MANAGERIAL ACCOUNTING

PROJECT REPORT

CONTENTS
1. Acknowledgement
2. Executive Summary
3. Introduction
4. Objectives of the study
5. Literature review
6. Data Analysis
7. Dabur’s Performance in the year 2012-13
8. Recommendations
9. Conclusion
10. References
ACKNOWLEDGEMENT
We are grateful to Dr. N.L. Ahuja for giving us an opportunity to perform the cost analysis of
a company. This project has helped us in understanding concepts like Cost Sheet, Break-even
Analysis and their practical applications in business. This project would not have been
successful without his continuous guidance and theoretical inputs.

EXECUTIVE SUMMARY
This project aims to understand the practical application of management accounting concepts
in Dabur India Limited through Cost Sheet and Break-even Analysis.

The project contains all relevant information related to Dabur India Limited. We collected
information from Dabur’s Annual Report 2012-13 and 2011-12 and conducted a comparative
analysis of the two years. We made a Cost Sheet for the year 2012-13 and 2011-12 and
compared the change in costs, sales and profit from the year 2012 to 2013. Further, we
segregated the costs into fixed and variable costs and performed a break-even analysis of the
data.

We also analysed Dabur’s performance in the year 2012-13 and studied the initiatives taken
by the company during the year. Additionally, we proposed a few recommendations for the
company. The detailed analysis of the results have been explained further.

INTRODUCTION
Dabur India Limited is the 4th largest FMCG Company in India with revenues of over Rs.
6146 crores. Building on a legacy of quality and experience of about 127 years, Dabur
operates in major consumer products categories like Hair Care, Home Care, Skin Care, Oral
Care, Health Care & Foods.

From its humble beginnings in the by-lanes of Calcutta way back in 1884 as an Ayurvedic
medicines company, Dabur India Limited has come a long way today to become one of the
leading consumer products manufacturer in India. For the past 127 years, the company has
been dedicated to providing nature-based solutions for a healthy and holistic lifestyle.

Dabur has 2 major Strategic Business Units (SBU) :

  Consumer Care Business
 International Business Division (IBD)

Consumer Care Business caters to consumer needs across the entire FMCG spectrum
through 4 distinct business portfolios:

i. Health Care
ii. Home Care
iii. Personal Care
iv. Foods

The leading Brands of Dabur are:

 Dabur - Ayurvedic healthcare products

 Vatika - Premium hair care
 Hajmola - Tasty digestives
 Réal - Fruit juices & beverages
 Fem - Fairness bleaches & skin care products

Other brands include Dabur Amla, Dabur Chyawanprash, Dabur Red Toothpaste, Babool,
Dabur Honey, Glucose, Odonil, Odomos, Sani Fresh.

International Business Division (IBD) caters to the health and personal care needs of
customers across different international markets like Nepal, Bangladesh, the Middle East,
North & West Africa, EU and the US with its brands Vatika and other Dabur products. This
division contributes to about 30% of the total sales.

Dabur has a wide and deep market penetration with 50 C&F agents, more than 5000
distributors and over 5.8 million outlets all over India. The company sells more than 300
products through prescriptions as well as over the counter.

Through their wide & comprehensive range of products, Dabur touches the lives of all
consumers, in all age groups, across all social boundaries and this legacy has helped them
develop a bond of trust with their consumers that guarantees the best in all products carrying
the Dabur name.

OBJECTIVES OF THE STUDY

The objectives of our study are:

 To estimate the cost and profit of total sales of Dabur in the financial year 2012-13
and 2011-12
  Comparative analysis of 2012-13 and 2011-12 data and analyse trends
 To segregate the total cost into variable cost and fixed cost, and perform a Break even
analysis on the basis of the data
 To analyze the performance of the Company and study the recent trends
 To suggest how the Company can improve its future performance

CONCEPTUAL FRAMEWORK
COST SHEET
A Cost Sheet or Cost Statement is a document that summarizes various costs related to a
product or an order with details of material, labour, cost and expenses and showing components
of total cost in total amounts as well as per unit basis. Often, the cost sheet is extended to
include profit margin so that price of the product may also be determined.

The main advantages of a Cost Sheet are as follows:

1. It provides the total cost figure as well as cost per unit of production.
2. It helps in cost comparison.
3. It facilitates the preparation of cost estimates required for submitting tenders.
4. It provides sufficient help in arriving at the figure of selling price.
5. It facilitates cost control by disclosing operational efficiency.

Cost sheet is prepared on the basis of:

a. Historical Cost
b. Estimated Cost

Historical Cost sheet is prepared on the basis of actual cost incurred. A statement of cost
prepared after incurring the actual cost is called Historical Cost Sheet.
Estimated cost sheet is prepared on the basis of estimated cost. The statement prepared before
the commencement of production is called estimated cost sheet. Such cost sheet is useful in
quoting the tender price of a job or a contract.

COMPONENTS OF TOTAL COST

i. PRIME COST
It consists of direct material, direct wages and direct expenses. So, it represents the
aggregate cost of material consumed, productive wages, and direct expenses. It is also
known as basic, first, flat or direct cost of a product.

Prime Cost = Direct material + direct wages + Direct expenses

 Direct material means cost of raw material used or consumed in production. However,
it is not necessary that all the material purchased in a particular period is used in
production. There may be some stock of raw material in balance at opening and closing
of the period. Hence, it is necessary that the cost of opening and closing stock of
material is adjusted in the material purchased.

Material Consumed = Material purchased + Opening stock of material – Closing

stock of Material

ii. FACTORY COST

Also known as works cost, production or manufacturing cost, Factory cost includes
prime cost along with works or factory overheads. Factory overheads include cost of
indirect material, indirect wages, and other indirect expenses incurred in the factory.

Factory cost = Prime Cost + Factory Overheads

In the process of production, some units remain to be completed at the end of a period.
These are called work-in-progress. Hence, adjustments of opening and closing stock of
WIP are to be made to arrive at the net Factory costs.

iii. TOTAL COST OF PRODUCTION

Total cost of production includes factory cost and office and administrative overheads.

Total Cost of production = Factory Cost + office and administration overheads

iv. COST OF GOODS SOLD

It is not necessary that all the goods produced in a particular period will be sold in the
same period. Hence, adjustments are again made with respect to finished and opening
stock of goods.

Cost of goods sold = Total cost of production + Opening stock of Finished goods-
Closing stock of finished goods

Thus, after adding selling and distribution overheads, we arrive at Total Cost or Cost of
Sales.

v. TOTAL COST = COST OF GOODS SOLD + SELLING AND DISTRIBUTION

OVERHEADS

ACTIVITY BASED COSTING

Having accurate costs is important for a variety of reasons:
 For determining the perfect combination of profitable products.
 For understanding the reason behind increasing top line but decreasing bottom line.
  For understanding the reason behind quoting of different competitive bids for products
and services.

In many cases, accurate cost information is the answer to these questions. Accurate cost
information provides a competitive advantage. It helps an organization to develop and to
execute its strategy by providing accurate information about the cost of its products and
services, the cost of serving its customers, the cost of dealing with its suppliers, and the cost of
supporting business processes within the company.

Activity-based costing (ABC) is a method for determining accurate costs. While ABC is a
relatively recent innovation in cost accounting, it is rapidly being adopted by companies across
many industries, within government and not-for-profit organizations.

In this method, different activities in an organization are first identified and then cost of each
activity of resources is assigned to products or services according to the actual consumption by
each product or service. So, it takes care of indirect costs (overheads) and assigns more indirect
costs into direct costs compared to other conventional costing models. The premise of this
costing approach is that a firm’s products or services are the results of activities and activities
use resources which incur costs. ABC recognizes the causal or direct relationships between
resource costs, cost drivers, activities, and cost objects in assigning costs to activities and then
to cost objects.

Limitations
ABC, however, gained a certain negative ground owing to certain limitations that are listed
below:
 Allocations: Not all costs have appropriate or unambiguous activity or resource
consumption cost drivers. Some costs require allocations to departments and products
based on arbitrary volume measures because finding the activity that causes the cost is
impractical.
 Omission of costs: Product or service costs identified by an ABC system are likely to
not include all costs associated with the product or service. Product or service costs
typically do not include costs for such activities as marketing, advertising, research and
development, and product engineering even though some of these costs can be traced
to individual products or services.
 Expense and time: An ABC system is not cost free and is time-consuming to develop
and implement. Installing a new ABC system is likely to be very expensive for firms
that have been using traditional costing.

BREAK-EVEN ANALYSIS
An analysis that determines the point at which the firm is just meeting its total cost from the
revenue is called break-even analysis.
B.E.P. or Break-Even point is the point where total income from sales is equal to the total cost
(inclusive of fixed and variable). At this point, the firm is not making any profits or loss. So
below this point of production and sales, company will incur loss. A company has to estimate
the level of goods or services sold that covers both fixed and variable costs.

Production costs are categorized between those that are variable in nature (costs that change
when production output changes) and those that are fixed in nature (costs not related directly
to production). Then Contribution margin is calculated by subtracting the variable costs from
selling price. For calculating B.E.P., following formula is used –

Contribution = Selling Price – Variable Costs

B.E.P. = Fixed costs / Contribution

Break-even Analysis is useful as a first step in developing financial applications like invoicing
and budgeting as the main purpose of this analysis is to have some idea of how much to sell,
before a profit is made. Also, in launching a new product, it helps in suggesting about the
sensitivity of the business in relation to decrease in sales units or increase in costs. Mature
businesses can also take a lead from B.E.P. and try to lower it down to increase their
profitability in return, the way many service-based companies (IT consultancies) did during
recession.

Despite having lots of advantages to its name, Break-even analysis has certain limitations
owing to two variables – Selling Price and Total Variable costs. For different selling prices,
many calculations and diagrams will be required to arrive at a B.E.P., which will cost time as
well as effort. Also, total variable costs, as the name suggests, will vary, not just in terms of
quantity but also in terms of items to be included under that bracket as well. Also, “competitive
environment” cannot be quantitatively justified in real world, due to which prices may drop or
soar according to demand.

LITERATURE REVIEW
The article – “The Relevance of Management Accounting for the Hospitality Industry” talks
majorly about the scope of management accounting and how it is different and more than just
recording costs and numbers. It also specifies how it can be beneficial to the Hospitality
industry. The same benefits may be extrapolated to other industries also.
The article defines Management Accounting as making accounting information in management
reports to provide information on costing and other financial data for the managers to take
decisions on regular short terms. This comes across as a key differentiator for Management
Accounting from Financial Accounting which focuses on Annual Reports for the external
stakeholders whereas the Management Accounting is done mainly for the internal stakeholders.
Key aspects of Management Accounting include:
  Planning  Participation in planning at a strategic and operational level, involving the
establishment of policies and formulation of budgets
 Evaluation  Analysis, presentation and interpretation of relevant information to guide
management decisions
 Control  Contributes to control, performance & comparative analysis by providing
reports with the budget, analysis and interpretation of variances
The article also talks about the importance of the representation of cost items in a management
accounting sheet/dashboard. For an industry which focuses on customized services for its
customers, the costing becomes a complex issue and few of the suggested measures to ensure
accurate costing records are by way of Direct Costing and Cost Volume Profit Analysis. In this
project we try to explore all these aspects of Management Accounting by preparing and
studying a cost sheet of Dabur and by doing a breakeven analysis of the cost sheet. (Briciu
Sorin, 2012)

DATA ANALYSIS
We collected the data from Dabur India Ltd.’s Annual Reports (2012-13 and 2011-12).
We have assumed the following for the purpose of cost sheet analysis and break even analysis:
 Rent has been assumed to be factory rent
 Insurance is assumed to be insurance of factory building
 Building is referred to as factory building

In this section, we have done 2 types of analysis :

i. Cost Sheet Analysis
ii. Break-even Analysis

COST SHEET ANALYSIS

A Cost Sheet or Statement is a document that summarizes various costs related to a product or
an order with details of material, labour, cost and expenses showing components of total cost
in total amounts as well as per unit basis.

In this section, we have analyzed various fixed and variable costs under different heads as :
a. Prime cost
b. Production Overhead
c. Office and Administration Overhead
d. Selling and distribution expenses

All costs have been shown in the Cost Sheet, and we have calculated Cost of goods sold and
Net Profit earned by the company.
 Cost Sheet of Dabur India Ltd.
2012-13 2011-12
Total (Rs. Rs.
Particulars Rs.Lacs Lacs) Lacs Total (Rs. Lacs)
Direct material 165805 148370
Direct labour 23636 20708
Direct expenses 31 0
Prime cost 189472 169078

Production Overhead :
Power & fuel 4812 4641
Depreciation on plant & machinery 4619 3681
Stores and spares consumed 1346 1345
Repairs to buildings 345 368
Repairs to plant & machinery 576 448
Processing charges 2300 2074
Rent 2728 2156
Insurance 424 361
Freight & forwarding charges 8180 7196
25330 22270
Factory cost/Production cost 214802 191348

Office & Administration Overhead :

Legal and professional charges 2092 1537
Telephone & fax expenses 394 382
Security expenses 641 560
General charges 15766 12718
Director's fee 11 12
Workmen & staff welfare 1003 983
Repairs 815 737
20722 16929
Total cost of production 235524 208277

Selling & distribution expenses :

Advertisements & publicity 50237 39766
Commission,Discounts and Rebate 3012 3287
Travel & conveyance 3857 3318
57106 46371
Cost of goods sold 292630 254648
Total Sales 614640 528320
Profit 322010 273672
(Dabur India Ltd., 2013)

From the cost sheet, we can see that Sales have increased from Rs. 528320 lacs to Rs. 614640
lacs. There has been a 16.34% increase in Sales. Profit in the year 2012-13 is Rs. 322010
lacs. There has been a 17.66% increase in profits from the year 2011-12. Profits is 52.39% of
sales.

Direct material constitutes 87.5% of prime cost, while direct labour is 12.47% of prime cost.
Hence, we can say that Dabur spends more on raw materials than on the factory workers.
Prime cost has increased by 12.06 % in the year 2012-13.

Production overhead mainly consists of power and fuel which is 19%. Depreciation on plant
and machinery has increased by 25.48%. It constitutes 18.24% of production overhead.
Repairs to machinery increased by 28.57%. However, it accounts to only 2.27% of
production overhead. Rent increased by 26.53% from the previous year. Repairs to buildings
is the only production overhead which has decreased by 6.25% as compared to the previous
year 2011-12. It accounts to only 1.36% of production overhead. Overall, production
overhead has increased by 13.7%.

General expenses accounts to major portion of office and administration overhead, that is
76%. It has increased by 23.97% in the year 2012-13. Director’s fees is the only component
in office & administration overhead which decreases by 8.33% as compared to previous year.
It constitutes 0.05% of office & administration overhead. In general, office & administration
overhead has increased by 22.4%.

Advertisements & publicity increased by 26.33% from the previous year. It constitutes
87.97% of selling & distribution expenses. This indicates that the company focuses highly on
advertisements and hence spends the most in this category. Freight & forwarding charges has
increased from 7196 to 8180, tht is by 13.6%. Commission, Discounts and Rebate is the only
component in selling & distribution expenses which decreases by 8.37%. It forms 5.27% of
selling & distribution expenses. Overall, selling & distribution expenses have increased by
23.15%.

From the cost sheet, we can see that the cost of goods sold has increased from Rs. 254648
lacs to Rs. 292630 lacs, that is by 14.92%.
BREAK-EVEN ANALYSIS
Break-even point is a situation where the firm is just meeting its Total Cost, that is, Fixed and
Variable Costs from the revenue and the firm is not making any profit or loss.

Break-even Analysis
2012-13 2011-12
Particulars Rs.Lacs Total (Rs. Lacs) Rs. Lacs Total (Rs. Lacs)
Sales 614640 528320

Variable cost :
Direct material 165805 148370
Direct labour 23,636 20,708
Direct expenses 31 0
Stores and spares consumed 1346 1345
Processing charges 2300 2074
Freight & forwarding charges 8180 7196
Commission,Discounts and Rebate 3012 3287
Travel & conveyance 3857 3318
208167 186298
Contribution 406473 342022

Fixed cost :
Power & fuel 4,812 4,641
Depreciation on plant and machinery 4619 3681
Repairs to building 345 368
Repair to plant & machinery 576 448
Rent 2,728 2156
Insurance 424 361
Legal and professional charges 2092 1537
Telephone & fax expenses 394 382
Security expenses 641 560
General charges 15766 12718
Director's fee 11 12
Workmen & staff welfare 1003 983
Repairs 815 737
Advertisements & publicity 50237 39766
84,463 68,350
 Contribution/ Sales Ratio 0.661318821 0.64737659
Break-Even Point (Sales Revenue) 127719.0326 105579.9685

(Dabur India Ltd., 2013)

From the above table, we can see that the costs are segregated into fixed and variable costs.
We found out the Contribution by deducting Variable Cost from Sales. Then we found out
the Break-Even Point by dividing the Total Fixed Cost by Contribution/Sales ratio.

Here, we see that the Break-Even Point is Rs. 127719.0326. It has increased by 20.97% from
the previous year. Hence, we can conclude that at Rs. 127719.0326 sales revenue, the
company will break-even and cover all its costs. At this level, the company will be in a No
profit-No loss situation.

DABUR’S PERFORMANCE IN THE YEAR

2012-13
Dabur achieved strong growth in sales and profits during the fiscal year 2012-13 with its
sales crossing Rs. 6000 crores. Inspite of a slowdown in economy, the company witnessed
good growth momentum across different product categories.

As a company, Dabur is highly connected to its consumers and develops products that meet
their needs and requirements. During the year, Dabur introduced a number of new products
and variants, across categories and geographies. Some of the launches in India during the
year include Babool Salt toothpaste, air-freshening gels under the brand Odonil, Gulabari
Saffron & Turmeric Cold Cream and Lotion, Turmeric and Saffron-based bleaches under
Fem, new variants of packaged juices under the brands Réal and Activ and Anardana variant
in Hajmola. Fiscal year 2012-13 also saw Dabur revamp its oldest personal care brand Dabur
Amla hair oil in a contemporary and youthful avatar, besides re-launching the acquired health
rejuvenator and energiser brand, Thirty Plus, with an enhanced formulation. Dabur’s
International Business kept up the strong pace of innovation with several new launches such
as Vatika Henna based Hair Colors, Vatika Black Seed Oil, Dabur Medicated Toothpaste,
Vatika Hair Serums, Curls Unleashed range and others.

To overcome the hurdles posed by a challenging external environment, Dabur has been
taking proactive measures in portfolio, product and channel optimisation. With the
reorganisation of their domestic FMCG business in the year 2011-12, the focus this year was
on ensuring deeper penetration and more effective distribution of products. The rural markets
are a particular case in point as the aspirations of rural consumers are aligning with their
urban counterparts, leading to a steady shift in consumer preference towards branded
consumer products. The rural consumer is no longer seeking brands that have been specially
created for her, but wants the same urban market products that are regularly seen on national
mass media.
On account of employment generation schemes and overall growth in rural economy, the
rural consumer today has more disposable income. In addition, the great rural-urban divide is
no longer as dramatic as it used to be a decade ago. With members of several rural
households migrating to urban markets, the increasing prosperity of these markets has found
its reflection on rural economy as well. Besides increasing prosperity, media reaching deeper
into rural markets has positively impacted consumption patterns. Recognising this huge
opportunity, Dabur had embarked on Project Double in the latter half of fiscal 2011-12 to
enhance presence in rural India. The project was completed in fiscal 2012-13 and the
company has more than doubled their direct reach to 30,091 villages from 14,865 villages in
March 2011. Post completion of this project, Dabur witnessed an increase in their product
width in rural markets which has translated into higher and more profitable sales.

Dabur embraced technology in a big way to service their customers better and establish more
efficient channels of communication not only within the company, but also with their
distributors and channel partners. On one hand, the company deployed efficient IT systems
that helped release valuable time and enabled the sales team to focus on their core activity of
selling with greater efficiency. On the other hand, Dabur is connecting with its consumers
and key stakeholders from nearly every geography and demographic profile in the digital
world. By creating interfaces on the digital social platform, Dabur as an entity and its various
brands are reaching out to consumers, interacting with them and, in the process, enabling
them to become their brand ambassadors. These initiatives have helped Dabur drive demand
and generate strong volume-led growth even in a year that has been challenging for the
economy. (Dabur India Ltd., 2013)

RECOMMENDATIONS
We would like to propose the following recommendations to Dabur India Limited:

Develop a new supply chain management capability: The characteristics of high-

performance businesses has shown that leading organizations reorient their supply chains
based on capability building for revenue enhancing opportunities. Hence, Dabur should
strengthen demand forecasting capabilities, which would result in greater operational
efficiencies and lower inventory costs. The company should also focus on bringing a market-
driven perspective to the new supply chain and build collaboration skills, which are vital for
engaging partners across functional areas throughout the company and across the supply
chain.

Implement a new sales and distribution strategy: Dabur should develop a comprehensive
retail strategy that helps to identify key customer segments in urban and rural markets,
customize sales programs for key accounts and reorganize Dabur’s sales teams by one of four
trade channels (modern trade, rural, “mom-and-pop” and drugstores). Besides, Dabur should
also improve service to Indian mega retailers, which are expected to account for more than 15
percent of consumer product sales.
Improve its communication to rural consumers: The product attributes and benefits are
best communicated through initiatives that help the consumers touch, feel and experience
them. Dabur should put more efforts in reaching out to the rural consumers and designing
campaigns that interact and engage them. For instance, consumer engagement initiatives
through haats and fairs like Kumbh mela, Nauchandi mela, Sonpur mela will provide rural
consumers with an opportunity to experience Dabur products.

CONCLUSION
In India, the FMCG sector brushed past the Rs. 2 trillion mark in fiscal year 2012-13
according to AC Nielsen. At present the Indian FMCG Sector derives one third of its
revenues from the rural markets. The percentage increase in per capita expenditure of the
rural consumer segment is 19.2% whereas the same for the urban segment is 17.2%. This
indicates a growing potential in the rural market of the FMCG companies in India. (Dabur
India Ltd., 2013)

Dabur continues to identify attractive and significant growth opportunities both in India and
abroad and has invested in establishing new facilities to meet the burgeoning demand.
Besides taking proactive measures in portfolio, product and channel optimisation, Dabur
focuses on ensuring deeper penetration and more effective distribution of products.

Moving forward, Dabur plans to invest more in R&D, developing better modifications of
existing products to cater to exact needs of its customer segment. The product divisions
which have planned to increase product innovations are Foods & Healthcare. On a larger
outlook, with the growing trend of targeting the untapped rural consumer base, Dabur shall
also gradually incorporate the rural targeting strategy while competing with its FMCG
counterparts.

Overall, India offers huge potential for consumption in both urban and rural markets and
companies such as Dabur, with robust distribution network and deep understanding of
consumer behaviour, are well positioned to exploit these opportunities.
REFERENCES
Briciu Sorin, S. C. (2012). The Relevance of Management Accounting for the Hospitality Industry.
Annals of the University of Oradea, Economic Science Series , 886-893.

Dabur India Ltd. (2013). Company Annual Report 2012-13.