Description
Presentation to Study current cost structure of a company and suggest changes if required and to identify different cost pools and cost drivers, to propose a activity based cost model.
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Introduction Objective Company Background Manufacturing Process Current Cost Structure Activity Based Cost Structure Analysis Recommendation Questions & Feedback
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Cost
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Value of money used to produce something Alternative given up as a result of a decision Ex. Acquiring another company Types
? ? ? ? ? ? ? Accounting Cost Opportunity Cost Private Cost External Cost Variable and Fixed Cost Sunk Cost Product Cost
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Cost Accounting
? Budget and actual cost of operation, processes,
departments or products ? Analysis of profit, variances or social use of fund ? Types
? ? ? ? ? ? Standardized or Standard Cost Accounting Lean accounting Activity-based Costing Resource Consumption Accounting Throughput Accounting Marginal Costing / Cost-Volume-Profit Analysis
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Classical Cost Elements
? Raw Material ? Direct ? Indirect ? Labor ? Direct ? Indirect ? Overheads
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Traditional Costing System
? Overhead divided on the basis of ? Predetermined overhead rates ? Number of Units produced
?
Activity Based Costing
? Identifies activities in an organization ? Assigns overhead as per actual consumption
? Overhead divided into cost pools
? Cost pools associated with cost drivers ? Different cost pools can have different or same
cost drivers
?
? ?
To study to the cost structure of a manufacturing company To identify different cost pools and cost drivers To propose a activity based cost model
?
? ?
?
? ?
?
Shoe Manufacturing Firm Based Out of Ghaziabad Monopolistically Competitive Market Price Taker Start Up - Expanding Initial Investment – Rs. 6 Million Two Products
? P.T Shoe ? Jungle Shoe
?
?
Purchase of Raw Material Hiring Contract Labor
? Stitching
? Sole Fabrication
? ?
?
Production Process Inspection and Packaging Delivery
?
Raw Material
? P.T Shoe – Rs.20 per pair ? Jungle Shoe – Rs.30 per pair
?
Direct Labor
? P.T Shoe – Rs.5 per pair ? Jungle Shoe – Rs.6 per pair
?
Overhead Cost
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Overhead Cost per month = Rs.62500
Overhead Include
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Supervisor, guard, driver, housekeeper salaries Electricity bills Generator Operating cost Delivery cost Communication cost Machine Depreciation Maintenance & Miscellaneous cost
Total Overhead Cost (In '000 Rs.)
5 5 5 5 1 30 Indirect Labour Electricity Bills
Generator Operating Cost
Delivery Cost Communication Cost Inspection Cost Machine Depriciation 7.5 3 1 Maintenance Miscellaneous Cost
? ? ?
Traditional Costing System Overhead driver – Labor Hour Labor Hour per lot
? P.T Shoe – 100 ? Jungle Shoe - 125
? ? ? ?
Each Product produced in lot of 100 piece Cost of P.T Shoe – Rs.39 Cost of Jungle Shoe – Rs.53.50 For detailed breakup, Click Here
60 50 40 30 20 10 0 P.T Shoe Jungle Shoe OverHead Cost Labour Cost Raw Material Cost
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? ? ?
?
Overheads are a significant percentage of the product cost Total Overhead Cost is divided into 9 cost pools Total Monthly Overhead Cost = Rs.62500 Monthly Raw Material Cost = Rs.100000 Monthly Labor Cost = Rs.22000
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? ?
?
? ?
?
? ?
Indirect Labour Cost Electricity Cost Generator Operating Cost Communication Cost Machine Depreciation Maintenance Cost Inspection Cost Miscellaneous Cost Delivery Cost
?
? ?
?
Labor Hours Machine Hours Number of Units Produced Number of Delivery
Cost Pool
Indirect Labour Cost Electricity Cost Generator Operating Cost Communication Cost Machine Depreciation Inspection Cost
Cost Driver
Labour Hours/No. Of Units Machine Hours Machine Hours No. Of Units Machine Hour Number Of Delivery
Maintenance Cost Miscellaneous Cost Delivery Cost
No. Of Units No. Of Units Number Of Delivery
?
?
Click Here for the complete cost analysis
The Cost of each product after ABC
? P.T Shoe – Rs.41
? Jungle Shoe – Rs.52
Cost Breakup - P.T Shoe (in Rs.)
Raw Material 20 5
Direct Labour
Indirect Labour Electricity Generator Operating 6.67 Communication Machine Depreciation Maintenance
2.5
1.25
1.67 1.25 1.14 0.25
0.69 0.23
Inspection
Miscellaneous
Cost Breakup - Jungle Shoe (in Rs.)
30 Raw Material
Direct Labour
Indirect Labour Electricity Generator Operating 6 Communication Machine Depreciation Maintenance
1.25
8.33
1.25 0.83
1.25
Inspection
Miscellaneous
1.36 0.27 0.81 0.25
?
Selling Price
? P.T Shoe – Rs. 45 ? Jungle Shoe – Rs.60
?
Cost before ABC
? P.T Shoe – Rs.39 ? Jungle Shoe – Rs.53.50
?
Profit Margin before ABC
? P.T Shoe – 15.4% ? Jungle Shoe – 12.1%
?
Cost post ABC
? P.T Shoe – Rs.41 ? Jungle Shoe – Rs.52
?
Profit Margin post ABC
? P.T Shoe – 9.7% ? Jungle Shoe – 15.8%
?
Jungle Shoe became more profitable
?
ABC presents a better picture of cost allocation Activity Based Cost Accounting
?
doc_901487922.pptx
Presentation to Study current cost structure of a company and suggest changes if required and to identify different cost pools and cost drivers, to propose a activity based cost model.
?
? ?
?
? ?
?
? ?
Introduction Objective Company Background Manufacturing Process Current Cost Structure Activity Based Cost Structure Analysis Recommendation Questions & Feedback
?
Cost
? ? ? ?
Value of money used to produce something Alternative given up as a result of a decision Ex. Acquiring another company Types
? ? ? ? ? ? ? Accounting Cost Opportunity Cost Private Cost External Cost Variable and Fixed Cost Sunk Cost Product Cost
?
Cost Accounting
? Budget and actual cost of operation, processes,
departments or products ? Analysis of profit, variances or social use of fund ? Types
? ? ? ? ? ? Standardized or Standard Cost Accounting Lean accounting Activity-based Costing Resource Consumption Accounting Throughput Accounting Marginal Costing / Cost-Volume-Profit Analysis
?
Classical Cost Elements
? Raw Material ? Direct ? Indirect ? Labor ? Direct ? Indirect ? Overheads
?
Traditional Costing System
? Overhead divided on the basis of ? Predetermined overhead rates ? Number of Units produced
?
Activity Based Costing
? Identifies activities in an organization ? Assigns overhead as per actual consumption
? Overhead divided into cost pools
? Cost pools associated with cost drivers ? Different cost pools can have different or same
cost drivers
?
? ?
To study to the cost structure of a manufacturing company To identify different cost pools and cost drivers To propose a activity based cost model
?
? ?
?
? ?
?
Shoe Manufacturing Firm Based Out of Ghaziabad Monopolistically Competitive Market Price Taker Start Up - Expanding Initial Investment – Rs. 6 Million Two Products
? P.T Shoe ? Jungle Shoe
?
?
Purchase of Raw Material Hiring Contract Labor
? Stitching
? Sole Fabrication
? ?
?
Production Process Inspection and Packaging Delivery
?
Raw Material
? P.T Shoe – Rs.20 per pair ? Jungle Shoe – Rs.30 per pair
?
Direct Labor
? P.T Shoe – Rs.5 per pair ? Jungle Shoe – Rs.6 per pair
?
Overhead Cost
?
?
Overhead Cost per month = Rs.62500
Overhead Include
? ? ? ? ? ? ?
Supervisor, guard, driver, housekeeper salaries Electricity bills Generator Operating cost Delivery cost Communication cost Machine Depreciation Maintenance & Miscellaneous cost
Total Overhead Cost (In '000 Rs.)
5 5 5 5 1 30 Indirect Labour Electricity Bills
Generator Operating Cost
Delivery Cost Communication Cost Inspection Cost Machine Depriciation 7.5 3 1 Maintenance Miscellaneous Cost
? ? ?
Traditional Costing System Overhead driver – Labor Hour Labor Hour per lot
? P.T Shoe – 100 ? Jungle Shoe - 125
? ? ? ?
Each Product produced in lot of 100 piece Cost of P.T Shoe – Rs.39 Cost of Jungle Shoe – Rs.53.50 For detailed breakup, Click Here
60 50 40 30 20 10 0 P.T Shoe Jungle Shoe OverHead Cost Labour Cost Raw Material Cost
?
? ? ?
?
Overheads are a significant percentage of the product cost Total Overhead Cost is divided into 9 cost pools Total Monthly Overhead Cost = Rs.62500 Monthly Raw Material Cost = Rs.100000 Monthly Labor Cost = Rs.22000
?
? ?
?
? ?
?
? ?
Indirect Labour Cost Electricity Cost Generator Operating Cost Communication Cost Machine Depreciation Maintenance Cost Inspection Cost Miscellaneous Cost Delivery Cost
?
? ?
?
Labor Hours Machine Hours Number of Units Produced Number of Delivery
Cost Pool
Indirect Labour Cost Electricity Cost Generator Operating Cost Communication Cost Machine Depreciation Inspection Cost
Cost Driver
Labour Hours/No. Of Units Machine Hours Machine Hours No. Of Units Machine Hour Number Of Delivery
Maintenance Cost Miscellaneous Cost Delivery Cost
No. Of Units No. Of Units Number Of Delivery
?
?
Click Here for the complete cost analysis
The Cost of each product after ABC
? P.T Shoe – Rs.41
? Jungle Shoe – Rs.52
Cost Breakup - P.T Shoe (in Rs.)
Raw Material 20 5
Direct Labour
Indirect Labour Electricity Generator Operating 6.67 Communication Machine Depreciation Maintenance
2.5
1.25
1.67 1.25 1.14 0.25
0.69 0.23
Inspection
Miscellaneous
Cost Breakup - Jungle Shoe (in Rs.)
30 Raw Material
Direct Labour
Indirect Labour Electricity Generator Operating 6 Communication Machine Depreciation Maintenance
1.25
8.33
1.25 0.83
1.25
Inspection
Miscellaneous
1.36 0.27 0.81 0.25
?
Selling Price
? P.T Shoe – Rs. 45 ? Jungle Shoe – Rs.60
?
Cost before ABC
? P.T Shoe – Rs.39 ? Jungle Shoe – Rs.53.50
?
Profit Margin before ABC
? P.T Shoe – 15.4% ? Jungle Shoe – 12.1%
?
Cost post ABC
? P.T Shoe – Rs.41 ? Jungle Shoe – Rs.52
?
Profit Margin post ABC
? P.T Shoe – 9.7% ? Jungle Shoe – 15.8%
?
Jungle Shoe became more profitable
?
ABC presents a better picture of cost allocation Activity Based Cost Accounting
?
doc_901487922.pptx