has to compete in a market with other rival firms, one of the positioning approach may be to offer mass production and distributed through mass marketing there by resulting in low cost per unit. Other type positioning approach could be marketing relatively high priced
products of limited variety but intensely focused on identified customer groups who are willing to pay the higher price. These are produced through batch production and marketed through special distribution channels. What the firm should do is to differentiate its products on some tangible basis from what its rivals offered so that the clients purchase the products even at premium. 4.1 product quality 4.2 special features 4.3 After sales service Differentiation business strategy:When the competitive advantage of It lies in special features incorporated into the product/ service, which are demanded by the clients who are willing to pay for those, then the strategy adopted is the differentiation business strategy. The firm have
outperforms its competitors who are not able or willing to offer the special
29
features that it can and does. Clients prefer a differentiated product/ service when it offers them a utility that they value, and are willing to pay more for getting such a utility. A differentiated p r o d u c t or service stands apart in the market and is
distinguishable by the clients for its special features and attributes.
A differentiation firm can change a premium price for its products or services, gain additional clients who value differentiation, and command customer loyalty. Profits for the differentiator firm come from the difference in the premium price charged and the additional cost incurred in providing the differentiation. To the extent the firm is able to offer differentiation by maintaining a balance costs, it succeeds. between its price and
But it may fail if the clients are no longer interested in the
differentiated features, or are not willing to pay extra for such features. An illustrative list of measures that a differentiator firm can adopt is as below:4.1 It can incorporate features that offer utility for the clients and match their preferences. 4.2 It can incorporate features that lower the cost of running for the buyer in using the product/ service. 4.3 It can incorporate features that raise the performance of the product. 4.4 It can incorporate features that increase the buyer satisfaction in tangible or nontangible ways. 4.5 It can incorporate features that can offer the promise of a high quality of product/ service. 4.6 It can have a good expert who knows various drawing software like Auto CAD well and efficient.
30
SWOT Analysis
Strengths:
1) A well Equipped Infrastructure 2) Latest Technology 3) Good Business Image 4) Lower sales to Cash cycle
Weakness:
1) Recycling of defective products is not possible 2) Drawing of Product Specification involve huge cost 3) Higher Materials handling cost
Opportunities:
1) Large Potential market 2) Drawing of product open other options
Threats:
1) New Entrance due to high profit ratio 2) Government rules and regulation
31
Conclusion and Recommendation
There is good scope for cost reduction of patterns manufactured, which will ultimately increase the profits. Recommendations h a v e been given at that particular point, but in brief recommendations are as follows: 1) Price restructuring should be carried out. Due to increase in selling price, demand for the same has been decreased in this financial year. From cost sheet, cost of production can be known and selling price can be decided after adding fixed percentage of profit. 2) So as to achieve competitive advantage, product differentiation strategy should be adopted. 3) In materials function, techniques such as Just in time, contract with supplier, ABC analysis, vendor scheduling using internet medium. 4) Sole proprietor should learn the drawing design specification for the product which involves huge cost. 5) A proper attention should be given of pattern drawing and attempt should be made to avoid any mistake in drawing because it is not possible to recycle the wastage again. 6) Proper Inspection should be done for the finished goods pattern so that cost of carrying the defective patterns can be avoided.
We would finally like to conclude our project with high feeling of having gained enormous knowledge. This includes thanks giving not only to the valued cooperation of the company but also our professors who gave us such wonderful opportunity to learn so much about practical aspect of life.
32
Bibliography
1) Cost and management by Ravi M Kishore ( 4th edition,taxmann?s) 2) Workbook on Cost and Management Accounting by Ravi M Kishore 3) Basics of Cost Accounting by V.K.Saxena and C.D. Vahist 4) Cost and Management Accounting Module of ICAI ( Institute of Cost Accountant Of India)
Webography
1) http://www.scribd.com/doc/50786328/Project-Report-on-Costing-and-CostReduction 2) http://www.scribd.com/doc/54993661/Cost-Accounting-Project 3) http://www.techshristi.com/category/52/final-yearsummer-trainingprojects/start/5/15/ 4) http://catalogs.indiamart.com/manufacturers/moulds-dies-jig-fixtures.html
33
COSTING KEY TERMS USED IN PROJECT SOURCE: TAXMANN’S WORKBOOK ON COST AND MANAGEMENT ACCOUNTING BY RAVI M KISHORE 2008
(Some portion is edited only to cover the key term related to this project. Others term are excluded from it)
34
INTRODUCTION TO COST ACCOUNTING Cost It represents the resources that have been or must be sacrificed to attain a particular objective. Costing It involves in classification, recording, allocation, appropriation of expenses incurred to facilitate the determination of the cost of the product or service. Cost Accounting It deals with collection and analysis of relevant cost data for interpretation and presentation for managerial decision making. Cost Accountancy It is the application of accounting and costing principles, methods and techniques in the ascertainment of costs and the analysis of savings and/or excess as compared with previous experience or standards. Financial Accounting It aims to present „true and fair view? of the overall results of the transactions and events for the enterprise as a whole. It is more attached with reporting the results and position of business to persons and authorities other than management like government, creditors, investors, owners etc. Cost Accounting System It is a set of procedures used in refining raw data into usable information for management decision making, for ascertainment of cost of products and services and its profitability. COST CLASSIFICATION Cost Classification Costs may be classified into variety of ways, according to the decision needs of the management. Material Cost It is the cost of material of any nature used for the purpose of production of a product or service. Labour Cost It includes salaries and wages paid to permanent employees, temporary employees and also to employees of the contractor. Expenses These are costs other than material cost and labour cost which are incurred in any activity. Direct Costs These costs can be identified easily and indisputably with a unit of operation or costing unit or cost center. Direct Material It can be identified easily and indisputably with a unit of operation or costing unit or cost center. Direct Labour It is incurred on the employees who are engaged directly in making the product, their work can be identified clearly in the process of converting raw materials into finished product. Direct Expenses It refers to expenses that are specifically incurred and charged for specific job, process, service, cost unit or cost centre.
35
COST BEHAVIOUR Variable Cost It tends to vary in accordance with level of activity within relevant range. There is a linear relationship between volume and variable costs and variable cost per unit is constant. Fixed Cost It tends to be unaffected by changes in the level of activity during a given period of time. There is an inverse relationship between volume and fixed cost per unit. Semi-variable Cost It is neither perfectly variable nor perfectly fixed in relation to changes in volume. They change in same direction but not in direct proportion thereto. JOB COSTING Job Costing It is a form of Specific Order Costing which is applied where work is undertaken to the specific requirement of the customers and each job takes a small duration of its completion. OVERHEADS ACCOUNTING Direct Expenses These expenses are also called as „chargeable expenses? which are specifically incurred and charged for a specific job, process, unit, centre etc. The direct expenses are forming part of prime cost. Indirect Costs The indirect costs cannot be allocated but which can be apportioned to costs centers or cost units. Indirect Material It is the cost of materials used to further the manufacturing process which cannot be traced into the end product. Indirect Labour It consists of all salaries and wages paid to the staff for the purpose of carrying out tasks incidental to goods or services provided which will not be taken as direct labour cost. Indirect Expenses These expenses are incurred by the organization in carrying out their total business activities and cannot be conveniently allocated to job, process, cost unit or cost center. Overheads It includes indirect material, indirect labour, indirect expenses which cannot be conveniently identified or allocated to any specific job, process. Production Cost It includes all indirect materials, indirect labour and indirect expenses concerned with manufacturing activity which starts with supply of materials and ends with primary packing of the product. Administration Cost It is incurred for policy formulation and its implementation to attain the objectives of the organization. Selling Cost It refers to the cost of activities relating to create and stimulate demand for company?s products to secure orders.
36
doc_404275428.pdf
In linear programming, reduced cost, or opportunity cost, is the amount by which an objective function coefficient would have to improve (so increase for maximization problem, decrease for minimization problem) before it would be possible for a corresponding variable to assume a positive value in the optimal solution.
ACKNOWLEDGEMENT
I am very grateful to Mr.Jitendrabahi Gajjar the Proprietor of Matrukrupa pattern industries for providing me an opportunity to complete my summer training in the Matrukrupa pattern industries. Besides him, I am gratefully acknowledges the encouragement, inspirational and valuable suggestion received from the following well-wishers:
1. Ravi Panchal M.B.A. (Finance) 2. Manoj Hirani B.E (Mechanical Engineering) 3. Jayesh Vaghela B Com, CA
Last but not the least, we would like to thank the entire staff of the company for their help & support and for excellent hospitality they extended to us during the project
--Kaustubh Patel
i
PREFACE
“Theory without Practice has no fruits Practice without theory has no fruits”
The proverb is enough to understand the interdependence of theory and practical on each other. Teaching gives on insight into the theoretical aspects of management, but implementation of theory gives practical knowledge of the management field. Knowledge in itself is a continuous process. Getting practical knowledge is an important thing for any student or firm to enter into the real world.
Working smarter seems to be as important as working harder and longer. Hence practical exposure at a Master of Business Administration level offers training in all business aspects. This practical training develops awareness among the management students about the difficulties and challenges in the real corporate world. Apart from this we gain many other benefits like developing our communication skills, understanding the changing business scenario and employees’ preferences.
The project report on „Costing and Cost Reduction Techniques? has also given us a chance to get along with team spirit, which is a prerequisite for completion of any project or task.
iv
EXECUTIVE SUMMARY
This project includes Costing and Cost reduction techniques at Matrukrupa Pattern Industries.
Currently I am doing Cost and management Accountant from Institute of cost and work accountant of India (ICAI) and in Second year of MBA I am taking Finance as specialization. I think Production and Finance are core functions in any manufacturing industry, I have taken book knowledge of these two functions and so as to get practical experience I have chosen manufacturing industry instead of any bank. Proprietor of Matrukrupa Industries, Mr. Jintendra B Gajjar has helped me in carrying out this project report.
In first week, I was observing various works carried out in the factory and become familiar with all the functions carried out in the business. After that I started preparing cost sheet and finally I had study the various areas of cost reduction and sort the areas where cost reduction can be made.
iii
OBJECTIVE OF THE PROJECT
1) To Study the Cost analysis of the Matrukrupa pattern industries: It has started producing different pattern module in the year 1990.Proprietor Jitendrabhai Gajjar has quoted price of pattern according to market price. It was necessary to study the cost of the product, as due to wrong quoted price. 2) To learn about various concept and terminology related with the costing field. 3) To learn about cost reduction techniques.
SCOPE OF THE PROJECT
1) Cost sheet will be useful for price restructuring. 2) To study different techniques of cost reduction.
LIMITATION OF THE PROJECT
1) Due to Time constraint it was not possible to study the all areas of cost reduction. 2) Limited Access to the Financial and Costing Numerical Data. 3) This project is prepared with a Perfect balance of Theory and practical knowledge of costing subject.
iv
IMPORTANCE OF COSTING IN THE TODAY’S INDUSTRIES
It is Imperative for the business Concerns engaged in the provisions of the various services and production of goods to continuously strives to reduce costs and enhance the quality of their goods or services so that the discerning customers can receive better intrinsic value for money. Since competitions, either domestic or global provides customers with a much wider choice than under conditions of monopoly/Semimonopoly, only those entities which enhance customer satisfaction and afford better value to customer can hope to hold on to or increase their market share. The emphasis of industry in general has very rightly turned to reduction in costs while improving the internal efficiencies and product quality. This focus has become essential in today?s globally competitive business environment, and particularly in the context of emerging economies, where greater market access is a direct effect of the cost factor. However, there is a miss-conception for the quite sometimes that quality and cost are indirectly related. The industry will have to practice to optimize the quality for the given cost and minimize the cost for a given quality. Strategic cost management has gained utmost importance in view of spiraling costs of inputs that go into manufacturing. This burden of rising cost coupled with the effect of reducing selling prices due to better technology, cut throat competitions etc. are squeezing sales value volume and/or profit margins. In the current scenario it become difficult in the industry to sustain and survive unless the industry. In time of trade depression, the costing information will help the management to know the areas where economies may be sought, wastage to be eliminated and efficiency to be increased. The cost accounting facilities distinction of cost in to Fixed cost and variable cost, which can be used to determine the prices in the period of trade depression, by selling the product even at the below the total cost. In the period of competition costing information provides sufficient ground in location of inefficiencies, wastage etc. to exercise cost control and cost reduction programmers. This will help in reduction of selling price to meet the trade competition. --Cost and management by Ravi M Kishore (4th edition, taxmann?s)
v
INDEX S No. Chapter Name
Acknowledgement Preface Executive Summary Project Details? Objective, ? Scope and ? Limitation Importance of costing in the today?s industries Conceptual Background ? Definition of Cost ? Definition of Costing ? Cost Reduction and Cost Control ? Areas to be covered by Cost Reduction Profile ? Basic Information ? Product and Services Portfolio ? Requirement/Use ? Quality Check ? Brief introduction to Products Cost Sheet ? Natural classification or costs ? Cost sheet of the Matrukrupa ? Overhead Absorbed ? Job Sheet of pattern 26966 ? Job Sheet of pattern 20488 ? Job Sheet of pattern 88402 Cost reduction program me ? Basic information ? Purchase management ? Production planning and control ? Quality assurance function Business Policy SWOT Analysis Conclusion and Recommendation Bibliography/Webography Annexure ? Key Term Used ? Feedback form
Page No.
i ii iii iv
v 1 1 2 3 6 7 8 8 9 15 16 17 18 19 20
1
2
3.
4.
21
22 24 25
5. 6. 7. 8. 9.
26 31 32 33
34 36
TABLE Table Name Table A:Cost Control v/s Cost Reduction Table B:Company Information Table C
roduct and Services Portfolio Table D:Cost Sheet Table E:Job Sheet of pattern 26966 Table F:Job Sheet of pattern 20488 Table G:Job Sheet of pattern 88402 Page No. 2 7 7 17 18 19 20CONCEPTUAL BACKGROUND
Cost is a general term. It is measured in terms of money. Cost does not carry any meaning unless some explanatory word attached to it. Example: Production cost, Total cost etc. In other words cost means expenses to be incurred or likely to be incurred for a specific objective. Money cost therefore related to the expenditure by the firm on the factors of production which enables the firm to produce and sell the product.
Definition of “Cost”
Cost may be defined as 1) the amount of expenditure (actual or notional) incurred on or attributable to a given thing or 2) to ascertain the cost of a given thing. Cost represents the resources that have been or must be sacrificed to attain the particular objectives. Sacrifice may be direct or indirect. Thus, cost is the amount of resources used for something, which may be able to measure in term in money. --Workbook on Cost and Management Accounting by Ravi M
Kishore 2008 Thus, Cost can be defined as,
? Tangible product such as job component or product obtained from a process. ? Service such as Transport, repairs, research, etc. ? Function such as Production, Selling, Distribution, etc.
Definition of “Costing”
Costing involves in classification, recording, allocation, appropriation of expenses incurred to facilitate the determination of cost of product and services. It includes the ascertainment of every order, job order contract, process and service unit. --Workbook on Cost and Management Accounting by Ravi M Kishore 2008
1
Cost reduction:The process of looking for, finding and removing unwarranted expenses from a business to increase profits without having a negative impact on product quality. Many business managers will engage in periodic cost reduction drives in order to make their company's operation more efficient and to boost profits. -- http://www.businessdictionary.com/definition/costreduction.html Cost reduction should not confuse with Cost Control. Cost Control is the regulation of costs of operating a business is concerned with keeping expenditure within acceptable limits. The major assumption in cost Control is that unless costs exceed the budget or standard by an excessive amount the control of cost is satisfactory. Cost Control is a routine exercise, which almost concurrently carried out for attainment of operational efficiency. Cost Reduction brings real and preventive savings by continuous and planned research.
Cost Reduction V/S Cost Control Cost Control
Concerned with adhering as closely as possible to the set standards. Standards are taken to be the desired state of efficiency. Attempts to be guided by what is the lowest cost for the conditions which prevail. Is generally effective only when some form of standards can be set.
Cost Reduction
Concerned with genuine cost savings. Existing costs, including standards, are challenged in an effort to reduce them. Standards are regarded as yardsticks which can be improved upon. They are viewed with suspicion. Recognizes that the operations of accompany are dynamic in nature. For this reason changes in costs are expected Can be effective for all types of conditions. It is not limited to where standard costing can apply.
Table: A
2
Areas covered by cost reduction: Following are reduction techniques: the critical areas of application of various cost
DESIGN:-The design function offers management the greatest potential for cost reduction as the impact of any economies or cost reduction effected at this stage shall be felt throughout the manufacturing life of a product. In other words application of value analysis method at the designing stage itself would go a long way in maximizing the profits. But this does not mean that the design cost reduction should be restricted solely to new products only. In fact, it should include critical analysis for all products within the product range of the organization.
PRODUCTION PLANNING AND CONTROL: - Production Planning and control function is a very large area for cost reduction scrutiny. It covers planning, inventory control, material handling and usage, and production offering considerable scope of savings. The four principal components of cost are material, labor, overheads and capital. An efficient cost reduction plan should aim at reducing the per unit costs on these counts by examining the following pointsa) Whether wastage of manpower and material is kept to the minimum. b) Whether any scope is there for reducing idle capacity and increase in productivity. c) Whether efficient system of inventory, inspection and stock taking is there. d) Whether the incidence of stock losses due to pilferage, deterioration, obsolescence and other causes are at minimum. e) Whether the storage, location and other associated costs are kept to minimum and best method of production has been adopted. f) Whether p r o d u c t i o n s c h e d u l e c a n b e i m p r o v e d t o m a t c h d e l i v e r y schedule. g) Whether there is any scope for reduction in indirect materials and lab our costs. h) Whether there is any scope for reduction in overhead costs.
3
FACTORY LAYOUT AND EQUIPMENT: - an effective arrangement of plant and machinery is a fundamental requirement. A successful plant layout shall contain following featuresa) Optimum use of space. b) Effective built in flexibility. c) Efficient control of work flows with least disturbances. d) Minimum material handling. e) Minimum waste. f) Work satisfaction and enhanced productivity.
UTILITY SERVICES: - utility services include power, water, steam, repair and maintenance and transport etc. The following points of consideration can lead to effective cost reductiona) Whether the utilities are supplied at economic costs or whether there is scope for any further increase in utilization. b) Whether the proper system for preventive and curative maintenance is there. c) Whether wastage and other losses in distribution have been kept to minimum. d) Whether work flow and loading factor has received due attention.
MARKETING: -the marketing function may not lead itself so easily to cost reduction as other business functions. But a number of techniques do exist for reducing such costs and these can result in substantial savings for business. This function includes selling function and distribution function.There can be
considerable scope for comprehensive r e o r g a n i z a t i o n o f existing methods a n d substantial reductions in costs.
4
FINANCE: - the effective employment of capital in a business is of paramount importance. For example, the investment in the right machinery at the right time can yield significant cost advantages. Following points are relevant in this connection: a) Whether the methods of funding capital expenditure are cost effective. b) Whether capital is secured at economical cost; and c) Whether the capital is economically employed so as to give the maximum return.
Major difficulties in cost reduction:The Following are the major difficulties suffered by the organization while implementing Cost reduction strategy: 1. Resistance by the employees of the organization to pressure to reduce costs usually because the nature and the purpose of the campaign has not been properly explained to them and they feel threatened by the change. 2. Efforts to cut material and Labor cost may erode confidence in established system for estimating material usage and labor productivity standards. 3. Cost r e d u c t i o n s are c a m p a i g n s are o f t e n introduced as a r u s h e d , desperate measure instead of a carefully organized exercise. Cost Reduction Program me may demand attention of a number of experts from different fields. A cost Reduction committee may be formed with representative of major departments or divisions like marketing, production planning, purchases, etc. A cost or management accountants acts in the capacity of an interpretation and advisor. The committee studies principle phases programmed for Cost Reduction. It decides the areas of potential savings and determines the priorities and allocates assignments to appropriate staff. Cost Reduction is possible with the help of unit cost reduction by curtailing expenditure and by increasing the productivity.
5
PROFILE
Established in the year 1990, “Matrukrupa Pattern Industries”, are counted among the prominent manufacturers and suppliers of Pattern, Dies & Mold, Casting Products and Machining Services. Our product range includes Match Plate Pattern, Wooden Pattern, Co2 Core Molding Pattern, Shell Core Molding Pattern, Aluminum & Cast Iron Metal Pattern and Wooden Pattern For Rubber Hose. We also offer Gravity Casting Dies, Investment Casting Dies, Investment Casting Products and C. I & M. S Casting in the market. Fabricated with premium grade aluminum, cast iron, mild steel and wood, our products are appreciated for their dimensional accuracy, innovative designs, corrosion resistance and longer life. The world-class infrastructure and team of skilled personnel holding expertise in die & pattern making have enabled them to deliver high grade products in the market. The designs of the molds are created by an expert team of creative design engineers who use latest versions of various global software?s like delcam & I-deas for developing innovative models & futuristic designs. These professionals also emphasize on delivering unsurpassed quality in our products and services. Every product is offered in quality packaging and that too within the stipulated time-frame. Owing to these factors, they have been successfully acquired a huge client-base across the nation. Some of the esteemed clients are Tirupati Engineering ltd. They are headed under the able guidance of our owner, “Mr. Jitendra Gajjar”. Owing to his acute business acumen, sharp strategies and proficiency in every aspect of this domain, they have acquired a huge clientele in Gujarat.
6
Name Address
Matrukrupa Pattern Industries 86, Rameshwar Industrial Estate, Near Jay chemical, Odhav, Ahmedabad-382415 Mobile:9879596271 Office:079-22890818 [email protected] Supplier and Manufacturer 1990 Sole Proprietorship (Individual) Approx. 65 lakhs Up to 10 People 24072700043 DT.01/07/2002 24572700043 DT.14/10/2008 Table: B
Email Id. Business Type Year of Establishment Ownership Type Annual Turnover Total Number of Employees TIN GST NO. TIN CST NO.
Matrukrupa pattern Industries are engaged in manufacturing and supplying Pattern, Dies & Mold, Casting Products and Machining Services. Their products are manufactured using superior grade aluminum, cast iron, mild steel and wood, and latest machines & equipment. We also test the entire gamut on various quality parameters for assuring their performance, tensile strength, reliability, impact resistance and tolerance. Product and Services Portfolio Comprises: Pattern Match Plate Pattern Wooden Pattern Co2 Core Molding Pattern Shell Core Molding Pattern Aluminum& Cast Iron Metal Pattern Wooden Pattern For Rubber Hose Gravity Casting Dies Investment Casting Dies Investment Casting Products C. I & M. S Casting Machining Job Work Product Assembly Service
Dies & Mold Casting Services
Table: C
7
This helps us to cater to the requirements of numerous industries and OEMs such as:
? ? ? ? ? ? ? ? ? ? ? ?
Railways Automobiles Earth moving machinery Plastic toys industry Air compressors industry Hydroelectric power plants Defense equipment manufacturers Power transmission industry Food processing machines manufacturers Water & slurry pumps industry Valves & pipe fittings manufacturers Machine tool industry
Our range is checked on the basis of the following parameters:
? ? ? ?
Insect resistivity (wooden patterns] Termite proof (wooden patterns] Durability Efficiency Resistant to corrosion
8
Brief introduction to Products Aluminum & Cast Iron Metal Patterns
They are instrumental in offering in the market. Manufactured at par with the prevailing market trends, the products are extensively used in many industries. The range is also liked by many clients due to its durability and cost effectiveness. They can also customize this product as per the specification laid down by the clients.
9
Wooden Pattern
Innovation is the forte and they strive to design and develop a precision engineered range of Wooden Patterns. This product is broadly used in many industries for manufacturing pumps, gear boxes, impellers, rubber hose & jigs, filtration & refineries and vacuum pumps.
10
Shell Core Moulding Pattern
Shell molding, also known as shell-mold casting, is an expendable mold casting process that uses a resin covered sand to form the mold. As compared to sand casting, this process has better dimensional accuracy, a higher productivity rate, and lower labor requirements. It is used for small to medium parts that require high precision. They have gained expertise in delivering a quality range of Shell Core Molding Pattern. This flawless range is enough to exhibit the engineering excellence of our organization. Their product stands higher on various quality tests based on several parameters like corrosion resistance and durability. Fabricated using superior grade raw material, the products are widely used in many industrial applications.
11
Investment Casting Dies
They have emerged as a prominent manufacturer and supplier of Investment Casting Dies. This is widely used in different industries for fabricating variety of surgical items, valves and other industrial components with high accuracy.
12
Machining Job Work
They also undertake Machining Job Work that includes fabrication job, turning, shaping, grinding and welding. The experts use various advanced machines and tools like shaping, milling, surface grinding, cylindrical grinding, drilling tapping & welding for flawless accomplishment of the tasks. The service is widely demanded in engineering, automobile and many other industries.
13
Co2 Core Moulding Pattern
They have in our store a versatile collection of Co2 Core Molding Pattern. This product is widely used in automobile and many other industries for making different motor parts. Available in many specifications, the product have won the acclamation of many clients owing to its durability and efficiency.
14
COST SHEET
Cost is the amount of expenditure, actual (incurred) or notional (attributable), relating to a specific thing or activity. The specific thing or activity may be a product, job, service or any other activity.
Natural classification or costs:The term natural classification refers to the basic physical characteristics of the cost in a manufacturing concern, generally, the following costs are incurred: 1. Direct material: - direct materials refer to the cost of the materials which are conveniently and economically traceable to the specific units of output. 2. Direct lab our: - direct lab our is defined as the lab our of those workers who are engaged in the production process. It is the labour expended directly upon the materials comprising the finished product. 3. Direct expenses (chargeable expenses):- these include any expenditure other than direct materials and direct labour directly incurred on a specific product or job. Such special necessary expenses can be identified with product or job and are charged directly to the product as part of the prime cost. 4. Factory overhead: - factory overhead, also called manufacturing overhead or factory burden may be defined as the cost of indirect materials, indirect labour and indirect expenses. They are production supplies and other materials that cannot conveniently or economically be charged to a specific unit o f output. 5. Selling, distribution and administrative overheads : - Selling and distribution overheads usually begin with when factory costs end. Such expenses are incurred when the product is in saleable condition. It covers they cost of making the sales and delivering/ dispatching the products.
15
Cost Sheet of the Matrukrupa Pattern Industries Particulars Amount( `) (in’000000)
Direct Material O/P Stock Purchase Carriage Inward Less Closing Stock Direct Wages Prime Cost Factory Overhead Loose Tools Indirect Wages Electricity Repairs and Maintenance Depreciation on Machinery Total Factory Cost/Work Cost Administration overheads Rent Depreciation on offices and furniture Printing and Stationery Insurance Bank charges Legal and Audit fees Total Cost of Production Selling and Distribution Cost Cost of Sales Profit Sales
3.25 25 0.35 -2.75 25.85 10.65 36.5 0.2 0.72 3 0.75 4.5 9.17 45.67 1.8 0.21 0.045 0.26 0.012 0.15 2.477 48.147 0.54 48.687 13.553 62.24
Table: D
16
% of Factory Overhead to Direct Wages
Factory Overhead/Direct Wages =9.17/10.65*100 =86.10%
% of Administrative Overhead to Work Cost
Administrative Overhead/Work cost =2.477/45.67*100 =5.42% % of Selling and distribution Overhead to Work Cost Selling and distribution Overhead Overhead/Work cost =0.54/45.67*100 =1.18%
% of Profit to sales Profit/Sales =13.55/62.44 =21.77% % of Profit to Cost of Sale 13.55/48.68*100 =27.83%
17
Pattern Number:26966 Particulars Height Lenght Width Time taken Top 45mm 319mm 255mm 30min. Bottom 115mm 319mm 255mm 24 min.
Job Sheet of Pattern Number:26966 Particulars Direct Material Direct Wages Prime Cost Factory Overhead 86.10 % of Direct Wages Factory Cost/Work Cost Administration overheads 5.42% of Work Cost Cost of Production Selling and Distribution Cost 1.18% of Work Cost Cost of Sales Profit Sales Amount( `) (in'000) 1.63 4.87 6.50 4.19 10.69 0.58 11.27 0.13 11.39 3.17 14.56
Table: E
18
Pattern Number:20488 Particulars Height Lenght Width Time taken Top 25mm 570mm 820mm 55 min. Bottom 80mm 570mm 820 mm 50 min.
Cost Sheet of the Pattern Number:20488 Particulars Direct Material Direct Wages Prime Cost Factory Overhead 86.10 % of Direct Wages Factory Cost/Work Cost Administration overheads 5.42% of Work Cost Cost of Production Selling and Distribution Cost 1.18% of Work Cost Cost of Sales Profit Sales Amount( `) (in'000) 2.50 5.92 8.42 5.10 13.52 0.73 14.25 0.16 14.41 4.01 18.42
Table: F
19
Pattern Number:88402 Particulars Height Lenght Width Time taken Top 152mm 1620mm 1820mm 2.5 hrs Bottom 180mm 1620mm 1820mm 2.7 hrs
Cost Sheet of the Pattern Number:88402 Particulars Direct Material Direct Wages Prime Cost Factory Overhead 86.10 % of Direct Wages Factory Cost/Work Cost Administration overheads 5.42% of Work Cost Cost of Production Selling and Distribution Cost 1.18% of Work Cost Cost of Sales Profit Sales Amount( `) (in'000) 16.32 18.80 35.12 16.19 51.31 2.78 54.09 0.61 54.69 15.22 69.91
Table: G
20
COST REDUCTION PROGRAMME
Cost reduction Program me carried out in Matrukrupa pattern Industries consists of following functions. 1. Purchase function 2. Production planning and control 3. Marketing function 4. Stores management 5. Quality assurance function There are other functions which the firm is performing like finance function, human resource function but due to time constraint these functions are excluded from the cost reduction Program me.
The procedure of cost reduction Program me. I carried out is as follows:-
“For
few days I had tried to recognize the
operations
carried out in the particular function then see the various documents handled in the particular function and lastly point out the weak areas of the particular function.
”
21
PURCHASE MANAGEMENT
The main function of purchase department is purchasing the necessary Raw Material, tools and accessories, sundries required for the production. The objective of this function is to find out new vendor who will supply the required raw material as per the requirement at reasonable cost. The new vendor is selected on the basis of following three criteria:1. Cost 2. Quality 3. Service as per the schedule. Following are the supplementary criteria for selection:1. Inspection facilities available at the Vendor s end. 2. Vendor s customer base
Areas of cost reduction in purchasing: On the basis of the observations and discussion with the proprietor, purchase found following alternatives for bringing further reduction in the cost incurred in purchasing. Use of just in time concept: Matrukrupa pattern industries should follow the just in time concept. They can purchase the wood from the Ganesh Plywood located at the Naroda approx.1.5 Km away from the manufacturing unit. But some problems associated in adopting just in time are as follows1. Suppliers are spread over a long distance, so that it is difficult to procure required materials at the right time and at right quality. 2. Receipt of good may be of inferior quality due to lesser time taken to manufacture the required material. 3. There may be shortage of raw material due to time taken to manufacture and transportation.
22
Making contract with the supplier: This is the main area where Matrukrupa Pattern Industries should concentrate. The contract should include the assurance to the supplier that the company will not purchase the contracted material from the competitors of the supplier.
ABC Analysis ABC Analysis provides a tool for identifying those items that will make the largest impact on the firm s overall inventory cost performance when improved inventory control procedures are implemented. A perpetual inventory system, improvements in forecasting procedures, or a careful analysis of the order quantity and timing decisions for A items will provide a larger improvement in inventory cost performance than will similar efforts on the C items. Therefore, ABC analysis is often a useful first step in improving inventory performance. ABC analysis helps focus management attention on what is really
important. Managers concentrate on the vital few (the A items) and spend less time on the trivial many (the C items). A type items should have one or two supplier who can supply quality products at optimum cost and at minimum time. There are two other Analysis which can used for the same: VED Analysis and FSDN Analysis
The internet and vendor scheduling: The internet provides several ways in which manufacturing companies and their vendors can share information for the purpose of improving the timing and reliability of supplier deliveries. For manufacturing companies the use of
information technology can provide improvements such as quicker delivery response to clients, improved delivery reliability, and reductions in operating costs involving both purchasing staff cost and inventory. These improvements have also had an important effect on the national economy. Rapid response times are a result of technological advances. Increased usage of real time information, such as
computerized order tracking, enables business to know when demand is shifting and to instantly change output schedules, work shifts, inventory levels, and capital spending plans. In this way quick reflexes can be a key factor for organization s success.
23
PRODUCTION PLANNING AND CONTROL
Function of production planning and control are as follows The function of production planning and control is beginning with this function. It is the preparation of monthly plan of production. This production plan is based on the schedules provided by the clients, and based on minimum inventory of finished goods stock. In this how many parts to be manufactured are found out. Raw material includes study of raw material in hand and expected material from supplier on this basis job is selected for production. Customer requirement planning is concerned with marketing function for determining the production plans as per requirement of the clients. This also concerned with planning the job priorities.
The Sole Proprietor can himself learn the Designs of the pattern and reduce the cost to the great extent. This is because a huge cost is incurred on the design specification of the patterns. Besides this a small mistake in the designs specification may cost a huge amount. Thus a huge care must be taken
Attempt should be made in reducing the time involved in materials handling and inventory control. This is because a huge time is wasted in loading, shifting and carrying the heavy semi-finished and finished goods
24
QUALITY ASSURANCE FUNCTION
Quality assurance function is playing vital role in purchasing raw material and selling finished goods. Functions are as follows: 1. Inspection of incoming m a t e r i a l a nd comparing it with specified s i z e , quality and quantity. 2. A greater emphasizes should be provided on the designs
specification. 3. Inspection department with in the manufacturing units for the finished goods should be more efficient in the inspecting the Quality of the product.
AREAS OF COST REDUCTION: 1. Arrangement o f proper and efficient Godown will reduc e t h e extra expenditure incurred on raw materials wastage during monsoon season. 2. The receipt of any complaint from any Client affects name and reputation of the Business. The owner must visit there major client to solve the problems.
25
BUSINESS POLICY
Business policy is the study of the function and responsibilities of organization, the crucial problems that affect success in the total enterprise, and the decisions that determine the direction of the organization and shape its future.
1. The purpose of Business policy: - the viewpoint adopted in business policy is different from that adopted in the functional area courses. For instance a marketing problem is not viewed purely as a problem of marketing but as an organizational p r o b l e m . A course in business policy helps in understanding a business as a system consisting of number of sub-systems. Any action taken on any sub-system has an impact on other sub-systems, a n d on the system as whole. It is of vital importance for the top management in any organization to adopt such a systems approach to decision making. Business policy helps management generalist by avoiding the narrow to become a
perspective generally adopted by the
specialists, and to deal with business problems from the viewpoint of the senior management.
2. Environmental appraisal: - since environment influences an organization in multitudinous ways, it is of crucial importance to understand it.
2.1 market environment: - The market environment consists of the factors related to the groups and other organizations that compete with impact on an organizations markets and business. Some of the important factors are:2.1.1 Customer or client factors, such as, the needs, preferences, perceptions, attitudes, values, Clients. bargaining power, buying behavior and satisfaction of and have an
26
2.1.2 Product factors, such as, the demand, image, features, utility, function, design, life cycle, price, promotion, distribution, differentiation, and the availability of substitutes of products or services. 2.1.3 Marketing intermediary factors such as, levels and quality of customer s service, middlemen, distribution channels, logistics, costs, delivery systems, and financial intermediaries. 2.1.4 Competitor-related factors, such as, the different types of competitors, entry and exit of major competitors, nature of competition, and the relative strategic position of major competitors.
2.2 Technological Environment: Technological Environment consists of those factors that are related to the knowledge applied and the material and the machine used in the production of goods in services which have an impact on business of organization. Some of the important factors are:2.2.1 Sources of technology, like, company sources, external sources, and foreign sources; cost of technology acquisition; collaboration in and transfer of technology. 2.2.2 Technological development, stages of development, change and rate of change of technology, and research and development. 2.2.3 Impact of technology on human beings, the man-machine system, and the environmental effects of technology. 2.2.4 Communication and infrastructural technology in management. 2.3 supplier environment: The supplier environment consists of factors related to the cost, reliability, and availability of the factors of production or service that have an impact on the business of an organization. Some of the important factors are:2.3.1 Cost, availability and continuity of supply of raw
materials, subassemblies, parts and components.
27
2.3.2 Cost and availability of finance for implementing plans and projects. 2.3.3 Cost, reliability, and availability of energy used in production. 2.3.4 Cost and availability and dependability of human resource. 2.3.5 Cost and availability and existence of sources and means for the supply of plants and machinery, spare parts and after sales service. 2.3.6 Infrastructural s u p p o r t and ease of availability of the different factors of production, the bargaining power of suppliers, and the existence of substitutes.
2.4 Economic environment:The economic environment consists of macro-level factors related to the means of production and distribution of wealth which have an impact on the business of an organization. Some of the important factors are:2.4.1 The economic stage at which a country exists at a given point of time. 2.4.2 The economic structure adopted, such as, a capitalist, socialist or mixed economy. 2.4.3 Economic policies, such as, industrial, monetary and fiscal policies. 2.4.4 Economic planning, such as, five- year plans annual budgets.
28
3. Critical Success Factors:Critical success factors are those critical factors which will lead to success for their organizations. Critical success factors sometimes referred to as strategic factors for success, are those which are crucial for organizational success. When strategists consciously look for such factors and take them into consideration for strategic management, the y are likely to be more successful, while putting in relatively lesser effort. Some of the Critical Success Factors related to patterns goods are:3.1 Cost efficiency. 3.2 Product mix 3.3 Superior product quality. 3.4 low cost financial sources. 3.5 Regular availability of vital raw material in sufficient quantities.
4. Competitive advantage:If the firm has to compete in a market with other rival firms, one of the positioning approach may be to offer mass production and distributed through mass marketing there by resulting in low cost per unit. Other type positioning approach could be marketing relatively high priced
products of limited variety but intensely focused on identified customer groups who are willing to pay the higher price. These are produced through batch production and marketed through special distribution channels. What the firm should do is to differentiate its products on some tangible basis from what its rivals offered so that the clients purchase the products even at premium. 4.1 product quality 4.2 special features 4.3 After sales service Differentiation business strategy:When the competitive advantage of It lies in special features incorporated into the product/ service, which are demanded by the clients who are willing to pay for those, then the strategy adopted is the differentiation business strategy. The firm have
outperforms its competitors who are not able or willing to offer the special
29
features that it can and does. Clients prefer a differentiated product/ service when it offers them a utility that they value, and are willing to pay more for getting such a utility. A differentiated p r o d u c t or service stands apart in the market and is
distinguishable by the clients for its special features and attributes.
A differentiation firm can change a premium price for its products or services, gain additional clients who value differentiation, and command customer loyalty. Profits for the differentiator firm come from the difference in the premium price charged and the additional cost incurred in providing the differentiation. To the extent the firm is able to offer differentiation by maintaining a balance costs, it succeeds. between its price and
But it may fail if the clients are no longer interested in the
differentiated features, or are not willing to pay extra for such features. An illustrative list of measures that a differentiator firm can adopt is as below:4.1 It can incorporate features that offer utility for the clients and match their preferences. 4.2 It can incorporate features that lower the cost of running for the buyer in using the product/ service. 4.3 It can incorporate features that raise the performance of the product. 4.4 It can incorporate features that increase the buyer satisfaction in tangible or nontangible ways. 4.5 It can incorporate features that can offer the promise of a high quality of product/ service. 4.6 It can have a good expert who knows various drawing software like Auto CAD well and efficient.
30
SWOT Analysis
Strengths:
1) A well Equipped Infrastructure 2) Latest Technology 3) Good Business Image 4) Lower sales to Cash cycle
Weakness:
1) Recycling of defective products is not possible 2) Drawing of Product Specification involve huge cost 3) Higher Materials handling cost
Opportunities:
1) Large Potential market 2) Drawing of product open other options
Threats:
1) New Entrance due to high profit ratio 2) Government rules and regulation
31
Conclusion and Recommendation
There is good scope for cost reduction of patterns manufactured, which will ultimately increase the profits. Recommendations h a v e been given at that particular point, but in brief recommendations are as follows: 1) Price restructuring should be carried out. Due to increase in selling price, demand for the same has been decreased in this financial year. From cost sheet, cost of production can be known and selling price can be decided after adding fixed percentage of profit. 2) So as to achieve competitive advantage, product differentiation strategy should be adopted. 3) In materials function, techniques such as Just in time, contract with supplier, ABC analysis, vendor scheduling using internet medium. 4) Sole proprietor should learn the drawing design specification for the product which involves huge cost. 5) A proper attention should be given of pattern drawing and attempt should be made to avoid any mistake in drawing because it is not possible to recycle the wastage again. 6) Proper Inspection should be done for the finished goods pattern so that cost of carrying the defective patterns can be avoided.
We would finally like to conclude our project with high feeling of having gained enormous knowledge. This includes thanks giving not only to the valued cooperation of the company but also our professors who gave us such wonderful opportunity to learn so much about practical aspect of life.
32
Bibliography
1) Cost and management by Ravi M Kishore ( 4th edition,taxmann?s) 2) Workbook on Cost and Management Accounting by Ravi M Kishore 3) Basics of Cost Accounting by V.K.Saxena and C.D. Vahist 4) Cost and Management Accounting Module of ICAI ( Institute of Cost Accountant Of India)
Webography
1) http://www.scribd.com/doc/50786328/Project-Report-on-Costing-and-CostReduction 2) http://www.scribd.com/doc/54993661/Cost-Accounting-Project 3) http://www.techshristi.com/category/52/final-yearsummer-trainingprojects/start/5/15/ 4) http://catalogs.indiamart.com/manufacturers/moulds-dies-jig-fixtures.html
33
COSTING KEY TERMS USED IN PROJECT SOURCE: TAXMANN’S WORKBOOK ON COST AND MANAGEMENT ACCOUNTING BY RAVI M KISHORE 2008
(Some portion is edited only to cover the key term related to this project. Others term are excluded from it)
34
INTRODUCTION TO COST ACCOUNTING Cost It represents the resources that have been or must be sacrificed to attain a particular objective. Costing It involves in classification, recording, allocation, appropriation of expenses incurred to facilitate the determination of the cost of the product or service. Cost Accounting It deals with collection and analysis of relevant cost data for interpretation and presentation for managerial decision making. Cost Accountancy It is the application of accounting and costing principles, methods and techniques in the ascertainment of costs and the analysis of savings and/or excess as compared with previous experience or standards. Financial Accounting It aims to present „true and fair view? of the overall results of the transactions and events for the enterprise as a whole. It is more attached with reporting the results and position of business to persons and authorities other than management like government, creditors, investors, owners etc. Cost Accounting System It is a set of procedures used in refining raw data into usable information for management decision making, for ascertainment of cost of products and services and its profitability. COST CLASSIFICATION Cost Classification Costs may be classified into variety of ways, according to the decision needs of the management. Material Cost It is the cost of material of any nature used for the purpose of production of a product or service. Labour Cost It includes salaries and wages paid to permanent employees, temporary employees and also to employees of the contractor. Expenses These are costs other than material cost and labour cost which are incurred in any activity. Direct Costs These costs can be identified easily and indisputably with a unit of operation or costing unit or cost center. Direct Material It can be identified easily and indisputably with a unit of operation or costing unit or cost center. Direct Labour It is incurred on the employees who are engaged directly in making the product, their work can be identified clearly in the process of converting raw materials into finished product. Direct Expenses It refers to expenses that are specifically incurred and charged for specific job, process, service, cost unit or cost centre.
35
COST BEHAVIOUR Variable Cost It tends to vary in accordance with level of activity within relevant range. There is a linear relationship between volume and variable costs and variable cost per unit is constant. Fixed Cost It tends to be unaffected by changes in the level of activity during a given period of time. There is an inverse relationship between volume and fixed cost per unit. Semi-variable Cost It is neither perfectly variable nor perfectly fixed in relation to changes in volume. They change in same direction but not in direct proportion thereto. JOB COSTING Job Costing It is a form of Specific Order Costing which is applied where work is undertaken to the specific requirement of the customers and each job takes a small duration of its completion. OVERHEADS ACCOUNTING Direct Expenses These expenses are also called as „chargeable expenses? which are specifically incurred and charged for a specific job, process, unit, centre etc. The direct expenses are forming part of prime cost. Indirect Costs The indirect costs cannot be allocated but which can be apportioned to costs centers or cost units. Indirect Material It is the cost of materials used to further the manufacturing process which cannot be traced into the end product. Indirect Labour It consists of all salaries and wages paid to the staff for the purpose of carrying out tasks incidental to goods or services provided which will not be taken as direct labour cost. Indirect Expenses These expenses are incurred by the organization in carrying out their total business activities and cannot be conveniently allocated to job, process, cost unit or cost center. Overheads It includes indirect material, indirect labour, indirect expenses which cannot be conveniently identified or allocated to any specific job, process. Production Cost It includes all indirect materials, indirect labour and indirect expenses concerned with manufacturing activity which starts with supply of materials and ends with primary packing of the product. Administration Cost It is incurred for policy formulation and its implementation to attain the objectives of the organization. Selling Cost It refers to the cost of activities relating to create and stimulate demand for company?s products to secure orders.
36
doc_404275428.pdf