Professional Documents
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Cost Analysis
Cost Analysis
EXECUTIVE SUMMARY
The Nirani sugar mill was originally established as a khandasri sugar factory of 1250 TCD in the year 1997-98. Subsequently making use of the govt of Indias liberalized policy. Govt of India notification DCS /S/ 14/ 97 dated 2-6-98, which conversion of khandasri sugar unit into vacuum pan sugar factories.
Cost accounting is an old as the human being itself. Since the financial accounting has some limitation. Cost accounting has its own importance being an important category of accounting system.
The cost accounting system is very helpful to sugar industry. After adopting cost accounting every business must analyze it cost accounting system very care fully
Material, labour, over heads are the main elements of the Nirani Sugars Ltd. These elements play very important role in the organization. The company giving more importance to this on the other hand well trained labour force working towards the company objectives.
Various records are maintained by Nirani Sugars Ltd and each department has its own cost records. During my project there is improper maintains of cost records by company.
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The study of Cost Analysis of sugar industry with special reference to Nirani Sugars Ltd Mudhol: Introduction of cost accounting
We have entered into an area of liberalization the development process has opened the doors of economy and in globalised economic environment it is necessary to protect the interest of consumers, investor, company and the country as a hole. In a liberalized economy, there is no role of traditional management in corporate world now only the professional management is required to control of the costs of the present day origination
Modern area is called the industrial area. Every where there is vast developing in the field of industry. On account of the development of the industries, the modern industries require minimum cost of production and such as maximization of profits. For this purpose, they depend on the financial statements such as trading profits and loss account and balance sheet but these financial statements give information as whole. It means the entire industry is treated as one unit. It is difficult task to locate the errors.
Cost account is recent development. It is the branch of financial accounting. It maintains the records unit wise, process wise, job wise, department wise. At the end, we can easily control are help in reduction of costs by preparation of the statements unit wise or job wise. So cost accounting is developed basically to remove the limitation of financial accounting
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Sources of data 1. primary data 2. secondary data Primary data: Is collecting through interview of financial departmental heads
Secondary data:
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INDUSTRY PROFILE
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COST ANALYSIS NIRANI SUGARS LTD, There are 566 installed sugar mills in the country as on March 31st 2005, with a Production capacity of 180 lacks Mts of sugar, of which only 453 are working. These mills are located in 18 states of the country.
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production consumption
Sugar Prices:
World sugar prices fell steadily from 1994-1995 till 1998-1999 and have been almost stable at those levels. The trend seems to have now reversed and refined sugar prices have increased by 30% in the last 5 quarters from 9.16 cents per pound in January, 2004 to 12.02 cents in March,2005 Services). (Source: USDA Foreign Agriculture
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Sugarcane occupies about 2.7% of the total cultivated area and it is one of the most important cash crops in the country. The area under sugarcane gradually increased from 2.7 million hectares in 1980-81 to 4.3 million hectares in 2002-03, mainly because of much larger diversion of land from other crops to sugarcane by the farmers for economic reasons. The sugarcane area, however, declined in the year 2003-04 to 3.9 million hectares and to 3.7 million hectares in 2004-05, mainly due to drought and pest attacks. From a
level of 154 MMT in 1980-1981, the sugarcane production increased to 241 MMT in 1990-1991 and further to 296 MMT in 2000-2001. Since then, it has been hovering around 300 MMT until last year. In the season 2003-2004, however, sugarcane production declined to 236 MMT mainly due to drought and pest attacks. Not only sugarcane acreage and sugarcane production has been increasing, even drawl of sugarcane by the sugar industry has also been increasing over the years. In India, sugarcane is utilized by sugar mills as well as by traditional sweeteners like guru and khandsari producers. However, the diversion of sugarcane to guru and khandsari is lower in states of Maharashtra and Karnataka, as compared to Northern states like UP.
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SUGARCANE UTILIZATION
Table no#3 % Sugarcane utilization for Year 1980-1981 1990-1991 2000-2001 2001-2002 2002-2003 2003-2004 White Sugar 33.4 50.7 59.7 57.4 68.9 56.1 Guru and Khandsari Seed, feed and chewing 54.8 37.4 28.8 31.5 20.1 32.5 11.8 11.8 11.5 11.1 11.1 11.4
Sugar Production:
Most of the sugar in India is manufactured and sold as White Crystal Sugar which is produced by Double Suspiration Process, while the norm in developd and emerging nations is refined sugar, which is produced by the Phosphoflotation Process. Most of the mills in India are not equipped to make refined sugar Mills which are designed to produce refined sugar can manufacture sugar not only from sugarcane but also from raw sugar which can be imported. Therefore, such mills can run their production all the year round, as opposed to single state mills, which are dependent upon the seasonal supply of sugarcane.
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Conclusion
India is a largest consumer of sugar in the world and second largest manufacturer of sugar followed by China, USA, Thailand, Germany, and Pakistan. In the sugar industry the top position is Brazil as it is a world largest manufacturer of sugar. As seeing the consumption of sugar the India is having a big market for sugar industry. As it is a large-scale industry it provides large profit for the country and it can also be helpful for development of industrial infrastructure. India is a worlds largest consumer and second largest manufacturing of sugar so the sugar must be cheaper. It can be provide by our sugar industry.
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COMPANY PROFILE
Name of the company : M/S Nirani Sugars Ltd Kulali road MUDHOL Dist: Bagalkot M/s Nirani Sugars Lokapur road MUDHOL At: Bijapur Muragesh .R. Nirani Sole trading concern Registered under companies Act of 1956 Auditor of company M/s Bhattad & Company K.S.I.I. D.C K.S.F.C Sangli Bank Jamakhandi S.B.I. Mudhol Branch Indian Bank Lokapur Gramen bank of mudhol
Register Office
Branch Office Managing Director Status of the company Constitution of the firm
: : : :
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COST ANALYSIS NIRANI SUGARS LTD, 5. The cogeneration of power permits generation of surplus power, which is encashable and thus helps augmentation of income to the industry substantially on a sustained basis. The profitability of the cogeneration plant increases with increase in the size of the plant. Bigger cogeneration plants are feasible only with bigger sugar mills, either as forward integration or with back up support for fuel. 6. The market and the price for the power produced is assured as the surplus power so generated is under written by KPTCL through power purchase Agreement. The govt of Karnataka also shares the aforesaid viewpoint & encourages cogeneration of power by sugar factories using bagasse as a fuel. In support of this, the govt has announced a capital subsidy of Rs. 25 lakhs per MW of surplus power, for such cogen projects. 7. In fact NSL has already entered into an agreement with TATA power trading company Ltd. For sale of power at a price of Rs3.61 per unit. 8. To match the sugar mill expansion from 5000 TCD to 10000 TCD, NSL proposes to double its cogeneration capacity also from 16MW to 48MW.
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LOCATION:Name of the company : M/S NIRINI SUGARS LTD Sy no-166 near kulali cross Jamkhandi Road Mudhol 587313. Register no : 9840/96
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2.
Proper co-ordination and co-operating among its members. To manufacture good quality sugars and its by products with the help of the members who supply sugarcane raw material.
3.
4.
5.
To inculcate modern techniques and methods of cultivation and To Supply seeds machines for the farmers.
6.
7.
Utilization of raw material to the maximum level to get by Products like Molasses and to market them at proper rates.
8.
To undertake such other activities are incidental and conductive to the development of the society.
9. 10. 11.
Maintain continuous improvement programs in Technology. Help farmers to increase there yield through research & development. To produce good quality sugar at acceptable prices to meet the increasing demand
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PRODUCT PROFILE
The factory produces about 184400 Tones of plantation crystal white sugar. As per statute from Govt of India the sugar can be packed in 100 Kg net Gunny bags and 50 Kg net Polythene bags. As per the Indian sugar standards the sugar can be graded in 3 grades by size and color namely L, M, S (size) and 29, 30 (color). The factory envisages producing M30 and s30 grades. The storage of sugar will be done in a warehouse built in masonry and roofed with AC sheets. The size of the warehouse will be suitable to store about 50% of a seasons production.
The molasses which is a by product, is a highly viscous liquid. The total production of molasses in a season will be about 40,480 Tone. Two steel storage tanks of capacity 4000 tone each will be added. This can accommodate about 2 months production. As the demand for molasses is high, it is proposed to sell the molasses to distilleries as raw material to produce alcohol.
Beside the finished goods and molasses storage space is required for Bagasse, ash and filter mud. Adequate open will be provided for these in the factory for easy and smooth working of the factory.
Main Product- White Crystal Sugar: The main product of the sugar manufacturing process is white crystal sugar. This white crystal sugar is manufactured in the following 3 grades: 1) L-30 [Large size sugar] 2) M-30 [Medium size sugar] 3) S1-30 [small size sugar]
By-Products of Sugar Cane: The sugar mill produces many by-products along with sugar. A typical sugarcane comprising of 3000 ton capacity can produce 345 on of sugar, 6000 liters alcohol, 3 tons of yeast, 15 tons of potash fertilizer, 25 ton of press mud fertilizer and 750 KW of power from bagasse.
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1. MOLASSES: Molasses is the final effluent obtained in the preparation of sugar by repeated crystallization. Molasses is the brown colored residue after sugar has been tracted from the juice. Molasses still contains some quantity of sugar, but this sugar cannot be extracted by usual technology. It is the end product from a refining process carried out to yield Sugar. Sucrose and invert sugars constitute a major portion (40 to 60%) of Molasses. The yield of Molasses per ton of sugarcane varies in the range of 3.5% to 4.5%. Molasses is mainly used for the manufacture of ethyl alcohol (ethanol), Yeast and cattle feed. NSL produces alcohol from the molasses left after the extraction of sugarcane juice, which can be used both for potable purpose as well as an industrial chemical. Further this alcohol can be again purified to produce fuel and ethanol that can be blended with petrol. Ethanol is in turn used to produce portable liquor and downstream value added chemical such as acetone, acetic acid, buttonhole, acetic anhydride, etc. Face stiff competition from production through the petrochemical route. The government controls the export of molasses through export licenses issued for every quarter. Molasses and alcohol-based industries were decontrolled in 993 and are being controlled by respective state government policies. Nearly 70% of the alcohol produced is consumed by the potable alcohol sector.
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COST ANALYSIS NIRANI SUGARS LTD, 2. BAGASSE: Bagasse is a fibrous residue of cane stalk that is obtained after crushing an extraction of juice. It consists of water, Fiber an relatively small quantities of soluble solids, the composition of bagasse varies based on the variety of sugarcane, Maturity of cane, Method of harvesting and the efficacy of the sugar mill. The usual bagasse composition is given below.
Table no#4 CONTENT Moisture Fiber Soluble solids RANGE % 46-52 43-52 2-6
Bagasse is usually used as a combustible in the furnaces to produce steam, which in turn is used to generate power; it is also used as raw materials for production of paper and as feedstock for cattle.
By making use of bagasse, sugar mills have been successful in reducing dependence on state electric boards for power supply, for example requirement for FY98 from captive generation from steam turbines. Further this bagasse based cogeneration plant is eligible for carbon credit compensation under the Kyoto protocol.
The residue product from distillery operation blended with chemicals is being sold as bio-fertilizers.
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3. Power Generation Plant: Power plant uses the fiber of the processed sugar cane (bagasse) as fuel to generate electricity in an environmentally responsible manner. An integrated 15 M.W. power generates and supplies electricity to the state grid produced from sugar cane waste used to rotate turbines 5 M.W. power is utilized in the plant remaining power is supplied to KPTCL.
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Competitors Information:
Godavari sugar Ltd. Crushing capacity-3500 TCD Recovery-10.5% Sugar production-4000 Qtls (per day)
Shree Prabulingeshwar sugar works Ltd. Crushing capacity-4500 TCD Recovery-11.2% Sugar production-9000 Qtls (per day)
Nandi sugars Ltd Crushing capacity -5000 TCD Recovery -12% Sugar production 10000Qtls (per day)
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Mission
The mission of the company is to pay the better returns for its shareholder in terms of higher cane rate & to the stakeholders in terms reasonable salary & wages.
Goals of Nirani Sugars Ltd To expand its installed capacity, achieve end-to-end integration for all its plants to improve margins and reduce business cycle. Achieve greater raw material security. Increase its focus of corporate and high value consumers. To become the most efficient and market driven integrated processor of sugarcane in the world. While enabling the team to grow in a learning and motivating atmosphere, participating in the all round development of community. Delivering consistently on returns to all its shareholders. Bringing over all productivity and efficiency through out the organization, especially by value addition of its by products in sugar effluent waste etc. Producing the best quality sugar to satisfy the domestic and internal norms
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FUNCTONAL ANALYSIS
The functional of the organization are divided in to following Department and one divided in to sections.
1.
Production
Laboratory Section Manufacturing Section Engineering Section Go down Section
2.
3.
Finance
1. Accounting Section General Account Section Cane Account Section
4.
Marketing Section
Cane Development Section Purchase section Sale Section
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Production Department
Production department is a most important part of the factory and it is divided into two departments. 1. 2. Engineering department Manufacturing department
1.
Engineering department
The engineering department maintains all the work connected with plant and machinery. Engineering department aims at enhancement of the feeding capacity of factory. The department is assisted by workshop.
Workshop
Spares are fabricated using the lathe machine in the workshop and shaping like square, cutting fabcrising etc, are done in the workshop 75% of work of machinery are done in workshop. This department having following machines. 1. 2. 3. 4. 5. Lathe machines for round job. Shaping machine of 32 inch for right angle planning hacksaw machine for cutting Redial drilling machine for drilling hole Grainding machine for tool grainding
1. Manufacturing department
Manufacturing department is divided in to 3 sections a) b) c) Laboratory department Manufacturing Department Go down
1. Laboratory department
Laboratory plays a significant role in sugar production. The key activity of laboratory is checking the content of sugar in the Sugarcane and fixing the correct shape and size of sugar. The Laboratory prepares hourly reports which advice in the addition of other chemicals in the production.
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3.
4. 5. 6.
-----------------
Major bleaching agent Bleagent agent Preservative Descaling agent setting aid Reduces viscocity Bleaching agent Bleaching agent
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-: Functions:Bleaching agent: - Bleaches the juices and massecuites, and gives clarity. I Preservative: - Keeps the purity of juice constant. That means, it Should not allow going down the purity of juice. Antiselant or Descalant: - It prevents the formation of scale. Setting aid: - It allows to settle down the solid partials in the Juice. Viscosity reducer: - It decreases the viscosity of the Massecuties and increases the rate of boiling.
II III
Iv.
2. Manufacturing Department:Sugar manufacturing involves mainly 5 stages as mentioned below. 1. 2. 3. 4. 5. Crushing of sugarcane Juice clarification (Double sulphitation of clarification) Crystallization Curing Grading and Bagging.
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MILLING
BAGASSE
RAW JUICE
EXHAUST STEAM SULPHURDIOXIDES + LIME CONDENSATE WATER
SULPHURED JUICE
EXHAUST STEAM CONDENSATE WATER
CLEAR JUICE
EXHAUST STEAM VAPOURS
JUISE + MUD
CONDENSATE WATER
SYRUP
SULPHURDIOXIDE GAS VAPOURS, CONDENSATE WATER EXHAUST STEAM, VAPOURS
MASSCUITE
STEAM OR SUPER HEATED WASH WATER
FINAL MOLASSES
SUGAR
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1. Crushing of sugarcane
Sugarcane is harvested in the fields. Dressed and bundled in small bundles stocked in Lories, tractor or bullock carts supplied to factories, weighed and crushed in set of mills. Crushing takes place mainly in two stages. First, preparation and then milling. The milling takes place after preparing the cane in leveler and cutter. Milling is done by passing the prepared cane blanked through sets of mills. Weighted water also is added in the course of crushing for better extraction of juices. After crushing the bagasses is sent to boiler as fuel and juice sent for processing after weighment.
3. Crystallization
The syrup thus sulphited in syrup. Salphitor is sent to pan floor for further crystallization in vacuum pans. The syrup collected gets in supply tanks is taken to pans for pan boiling, where the syrup is further boiled attains super satiation stage. In such a condition sugar grains are formal and hardened, developed to form a mass called massecuite. The massecite is dropped in crystallizers and cooled to complete the process of crystallization.
4. Curing
In centrifugals the massecuite is cured i.e. sugar crystals are separated from mother ligouor in high speed centrifugal machines.The sugar crystals thus separated are properly dried by blowing hot air and cold air. The molasses is collected in separate tanks and Used for further boiling to recover more sugar.
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Godown Section:
In the production department the godown are maintained for store the sugar.
CLERK (1)
ATTENDER (2)
The sugar will be supplied to god owns through belts. Numbers of God owns Old Godown New Godowns Capacity New Godowns Old Godowns : : : : : 3 1 2 2 lakhas Bags (100kg) 50000 Bags (100kg)
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Store Section:
Organization structure of the store department
books
1. 2. 3. 4.
Administrative Section:
Administrative department is the main department in the organization this department is connected with so many sections like. 1. 2. 3. 4. Shares Section Security Section Vehicle Section Time office Section
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1. Shares Section :Share Section is the sub section of the administrative department in the organization. The company having 2 types of shares. a) Preference Shares b) Equity Shares
2. Security Section :The security section is operating under administrative department. It is also working in 3 shifts as maintained under time office section
The main works of this section are as follows:1. 2. 3. 4. 5. They are maintaining the peace & discipline within a factory. To maintain workers attendance. They check the incoming raw material as per vouchers. Avoid the misuse of items. The out going material with paper gate pass will be recorded in outwards and they are sent outwards. 6. They submit daily report activity to the managing director.
Security Supervisor
Security Guard
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Weigh bridge Section:Total employee is 16. There are two type of Weigh Bridge in the factory and capacity of each weigh bridge is 40 tons. It acts as weighment of sugar cane, seeds and other factory Weighment
Time office Section:Structure of time office Head Time keeper Time keeper Office clerk
The factory runs there shifts in section First Shift Second Shift Third Shift : : : 6 -00 am To 2-00 pm 2-00 pm To 10-00 pm 10-00 pm To 6-00 am
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Attendance:Time office maintain two types of attendance method a) b) Manual attendance Punching attendance
a) Manual Attendance:Factory give attendance cards to employees enter the coming Time in factory and out time in factory and signature of time office Officer. This is all entered attendance card by the time office officer.
b) Punching Attendance:This system is based software here all the information is Already entered in the computer regarding the employee name Department and shift time. The employee must show the card to punching machine and giving the finger impression to machine automatically entered in the employees list.
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Finance Department
1. Account Sections:Account department is divided in to two main sections, they are. a) b) General Account Section Cane Account Section
a)
This section maintains all the transactions. Income Tax Sales Tax and commercial Tax procedures are done by this section the Varieties maintained by this section is. a) b) c) d) e) Advance register Bank register Contractors register Depositors register Fixed asset register
b)
To ease the transaction with formers this section has been separated. The main function of this sections has been is to maintain records of those suppliers names who supplies the sugar cane to the factory and they maintains register of payment The registers maintained by this section are: a) self harvest payment register b) harvest bill c) cultivator payment register
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Marketing Department:-
a)
Filed Assistant
Slip Boy
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Objectives of CDO:1. 2. 3. 4. To get best quality of sugar cane to the factory in right time To improve the variety of cane To develop the backward area To provide all facilities like seeds, fertilizers unloading & Loading charges. To maintain registration of cane gong and plantation To undertake seed distribution programmer
5. 6.
Types of Gangs 1. 2. Local gangs :It means local people groups is local gangs
Lose gangs:-
All lose gongs are comes in Maharashtra company will be paid 1,60,000 in advance one lose gangs including 8 pair and this gangs 16 to 18 tons sugar cane supply per day.
3.
Company will be Rs 200000 paid in advance Tractor attach gangs is including 10 to 12 pair This gangs 22 ton sugar cane supplied per day.
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4.
This gang use only local sugar cane not available that time import sugar cane in long route.
Purchase Sections:
The organization structure of the purchase section Purchase Officer
Clerks
At tender
It is also an important section in administrative department in performing the activities purchasing in this section there are two employees one is purchase manager and another one is purchase assistant. . The purchase manager issues the purchase order from various section of the factory. He estimates the cost of purchase and according him go for direct purchase purchases through purchase committee.
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Difficulties of Sales Departments:1. 2 3. 4. 5. Packing. Payment from party. Quality. Quantity. Staff behavior.
This factory is producing two varieties of sugars they are S -30 & M-30 grader the sale of the sugar occurs when gives a tender notice the sugar sold to that buyers who quotes highest price tender are called once in a week if the rate is not satisfactory the tender will be cancelled The sales of sugar are done unless there is instruction from the government certain government rules should be followed for sale of sugar according to the recent government rules they will be given some figures of bags to sell within a month.
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WEAKNESS
Poor marketing strategies. Poor promotional activity.
OPPORTUNITIES
They can establish a liquor industry by using its by products Providing the electricity power to the KPTCL
THREATS:
Free imports. Unstable Government. Poor agricultural policy. Low availability of working capital. Decreased in the average production rate of sugarcan
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MEANING OF COST
Cost in simple words, means the total of all expenses. Cost is defined as the amount of expenditure incurred on a given thing. Thus it is that which is given or sacrificed to obtain something. ICMA London Cost is the amount of expenditure incurred on or attributable to a given thing. In a business where selling and distribution expenses are quite nominal, the cost of the article may be calculated without considering the selling and distribution overheads. While in a business, where the nature of the product requires heavy selling and distribution expenses calculation of cost without taking in to account selling and distribution expenses may prove very costly to the business. Then cost may be factory cost, office cost, cost of sales and even an item of expense is also termed as cost. Prime cost includes expenditure on direct material, direct labor and direct expenses. Money spent on materials is termed as cost of materials the spent on labor as cost of labor and so on. Thus, the used of term cost without qualification is also quite misleading. Again, different costs are found out for different purposes. To work-inprocess is valued at factory cost while stock of finished goods valued at office cost. Numerous other examples can be given to show the term cost des not mean the same thing under all circumstances and for all purposes. Many items of production are handled in an optional manner, which may give different costs for the same production or job without in any way of cost accounting.
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ELEMENTS OF COST
Elements of cost mean the essential parts or components of goods or service or jobs. In other words elements of cost are part of the total cost and include the main item of expenditure incurred for production of goods, services and jobs.
Analysis and classification of cost Cost is the amount of expenditure incurred for production of goods and services. Thus cost is composed of three elements, viz, material, labor, and expenses.
Classification of cost Cost classification is the process of grouping costs according to their common features or characteristics. Classification is essential to find out the cost of production.
Objective of classification of cost 1. 2. 3. It helps the management for implementing cost control and decision making. It helps for calculation of cost of production. It helps for valuation of work-in-progress.
Material Cost:
This is the cost of commodities supplied to an undertaking.(I.C.M.A) Materials are further divided in to two parts (1) Direct materials (2) Indirect materials.
1)
Direct materials: Direct materials are those materials which can enter into and form of the finished product. Direct materials cost is the which can be
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COST ANALYSIS NIRANI SUGARS LTD, 2) Indirect Materials: Indirect materials are those materials which cannot be
Labor cost:
These are costs of remuneration, such as wages salaries, commission, bonus etc. Of the employees of an undertaking
1)
Direct wages: Wages paid to laborers who are directly engaged in converting raw materials into finished products. It is also called Direct Labor, Productive Labor, and Prime cost.
2)
Indirect Labor: Indirect labor is not directly engaged in the production of goods but only to assist or help in production of goods or services.
Expenses:
The expenses means the cost of services provided to an undertaking and the notional cost of the use of owned assets. In other-words costs other than the material and labor are called expenses.
Direct Expenses: Direct expenses are those expenses which can be specifically incurred in connection with a cost unit. E.g. hire of special plant for a particular job.
Indirect expenses:
Overheads:
An overhead includes indirect material, indirect labor, and indirect expenses. In general terms, overhead comprise all expenses incurred for in connection with the general organization of the whole or part of the undertaking that is the cost of operation supplies and services used by the undertaking and including the maintenance of capital assets. The main groups into overheads may sub divided are as follows.
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COST ANALYSIS NIRANI SUGARS LTD, 1. 2. 3. 4. 5. Manufacturing overheads Administration overheads Selling overheads Research and development overheads Distribution overheads.
Function wise Classification:Costs classified on the basis of function wise are as follows: Production cost or manufacturing cost or work cost Administration cost Selling cost Distribution cost
1. Production cost:
This is the cost which begins with supplying of materials, labor and service and ends with the completion of production other terms used in this connection are factory overhead. Examples: 1) 2) 3) 4) 5) Indirect labor Foremens salary Cleaners salary and wages Gatekeepers salary Salary of time keeping department Tools operators wages Store keeping department salary Factory rent and rates Insurance of factory Consumable stores Indirect materials cost such as cotton waste, nuts and bolts, lubricating oil, nails etc. 45
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COST ANALYSIS NIRANI SUGARS LTD, 6) 7) 8) 9) Gas, fuel and water, stationery to the factory Depreciation on factory equipment, factory building, plant and machinery Repairs of factory equipment, factory building and machinery Depreciation on loose tools
10) Laboratory expenses 11) Labor welfare expenses 12) Canteen expenses 13) Over time wages 14) Contribution to workmens compensation fund
Administration cost: This consists of all expenses incurred in the direction control and administration
of an undertaking. Examples: 1) 2) 3) 4) 5) 6) 7) 8) 9) Salaries of office staff, accounts, MD, GM Directors fees Bank charges Postage stationery telephone Rent rates of office Insurance of office building and equipments Depreciation on office building equipment and furniture Printing charges of office Audit fees
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Selling cost:
Other expenditures incurred for sales and stimulating demand and for securing
orders are known as selling cost. Examples: 1. Salaries and commission of salesmen 2. Show room expenses 3. Samples, free gifts 4. Commission to agents or distributors 5. Advertising and Publicity expense 6. Marketing expenses 7. Expenses incurred for recovering the bad debts 8. Subscription to trade Journals and commercial Journals 4 Distribution cost: It is an expenditure incurred for distributing the goods Examples: Packaging cost Carriage outwards Warehousing costs, such as repairs, depreciation lighting of warehouse Loading charges Dispatch expenses Shortage of finished goods in warehouse Finished goods damaged in transit
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COST ANALYSIS NIRANI SUGARS LTD, These are: 1. 1. 2. Variable cost Fixed costs. Semi-Variable or Semi-Fixed costs
Variable cost: These cost an in direct proportion to the volume of output. Cost per unit will remain the same. If output increases total variable cost also increases and if output decreases total variable cost also decreases. e.g.: Direct materials. Direct wages Power
Fixed cost:
The total fixed costs remain unaffected either with the increase or decreases in the output. But cost per unit goes on changing. Rent and rates of building. Depreciation of building. Insurance. Interest on capital. Municipal taxes.
Fixed cost can be further classified into 1) Committed fixed costs 2) Discretionary fixed costs
1) Committed fixed cost: Consist largely of those fixed costs that arise from the possession of plant, equipment & basic organizational structure. For example, once building is elected and plant is installed nothing much can be done to reduce the costs such as depreciation.
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2) Discretionary cost: Are those which are set a fixed amount for specific time period by the management in the budgeting process. These costs directly reflect top management policies have no particular relationship with the volume of output. These cost
therefore be reduced or entirely eliminated, if the circumstances so require. Examples of such costs are Research & Development costs advertising & sales promotion costs, donation management consulting fees etc. These costs are also termed as managed of programmed costs.
Semi-Variable cost:
These costs are partly fixed and partly variable. These costs are thus partly affected by fluctuations in the level of activity. Examples: Depreciation, Repair & maintenance, Telephone expenses. Other type of costs:
Decision making costs: Decision making costs are special purpose costs that are applicable only in the situation in which they are complied they have no universal application. They need not tie into routine financial accounts to the accounting rules.
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considered in cost financial accounts. In case two projects require unequal outlay & cash the management must take into consideration interest on capital to judge the relative profitability of the projects. According to ICMA London Costing is the techniques & process of ascertaining costs These techniques are the rules & regulations to govern or regulate the process of ascertaining the costs or services. Therefore these rules & regulations are carried from unit to unit immediately to the industry & formation of policy. Thus costing is a routine work of cost ascertainment.
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Cost Center:
It is defined as a location, person or an item of equipment for which cost may be ascertained and used for the purpose of cost control. Cost centers are two types.
Production Cost Center: It is a cost center where raw material is handled for conversion in to finished product. Here both direct and indirect expenses are incurred. Machine shops, Welding shops and assembly shops are examples of production cost center.
Service Cost Center: It is a cost center which serves as an ancillary unit to a production cost center. Power house, gas production shop, material service centers, plant maintenance centers are examples of service cost centers.
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Mixed Cost Centers: It is cost center, which is engaged in both the production and service. For example, carpenter shop manufacturing as well as undertaking repair work.
Cost estimation as well as cost ascertainment both are interrelated and are of immense use to the management in case a concern has a sound costing system, the ascertained costs will greatly help the management in the process of estimation of rational accurate costs which are so necessary for a variety of purpose stated above. Cost ascertainment is the process of determining the cost on the basis of actual data. Hence, computation of historical cost is cost ascertainment while computation of future costs is cost estimation.
allotment of whole item of cost to cost centers or cost units while, cost apportionment refers to the allotment of proportions of items of cost centers or cost units. Thus the
former involves the process of charging direct expenditure top cost centers or cost units. While the later involves the process of charging indirect expenditure to cost centers or cost units for example the cost of labor engaged in a service department can be charged wholly and directly to it . Canteen expenses of the factory cannot be charged directly and wholly to it. Its proportionate share will have to be fount out. Changing of cost in the former case will be termed as Allocation of costs while in the later as Apportionment of costs.
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Cost reduction:
Cost reduction may be defined as the achievement of real and permanent reduction in the unit cost of goods manufactured or service rendered without impairing their suitability for the use intended or diminution in the quality of the product.
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2) Cost control is a runtime exercise, which is carried out for attainment of operational efficiency, where as cost reduction aims at permanent and real savings by continuous search.
3) The process of cost control is to lay down a target, ascertain actual performance, compare it with the target and take corrective action. On the other hand, cost reduction is not concerned with maintenance of performance according to the predetermined standards.
4) Cost control seeks adherence to standards where as cost reduction is a challenge to the standards themselves. Cost reduction assumes that there are chances of improvements in predetermined standards.
5) The aim of cost control is to see that actual costs do not exceed the predetermined costs so it is a preventive function. On the other hand, cost reduction is corrective function because it challenges the predetermined costs and seeks to improve the performance by reducing cost of increasing production.
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2) Resistance from the existing accounting staff: The existing financial accounting staff may be offer resistance to the system because of a feeling of their being declared under the new system. This fear can be done away with by explaining to the staff that the cost accounting system would not replace but strengthen the existing system.
3) Non co-operation at other level: The foremen and other supervisory staff may resent the additional paper work and may not co-operate I providing the basic data, which is so essential for the success of the system.
This needs re-orientation and education of employed. They have to be told of the advantages that will accrue to them and the organization.
4) Shortage of trained staff: Cost accounting is a specialized job in itself. In the beginning therefore qualified staff may not be available. However, this difficulty can be overcome by giving the existing staff requisite training and additional staff, if required.
5) Heavy costs: Unnecessary sophistication and formalities lead to heavy cost. accounting office should serve as a useful service department. The cost
Main consideration:
1) The product: The nature of the product determines to a great extent the type of cost accounting system to be adopted. For e.g. a product requiring high value of material content requires elaborate system of material control. 2) The organization: The existing organization should be disturbed as little as possible. It becomes necessary top ascertainment the size and type of organization before introducing the cost accounting system.
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3) The objective: The objective and information, which the management wants to achieve and acquire, are also to be cared for.
4) Technical details: The system should be introduced after a detailed study of the technical aspects of the business efforts should be made to secure the sympathetic assistance and support of the principal members of the supervisory staff and workmen.
Cost Sheet:
A cost sheet or a cost statement is a document which provides for the assembly of the detailed cost of a cost center or cost unit. It is a detailed statement depicting the sub-division of cost arranged in a logical order under different heads. The prime cost. The works cost. Cost of production The total cost. It gives the breakup of by cost elements and sub-division
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COST ANALYSIS NIRANI SUGARS LTD, It helps for fixing selling price.
The main advantages of a cost sheet are as follows: 1) 2) 3) 4) 5) It provides the total cost figure as well as cost unit of production. It helps in cost comparison. It facilitates the preparation of cost estimates required for submitting tenders. It provides sufficient help in arriving at the figure of selling price. It facilitates cost control by disclosing operational efficiency.
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Particular
Cost (Rs)
per
unit
Direct material Direct labour Prime cost Add : Works over head Works cost / Factory cost Add : administrative over head Cost of production Add : selling and distribution over head Cost of sales
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Cost Audit:
Definition: The term audit concerns the examination of books of accounts and necessary vouchers to ascertain the accuracy of accounting transaction. According to the Institute of Cost and management Accounts of England, Cost Audit is defined as the verification of cost accounts and a check on the adherence to the Cost Accounting plan.
2) To measure that the cost accounting routine lay down by the business is properly carried out.
Process Costing:Means When the raw materials are fed in to the machinery as an input, we get output. In order to convert the raw material into finished product i. e. input into output, it has to pass or move through different stages. Each stage is known as a process.
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Paper Manufacture Paint Manufacture Distilleries Plastic Manufacture Sugar Industries Food Manufacture Fertilizer Industry Glass Industry Drug and Medicines Producing Industries Aluminum Industry Timber Industry Rubber Industry
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(a) Normal Loss: Any loss arising due to normal factors like evaporation, withdrawals for tests, shrinkage, sampling, unavoidable spoiled quantities etc. cannot be avoided. Constitute normal loss. These losses
(b) Abnormal Loss: Any losses arising due to abnormal factors are known as abnormal loss. Such loss is over and above normal loss. These losses may arise from the factors like carelessness, machine breakdown, accident, use of defective material etc.
Abnormal Gain: If the actual loss is greater than normal loss, it is known as abnormal loss. But if the actual loss is less than normal loss a gain, is obtained which is called abnormal gain or effectiveness. Treatment for Abnormal Gain The value is calculated as if it good units. It is debited to the process account and credited to abnormal gain account.
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Particulars
Input
Total Cost
Particulars
Output
Total Cost
Units introduced
XX
XX
XX
Normal Loss
XX
XX
XX
Materials
XX
XX
XX
Scrap
XX
XX
XX
Labor
XX
XX
XX
Abnormal Loss
XX
XX
XX
Overheads
XX
XX
XX
Sale of by products
XX
XX
XX
XX
XX
Actual
output XX
XX
XX
Total
XXX
XXX
XXX Total
XX
XX
XXX
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Non-co-operation of supervisors: The sugar is the essential for day-to-day activities so the supervisors have no time to record the different things related to costs.
Heavy costs: For installation of cost accounting system is heavy cost to company. For the installation of cost accounting system in Nirani Sugars the separate department should be made.
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forms and records for each of the departments. 3) Fix the procedure for collection of both cost and non cost data for each center. 4) Fix the standard for incurrence of costs in cost center. 5) Prepare forms, cards reports, and books etc for keeping cost records.
3) Administration Cost Centers: a) Security and maintenance of plant. b) Human Resource Development.
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Material costing
Year Tones consumed 2006-2007 2007-2008 2008-2009 136903.6842 202997.6470 215068 950 850 1000 130058500 172548000 215068000 Rate per tone Amount
The raw material consumption from the year 2006-2007 - 2008-2009. In case of 20062007 the quantity of sugar cane consumed 136903.6842 tones and it is increased to 202997.6470 and 215068 respectively in the year 2007-2008 and 2008-2009.
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Departments 2006 Administration and HOD Manufacturing and engineering Cane department Security office Civil 41 340 65 19 7
All the department the manufacturing and engineering department having more number of employees. This increasing trend indicates is a increasing production.
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900000 800000 700000 600000 500000 400000 300000 200000 100000 0 Administrative Manufacturing & HOD and engineering Cane Security office Civil 2006 2007 2008
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Over heads
Particulars
Factory overhead Administration and overheads Selling and distribution overheads Total
2006-2007
9,180,600 1,530,100 3,763,937 14,474,637
2007-2008
15,972,950 2,381,850 4,140,990 22,495,790
2008-2009
237,300,00 3,744,000 13,868,850 41,342,850
25000000
20000000
15000000
factory over head administrative over head selling & distribution over head
10000000
5000000
Seeing the table the factory over heads increasing considerably it indicates growth in production. Since the manufacturing and engineering department constitutes major part in total number of employees and wages the factory overheads also forms major part in total overheads.
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Particulars Purchase of raw material Closing raw material Raw material consumed Freight inwards Prime cost Factory over heads Depreciation on building Depreciation on machinery Depreciation on electricals Work cost Office over heads Depreciation on computer Depreciation on office equipments Cost of production Opening stock of finished goods Less :closing stock of finished goods Cost of goods sold Selling over heads Cost of sales
2006-2007 130,0585,00 130,058,500 13,005,850 143,064,350 9,180,600 1,000,000 1,200,000 250,000 154,694,950 1,530,100 50,000 150,000 156,485,050 1,534,065 4,090,840
2007-2008 172,548,000 172,548,000 18,395,725 190,943,725 15,972,950 1,5000,00 1,7000,00 300,000 210,416,675 2,381,850 60,000 2000,00 213,058,525 3,928,720 8,839,620
2008-2009 215,068,000 215,068,000 24,032,400 239,100,400 23,730,000 2,000,00 2,200,000 350,000 267,380,400 3,744,000 70,000 300,000 271,494,400 4,149,800 17,337,000
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Work cost: The work cost in 2006-2007 154,694,950 and in 2007-2008 it was increased to 210,416,675 and 2008-2009 it was increased to 267,380,400.
2007-
Cost of goods sold: The cost of goods sold in 2006-2007 153,928,275 and in
2007-
Cost of sales: The cost of sales in 2006-2007 157,692,212 and in 2007-2008 it was increased to and in 212,288,615 2008-2009 it was increased to 272,176,050.
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Findings: 1. The increasing prime cost is because of is increasing material consumed by the company.
2. The work cost is increasing by year to year because in factory over heads also increasing.
3. The cost of production is to increasing because office overheads and depreciation of office equipments.
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Particulars Sales Less: variable cost Contribution Less: fixed cost E.B.I.T. Total cost
The EBIT for the year 2006-2007 was 10256173, in the year was 2007-2008 was
25295276, and in the year 2008-2009 was 72408976. It shows the increasing in EBIT
year to year
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Over head of the firm was increasing from the year 2006-07 to 2007-08 was 57.47% and from the year 2007-08 to 2008-09 was 65.20%
Prime cost of the firm was increasing from the year 2006-07 to 2007-08 was 74.92% and from the year 2007-08 to 2008-09 was 79.85%
Work cost of the firm was increasing from the year 2006-07 to 2007-08 was 73.51% and from the year 2007-08 to 2008-09 was 78.69%
Cost of production of the firm was increasing from the year 2006-07 to 2007-08 was 73.44% and from the year 2007-08 to 2008-09 was 78.47%
Cost of goods sold of the firm was increasing from the year 2006-07to2007-08 was 73.95% and from the year 2007-08 to 2008-09 was 80.58%
Cost of sales of the firm was increasing from the year 2006-07 to 2007-08 was 74.28% and from the year 2007-08 to 2008-09 was 78%
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Suggestion: 1. As prime cost, cost of production are increasing in the firm exercise cost
reduction and cost control techniques like material control, labor control, over head control, capital expenditure control.
2. As the raw material cost is increasing the firm should using new
techniques to reduce it. 1) Like the firm allowed near to the sources of raw material. 2) Reducing raw material usage in production down time.
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Conclusion
In this study is attempt to made analyze the cost analysis of the sample unit .Since the Nirani Sugars Ltd is facing heavy competition in an around area of the region, It is essential to focus on the aspect of cost, profitability etc
Cost accounting is a recent development. It is the branch of financial accounting. It maintains the records unit wise, process wise, job wise department wise, we can easily control in reduction of costs by preparation of the statement unit wise or job wise.
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Bibliography
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