PROJECT REPORT

ON A study of Cost analysis at Khetri Copper Complex, A unit of M/s Hindustan Copper Ltd. (A Government of India Enterprise)

SWAMI KESHVANAND INSTITUTE OF TECHNOLOGY, MANAGEMENT & GRAMOTHAN, JAIPUR

(In partial fulfillment of the requirements of M-207 for the

award of the degree of Master of Business Administration)

SUBMITTED BY: PRIYANKA MBA III SEM

SUBMITTED TO: Mr. A.S. Verma

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Contents of Report

Preface Acknowledgement Executive summary Introduction Literature Review Research Methodology Findings and Analysis Conclusion and Recommendation Personal Reflections Bibliography

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Preface
Summer training is an essential part of management study. Programmed classroom study provided only theoretical knowledge of management which alone is not sufficient for management students because in future they will have to work with different organizations. Summer training is arranged for the students to provide them practical experience of working in organizations. As a management student I also had to undergo six to seven weeks summer training programme. For this purpose, I joined Khetri Copper Complex, Khetri Nagar (Rajasthan), which is a unit of M/s HINDUSTAN COPPER LIMITED. The purpose of my visit to Hindustan Copper Limited was to get practical experience of working in an organization and prepare a project report on the costing aspects of the company. When I discussed various problems of the company with the officers, I found that the study of Cost Accounting system has a great potential to prepare a project report. This is how it prompted me to take up project report on cost management system of the company. In this project report on cost analysis of Khetri Copper Complex {KCC} [A unit of HINDUSTAN COPPER LIMITED], the entire picture of Cost Accounts in KCC is presented. All topics are dealt separately to present a clean framework. The project report presents a systematic and analytical explanation of Cost Management at KCC.

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Acknowledgement
Inter dependence is not the law of nature. It is a reality of literacy endeavor in any field. Though generally once working always the product of ones own labor, but one cannot forget to express the gratitude he owns towards teachers, scholars, and friends who have contributed in various ways towards the formulation of different ideas. I am deeply indebted to the management of HCL, KCC for kindly allowing me to conduct the study in this esteemed organization. I am grateful to my supervisor Miss Suman Verma, Dy. Manager Finance for her valuable guidance and necessary encouragement in this project. I would like to thank my faculty guide Dr. Savita choudhary and other faculty members of SKIT College who given direction to my work on project. I am in extreme dilemma as to how I can appropriately acknowledge my deep gratitude and thanks to all finance department and guide of my college for their valuable time and suggestions for this project. Name Mr. A.S. Verma Mr. Lokesh Purohit Miss Suman Verma Mr. S.S. Daiya Mr. Alam khan Mr. Vikash Mrs.Savita choudhary Designation Sr. Manager [Training] Sr. Manager [Fin.] Dy. Manager [Fin.] Jr. Manager [Fin.] Jr. Accountant Lecturer Finance Project Guide

I also thank all other officers and staff for providing me a great deal of information, guidance and co-operation for this project. PRIYANKA
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Executive summary
I have completed my summer training at Khetri copper complex, a unit of M/s Hindustan copper limited (HCL). This was my first experience to work in an organization and get practical knowledge about its finance department. My project was on cost analysis of the company. For this I set my objectives and worked according to these predefined objectives. I worked according to the following steps At first I got knowledge about the company profile, its main products etc. After that I read books of cost accounting and other related articles and acquired knowledge about various costs, costing methods, their advantages and disadvantages etc.

Then I got knowledge about the companys costing system, its process, various cost centers etc. and studied companys monthly and annual cost sheets. Then I visited the various cost centers of the company and got knowledge about their functioning and their main outputs. After that I met with various officers of finance department and interviewed them and got knowledge about costing system of the company.

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Then I studied last three years cost sheets of the company, starting from financial year 2008-09 to 2010-11. And analyze these cost sheets on the basis of cost centers.

After studying and analyzing these annual cost sheets, I made conclusion and recommendations of my project.

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Introduction
Introduction of Hindustan Copper Limited:Hindustan Copper Limited (HCL) is a Govt. of India enterprise rose under the administrative control of ministry of mines. It is the sole integrated producer of primary copper in India. The company was incorporated on the 9th November 1967 under the companys act 1956 to take over the plant and mines from National Minerals Development Corporation Limited at Khetri, Kolihan in Rajasthan. HCL developed Malanjkhand Copper Project in M.P. , the largest hard rock open pit mine in the country, which was dedicated to the nation on 12th November 1982. Further in 1990 a continuous cast wire rod plant of 60000 tpa based on south wire technology was commissioned at Taloja in Maharashtra in the process of its operation, HCL has been able to develop expertise in exploration, mining, smelting and refining of copper and recovery of by products such as Gold, Silver, Copper Slphate, Selenium and Tellurium etc. The pricing committee of the Government, headed by the chief controller of imports and exports (CCI & E), used to determine monthly selling prices based on cost data provided by MMTC, M/s Hindustan Copper Limited (HCL), Hindustan Zinc Limited (HZL). For copper HCLs production was about 5000tpa with an import gap assessed at 90000tpa which was canalized through MMTC. The introduction of reform process in 1991 was a landmark for Indias economic growth with opening of reform channel in March, 1992 and the simultaneous withdrawal of all import controls and pricing restrictions the market environment suddenly became open and uncertain resulting in easier imports and setting up of indigenous large capacity production facilities by private players like Birla Copper and Sterlite Industries. This resulted in market destabilization further leading HCL to face a critical challenge resulting in closure of some of its mine.
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HCL is striving its best to cope with these challenges and has carried out its capital restructuring in September 1998. The company has also prepared a turnaround strategic consisting of downsizing manpower, capacity enhancement, cost reduction etc. It has shut down its high cost mines in the Singhbhum belt and separated the employees through a very just and fair voluntary retirement scheme. Govt. of India has planned to disinvest HCLs mines and flash smelter and refinery (31000tpa) capacity at Khetri Copper Complex and south wire CC rod plant (6000tpa) at Taloja. HCL shares are listed at Mumbai, Delhi, Kolkata, Chennai and Ahmadabad exchanges. HCL was the first Indian copper producer to get ISO-9002 certificate for its cathode produced at its refineries at Indian Copper Complex (ICC) and Khetri Copper Complex (KCC). HCL is the countrys only integrated producer of refined copper. The companys registered office is situated at Kolkata. It has branch offices at Delhi, Mumbai and Bangalore which perform the commercial operations. Khetri Copper Complex at Khetri Nagar, Rajasthan This complex was initially established by the national mineral development corporation (NMDC) as a copper mine which was later transferred to HCL upon the latters incorporation in 1967. Subsequently smelting and refining facilities were added. Presently, KCC comprises two underground mines (capacity 1.0million tones of ore per annum), namely Khetri and Kolihan together with a concentrator plant. A metallurgical complex and a refinery to produce 31000 TPA of refinery copper in the form of cathodes.

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Indian Copper Complex at Ghatsila, Jharkhand A private company, Indian copper corporation ltd. Established this complex in 1930. In 1972, the government of India nationalized the company under provision of the Indian copper corporation (acquisition of undertaking Act) and merged the same with HCL through a notification issued on 25th sept. 1972. The complex presently comprises a smelter and a refinery with capacity of 16500 TPA of refinery copper and precious metals recovery plant. Previously, the unit had five underground mines, which, over the year, have been closed due to operational availability. Currently the input for this smelter, i.e. copper concentrate is sourced from companys own mines at Malanjkhand. Malanjkhand Copper Project at Malanjkhand, MadhyaPradesh MCP has the single copper deposit in India and produced around 70% of HCLs total copper-in concentrate production. Established in 1982, the unit comprises an open pit mine with a capacity of 2.0 million TPA of ore with a matching concentrator plant. The copper concentrate produced at Malanjkhand is sent to the Ghatsila unit (ICC) for further processing in to refined copper. Taloja Copper Project (TCP) at Taloja, Maharashtra The Taloja copper project was set up in Dec 1989. Based on technology sourced from South Wire Company, USA. The plant produces continuous cast copper rods (CCR) and has a capacity of production 60000 TPA. The inputs, i.e. cathodes are sourced from either the companys own unit at Khetri and Ghatsila or through direct purchase. The unit also undertakes tolling of cathodes.
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INTRODUCTION TO KHETRI COPPER COMPLEX:Historical BackgroundThe Aravali hill is the host of copper minerals, with a 76km. long belt from Singhana to Raghunathgarh, popularly known as Khetri Copper belt. The slag heaps at Singhana, Khetri, Papurana, Babai and many more places and the innumerable ancient working in the form of pits, inclines, shafts etc, bear testimony to the fact that mining and smelting activities were undertaken since ancient times. Though the archeological extrapolations arrived on the basis of excavations at Ganeshwar near Neem-ka-Thana logically ascribe the mining activity in the area to Harappa and Mohanjodaro civilization, the first recorded mention of copper mining in this belt is found in Ain-iAkbari of Sheikh Abul Fazal in the year 1590. It is also reported that two mines were functioning at singhana and khetri towns up to 1869 when the government of India closed them. Though regular mining ceased in this area by 1872, sporadic mining activity continued till 1910. With the advent of 20th century, the geologists of GSI carried out preliminary geological work without much success, Indian bureau of mines undertook further exploration and khetri mine was started by NDMC and the project was handed over to HCL in 1967 when HCL was formed.

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Location:KCC is located at Khetri Nagar near the old princely town of Khetri in Jhunjhunu district of Rajasthan which is 190 km. away from New Delhi and 175 km. away from Jaipur, capital of Rajasthan.

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COMPANYS PROFILE AT A GLANCE ESTABLISHED PAID-UP SHARE CAPITAL GOVT. OF INDIA HOLDING TURNOVER (2009-10) NET PROFIT (2009-10) NET WORTH ACCUMULATED LOSSES MANPOWER 9th November 1967 Rs. 462.61Cr.

99.5 %

Rs.1429.85 Cr.

Rs.219.33 Cr.

Rs.1224.67Cr. NIL 5300

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State Bank of india

State bank of Bikaner &jaipur

United Bank of india

Bankers of HCL

Indian overseas Bank

Syndicate Bank

State Bank of hyderaba d

Punjab national Bank

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PRODUCT PROFILE Copper cathodes MAIN PRODUCT Copper wire rod Cast Copper rods PRODUCT: COPPER CATHODE Specifications:PHYSICAL DIMENSIONS Length Width Thickness Weight KCC 940mm. 815mm. 11.2mm. 80-90 kg.

(An ISO 9002 Product)

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PRODUCT COPPER WIRE ROD Specification:PHYSICAL DIMENSIONS CHEMICAL COMPOSITION ELEMENT % Length 1372 +/- 41mm Copper 99.90%(Min.) Width at top 111 +/- 6mm Lead 0.005%(Max.) Width at bottom 102 +/- 6mm Bismuth 0.001%(Max.) Height 102 +/- 6mm Total impurities Excluding Ag and Oxygen 0.03%(Max.) Weight 108 +/- 5 kg.

(An ISO 9002 Product)

BY PRODUCTS a) Gold b) Silver c) Sulphuric Acid d) Copper Sulphate e) Nickel Sulphate f) Selenium g) Tellurium h) Phosphate
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MARKET SHARE OF HCL

Earlier HCL is the only vertically integrated copper producer in India engaged in all the activities ranging from mining to refining. With the economic liberalization in the last decade, the industry Was opened to private companies as well. Currently copper industry has just three major players (Sterlite, Birla copper & Hindustan Copper Ltd). Among them Hindustan Copper ltd is the only primary producer of copper with mines & Refines copper while Sterlite & Birla copper are secondary producers who imports copper concentrate to produce end products like copper bars, rods and wires to reduce dependence on external sources and to ensure consistent supplies of good quality copper concentrate, both the secondary producers have acquired copper mines. Sterlite and Birla copper both have acquired two copper mines in Australia.

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The market share of Hindustan Copper Ltd is as follows:-

PRODUCTION DURING THE YEAR (2010-11) GOLD SILVER SULPHURIC ACID NICKEL SULPHATE COPPER CONCENTRATE NIL NIL NIL NIL 45174 MT
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PRODUCTION PROCESS AT KCC BY DIAGRAMS

KCC MINES KCM MINES

ORE

ORE

CONCENTRATE

CONCENTRATE

SMELTER PLANT

ANODE

SLAG

REVERT

SLAG TRETMENT PLANT SLAG ` TANK HOUSE

CATHODE

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COPPER SUPPLY CHAIN

Road transportation Site Go down Railway transportation

PRICE HCL has been traditionally pricing on the basis of monthly average of cash settlement prices (CSP) of copper at the London Metal Exchange (LME). Basic price of copper products is based on imported landed cost of copper into the country. Which means element of custom duty is added to the international copper price to derive the domestic price. It also implies that the export realization is less than domestic realization.

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Pricing Formula:Basic price = monthly average LME CSP (US $/ MT) + Premium (US $/MT) * Monthly average TT selling rate (Rs. / US $) * Multiplication factor + Handling charges (Rs. / MT).

Duties & Taxes Charged extra on the above basic price.

-

Excise duty: - presently @ 10% + Education Cess & Higher Education Cess (presently 2% and 1% respectively). VAT or state sales tax or central sales tax.

Pricing of By- Products Pricing of copper sulphate and copper mill scale is based on copper prices. Sulphuric acid and dump slag pricing is based on market conditions. STORAGE The company Goodwins in all regions of India where copper products are stored. From these Goodwins, the products are transferred to the

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different customers. Customers have to make their own transport arrangements for lifting the copper products. MAJOR CUSTOMERS Hindustan copper limited is being sold its main products which is copper concentrate to : Hindalco Sterlite

In addition the above parties KCC transfers its copper concentrate to the other units of HCL .

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USES OF COPPER

By and large the following major sector makes use of copper Electrical industry: Conductors cables winding wire and slips telecommunications cables, relays transformers fans motors. Transportation: Automobiles parts and ancillanllary transportation and ship binding. Air Conditioning & Refrigeration Equipments : Tube heat exchangers Mints for coins. Building construction and Hand wares: Pipes tapes sanitary fittings.

Defense: Ordnance factories for the manufacture of gun shells and cartridges. Industrial Uses: Bearing, bushes, sintered products, Electrodes, soldiers.

Copper chemicals. Decoration Items.

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FINANCIAL PERFORMANCE OF THE COMPANY

The comparative working result for the years 2010-11 and 2009-10 are as under:(Rs. In crore) Particulars 2010-11 2009-10 (i) Sales (tones) 32903.9 40167.51 (ii) Turnover (iii)Profit before tax (iv)Net profit after tax 1146.52 335.21 224.10 1313.81 215.84 154.68

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DEPARTMENTS OF KCC
To maintain efficient performance and better output, the organization has many departments catering to the need of that particular section of organization ensuring smooth functioning. The various departments of the company are:1. Mining 2. Concentrator 3. Smelter and Refinery 4. Sulphuric acid plant 5. Administrative department 6. Training department 7. Research and development 8. Instrumentation 9. Finance 10. Mechanical
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11. Civil 12. Services 13. Fire station 14. Central stores

Mining, concentrator, smelter and refinery are the production departments whereas sulphuric acid and fertilizer plants are by production a department, which takes active part in the production process. While research and development, administration, training helps indirectly the production process. Other departments cater to the need of welfare, sale and storage to help the overall process. Fertilizer, smelter, refinery, sulphuric acid plant is not in running condition due to the unavailability of raw material and high price of raw material, which increases the cost of KCC.

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Organizational Strucure At head office level:-

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FINANCE DEPARTMENT
The finance department of HCL has following section:-

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COMPILATION SECTION

SUPPLY ORDER SECTION

INTERNAL AUDIT

P.F & PENSION SECTION FINANCE FUNCTIO N BANK SECTION

WORKS SECTION

STORES SECTION

MISC. SECTION COSTING SECTION

PAY BILL SECTION

VARIOUS SECTIONS OF FINANCE DEPARTMENT SUPPLY ORDER SECTION

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1. Based on the requirement of user department in the company. 2. An indent raised by them for procurement of material to the purchase department. 3. Purchase department will float enquires to the sources such as Limited tender Enquires (LTE) ,single tender Enquiry (STE),$ web Tender Enquiry(WTE). 4. Based on offers received against enquires as above a comparative statement is prepared by purchase department and after getting technical recommendation from the user department the same is forward to finance for approval and concurrence. WORKS SECTION It is also an important section in the finance department of Khetri Copper Complex. It the concerned with the works accounts of the civil town ship, mining works and works related inside or outside plant areas of the company. Every work which is the done by contract base in the company or outside the company i.e. in civil, mining, plant fabrication etc.

This section invites tenders for various works which are completed through contractors. After inviting tender for a work they prepare a comparative statement for the work according to the number of
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contractor and allotted the tender to the contractor who has the lowest work rates. Contractor may get his payment at the completion of the work or if the contract is for a long time than he can gets payment during the work according to his bill of work completion. This section records all the activities related to a particular contract and observe that contractor is not following the terms and conditions of the contract and objections may be raised against the bills or contractors payment. MISCELLENEOUS SECTION This section relates to the miscellaneous transactions in the finance department like advance to officers for companys work. This section keeps the full record of advances and payment like private water supply, house from outside parties like transport etc. All that service given by the company to these parties and payments received by the miscellaneous section in the form of demand draft and cheques.

INTERNAL AUDIT SECTION

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KCC has its own Internal Audit department for internal audit of all the departments. This department check out the activities carried out by all other sections of the finance and determined that the all the work is doing in right way or not. If there are any discrepancies they inform to higher authorities and take corrective actions. Internal audit section also checks out the stores on regular basis and determines that all the activities are carried out in right way. In the internal audit section they have to maintain all the inventory of products like work in progress raw material in the organization. They also verify all the transactions of cash counters in the KCC hospital including all the works in the hospital, Auditing of material gate passes to check- in the inventory passes, Auditing of canteen, cash counters and stores, Auditing of library, sports council, guest house, sudden verification of copper dispatch etc. STORES ACCOUNTING This section belongs to the finance department and it is also an important part of the department. As soon as the receipt being sent to finance department for pricing and accounting. voucher prepared by material section / stores department, copies of which are

Material receipts section prepared receipt and issue / consumption of the material/ goods.
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Receipt voucher duly period by supply order section, stores accounting section also deal with the issue and maintain a set of stores ledgers pricing of issue vouchers are based on weighted average method. Issue voucher (IV) against issue of material duly acknowledgement by user department. Stores accounting section also deals with the issue price and maintains set ledgers pricing of issue vouchers are based on weighted average method. PAY BILL SECTION This section is related to the employees regarding their salary, advances etc. Final payment, attendance checks etc salary related data PF deduction, and coordinate with computer section. Disbursement of final payment to retired employee, income tax check list food coupon, PROVIDENT FUND & FAMILY PENSION SCHEME This is section is directly related to the employee .This section deposits some amount from the salary of the employees for his emergency, which

is called the provident fund of every employee there are some function of this section;
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1. Final settlement of provident fund dues of every employee. 2. Transfer of provident fund to other company, if employee transferred. 3. This section provident fund loan in the company annual report. Monthly provident fund return to regional provident fund commissioner (RPFC) Jaipur. COSTING SECTION Costing section is the section in the finance department. It is the overall calculation of the cost Every month cost is determine by preparing cost sheet for each activities i.e. mines & plants separately. 1. At the end of the year a comprehensive cost sheet 13 cost sheet, based on actual financial data. 2. All the input data are collected from various production units such as Khetri Copper Complex & Kolihan Copper Mines. Concentrator plant, smelter plant, refinery or tank house & wire bar plant and lastly from Acid & Fertilizer plant. 3. There is a central agency named as production planning control (PPC) which plans and controls production and other cost viz. salary and material data. Data are taken directly from computer based on salary bill or relevant one and consumption of stored and spares. 4. A separate monthly cost sheet is also prepared for power cost, power used by each cost centre and cost their against.
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5. Every month the cost section in the finance department in Khetri Copper Complex also prepares a report for norms and variance. 6. Certain norms have been fixed for major operating items based on same variance are drawn. 7. While preparing material cost, sheet is drawn as fixed and variable cost proceeds. Cost like operating material, store, power and fuel direct cost is known as fixed cost like salary wages and other related services. 8. There is some other fixed cost which is treated as direct cost which has depreciated general/social overheads. Besides these overheads shares of head office expenses and interest on cash credit is also considered besides selling and distribution process. BANK SECTION The Bank section is related to only bank transactions that are accrued in KCC. There are mainly two banks related to the company which are SBBJ (State Bank of Bikaner and Jaipur) and Indian Overseas Bank (Kolihan nagar and Khetri nagar) 1. All the payment of other sections of finance (other than cash) is made by bank section in the form of cheques, which is a pass on to the bank. 2. In the processing, there may be some corrections that are related to the bank account. For correction of difference of each bank, the
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statements are given to the company by the bank. the bank section

a reconciliation

statement is made for the difference of the transactions per month by 3. If the party sale some goods to the company through bank, then, the company gives the money to bank and takes goods receipt from the Bank and collects the goods from the godown of that party . 4. This section, through bank, pays all the payment of contractor. 5. This section prepares a daily bank book of SBBJ & IOB Kolihan Nagar and Khetri Nagar. 6. This section pays the payment of employees. SALES & COMPILATION:Compilation means the revaluation of all the vouchers, receipts etc. and all the payment of cash and bank valuated by the compiler. He must check all the entries of every voucher and receipt by the help of computer in the company. If there is a wrong code it will be deleted and journal voucher prepared for rectification. Transactions related with the assets and inter unit transactions of the company are also accounted for in the compilation section.

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This section functions to analyze sale of product including which product, quantity, value, excise, sales tax of octroi than they make entry in sale registers. Even money received from purchaser on account of sales tax, he should pay the sales tax to govt. Till the 7th of the next month Showing all sales and sales tax with receipt of money deposited into govt. account. In compilation, financial year annual return will be filed to the state govt. The rate on raw material is 8% and on finished goods 10% in the form of excise duty, this section gives the report of the excise paid, opening balance, closing balance in the form of RT -12 . Every transaction related to excise duty should be recorded between 9 am to 5 pm, which is called the transaction hour by the excise department. There are two main function of compilation in the company. It is related to the assets of the company and sale records. FOREIGN EXCHANGE SECTION This section deals with import-export of the company. When company purchases any goods from foreign supplier, then, this section deals with that party and prepares letter of credit and determines terms & conditions of the transaction.

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TA, LTC & MEDICAL SECTION This is also a part of finance department. This section deals with TA, LTC & medical facilities provided by the company to its employees. This section reimburses the TA and medical bills of the employees and their dependents. Below Rs. 20,000 they can pay cash and above this they pay through bank account. An employee can take advance for medical facility. Company has its own hospital and has also authorized SMS Hospital, Jaipur, AIIMS, Delhi and Tata memorial, Mumbai for medical facilities to its employees. PROJECT TITLEA study of Cost Analysis at Khetri Copper Complex, Khetri Nagar a unit of M/s Hindustan Copper Ltd. A Government of India Enterprise. OBJECTIVE Practical knowledge of financial system. Theoretical and practical knowledge of cost accounting. Study the cost trend of the company for last three years. To assess the profitability of the company.
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Literature review:-

COSTING: A THEORITICAL ASPECT Cost means the amount of expenditure (actual or notional) incurred on or attributable to a specified thing or activity. CAS 1 Cost is a measurement in monetary terms of the amount of resources used for the purpose. Thus the cost is regarded as the price paid for attaining the object. This object may be a product, a service or any activity. COSTING:Is a process of ascertaining cost while cost is the final result of costing

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C. I. M. A. LONDON: Costing is the technique while cost is the final result of costing Wilmot has summarized the nature of cost accounting as the analyzing, resealing standardize for costing, comparing, reporting, and recommending and the role of a cost accountant as that of an A historian news agent he must be up to date selective and pithy. As a prophet he must combine knowledge and experience with foresight and courage.

COST ACCOUNTING:Cost accounting is the applying of costing principles. It includes classification, analysis, recording, summarization, interpretation and control of current & perspective costs.

C.I.M.A. LONDON:Cost accounting is the process of accounting for cost from the point at which expenditure is inward or committed to the establishment of its ultimate relationship with cost centers and cost units. In its widest usage, it embraces the preparation of statistical data, the application of cost
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Control methods and ascertainment of the profitability of activities carried out or planned. NEED OF COSTING-: The main object of costing is to record and analyze the expenses with a view to know the cost of a unit or output of a job or a process or of an operation. Therefore it involves allocation of expenditure.

BEHAVIOUR OF COST

FIXED COST VARIABLE COST SEMI-VARIABLE COST

FIXED COST It is the cost which does not vary with the change in the volume of activity in the short run. They are also known as period cost e. g. Salary, rent, depreciation, audit fees.

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VARIABLE COST Variable Cost is the cost elements which tend to directly vary with the volume of activity. Variable cost has two parts (A) Variable direct cost (B) Variable indirect cost. Variable indirect cost costs are termed as variable overheads e.g. materiel consumed, indirect labor, sales commission, utilization, freight, packing etc. SEMI-VARIABLE COST Semi variable cost contains both fixed and variable elements. They are partly affected by fluctuation in the level of activity e.g. Factory supervision, maintenance etc. Production Process: Batch cost, Process cost, Operation cost, Contractor cost, Joint cost
. TC COS T

TVC

TFC

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LIMITATION OF COSTING SYSTEM-: Cost statistics relate to past performances, whereas all decision is to be taken about the future. The cost ascertained on the basis of full utilization of capacity may not be true when utilization is only partial for any reason. Non- inclusions of some costs, different methods used, imprison the materials and in absorption of overheads may results in different costs. Management may believe that, detailed records may give benefit, but they are costly too. To maintain all records for control, under a costing system, it is also very expensive. Delay in receiving costing information does not help the mgt to take decision at the right moment. Rigid costing does not serve all purposes. METHODS OF COSTING:There are various methods or types of costing, but the basic principles underlying all these methods or types are the same. The basic principles are to collect and analyze the expenditure according to the elements of
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Costs and to determine the cost for each cost centre and cost unit. The nature of the manufacturing operation carried out or the nature of the services rendered by a concern decides the method applicable to it. Broadly speaking, there are two main methods of costing job costing, Process costing. The others are either variants of these two methods or are techniques used for a particular purpose under particular conditions.

The methods which combine the features of basic costing systems are, according to J.Batty, hybrid costing systems.

Job Costing: under this method, the cost unit is taken to be a job, small or big, comprising of a definite quantity of a product manufactured. So the approach is product approach. Job costing
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System is used where it is desired to ascertain the cost of a job or a specific order or of a batch of finished goods and also profit or loss on each job. Thus, printers, publishers, machine tool manufacturers, caterers, job foundries, painters, builders etc. use job Costing system. N.B. the approach of job costing system is product approach i.e. emphasis is given on the job and costs of products in a job are Ascertained. The approach of process costing and farm costing is period approach i.e. emphasis is given on the period of time and costs incurred during a period are ascertained and are divided by the number of units produced to obtain unit cost. The variants of job costing are the following: Batch Costing: Here the cost of a group of products is ascertained. A group or batch of identical production units is taken as a cost unit. (Under pure job Costing, a single job or order is taken as a cost unit.) Batch Costing is used by engineering factories producing components or spare parts in economical batches and also by factories which produce a small number of items, but each item on mass scale (furniture, medicine, garments, toys, packed food, biscuits etc.) The approach is product approach.
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I.

II.

Terminal or contract costing: Here the cost unit is a contract. The cost of the contract and profit or loss thereon is ascertained. The execution period of the contract may extend over a number of years. Building and construction engineering concerns and ship Builders use contract or terminal costing. The approach is product approach Multiple or composite Costing: Industries which produce a number of components and then assemble them into a final complete product use Multiple or composite Costing. The approach is product approach. Cost of each component is ascertained, because no assembly is done. Multiple or Composite Costing is used by industries like automobile, bicycle, aero plane, radio receiver, television, locomotive, airconditioners, etc. PROCESS COSTING Konter As: A method of cost accounting where by costs are charged to process or operation and averagely over units produced.

III.

Where manufacturing is carried out as a continuous process, Process Costing is used. The approach of process costing is period approach.
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Cost during a period, department wise or process wise is determined. This cost being divided by the number of units of output during the same period gives the unit cost. Industries like refineries, chemical, cement, sugar, pharmaceutical, gas and Electricity generating concerns, steel industries, soap industries, leather industries etc. use process costing. Variants of process costing are the following: Single or Output Costing: Industries which produce only a single uniform product or a very small number of similar products or a single product of different grades use Single or Output Costing. Here the approach is period approach. The period cost being divided by the number of units produced, gives the nit cost. Iron & Steel Industries, Breweries, Collieries, Mines and Quarries etc. use Single or Output costing. Operation Costing: Here, instead of the process, each operation is taken as the cost center. In industries where the production is carried out by a number of distinct operations, Costing is suit
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I.

II.

ably used. If in the manufacture of a particular product there are four distinct operations and the operation unit costs are a, b, c, and d, the cost of the finished unit is determined by a+b+c+d. Operating Costing: The approach of Operating Costing is

III.

period approach. It is used in those concerns which render services and do not manufacture goods. Educational institutions, hospital transport companies, railways, power houses etc, use operating costing. The respective cost units are a student, a bed, a passenger kilometer / ton kilometer, a kilowatt- hour etc. The cost of an educational institution during a period is ascertained and is divided by the number of student to obtain unit cost. Similarly, unit cost of other concerns is determined. Operating Costing may be regarded as a separate type owing to its distinct nature, but it may also be regarded as a variant of Process Costing. ADVANTAGES OF PROCESS COSTING The following advantages of process costing are claimed: 1. Process costing involves less expense and less effort on accounting owing to its simple nature.
2.

It gives detailed cost of each process, operation or department, budgeted and actual, enabling the
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management to employ effective control on performance. 3. Overheads may be allocated to department or process accurately on definite bases of allocation. 4. Since the production is continuous (or since mass production is of repetitive nature) fairly stable standard may be set for production activities.
5.

Process cost can be determined for short periods. The unit cost can be ascertained by dividing the process cost of the period by the number of units produced in that period. Thus, it is possible to ascertain unit cost weekly or even daily, provided overhead recovery rates are predetermined.

6. Price quotation is very easy in process costing, because there is standard material consumption and standard expenses of operations. DISADVANTAGE OF PROCESS COSTING:The following disadvantages of process have been pointed out: 1) Since cost is ascertained only at the end of a cost period. Effective control on activities cannot be exercised unless standard process costs are used.
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2) In case of joint products (i.e., more than one product coming from the same process), the total cost are apportioned to the various products thus, the cost of each product cannot be very much reliable. 3) The unit cost, under process costing, represents average costing, represented average cost over a period. So day to- day individual efficiency of performance cannot be judged.
4)

In process costing, work in-progress has to be valued at the end of each cost period. The process cost after adjustment for work- inprogress being divided by the number of units cost. Value of work-inprogress, being only an outcome of estimation, renders process costs inaccurate.

FEATURES OF PROCESS COSTING:The following characteristic of process costing has been observed:1.

Entire factory is divided into a number of processes or departments. Each process or department undertakes a particular operation which is a definite part of the total operation needed to complete production. Each process or department is treated as a cost center and separate cost records are maintained for each cost center. Materials cost, wages and overheads are collected process wise or department wise and charged accordingly.

2.

3. Production data are collected separately for each process.

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4. Cost of the production units normally lost or spoiled, are ascertained and included in the costs of good units produced. 5. Finished product from one process passes as raw materials to the next process and charges are made accordingly, in order to arrive at the cost of finished product at the of a cost period. 6. Work- in- progress and each process cost period is valued and considered for arriving at end of a cost period.
7.

Unit cost of each process during a period is obtained by averaging the total cost of the period.

8. When more than one product is obtained from a process (i.e., in case of joint products) the total cost of the process during the cost period are apportioned to the products, suitably.

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TYPES OF PROCESS PLANTS:Industries that normally employ process costing. Copper (HCL) Gas Electricity Ice Steel Paper Cement Process Plant Rubber Bakeries Flour Mills Canners

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Manufacturers of medicines Fitting & Equipment Oil Refineries Industries Fertilizer Industries

Research Methodology I used all primary & secondary data for analysis. To know the various aspects of Cost-Accounting being done at KCC, the data has been collected from the internal as well as external sources. The focus of the study is on Cost-Analysis. The secondary data are the published data. The data has been collected for previous 3 years. There are two types of research of design used by me: DESCRIPTIVE RESEARCH DESIGN QUANTITATIVE RESEARCH DESIGN

DESCRIPTIVE RESEARCH DESIGN Descriptive research includes survey and fact finding enquiries of different kinds. The major purpose of descriptive research is description of State affairs as it exists in present. In social and
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business research we quite often use it. I have done Survey and found facts by personal interview so it is descriptive.

QUANTITATIVE RESEARCH DESIGN Quantitative research is based on the measurement of quantity or amount. It is applicable to phenomena that can be expressed in terms of quantity. I have also found requirement in quantity for analysis of cost and used the quantitative research design.

Data collection I have collected all the data from companys internal as well as external sources. For data collection I took interviews of finance officers as well as some of employees. My main source of data was companys accounts, annual reports, annual & monthly cost sheets etc. I gathered data from these sources and analyzed them. Another source of getting data was companys monthly magazine Tamralipi. It is published by head office at Kolkata. This is also a great source of getting data.
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Findings & Analysis

HCL PROCESS COSTING SYSTEM

HCL Follows Process Costing system since output of one process is input of the next process. Elements of Cost:I. Variable Cost:1.

Material:a. Feed Material b. Raw Material c. Operating Materials

d.

Liquid oxygen

e. Fuel f. Others Stores 2. Power 3. Spares (1/3rd) 4. Incentive Bonus 5. Royalty & Cess
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6. Amortization (Mine Development Expenditure) 7. Utilities: a) Steam b) Compressed Air c) Water II. Fixed Cost: 1. Salaries & Wages 2. Repair & Maintenance 3. Mine Services 4. Central Services 5. Depreciation 6. Interest 7. General Overhead 8. Social Overheads 9. Head Office Expenses 10. Selling & Distribution

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HCL is one of the companies which use process costing method. For study of cost analysis, I went through the cost sheets of last three years and found out the trend of production cost of the company. There are 8 cost centers of the company. Every centre has its own production cost and I have done analysis of every cost centre. Name of all these cost centers are:1. Khetri mines, 2. Kolihan mines, 3. Concentrator, 4. Slag treatment plant, 5. New anode, 6. Cathode, 7. Wire bar, 8. Sulphuric acid plant.

Now I will analyze the cost of production, cost centre wise for last three years starting from 2008-09 to 2010-11.
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Cost centre- Total Mines (Khetri & Kolihan Mines) Particulars Total ore production MT Total metal in ore MT Total variable cost (lacks) Variable cost / MT (Rs.) Total fixed cost (lacks) Fixed cost/ MT (Rs.) Total cost of production (lacks) Cost of production / MT (Rs.) Total process cost/ MT of metal (Rs.) Analysis:Total ore production and metal in ore is decreased in F.Y. 2009-10 and it become 971511MT in F.Y 2010-11. Variable cost per MT was Rs.282.73 in F.Y. 2008-09 and it became Rs. 378.84 in 2009-10. There was major change in variable cost. The main reason of this change was that companys Royalty and Amortization cost doubled during this period. In 2010-11 there was again major change in variable cost/MT. In this year there was a slight change and reason for this change was the increase in power cost of the company.
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F.Y. 2008-09 1050717 10132 2867.10 282.73 7484.04 738.06 10351.14 1020.79 104885.39

F.Y. 2009-10 907388 8621 3335.72 378.84 7646.21 868.36 10981.93 1247.20 130056.01

F.Y. 2010-11 971511 9373 3855.38 417.04 9913.42 1072.34 13768.80 1489.38 152040.63

Total fixed cost of the company was increased to Rs.7646.21lakhs in 2009-10; it was because of higher wages & salaries for mine services and increase in general overheads. In 2010-11 it reached to Rs. 9913.42 lakhs this was also because of increase in salaries & wages of workers, stores & spares and in general overheads. As a result of increase in TVC & TFC, overall cost of ore production in mines is increased. Cost centre- Concentrator Particulars Total concentrate MT Metal in concentrate MT Total input material cost(lacks) Total variable cost (lacks) Variable cost / MT (Rs.) Total fixed cost (lacks) Fixed cost/ MT (Rs.) Total cost of production (lacks) Cost of production / MT (Rs.) Total process cost/ MT of quantity (Rs.) F.Y. 2008-09 58288 10050 11385.57 1633.43 2602.30 2223.21 3814.09 15242.21 26149.68 38374.52 F.Y. 2009-10 46582 7992 11608.19 1201.45 2579.17 2866.57 6153.72 15676.21 33652.79 50901.15 F.Y. 2010-11 45174 8059 13900.12 2018.73 4468.74 3141.82 6954.84 19060.67 42193.75 64034.61

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Analysis:In the year 2009-10 quantity of concentrate was decreased but in the year 2010-11 it was also decreased and reached to 45174 MT. Total input material cost was also increased to Rs. 11608.19 lakhs in year 2009-10 as compared to previous year when it was Rs. 11385.57 lakhs. This increase was due to increase in rate & quantity of ore. In the year 20010-11 the input cost reached to Rs. 13900.12 lakhs. This increase was also because of increase in rate of ore and increase in inter unit transfer (I.U.T.) cost. Variable cost / MT was decreased in year 2009-10 as compared to previous year. This was because of decrease in cost of operating materials, especially, decrease in rate of grinding media rods. In year 2010-11, variable cost/MT was increased and reached to Rs.4468.74.

The reason for this increase was increase in rate of operating material especially in grinding media rods and increase in cost of stores. Total fixed cost was also increased in 2009-10 as compared to previous year, it was due to increase in cost of salaries & wages and social overheads. In the year 2010-11 it was also increased than compared to
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Previous year and this was also because of increase in cost of salaries & wages of workers increase in cost of spares and other contractual jobs. Total cost of production was also increased due to consistent increase in TVC & TFC.

Cost centre- Slag Treatment Plant Particulars Slag concentrate MT Metal in slag concentrate MT Total input material cost(lacks) Total variable cost (lacks) Variable cost / MT (Rs.) Total fixed cost (lacks) Fixed cost/ MT (Rs.) Total cost of production (lacks) Cost of production / MT (Rs.) Total process cost/ MT of quantity (Rs.) F.Y. 2008-09 10235 2935 3667.26 260.85 2548.57 328.62 3210.69 4256.73 41589.84 20084.15 F.Y. 2009-10 Nil Nil Nil 21.34 Nil 213.87 Nil Nil Nil Nil F.Y. 2010-11 Nil Nil Nil 22.42 Nil 6.12 Nil Nil Nil Nil

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Analysis:Quantity of slag concentrate Nil in year 2009-10 and also Nil in year 2010-11 because plant was not work in such years. Metal in slag concentrate MT, Total input material cost, variable cost/MT etc. all was NIL in the year 2009-10 & 2010-11. There was only fixed cost and some total variable cost during this period of time.

Cost centre- New Anode Particulars New anode production quantity MT Output new anode (metal) MT Total input material cost(lacks) Total variable cost (lacks) Variable cost / MT (Rs.) Total fixed cost (lacks) Fixed cost/ MT (Rs.) Total cost of production (lacks) Cost of production / MT (Rs.) Total process cost/ MT of quantity (Rs.) F.Y. 2008-09 19952 19863 53162.11 7598.78 38085.23 6167.85 30913.35 66928.74 335448.61 68998.74 F.Y. 2009-10 Nil Nil Nil 430.08 Nil 4718.31 Nil Nil Nil Nil F.Y. 2010-11 Nil Nil Nil 70.79 Nil 3869.44 Nil Nil Nil Nil

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Analysis:Company didnt produce new anode after the year 2008-09. So that new production, total input material cost, variable cost/MT. all was NIL in the year 2009-10 & 2010-11. There was only fixed cost and some total variable cost during this period of time.

Cost centre- Cathode Particulars Cathode production quantity MT Cathode production (metal) MT Total input material cost(lacks) Total variable cost (lacks) Variable cost / MT (Rs.) Total fixed cost (lacks) Fixed cost/ MT (Rs.) Total cost of production (lacks) Cost of production / MT (Rs.) Total process cost/ MT of quantity (Rs.) F.Y. 2008-09 21759 21756 66872.54 726.13 3337.06 1597.76 7342.88 69196.43 318012.73 10680.13 F.Y. 2009-10 Nil Nil Nil 37.24 Nil 1193.61 Nil Nil Nil Nil F.Y. 2010-11 Nil Nil Nil 25.35 Nil 1129.63 Nil Nil Nil Nil

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Analysis:Company didnt produce Cathode after the year 2008-09. So that new production, total input material cost, variable cost/MT. all was NIL in the year 2009-10 & 2010-11. There was only fixed cost and some total variable cost during this period of time.

Cost centre-Wire Bar Particulars Wire bar production quantity MT Wire bar production (metal) MT Total input material cost(lacks) Total variable cost (lacks) Variable cost / MT (Rs.) Total fixed cost (lacks) Fixed cost/ MT (Rs.) Total cost of production (lacks) Cost of production / MT (Rs.) Total process cost/ MT of quantity (Rs.) F.Y. 2008-09 Nil Nil Nil 9.74 Nil 62.42 Nil 72.16 Nil 72.16 F.Y. 2009-10 Nil Nil Nil 5.35 Nil 57.58 Nil Nil Nil Nil F.Y. 2010Nil Nil Nil 5.02 Nil 2.84 Nil Nil Nil Nil

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Analysis:Company didnt produce wire bar after the year 2005-06. Total production, total input material cost, variable cost/MT etc. all were NIL in the year 2009-10 & 2010-11. There was only fixed cost and some total variable cost during this period of time.

Cost centre- Sulphuric Acid Plant Particulars Sulphuric acid production MT Total input material cost(lacks) Total variable cost (lacks) Variable cost / MT (Rs.) Total fixed cost (lacks) Fixed cost/ MT (Rs.) Total cost of production (lacks) Cost of production / MT (Rs.) Total process cost/ MT of quantity (Rs.) F.Y. 2008-09 14754 109.70 661.04 4480.38 1076.93 7299.16 1847.67 12523.06 11779.65 F.Y. 2009-10 Nil Nil 23.70 Nil 835.35 Nil Nil Nil Nil F.Y. 2010-11 Nil Nil 21.68 Nil 889.61 Nil Nil Nil Nil

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Analysis:Company didnt produce Sulphuric acid production after the year 200809. So that new production, total input material cost, variable cost/MT. all was NIL in the year 2009-10 & 2010-11. There was only fixed cost and some total variable cost during this period of time.

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Conclusion and recommendations

After completing my project on cost analysis of KCC, I found some facts about the companys cost accounting system. I took data from companys accounts and analyzed them. After analyzing them I found that cost of production of every cost centre is increasing regularly. There were some stages in these three years of time when cost of production decreased as compare to previous year. Variable cost per MT was not constant to all the years, it was fluctuating very much. Total fixed cost was also not constant, it was increasing regularly. The capacity of the plant such as refinery and smelter is very much and available concentrate is very less as compare to their capacity so the cost of production is going to be very high. A mine of the company has also reached at very deep level. At present, the mining activities are being carried out in 0 level, 120 meter &180 meter levels so the cost of mining is also increasing day by day. The metal grade in ore is also a factor for higher production cost of the company. The metal grade in the ore in not very much so a little amount of metal is obtained from a large quantity of ore. This also increases the cost of production. Some times before, the company was importing the Concentrate from other units of the HCL and from outside of India also to meet the capacity of its smelter and refinery plant. At that time the cost of imported concentrate was low and thats why the cost of production of company was also less but now the cost of imported concentrate is high and company stopped to import concentrate from outside, because of this reason the cost of production on companys own concentrate is going high.
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Other fixed costs such as salaries & wages of workers and officers, maintenance of plant & machinery etc. are also high and this leads to Continuous increase in total fixed cost. As a result of this the cost of production is also increasing regularly. There are some suggestions from my side to reduce the overall cost of production. These suggestions are:1. Proper planning & implementation 2. Sound organization 3. Proper fund management 4. Better contractor management 5. Proper cost control Proper planning & implementation:I.

Develop a comprehensive time plan for various activities like: - Land acquisition, tender evaluation, requirement of personnel, construction of building, modernization of plant, arrangement for utilities, trial production run etc.

II. Estimate meticulously the resource requirements (manpower, materials, money etc,) for each period to realize the time plan. III. Specify cost standards.

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Sound organization:A sound organization for implementing the project is critical to its success. The characteristics of an organization are:a. It is led by all competent leaders who are accountable for the project performance. b. The authority of the project leader and his team is commensurate with their responsibility. c. Adequate attention is paid to the human side of the project. d. Systems and methods are clearly defined. e. Reward and penalties to individuals are related to performance Proper fund management:It is a common observation that firms which have a comfortable liquidity position are in general able to implement projects expeditiously and economically. Having an enough fund is not sufficient but its proper management is also necessary. Fund should be used in those activities which gives long term benefit to the company.
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Better contractor management:1. The competence and capability of all the contractors must be ensured and weak link can the contract.
2.

jeopardize the timely performance of

Help should be extended to contractors and suppliers when they have genuine problems. They should be regarded as partners in a common pursuit. Project authorities must retain attitude to off load contracts (partially or wholly) to other parties well in time where delays are anticipated.

3.

Proper cost control:I. control on wastage and recycle perfectly. II. Improve security system related to product (many cases found of theft). III. Import concentrate from other countries whose Metal content is high as compares to our. IV. Fill the gap between high level and lower level. V. stop the political interference, castism & corruption.
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SWOT ANALYSIS
STRENGTH WEAKNESS

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1) The only vertically integrated copper producer in India. 2) Fully developed infrastructural facilities. 3) Rich experience in copper mining, smelting, refinery etc. 4) Holding mining lease of 60% of Indias copper reserves. 5) Skilled and well-trained work force/manpower. 6) Established brand value as it is the oldest one. 7) Wide distribution network and established customer base. 8) Wide distribution network 9) Experience and skilled HR. 10) Only vertically integrated copper producer in India. 11) Producing refined copper From mining stage. 12)Capability to assimilate new Technology. 13)Production facilities are Spread across the country.

1) Low process efficiency/old technology 2) High cost due to low scale of operation 3) Limited value added products. 4) Limited IT intervention 5) High cost of logistics due to multi-location units. 6) Accumulated losses 7) Low scale of operation 8) Underground mines and KCC with low grade and precious metal content. 9) Low sustaining rate of growth 10) Lack of advertising 11) Large work force but relatively low labor productivity as compare to competitors. 12) High capital overheads that decreases the profitability of the company

OPPORTUNITY

THREAT

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1) Copper demand growth is 7-8% in India 2) buoyancy in world copper Man power 3)potential to develop /construction new mines as Well as to re-open the closed Mines. 4)Opportunities to explore new Deposits (40000 sq. km Conducive area for copper Mineralization awaiting Exploration) 1) Increasing infrastructure and consumer demand will drive growth of copper in India by about 7-8% government power for all by 2012 scheme, rural electrification , railway electrification etc 6)scope of starting new project Through joint venture to attain Rapid growth. 7) Opportunities for FDI, technology collaboration etc can become a global player.

1) Rising cost of inputs especially power & fuel. 2) Continuous attrition of skilled manpower. 3) Cyclic nature of world copper prices 4) Production substitution i.e aluminum optical fiber 5) Due to heavy production Cost company may go for Shut down.

Personal Reflections:Page | 73

This was a great opportunity for me to work in an esteemed organization such as HCL. This was my first practical experience to work in a real corporate world. I learnt a lot from this summer internship. Before summer training, I have read a great deal about the organization (HCL) and about maintaining financial system in books only but in KCC, I got the real knowledge of a finance department ofn organization. I got the knowledge of various sections of the finance department and their major activities. I also learnt the interrelation of various departments of an organization. After getting formal knowledge of all the sections and departments, I will emphasis on my main project work. My project was on cost analysis, so I got much knowledge of cost accounting and costing systems. I studied the cost sheets and other accounts of the company and also helped in preparing monthly cost sheet of the company. This was a great opportunity for me. I also got knowledge about companys production process and visited the production plant and mining area.

Best thing which I learnt here was to work on ERP system. In todays technological era every organization is using ERP system in its organization and this was a good opportunity for me to learn how to work on ERP system. I used ERP system and prepared a lot of contracts bills using this system and also made payments to same using this system. This was a good learning for me. Instead of all these I also worked on excel and prepared various documents such as service tax bill, PVC (price variation clause) etc.

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While preparing all these statements on excel I learnt about the various taxes and their rates. All these learning are very important for me and will help me in future. During this period of learning of two months, I also faced some problems such as non availability of relevant information at different times, lack of time given by staff due to lack of staff in the finance department, etc. but above all this was a good and great experience for me.

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Bibliography:i)

www.google/HCL/financials

ii)

www.yahoo/hcl/copper

iii)

Basic of cost accounting Joseph Anbarasu

iv) Financial Management M. Y. Khan & P.K. Jain

v) Financial Management M. R. Agarwal vi) vii) viii) Hindustan Copper Limited Annual Reports Tamra Lipi Company Accounts
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