PROJECT REPORT

on

“A STUDY ON COST BENFIT ANALYSIS”

BY

MOHAMMED ASHFAQ ZAMEER B

1NH18MBA49

Submitted to

DEPARTMENT OF MANAGEMENT STUDIES

NEW HORIZON COLLEGE OF ENGINEERING,

OUTER RING ROAD, MARATHALLI,

BENGALURU
In partial fulfilment of the requirements for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

Under the guidance of

Mr. Sheshu

Asst. Professor

2018 - 2020
 CERTIFICATE

This is to certify that Mohammed Ashfaq Zameer B bearing USN

1NH18MBA49, is a Bonafede student of Master of Business
Administration course of the Institute 2018-20, autonomous program,
affiliated to Visvesvaraya Technological University, Belgaum. Project
report on “A study on Cost Benefit Analysis” is prepared by him under
the guidance of Mr. Sheshu, in partial fulfilment of requirements for the
award of the degree of Master of Business Administration of
Visvesvaraya Technological University, Belgaum Karnataka.

Signature of Internal Guide Signature of HOD Principal

Name of the Examiners with affiliation Signature with date

1. External Examiner

2. Internal Examiner
 DECLARATION

I, Mohammed Ashfaq Zameer B, hereby declare that the project report on “A study on Cost
Benefit Analysis” with reference to “Hyundai Motors” prepared by me under the guidance of
Mr. Shehsu, faculty of M.B.A Department, New Horizon College of Engineering.

I also declare that this project report is towards the partial fulfilment of the university
regulations for the award of the degree of Master of Business Administration by
Visvesvaraya Technological University, Belgaum.

I have undergone an industry project for a period of Eight weeks. I further declare that this
report is based on the original study undertaken by me and has not been submitted for the
award of a degree/diploma from any other University / Institution.

Signature of Student
Place:
Date:
 ACKNOWLEDGEMENT

The successful completion of the project would not have been possible without
the guidance and support of many people. I express my sincere gratitude to Mr.
Nikhil, Sr. Accounts Manager, Advaith Hyundai, Bengaluru, for allowing to do
my project at Hyundai Motors.

I thank the staff of Advaith Hyundai, Bengaluru for their support and guidance
and helping me in completion of the report.

I am thankful to my internal guide Mr. Sheshu, for his constant support and
inspiration throughout the project and invaluable suggestions, guidance and also
for providing valuable information.

Finally, I express my gratitude towards my parents and family for their

continuous support during the study.

MOHAMMED ASHFAQ ZAMEER B

1NH18MBA49
 TABLE OF CONTENTS

SL. NUMBER CONTENTS PAGE NUMBERS

1 Executive Summary 2

2 Industry Profile &Company Profile 9

3 Theoretical Background 31

4 Application Of Theoretical Framework 47

Analysis and Interpretation of Financial
5 64
Statements And Reports
Learning Experience- Findings,
6 85
Suggestions and Conclusion

7 Bibliography 88
 CHAPTER-I
INTRODUCTION

1
 INTRODUCTION

COST:

Cost is essential in every walk of our life – national, domestic and Business. A cost
is prepared to have effective utilization of funds and for the realization of objective as
efficiently as possible. Costing is a powerful tool to the management for performing its
functions i.e., formulation plans, coordination activities and controlling operations etc.,
efficiently. For efficient and effective management planning and control are two highly
essential functions. Costing and cost control provide a set of basic techniques for planning
and control.

A cost fixes a target in terms of rupees or quantities against which the actual
performance is measured. A cost is closely related to both the management function as well
as the accounting function of an organization.

As the size of the organization increases, the need for costing is correspondingly
more because a cost is an effective tool of planning and control. Cost is helpful in
coordinating the various activities (such as production, sales, purchase etc.) of the
organization with result that all the activities precede according to the objective. Costs are
means of communication. Ideas of the top management are given the practical shape. As
the activities of various department heads are coordinated at the much needed for the very
success of an organization. Cost is necessary to future to motivate the staff associated, to
coordinate the activities of different departments and to control the performance of various
persons operating at different levels.

Costs may be divided into two basic classes. Capital and operating costs. Capital
cost is directed towards proposed expenditure for new projects and often require special
financing.

2
 The operating costs are directed towards achieving short-term operational goals of
the organization for instance, production or profit goals in a business firm. Operating costs
may be sub-divided into various departmental of functional costs.

A process by which business decisions are analyzed. The benefits of a given situation or
business-related action are summed and then the costs associated with taking that action
are subtracted. Some consultants or analysts also build the model to put a dollar value on
intangible items, such as the benefits and costs associated with living in a certain town.
Most analysts will also factor opportunity cost into such equations.
You may have been intensely creative in generating solutions to a problem, and rigorous
in your selection of the best one available. This solution may still not be worth
implementing, as you may invest a lot of time and money in solving a problem that is not
worthy of this effort.

Cost Benefit Analysis or cba is a relatively simple and widely used technique for deciding
whether to make a change. As its name suggests, to use the technique simply add up the
value of the benefits of a course of action, and subtract the costs associated with it.

Costs are either one-off, or may be ongoing. Benefits are most often received over time.
We build this effect of time into our analysis by calculating a payback period. This is the
time it takes for the benefits of a change to repay its costs. Many companies look for
payback over a specified period of time – e.g. three years.

In its simple form, cost-benefit analysis is carried out using only financial costs and
financial benefits. For example, a simple cost/benefit analysis of a road scheme would
measure the cost of building the road, and subtract this from the economic benefit of
improving transport links. It would not measure either the cost of environmental damage
or the benefit of quicker and easier travel to work.

3
NEED OF THE STUDY:
The importance of cost reduction programs within a company cannot be overstated.
Companies that are losing money, need to increase profits, or must become more
competitive need to cut expenses in order to succeed. Knowing how to implement effective
cost reduction strategies can be the determining factor in the survival of a business.

When a company must generate more cash as fast as possible, management will have to
decide which costs can be most effectively reduced. If the reduction is needed quickly,
expenses cut first will normally be those that are not fixed or directly tied to production. It
is not a good idea to drastically reduce expenses that produce the company product or
service without careful evaluation.

If your company understands the importance of cost reduction as a tool to increase

profitability, the company will have a much better chance of remaining profitable no matter
what stage of the economic cycle is occurring. That is because cost reduction is an effective
tool that can be responsive to a company's need. Managing expenses is just as important
as managing revenue.

Keeping the competitive edge means keeping the company razor sharp. There is no room
for laxness which dulls the ability of a company to be responsive to market trends. Changes
can occur rapidly, and a company that cannot respond with new methods, new material
usage, service efficiency changes, or technological adaptability will be quickly
outperformed by other businesses. The importance of cost reduction strategies lies in its
contribution to a company's honing of performance.

4
SCOPE OF THE STUDY:
Since it will not be possible to conduct a micro level study of all type industries in
Andhra Pradesh, the study is restricted to Hyundai Motors India Limited (HMIL)only.

OBJECTIVES OF STUDY

THE STUDY HAS THE FOLLOWING:

To provide the material frame work of cost and Cost Control Analysis

To describe the profit of the organization as a backdrop for undertaking a study of

Cost Benefit Analysis.

To analyze the cost system in practice in Hyundai Motors India Limited (HMIL)
with particular reference to their objectives and phases of organizational and re-
appropriation.

In addition to the analysis of the conventional cost system in practice in Hyundai

Motors India Limited (HMIL). The study aims at evaluation and modification to
the current cost system with reference to the various types of costs. The scope in
the formulation of performance cost is also studied.

SOURCES OF DATA:

The data of Hyundai Motors India Limited (HMIL) have been collected mainly
from secondary sources viz.,

• Form the concerned officers of the Hyundai Motors India Limited (HMIL)
Hyundai Motors India Limited (HMIL) journals.

5
 • Accounting books, records.
• Key books of concerned title.
• Statistical records
• Hyundai Motors India Limited (HMIL) library.

METHODOLOGY:

The proposed study is carried with the help of both primary and secondary sources
of data.

PRIMARY DATA:

The primary data is collected by interacting with the finance manager and other
concerned executives at the administrative office of the company.

SECONDARY DATA:

All the secondary data used for the study has been extracted from the annual
reports, manuals and other published material of the company.

LIMITATIONS:

Estimates are used as basis for cost plan and estimates are based mostly on available
facts and best managerial judgment
Cost control cannot reduce the managerial function to a formula. It is only a
managerial.
Tool which increase effectiveness of managerial control.
The use of cost may be to restricted use of resources. Costs an often taken as limits.
Efforts may therefore not be made to exceed the performance beyond the cost
targets.
Frequent changes may be called for in costs due to first changing industrial climate.
6
In order that a system may be successful, adequate costs education should be
imparted at least through the formative period. Sufficient training programs should
be arranged to make employees give positive response to cost activities.
The study is the limited up to the date and information provided by Hyundai
Motors India Limited (HMIL) and its annual reports.

7
 CHAPTER-II
INDUSTRY AND COMPANY PROFILE

8
Introduction
The automobile industry is one of India’s most vibrant and growing industries. This
industry accounts for 22 per cent of the country's manufacturing gross domestic product
(GDP). The auto sector is one of the biggest job creators, both directly and indirectly. It is
estimated that every job created in an auto company leads to three to five indirect ancillary
jobs.
India's domestic market and its growth potential have been a big attraction for many global
automakers. India is presently the world's third largest exporter of two-wheelers after China
and Japan. According to a report by Standard Chartered Bank, India is likely to overtake
Thailand in global auto-export market share by the year 2020.
The next few years are projected to show solid but cautious growth due to improved
affordability, rising incomes and untapped markets. With the government’s backing, and
trends in the international scenario such as the decline in prices of natural rubber, the Indian
automobile industry is slated to witness some major growth.
Market size
The cumulative foreign direct investment (FDI) inflows into the Indian automobile industry
during the period April 2000 – August 2014 was recorded at US$ 10,119.68 million, as per
data by Department of Industrial Policy and Promotion (DIPP). Data from industry body
Society of Indian Automobile Manufacturers (SIAM) showed that 137,873 passenger cars
were sold in July 2014 compared to 131,257 units during the corresponding month of 2013.
Among the auto makers, Maruti Suzuki, Hyundai Motor India and Honda Cars India
emerged the top three gainers with sales growth of 15.45 per cent, 12 per cent and 11 per
cent, respectively.
The three-wheeler segment posted a 24 per cent growth to 51,461 units on the back of
increased demands from the urban market. Total sales across different vehicle segments
grew 12 per cent year on year (y-o-y) to 1,586,123 units.
Scooter sales have jumped by 29 per cent in the ongoing fiscal, and now form 27 per cent
of the total two-wheeler market from just 8 per cent a decade back. The ever-rising demand
for scooters, which has far outstripped supply has prompted Honda to set up its first
dedicated scooter plant in Ahmedabad.

9
Tractor sales in the country is expected to grow at a compound annual growth rate (CAGR)
of 8–9 per cent in the next five years making India a high-potential market for many
international brands.
Investments
To match production with demand, many auto makers have started to invest heavily in
various segments in the industry in the last few months. Some of the major investments
and developments in the automobile sector in India are as follows:
• Ashok Leyland plans to invest Rs 450–500 crore (US$ 73.54–81.71 million) in
India, by way of capital expenditure (capex) and investment during FY15. The
company is required to manage Rs 6,000 crore (US$ 980.56 million) of assets in
seven locations across the world, for which maintenance capex is needed.

• Honda Motors plans to set up the world's largest scooter plant in Gujarat to roll out
1.2 million units annually and achieve leadership position in the Indian two-wheeler
market. The company plans to spend around Rs 1,100 crore (US$ 179.76 million)
on the new plant in Ahmedabad, and expand its range with a few more offerings.

• Yamaha Motor Co has restructured its business in India. Now, Yamaha Motor India
(YMI) will take care of its India operations. “The restructuring is part of Yamaha’s
mid-term plan aimed at improving organizational efficiency,” as per Mr. Hiroyuki
Suzuki, Chief Executive and Managing Director. YMI would be responsible for
corporate planning and strategy, business planning and business expansion, quality
control, and regional control of Yamaha India Business.

• Tata Motors plans to use the 'hub-and-spoke' model in which India will be the key
manufacturing base while it will have mini-hubs in overseas markets. The company
also plans to set up mini hubs in potential markets like Africa, Middle East and
South East Asia.

• Hero Cycles through its unit OPM Global has acquired a majority stake in
German bicycle company Mitteldeutsche Fahrradwerke AG (MIFA) for €15

10
 million (US$ 19.11 million). The company plans to invest an additional €4 million (US$
5.09 million) as capital expenses in restructuring the acquired company.

Government Initiatives
The Government of India encourages foreign investment in the automobile sector and allows
100 per cent FDI under the automatic route. To boost manufacturing, the government had
lowered excise duty on small cars, motorcycles, scooters and commercial vehicles to eight per
cent from 12 per cent, on sports utility vehicles to 24 per cent from 30 per cent, on mid-segment
cars to 20 per cent from 24 per cent and on large segment cars to 24 per cent from 27 per cent.
The government’s decision to resolve VAT disputes has also resulted in the top Indian auto
makers namely, Volkswagen, Bajaj Auto, Mahindra & Mahindra and Tata Motors announcing
an investment of around Rs 11,500 crore (US$ 1.87 billion) in Maharashtra. The Automobile
Mission Plan for the period 2006–2016, designed by the government is aimed at accelerating
and sustaining growth in this sector. Also, the well-established Regulatory Framework under
the Ministry of Shipping, Road Transport and Highways, plays a part in providing a boost to
this sector.
The Government of India-appointed SIAM and Automotive Components Manufacturers
Association (ACMA) are responsible in working for the development of the Indian automobile
industry.
Road Ahead
The future of the auto industry depends on the positive sentiments and the demand for vehicles
in the market. With the festival season coming up, the Indian auto sector will see a rise in
demand which is expected to bring in major growth. An auto dealer survey by firm UBS
suggested that the Indian auto industry, riding on trends like the upcoming festival season and
decline in fuel price, will observe a 12 per cent y-o-y growth in FY15. Also, keeping up with
international trends, there is expected to be a surge in the number of hybrid vehicles in the
Indian auto sector in the years to come.

11
The growth story for the Indian automobile industry in 2014 rode on the two-wheeler
segment and not on passenger cars or commercial vehicles, as high interest rates and a
stuttering manufacturing industry kept a check on demand.

The year also saw Competition Commission of India (CCI) levying a penalty of Rs.2,544.65
crore ($415) on 14 car makers for their restrictive trade practices by preventing independent
repairers coming into the market. Some of the leading car makers also had to recall some
models over defective components.

When other segments like passenger cars and commercial vehicles logged negative growth,
the two-wheeler makers registered around 13 percent growth between January and October.
Riding on the two-wheeler sector's growth, the automotive industry grew
9.8 percent by volume year-on-year (YoY) between January and October.

"The two-wheeler segment is the only one that has clocked positive growth at 12.9 percent
YoY (year-on-year) to reach sales of nearly 13.5 million units by October. This can be
attributed to the low cost of two wheelers

in India," Vijay Kakade, vice president for automotive and transportation practice at Frost &
Sullivan, told IANS.

12
He said the light commercial vehicle (LCV) segment has been the worst hit, with sales reducing
to approximately 330,000 units -- an 18.9 percent YoY fall over 2013.

"The passenger car, medium and heavy commercial vehicle segments contracted by 0.8 and
6.5 percent respectively during the period, compared to 2013. The reduction in sales can be
attributed to the slowdown and the high interest rates set by the RBI (Reserve Bank of India)
reducing the availability of finance options to the public," Kakade added.

"These segments have shown positive signs over the past few months, which is expected to
lead to growth in the next year."

"The year 2014 has been a year of stagnation, which is a positive sign as the decline has
stopped. The industry has shown signs of growth, albeit slower than expected, over the past
few months," Kakade remarked.
P. Balendran, vice president, General Motors India, had similar views to share with IANS:
"Of late, we have seen some movements in new entries driven by novelty factors and some
select manufacturers have been getting the benefits too."
He said the market has not shown any movement forward, despite the excise duty reduction,
while the customer sentiment has not picked up due to sticky interest rates, which remain at
high levels.
"Although fuel prices have started coming down significantly, the enquiry levels at
showrooms have come down and conversions are not taking place at all. The sales of diesel
vehicles are also tapering off because of the narrowing price gap vis-a-vis petrol," Balendran
added.
Expecting the government to continue with a lower excise duty regime for small/midsized/big
cars and sports utility vehicles (SUV) till March 2015, Balendran said the rates should be
continued till the Goods and Services Tax ( GST) is introduced -- aiding the turnaround of the
auto sector.

Terming 2014 a mixed bag for the automobile industry, Sumit Sawhney, chief executive and
managing director of Renault India, told that while there has been a sea change in the

13
consumer sentiment with a gradually improving economic climate in the country, the
optimism has still to translate into sustained sales growth.

"The industry is looking forward to the budget for pro-business policies to reignite the
automobile industry in India."

Highlights of India's automobile industry 2014:

* Overall growth was 9.8 percent by volume year-on-year (YoY) between January and
October.
* Two-wheeler sector grew 12.9 percent
* Passenger car, medium and heavy commercial vehicle segments contracted by 0.8 and
6.5 till October
* LCV segment worst hit, with sales falling 18.9 percent YoY fall over 2013 till October
* Excise duty reduction on automobiles
* Competition Commission of India (CCI) fines 14 car-makers Rs.2,544.65 crore for
restrictive trade practices.

Auto manufacturers have been trying to cope with economical rough patch in last two
years. Trying to boost sales and implementing cost effective schemes just wasn’t enough.
They also had to cut many of their employees loose to stay somewhat balanced, in some
cases. On a fashionable note, senior employees were asked to take voluntary retirement
(not sure what ‘voluntary’ is doing in that sentence).

Tata Motors apart from giving customers attractive offers, gave 600 of their employee’s
early retirement offers, last month. Ashok Leyland too offered 500 of their employees
with irresistible retirement schemes, last year (pun intended).

Sales of Cars, SUVs, Vans, pick-ups, and entire commercial vehicle segment went south,
with passenger vehicle market encountering first decline in the decade. But what saved
the overall scenario was the two-wheeler market. It took 7.31% hike with motorcycle
sales going 3.91% up and scooter sales riding 23% north. Export sales figures also
contributed to somewhat saving the year with rise of 7.21%.

14
The downtrend left auto manufacturers with piled up inventory and stagnation. The
interim budget announced in February, gave a minor boost as all vehicle’s prices were
reduced marginally, but it hasn’t exactly helped boost sales yet. Automakers are
expecting aid from the government’s new budget by way of further tax cuts.

Sales figures of March 2014 shows 12.83% overall growth also by means of increased
two-wheeler sales. Commercial Vehicles have further dipped compared to March 2013
and passenger cars stagnating below the graph. However, overall production has
increased by 9.95% comparing March figures of both years, suggesting auto makers’
confidence in ongoing fiscal to make better.

Launch of new A segment compact cars by various auto majors seems to be helpful in this
economy, for customers as well as value chain entities. Maruti Suzuki finished top on
podium with 42% share in overall car sales, followed by Hyundai with 15% share.

Society of Indian Automobile Manufacturers (SIAM) expects a 6% growth over in the

fiscal 2014-15, with boost in manufacturing sector, new investment and fresh capacities
in the industry. Vikram Kirloskar, president of SIAM says, “Whichever government
comes in…I am looking for stability in excise duty and some reduction in taxes. We are
an over-taxed industry.”

15
16
COMPANY PROFILE
HISTORY:
Hyundai Motor India Limited (HMIL) is a wholly owned subsidiary of Hyundai Motor
Company (HMC). HMIL is the largest passenger car exporter and the second largest car
manufacturer in India. It currently markets nine car models across segments - in the A2
segment it has the Eon, Santro, i10, Grand i10 and the i20, in the A3 segment the Verna, in
the A4 segment the Elantra, in the A5 segment Sonata and in the SUV segment the Santa
Fe.
HMIL's fully integrated state-of-the-art manufacturing plant near Chennai boasts of
advanced production, quality and testing capabilities. HMIL forms a critical part of HMC's
global export hub, it touched 1.5 million in exports in March 2012. It currently exports to
more than 120 countries across EU, Africa, Middle East, Latin America and the Asia
Pacific. HMIL has been India's number one exporter for seven years in a row. To cater to
rising demand the company commissioned its second plant in February 2008 having an
installed capacity of 330,000 units per annum. To support its growth and expansion plans
HMIL currently has 346 dealers and around 800 service points across India. In its
commitment to provide customers with cutting-edge global technology, HMIL set up a
modern multi-million dollar R&D facility in Hyderabad. The R&D center endeavors to be
a center of excellence in automobile engineering.

The Company is an authorized Dealer of Hyundai Motors India Limited (HMIL)

for sale of its entire range of motor vehicles. It is also authorized to service & repair of all
Hyundai cars and also deals in spare parts of Hyundai cars.
Advaith Hyundai was established in the year 1998 in Old Madras road with the
launch of Hyundai’s first car in India- the evergreen SANTRO. The entire business is
managed under the able leadership and guidance of the managing Director Shri K.Rama
Mohana Rao.
Soon after the Old Madras road showroom, came up the ‘state-of-art service
facilities at Kukatpally, Banjara hills and L.B.Nagar. These service centers are well
equipped to cater to the needs of valued customers. The management left no stone unturned
to review, research and implement the latest of technologies and methodologies to improve
on the sales, service on the customer satisfaction. Continuous up gradation of the facilities

17
 at the sales and service outlets and adding to the service agenda each time, add been sales
graph go high by the yea

AWARDS:

Mr. J.S Shin, Sr Director and Plant Head, HMIL and Mr. Rakesh Srivastava, Sr VP, Sales
and Marketing, HMIL at ICOTY 2014 event.

Mr. J.S Shin, Sr Director and Plant Head, HMIL and Mr. Rakesh Srivastava, Sr VP,Sales
and Marketing, HMIL with the ICOTY Jury

Mr. J.S Shin, Sr Director and Plant Head, HMIL and Mr. Rakesh Srivastava, Sr VP, Sales
and Marketing, HMIL with the Grand

Hyundai Grand wins NDTV Car and Bike 2014 Car of the Year Award

The awards received for “ Best in sales ” in south region, “Best in finance ”, “Top
performer ” in 2005 and their technicians being awarded with a Gold Medal for standing
No.1 in the world at World skill Olympics held at Korea-stand testimony to the recognition
that received at the global level.
According to the popular belief, a customer walking into ADVAITH HYUNDAI is
treated like an asset. His/her needs are assessed in the first stage and the customer is
educated subsequently about the product line, service range, allied services, etc., ample
information and time is given to the prospective buyer to make up his/her mind on which
car to buy.
Totally focused customer centric approach, unparalleled service motto, top-end
facilities, bouquet of allied services, solid after sales backup, quality assurance,
unconditional warranty promise and desire to excel through service are some of the threads
which blend in effectively to give birth to the fabric called ADVAITH HYUNDAI
ADVAITH HYUNDAI’s success is just beginning and more to expect spectacular chapters
in the preamble “Winning Edges”.

2014
• Mr. B.S Seo- MD & CEO, HMIL, Mr. Rakesh Srivastava- Sr. VP, Sales &
Marketing, HMIL receiving the coveted ICOTY 2015 for Elite i20

18
 • Mr. B.S Seo- MD & CEO, HMIL, Mr. Rakesh Srivastava- Sr. VP, Sales &
Marketing, HMIL with ICOTY 2015 Jury
• Mr. J.S Shin, Sr Director and Plant Head, HMIL and Mr. Rakesh Srivastava, Sr
VP, Sales and Marketing, HMIL at ICOTY 2014 event.
• Mr. J.S Shin, Sr Director and Plant Head, HMIL and Mr. Rakesh Srivastava, Sr
VP,Sales and Marketing, HMIL with the ICOTY Jury
• Mr. J.S Shin, Sr Director and Plant Head, HMIL and Mr. Rakesh Srivastava, Sr
VP, Sales and Marketing, HMIL with the Grand

2013
• January 8, 2013: Elantra has been awarded the 'Car of the year', 'Design of the year'
and 'Executive car of the year' by Car India and Bike India Awards.
• January 9, 2013: Elantra has been awarded the 'Saloon car of the year and Best
design & styling by Bloomberg UTV Autocar India Awards.
• January 11, 2013: Elantra has been awarded the 'Car of the year' and 'Executive
Sedan of the year' by CNBC TV18 Overdrive Awards.
• January 24, 2013: Elantra has been awarded the Premium Sedan and Automotive
design of year by ET Zigwheels Awards 2012.
• March 05, 2013: Hyundai Introduces Special Edition iTech i10.
• March 20, 2013: Elantra won the 'Sedan of the year 2012' by Autobild India and
Carwale Awards - The Golden Steering Wheel Award.
• August 12, 2013: Hyundai introduces Santro 'Celebration Edition'.
• September 03, 2013: Launch of Hyundai Grand.
• October 17, 2013: Hyundai rolls out the 5th Millionth car.
• December 18, 2013: Hyundai Grand won the prestigious award 'Indian car of the
year 2014'.

2012
• January 5, 2012: The All New Sonata Launched at the New Delhi Auto Expo 2012
• January 5, 2012: Eon has been awarded the prestigious 'Entry-Level
Hatchback of The Year' by ET Zigwheels Awards 2011
• January 5, 2012: Verna has been awarded the prestigious 'Best Midsize Car 2012'
and 'Best Car Manufacturer 2012' by Motor Vikatan'.

19
• January 6, 2012: Verna has been awarded the prestigious 'Sedan of The Year' and
HMIL has been awarded the 'Automotive Company of The Year 2011' by Auto Bild
Carwale.
• January 13, 2012: Verna has been awarded the prestigious 'Best Design and Styling'
by Bloomberg UTV Autocar Awards 2012.
• January 24, 2012: Eon has been awarded the prestigious 'Micro Car of The Year'
and 'Reader's Choice Award' by Car India and Bike India Awards 2012.
• March 28, 2012: Launch of i-Gen i20.
• April 17, 2012: Hyundai Motor India Ltd wins the Auto India Best Brand Awards
2012- 'Best Customer Service' and 'Best Resale Value'.
• August 13, 2012: Launch of the neo fluidic Elantra.
• December 10, 2012: Elantra has been awarded the prestigious 'Saloon Car of The
Year 2012' by BBC Top Gear Magazine Awards 2012.
ADVAITH HYUNDAI MAN POWER:

Department Own Contract Total

Sales 57 0 57
Service 126 49 175
Spaces 15 0 15
Finance & 98 0 98
HR/Administration
Total 296 49 345

RECRUITMENT PROCESS AT ADVAITH HYUNDAI :

The recruitment process involves both internal and external methods. Internal methods
namely are employee referrals, promotions, intercompany transfers.
Employee referrals;
This is the most common method of recruitment used by the organization. Last year the
organization recruited 16 employees by employee referrals.
Promotions
Posts falling vacant due to be filled will be notified within the division/office, giving
educational qualifications and experience laid down for the post and the extent to which
these will be relaxed for promotion and inviting applications from eligible employees in
lower group, who have rendered the requisite qualifying service and who have requisite
higher post.
External methods of recruitment followed by the organization are employment exchange, paper
advertisements and campus recruitment.

20
Employment Exchange: All vacancies are to be notified to the Local Employment Exchange. If
employment exchanges are unable to sponsor the suitable candidates within the prescribed time
limits, the vacancies may be advertised in the press on a local/regional advertisement the vacancies
may be advertised on India Basis. A minimum of two weeks’ notice is to given to the Local
Employment Exchange for sponsoring suitable candidates.
Paper advertisements:

Of the external methods this method is mostly adopted by the organization. This method of
recruitment involves advertising the requirements of personnel in two of the leading
newspapers one being in English language and other being in regional language. For
recruitments in Hyderabad, Eenadu and Deccan Chronicle are the two leading newspapers
that the requirement of personnel is advertised.

SELECTION PROCESS AT LAKSHM HYUNDAI:

After the recruitment process next step is the selection process in employing a suitable
candidate into the organization. At Hindustan Aeronautics Limited the selection process
mainly includes test/interviews. If a candidate passes through the different rounds of
interviews/test then he is employed into the organization. The Personnel Department of
each division or the corporate office will screen the applications received and categorize
them to those that satisfy prescribed minimum educational qualification and experience
and those do not.

Personal Manager Interview:

This is the first round of interview for the candidate. The Personal manager checks the
knowledge of the candidate in the applied field along with his positive attitude,
communication skills and so on. On personal dissatisfaction the manager can call the
candidate for another round of interview. He prepares an evaluation report on the
candidates' performance in the interview.

Board Directors Interview:

After the personal manager interview, the next in line is the Board Directors Interview.
There are 4 directors who take the seat of interviewer. Questions about family background,
health details, academic performance and activities, likes and dislikes, attitudes and
capabilities etc. are all questioned. The interview conducted by the Board directors can take

21
any shape from stress interview to formal or informal interview depending on the kind of
department they are being recruited for. All the directors prepare an evaluation report
individually on the candidate’s performance in relation to personality, intelligence,
attitudes, skills and knowledge and so on.

Verification of Date of Birth, Character and Antecedents

The secondary school certificate is the accepted document required for verification of date
of birth. However, if this document is not available, the candidate should produce a
RESUME. In that he/she mention all study details of them.

Appointment of selected candidates

Candidates who are selected for appointment to post will be issued with a letter

proposing to offer the post or offering the post. If they accept appointment offer, they

are to be reply in the form.

SALES TEAM PERFORMANCE BONUS POINTS

22
Hyundai Motor India Limited (HMIL) is a wholly owned subsidiary of Hyundai Motor
Company (HMC), South Korea and is the largest passenger car exporter and the second
largest car manufacturer in India. HMIL presently markets 6 models of passenger cars
across segments. The A2 segment includes the Santro, i10 and the i20, the A3 segment
includes the Accent and the Verna, the A5 segment includes the Sonata Transform and the
SUV segment includes the Santa Fe.

HMIL’s fully integrated state-of-the-art manufacturing plant near Chennai boasts of the
most advanced production, quality and testing capabilities in the country. To cater to rising
demand, HMIL commissioned its second plant in February 2008, which produces an
additional 300,000 units per annum, raising HMIL’s total production capacity to 600,000
units per annum.

In continuation with its commitment to providing Indian customers with cutting-edge

global technology, HMIL has set up a modern multi-million-dollar research and
development facility in the cyber city of Hyderabad. It aims to become a center of
excellence for automobile engineering and ensure quick turnaround time to changing
consumer needs.

As HMC’s global export hub for compact cars, HMIL is the first automotive company in
India to achieve the export of 10 lakh cars in just over a decade. HMIL currently exports
cars to more than 110 countries across EU, Africa, Middle East, Latin America, Asia and
Australia. It has been the number one exporter of passenger car of the country for the sixth
year in a row.

To support its growth and expansion plans, HMIL currently has a 315 strong dealer network
and 640 strong service points across India, which will see further expansion in 2010.

Mr. Han Woo Park joined Hyundai Motor Company in Seoul, South Korea, in 1982 in the
finance department and ever since he has been involved with costing, auditing and the
financial operations of the company.

23
He joined Hyundai Motor India Limited in 2003 as the Chief Financial Officer and since
then he has played a pivotal role in HMIL as he was involved in all aspects of the company
in his capacity as a CFO.

Mr. Park has a vast experience and understanding of Hyundai Motor India Ltd and the
Indian culture and has successfully led his team for the last seven years. Mr. Park holds a
degree in Business Administration from the University of Dankook in Seoul, South Korea.

Prior to his becoming the Managing Director of HMIL he held the position of CFO and
Senior Executive Director. Mr. Park lives in Chennai with his wife. He has two children, a
son and a daughter. The son is studying at University of Texas, Austin and the daughter is
studying at SUNY Buffalo. Mr. Park was born in South Korea on January 29, 1958.
Hyundai Motor India Engineering (HMIE) is a fully owned subsidiary of Hyundai Motor
Company, South Korea, which has set up the R&D Centre in Hyderabad. HMIE is a center
with one of the most advanced research and development facilities which focuses on state
of the art product and design engineering and rigorous quality enhancement. The new R&D
Centre at Hyderabad in India is Hyundai Motor Company’s fourth overseas R&D center.
Set up with an investment of Rs. 184 crores, the new 200,000 square-foot facility R&D
Centre, is aimed at further accelerating local content development and enable Hyundai to
respond even more quickly to changing customer needs across the world. The R&D Centre
will further facilitate the development of India as Hyundai’s global hub for manufacturing
and engineering of small cars. The new R&D Centre in Hyderabad will support all back-
end operations like computer aided engineering (CAE), computer aided design (CAD) and
help the R & D work taking place across Hyundai’s car line-up. The R&D Centre will
help in developing vehicles which includes their styling, design engineering and vehicle
test & evaluation. The R&D Centre will play a pivotal role for cars manufactured in India
in order to satisfy the specific needs of the Indian customers.

Hyundai Motor Company’s other overseas R&D centers are located in the United States,
Germany, Japan & Korea.
Management Philosophy With the spirit of creative challenge, we will strive to create a
more affluent lifestyle for humanity, and contribute to the harmony and co-prosperity with
shareholders, customers, employees and other stakeholders in the automobile industry.

24
The spirit of creative challenge has been a driving force in leading HMC to where it is
today.
It is the permanent key factor for HMC to actively respond to change in the management
system and seek creative and self–innovative system. With the spirit of creative challenge,
we create profits, the primary objective of a private enterprise. Furthermore, we take
responsibility for the environment and society we belong to, and offer sustainable mobility
in order to implement our corporate philosophy and provide benefits to all stakeholders
including shareholders, customers, executives, employees, suppliers, and communities.
Vision We announced "Innovation for Customers" as our mid–to long– term vision with
five core strategies: global orientation, respect for human values, customer satisfaction,
technology innovation, and cultural creation. We desire to create an automobile culture of
putting customer first via developing human–centered and environment–friendly
technological innovation.

Management Policy
Based on a respect for human dignity, we make efforts to meet the expectations of all
stakeholders including customers and business partners by building a constructive

25
relationship amongst management, labor, executives and employees. Also, we focus on
communicating our corporate values both internally and externally, and gaining confidence
from all stakeholders.

Mid-and Long-term Strategies We developed five mid–and long–term strategies: global

management, higher brand values, business innovation, environmental management, and
strengthening product competitiveness. Especially, we selected environmental
management as one of our strategies to meet the needs of our stakeholders and the society
we belong to. We also intend to promote sustainability development and preservation of
the environment.

MOST LIKED SMALL CAR IS SANTROXING

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 CHAPTER-III

LITERATURE REVIEW

30
Cost–benefit analysis (CBA), sometimes called benefit–cost analysis (BCA), is a
systematic process for calculating and comparing benefits and costs of a project, decision
or government policy (hereafter, "project"). CBA has two purposes:

1. To determine if it is a sound investment/decision (justification/feasibility),

2. To provide a basis for comparing projects. It involves comparing the total expected
cost of each option against the total expected benefits, to see whether the benefits
outweigh the costs, and by how much.

CBA is related to, but distinct from cost-effectiveness analysis. In CBA, benefits and costs
are expressed in money terms, and are adjusted for the time value of money, so that all
flows of benefits and flows of project costs over time (which tend to occur at different
points in time) are expressed on a common basis in terms of their "net present value."

Closely related, but slightly different, formal techniques include cost-effectiveness

analysis, cost–utility analysis, economic impact analysis, fiscal impact analysis and Social
return on investment (SROI) analysis.

Theory

Cost–benefit analysis is often used by governments and others, e.g. businesses, to evaluate
the desirability of a given policy. It is an analysis of the expected balance of benefits and
costs, including an account of foregone alternatives and the status quo, helping predict
whether the benefits of a policy outweigh its costs, and by how much (i.e. one can rank
alternate policies in terms of the ratio of costs and benefit). Altering the status quo by
choosing the lowest cost-benefit ratio can improve pareto efficiency, in which no
alternative policy can improve one group's situation without damaging another. Generally,
accurate cost-benefit analysis identifies choices that increase welfare from a utilitarian
perspective. Otherwise, cost-benefit analysis offers no guarantees of increased economic
efficiency or increases of social welfare; generally positive microeconomic theory is moot
when it comes to evaluating the impact on social welfare of a policy.

Process

The following is a list of steps that comprise a generic cost-benefit analysis.

31
 1. List alternative projects/programs.

2. List stakeholders.

3. Select measurement(s) and measure all cost and benefits elements.

4. Predict outcome of cost and benefits over relevant time period.

5. Convert all costs and benefits into a common currency.

6. Apply discount rate.

7. Calculate net present value of project options.

8. Perform sensitivity analysis.

9. Adopt recommended choice.

Valuation

CBA attempts to measure the positive or negative consequences of a project, which may
include:

1. Effects on users or participants

2. Effects on non-users or non-participants

3. Externality effects

4. Option value or other social benefits

A similar breakdown is employed in environmental analysis of total economic value. Both

costs and benefits can be diverse. Financial costs tend to be most thoroughly represented
in cost-benefit analyses due to relatively abundant market data. The net benefits of a project
may incorporate cost savings or public willingness to pay compensation (implying the
public has no legal right to the benefits of the policy) or willingness to accept compensation
(implying the public has a right to the benefits of the policy) for the welfare change
resulting from the policy. The guiding principle of evaluating benefits is to list all

32
(categories of) parties affected by an intervention and add the (positive or negative) value,
usually monetary, that they ascribe to its effect on their welfare.

The actual compensation an individual would require to have their welfare unchanged by a
policy is inexact at best. Surveys (stated preference techniques) or market behavior
(revealed preference techniques) are often used to estimate the compensation associated
with a policy, however survey respondents often have strong incentives to misreport their
true preferences and market behavior does not provide any information about important
non-market welfare impacts.

One controversy is valuing a human life, e.g. when assessing road safety measures or life-
saving medicines. However, this can sometimes be avoided by using the related technique
of cost-utility analysis, in which benefits are expressed in non-monetary units such as
quality-adjusted life years. For example, road safety can be measured in terms of cost per
life saved, without formally placing a financial value on the life. However, such non-
monetary metrics have limited usefulness for evaluating policies with substantially
different outcomes. Additionally, many other benefits may accrue from the policy, and
metrics such as 'cost per life saved' may lead to a substantially different ranking of
alternatives than traditional cost-benefit analysis.

Another controversy is valuing the environment, which in the 21st century is typically
assessed by valuing ecosystem services to humans, such as air and water quality and
pollution. Monetary values may also be assigned to other intangible effects such as business
reputation, market penetration, or long-term enterprise strategy alignment.

Time and Discounting

CBA usually tries to put all relevant costs and benefits on a common temporal footing using
time value of money calculations. This is often done by converting the future expected
streams of costs and benefits into a present value amount using a discount rate. Empirical
studies and a technical framework suggest that in reality, people do discount the future like
this.

The choice of discount rate is subjective. A smaller rate values future generation equally
with the current generation. Larger rates (e.g. a market rate of return) reflects humans'

33
attraction to time inconsistency—valuing money that they receive today more than money
they get in the future. The choice makes a large difference in assessing interventions with
long-term effects, such as those affecting climate change. One issue is the equity premium
puzzle, in which long-term returns on equities may be rather higher than they should be. If
so, then arguably market rates of return should not be used to determine a discount rate, as
doing so would have the effect of undervaluing the distant future (e.g. climate change).

Risk and uncertainty

Risk associated with project outcomes is usually handled using probability theory. This can
be factored into the discount rate (to have uncertainty increasing over time), but is usually
considered separately. Particular consideration is often given to risk aversion— the
irrational preference for avoiding loss over achieving gain. Expected return calculations
does not account for the detrimental effect of uncertainty.

Uncertainty in CBA parameters (as opposed to risk of project failure etc.) can be evaluated
using a sensitivity analysis, which shows how results respond to parameter changes.
Alternatively a more formal risk analysis can be undertaken using Monte Carlo simulations.

History
The concept of CBA dates back to an 1848 article by Jules Dupuit and was formalized in
subsequent works by Alfred Marshall. The Corps of Engineers initiated the use of CBA in
the US, after the Federal Navigation Act of 1936 effectively required cost–benefit analysis
for proposed federal waterway infrastructure. The Flood Control Act of 1939 was
instrumental in establishing CBA as federal policy. It demanded that "the benefits to
whomever they accrue in excess of the estimated costs.

Public Policy

The application for broader public policy started from the work of Otto Eckstein, who in
1958 laid out a welfare economics foundation for CBA and its application for water
resource development. Over the 1960’s, CBA was applied in the US for water quality,
recreation travel and land conservation. During this period, the concept of option value was

34
developed to represent the non-tangible value of preserving resources such as national
parks.

CBA was later expanded to address both intangible and tangible benefits of public policies
relating to mental illness, substance abuse, college education and chemical waste policies.
In the US, the National Environmental Policy Act of 1969 first required the application of
CBA for regulatory programs, and since then, other governments have enacted similar
rules. Government guidebooks for the application of CBA to public policies include the
Canadian guide for regulatory analysis, Australian guide for regulation and finance, US
guide for health care programs, and US guide for emergency management programs.

Transportation Investment

CBA application for transport investment started in the UK, with the M1 motorway project
in 1960. It was later applied on many projects including London Underground's Victoria
Line. Later, the New Approach to Appraisal (NATA) was introduced by the then
Department for Transport, Environment and the Regions. This presented cost–benefit
results and detailed environmental impact assessments in a balanced way. NATA was first
applied to national road schemes in the 1998 Roads Review but subsequently rolled out to
all transport modes. As of 2011 it was a cornerstone of transport appraisal in the UK and is
maintained and developed by the Department for Transport.

The EU's 'Developing Harmonized European Approaches for Transport Costing and
Project Assessment' (HEATCO) project, part of its Sixth Framework Programmed,
reviewed transport appraisal guidance across EU member states and found that significant
differences exist between countries. HEATCO's aim is to develop guidelines to harmonize
transport appraisal practice across the EU.

Transport Canada promoted the use of CBA for major transport investments with the 1994
issuance of its Guidebook.

In the US, both federal and state transport departments commonly apply CBA, using a
variety of available software tools including HERS, BCA.Net, StatBenCost, Cal-BC, and
TREDIS. Guides are available from the Federal Highway Administration, Federal Aviation
Administration, Minnesota Department of Transportation, California Department of

35
Transportation (Caltrans), and the Transportation Research Board Transportation
Economics Committee.

Accuracy

The value of a cost–benefit analysis depends on the accuracy of the individual cost and
benefit estimates. Comparative studies indicate that such estimates are often flawed,
preventing improvements in Pareto and Kaldor-Hicks efficiency. Causes of these
inaccuracies include:

1. Overreliance on data from past projects (often differing markedly in function or

size and the skill levels of the team members)

2. Use of subjective impressions by assessment team members

3. Inappropriate use of heuristics to derive money cost of the intangible elements

4. Confirmation bias among project supporters (looking for reasons to proceed)

Reference class forecasting was developed to increase accuracy in estimates of costs and
benefits.

Interest groups may attempt to include or exclude significant costs from an analysis to
influence the outcome.

In the case of the Ford Pinto (where, because of design flaws, the Pinto was liable to burst
into flames in a rear-impact collision), the company's decision was not to issue a recall.
Ford's cost–benefit analysis had estimated that based on the number of cars in use and the
probable accident rate, deaths due to the design flaw would cost it about $49.5 million to
settle wrongful death lawsuits versus recall costs of $137.5 million. Ford overlooked (or
considered insignificant) the costs of the negative publicity that would result, which forced
a recall and damaged sales.

In health economics, some analysts think cost–benefit analysis can be an inadequate

measure because willingness-to-pay methods of determining the value of human life can
be influenced by income level. They support use of variants such as cost–utility analysis
and quality-adjusted life year to analyze the effects of health policies.

36
In environmental and occupational health regulation, it has been argued that if modern cost-
benefit analyses had been applied prospectively to decisions such as removing lead from
gasoline, building Hoover Dam in the Grand Canyon and regulating workers' exposure to
vinyl chloride, they would not have been implemented even though they are considered to
be highly successful in retrospect. The Clean Air Act has been cited in retrospective studies
as a case where benefits exceeded costs, but the knowledge of the benefits (attributable
largely to the benefits of reducing particulate pollution) was not available until many years
later.

Background

Cost-Benefit Analysis (CBA) estimates and totals up the equivalent money value of the
benefits and costs to the community of projects to establish whether they are worthwhile.
These projects may be dams and highways or can be training programs and health care
systems.

The idea of this economic accounting originated with Jules Dupuit; a French engineer
whose 1848 article is still worth reading. The British economist, Alfred Marshall,
formulated some of the formal concepts that are at the foundation of CBA. But the practical
development of CBA came as a result of the impetus provided by the Federal Navigation
Act of 1936. This act required that the U.S. Corps of Engineers carry out projects for the
improvement of the waterway system when the total benefits of a project to whomsoever
they accrue exceed the costs of that project. Thus, the Corps of Engineers had created
systematic methods for measuring such benefits and costs. The engineers of the Corps did
this without much, if any, assistance from the economics profession. It wasn't until about
twenty years later in the 1950's that economists tried to provide a rigorous, consistent set
of methods for measuring benefits and costs and deciding whether a project is worthwhile.
Some technical issues of CBA have not been wholly resolved even now but the
fundamental presented in the following are well established.

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Principles of Cost Benefit Analysis

One of the problems of CBA is that the computation of many components of benefits and
costs is intuitively obvious but that there are others for which intuition fails to suggest
methods of measurement. Therefore, some basic principles are needed as a guide.

There Must Be a Common Unit of Measurement

In order to reach a conclusion as to the desirability of a project all aspects of the project,
positive and negative, must be expressed in terms of a common unit; i.e., there must be a
"bottom line." The most convenient common unit is money. This means that all benefits
and costs of a project should be measured in terms of their equivalent money value. A
program may provide benefits which are not directly expressed in terms of dollars but there
is some amount of money the recipients of the benefits would consider just as good as the
project's benefits. For example, a project may provide for the elderly in an area a free
monthly visit to a doctor. The value of that benefit to an elderly recipient is the minimum
amount of money that that recipient would take instead of the medical care. This could be
less than the market value of the medical care provided. It is assumed that more esoteric
benefits such as from preserving open space or historic sites have a finite equivalent money
value to the public.

Not only do the benefits and costs of a project have to be expressed in terms of equivalent
money value, but they have to be expressed in terms of dollars of a particular time. This is
not just due to the differences in the value of dollars at different times because of inflation.
A dollar available five years from now is not as good as a dollar available now. This is
because a dollar available now can be invested and earn interest for five years and would
be worth more than a dollar in five years. If the interest rate is r then a dollar invested for t
years will grow to be (1+r) t. Therefore, the amount of money that would have to be
deposited now so that it would grow to be one dollar t years in the future is (1+r)-t. This
called the discounted value or present value of a dollar available t years in the future.

When the dollar value of benefits at some time in the future is multiplied by the discounted
value of one dollar at that time in the future the result is discounted present value of that

38
benefit of the project. The same thing applies to costs. The net benefit of the projects is just
the sum of the present value of the benefits less the present value of the costs.

The choice of the appropriate interest rate to use for the discounting is a separate issue that
will be treated later in this paper.

CBA Valuations Should Represent Consumers or Producers

Valuations as Revealed by Their Actual Behavior

The valuation of benefits and costs should reflect preferences revealed by choices which
have been made. For example, improvements in transportation frequently involve saving
time. The question is how to measure the money value of that time saved. The value should
not be merely what transportation planners think time should be worth or even what people
say their time is worth. The value of time should be that which the public reveals their time
is worth through choices involving tradeoffs between time and money. If people have a
choice of parking close to their destination for a fee of 50 cents or parking farther away and
spending 5 minutes more walking and they always choose to spend the money and save the
time and effort then they have revealed that their time is more valuable to them than 10
cents per minute. If they were indifferent between the two choices, they would have
revealed that the value of their time to them was exactly 10 cents per minute.

The most challenging part of CBA is finding past choices which reveal the tradeoffs and
equivalencies in preferences. For example, the valuation of the benefit of cleaner air could
be established by finding how much less people paid for housing in more polluted areas
which otherwise was identical in characteristics and location to housing in less polluted
areas. Generally, the value of cleaner air to people as revealed by the hard market choices
seems to be less than their rhetorical valuation of clean air.

Benefits Are Usually Measured by Market Choices

When consumers make purchases at market prices, they reveal that the things they buy are
at least as beneficial to them as the money they relinquish. Consumers will increase their
consumption of any commodity up to the point where the benefit of an additional unit
(marginal benefit) is equal to the marginal cost to them of that unit, the market price.
Therefore, for any consumer buying some of a commodity, the marginal benefit is equal to

39
the market price. The marginal benefit will decline with the amount consumed just as the
market price has to decline to get consumers to consume a greater quantity of the
commodity. The relationship between the market price and the quantity consumed is called
the demand schedule. Thus, the demand schedule provides the information about marginal
benefit that is needed to place a money value on an increase in consumption.

Gross Benefits of an Increase in Consumption is an Area Under the

Demand Curve

The increase in benefits resulting from an increase in consumption is the sum of the
marginal benefit times each incremental increase in consumption. As the incremental
increases considered are taken as smaller and smaller the sum goes to the area under the
marginal benefit curve. But the marginal benefit curve is the same as the demand curve so
the increase in benefits is the area under the demand curve. As shown in Figure 1 the area
is over the range from the lower limit of consumption before the increase to consumption
after the increase.

Figure 1

When the increase in consumption is small compared to the total consumption the gross
benefit is adequately approximated, as is shown in a welfare analysis, by the market value
of the increased consumption; i.e., market price times the increase in consumption.

40
Some Measurements of Benefits Require the Valuation of Human
Life

It is sometimes necessary in CBA to evaluate the benefit of saving human lives. There is
considerable antipathy in the general public to the idea of placing a dollar value on human
life. Economists recognize that it is impossible to fund every project which promises to
save a human life and that some rational basis is needed to select which projects are
approved and which are turned down. The controversy is defused when it is recognized that
the benefit of such projects is in reducing the risk of death. There are many cases in which
people voluntarily accept increased risks in return for higher pay, such as in the oil fields
or mining, or for time savings in higher speed in automobile travel. These choices can be
used to estimate the personal cost people place on increased risk and thus the value to them
of reduced risk. This computation is equivalent to placing an economic value on the
expected number of lives saved.

The Analysis of a Project Should Involve A with Versus Without

Comparison

The impact of a project is the difference between what the situation in the study area would
be with and without the project. This that when a project is being evaluated the analysis
must estimate not only what the situation would be with the project but also what it would
be without the project. For example, in determining the impact of a fixed guideway rapid
transit system such as the Bay Area Rapid Transit (BART) in the San Francisco Bay Area
the number of rides that would have been taken on an expansion of the bus system should
be deducted from the rides provided by BART and likewise the additional costs of such an
expanded bus system would be deducted from the costs of BART. In other words, the
alternative to the project must be explicitly specified and considered in the evaluation of
the project. Note that the with-and-without comparison is not the same as a before-and-
after comparison.

Another example shows the importance of considering the impacts of a project and a with-
and-without comparison. Suppose an irrigation project proposes to increase cotton
production in Arizona. If the United States Department of Agriculture limits the cotton
production in the U.S. by a system of quotas then expanded cotton production in Arizona

41
might be offset by a reduction in the cotton production quota for Mississippi. Thus, the
impact of the project on cotton production in the U.S. might be zero rather than being the
amount of cotton produced by the project.

Cost Benefit Analysis Involves a Particular Study Area

The impacts of a project are defined for a particular study area, be it a city, region, state,
nation or the world. In the above example concerning cotton the impact of the project
might be zero for the nation but still be a positive amount for Arizona.

The nature of the study area is usually specified by the organization sponsoring the analysis.
Many effects of a project may "net out" over one study area but not over a smaller one. The
specification of the study area may be arbitrary but it may significantly affect the
conclusions of the analysis.

Double Counting of Benefits or Costs Must be Avoided

Sometimes an impact of a project can be measured in two or more ways. For example,
when an improved highway reduces travel time and the risk of injury the value of property
in areas served by the highway will be enhanced. The increase in property values due to
the project is a very good way, at least in principle, to measure the benefits of a project.
But if the increased property values are included then it is unnecessary to include the value
of the time and lives saved by the improvement in the highway. The property value went
up because of the benefits of the time saving and the reduced risks. To include both the
increase in property values and the time saving and risk reduction would involve double
counting.

Decision Criteria for Projects

If the discounted present value of the benefits exceeds the discounted present value of the
costs then the project is worthwhile. This is equivalent to the condition that the net benefit
must be positive. Another equivalent condition is that the ratio of the present value of the
benefits to the present value of the costs must be greater than one.

42
If there are more than one mutually exclusive projects that have positive net present value
then there has to be further analysis. From the set of mutually exclusive projects the one
that should be selected is the one with the highest net present value.

If the funds required to carry out all of the projects with positive net present value are less
than the funds available this means the discount rate used in computing the present values
is too low and does not reflect the true cost of capital. The present values must be
recomputed using a higher discount rate. It may take some trial and error to find a discount
rate such that the funds required for the projects with a positive net present value is no more
than the funds available. Sometimes as an alternative to this procedure people try to select
the best projects on the basis of some measure of goodness such as the internal rate of return
or the benefit/cost ratio. This is not valid for several reasons.

The magnitude of the ratio of benefits to costs is to a degree arbitrary because some costs
such as operating costs may be deducted from benefits and thus not be included in the cost
figure. This is called netting out of operating costs. This netting out may be done for some
projects and not for others. This manipulation of the benefits and costs will not affect the
net benefits but it may change the benefit/cost ratio. However, it will not raise the benefit
cost ratio which is less than one to above one. For more on this topic see Benefit/ cost Ratio
Magnitude.

A cost benefit analysis is done to determine how well, or how poorly, a planned action will
turn out. Although a cost benefit analysis can be used for almost anything, it is most
commonly done on financial questions. Since the cost benefit analysis relies on the addition
of positive factors and the subtraction of negative ones to determine a net result, it is also
known as running the numbers.

Cost Benefit Analysis

A cost benefit analysis finds, quantifies, and adds all the positive factors. These are the
benefits. Then it identifies, quantifies, and subtracts all the negatives, the costs. The
difference between the two indicates whether the planned action is advisable. The real trick
to doing a cost benefit analysis well is making sure you include all the costs and all the
benefits and properly quantify them.

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Should we hire an additional sales person or assign overtime? Is it a good idea to purchase
the new stamping machine? Will we be better off putting our free cash flow into securities
rather than investing in additional capital equipment? Each of these questions can be
answered by doing a proper cost benefit analysis.

Example Cost Benefit Analysis

As the Production Manager, you are proposing the purchase of a $1 Million stamping
machine to increase output. Before you can present the proposal to the Vice President, you
know you need some facts to support your suggestion, so you decide to run the numbers
and do a cost benefit analysis.

You itemize the benefits. With the new machine, you can produce 100 more units per hour.
The three workers currently doing the stamping by hand can be replaced. The units will be
higher quality because they will be more uniform. You are convinced these outweigh the
costs.

There is a cost to purchase the machine and it will consume some electricity. Any other
costs would be insignificant.

You calculate the selling price of the 100 additional units per hour multiplied by the number
of production hours per month. Add to that two percent for the units that aren't rejected
because of the quality of the machine output. You also add the monthly salaries of the three
workers. That's a pretty good total benefit.

Then you calculate the monthly cost of the machine, by dividing the purchase price by 12
months per year and divide that by the 10 years the machine should last. The manufacturer's
specs tell you what the power consumption of the machine is and you can get power cost
numbers from accounting so you figure the cost of electricity to run the machine and add
the purchase cost to get a total cost figure.

You subtract your total cost figure from your total benefit value and your analysis shows a
healthy profit. All you have to do now is present it to the VP, right? Wrong. You've got the
right idea, but you left out a lot of detail.

Running the Numbers Means All the Numbers

44
Let’s look at the benefits first. Don't use the selling price of the units to calculate the value.
Sales price includes many additional factors that will unnecessarily complicate your
analysis if you include them, not the least of which is profit margin. Instead, get the activity-
based value of the units from accounting and use that. You remembered to add the value
of the increased quality by factoring in the average reject rate, but you may want to reduce
that a little because even the machine won't always be perfect. Finally, when calculating
the value of replacing three employees, in addition to their salaries, be sure to add their
overhead costs, the costs of their benefits, etc., which can run 75-100% of their salary.
Accounting can give you the exact number for the workers' "fully burdened" labor rates.

In addition to properly quantifying the benefits, make sure you included all of them. For
instance, you may be able to buy feed stock for the machine in large rolls instead of the
individual sheets needed when the work is done by hand. This should lower the cost of
material, another benefit.

As for the cost of the machine, in addition to its purchase price and any taxes you will have
to pay on it, you must add the cost of interest on the money spent to purchase it. The
company may purchase it on credit and incur interest charges, or it may buy it outright.
However, even if it buys the machine outright, you will have to include interest charges
equivalent to what the company could have collected in interest if it had not spent the
money.

Check with finance on the amortization period. Just because the machine may last 10 years,
doesn't mean the company will keep it on the books that long. It may amortize the purchase
over as little as 4 years if it is considered capital equipment. If the cost of the machine is
not enough to qualify as capital, the full cost will be expensed in one year. Adjust your
monthly purchase cost of the machine to reflect these issues. You have the electricity cost
figured out but there are some cost you missed too.

More Costs

The typical failure of a cost benefit analysis is not including all the costs. In the case of the
stamping machine, here are some of the overlooked costs:

• Floor Space

45
 Will the machine fit in the same space currently occupied by the three workers?

• Installation
What will it cost to remove the manual stampers and install the new machine?
Will you have to cut a hole in a wall to get it in or will it fit through the door?
Will you need special rollers or machinists with special skills to install it?

• Operator?
Somebody has to operate the machine. Does this person need special training?
What will the operator's salary, including overhead, cost?

• * Environment
Will the new machine be so noisy that you have to build soundproofing around it?
Will the new machine increase the insurance premiums for the company?

Accurate Cost Benefit Analysis

Once you have collected ALL the positive and negative factors and have quantified them
you can put them together into an accurate cost benefit analysis.

Some people like to total up all the positive factors (benefits), total up all the negative
factors (costs), and find the difference between the two. I prefer to group the factors
together. It makes it easier for you, and for anyone reviewing your work, to see that you
have include all the factors on both sides of the issues that make up the cost benefit
analysis. For the example above, our cost benefit analysis might look something like this:

Cost Benefit Analysis - Purchase of New Stamping Machine

(Costs shown are per month and amortized over four years)

1. Purchase of Machine .................... -$20,000 includes

interest and taxes

2. Installation of Machine ..................... -3,125 including

screens & removal of existing stampers

46
 3. Increased Revenue .......................... 27,520 net value
of additional 100 units per hour, 1 shift/day, 5
days/week

4. Quality Increase Revenue ..................... 358 calculated

at 75% of current reject rate

5. Reduced material costs ...................... 1,128 purchase

of bulk supply reduces cost by $0.82 per hundred

6. Reduced Labor Costs ....................... 18,585

3 operators’ salary plus labor o/h

7. New Operator ................................. -8,321 salary plus

overhead. Includes training

8. Utilities ............................................ -250

power consumption increases for new machine

9. Insurance ......................................... -180 premiums

increase

10. Square footage ...................................... 0 no

additional floor space is required

Net Savings per Month ........................... $15,715

Your cost benefit analysis clearly shows the purchase of the stamping machine is
justified. The machine will save your company over $15,000 per month, almost $190,000
a year.

This is just one example of how you can use cost benefit analysis determine the advisability
of a course of action and then to support it once you propose the action.

OBJECTIVES OF COST:

The primary objective of cost controls to help the management is systematic

planning and in controlling the operations of the enterprise. The primary objective can be

47
met only of there is proper communication and coordination amongst different within the
organization. Thus, the objectives can be stated as:

1. PLANNING:

Businesses require planning to ensure efficient and maximum use of their resources.
The first step in planning is to define the broad aims and objectives of the business. Then,
strategies to achieve the desired goals are formulated and tentative schedule of eh proposed
combinations of the various factors of production, which is the most profitable for the
defined period. Cost influences strategies that need to be followed by the originations. It
cultivates forced planning aiming managers.

2. CO-ORDINATION:
Co-ordination is managerial functions under which all factors of production and all
departmental activities are balanced and integrated achieve the objectives of the
organization. Costing provides the basis for individual in all department to exchange ideas
on how best the organizations objectives can be realized. Executives are forced to think of
the relationship between their department and the company as a whole. This removes
unconscious bases against other departments. It also helps to identify weaknesses in the
organization structure.

3. COMMUNICATIONS:
All people in the organization must know the objectives, policies and performances
of the organizations. They must have a clear understanding of their part in the
organization’s goals. This is made possible by ensuring their participation in the costing
process.

4. CONTROLS AND PERFORMANCE EVALUTION:

Control ensures control by continuous comparison of actual performance with the
costed performance. Variances are highlighted and corrective action can be initiated. Cost’s
also from the basis of performance evaluation in an organization as they reflect realistic
estimates of acceptable and expected performance.

COST, COSTING AND COST CONTROL:

48
 A cost is BLUE PRINT of a plan expressed in a quantitative term. Costing is a
technique for formulating costs. Cost control relates to the principles, procedures, and
practice of achieving given objectives thorough costs.

From the above definitions we can differentiated the three terms as costs are the
individual’s objectives of a department, etc., whereas costing may be said to be the act of
building cost. Cost control embraces all and in addition includes the science of planning
the costs to effect on overall management tool for the business planning and control.

ESSENTIALS OF COST:
The proper organization is essential for the successful preparation, maintenance and
administration of costs. A cost committee is formed which comprises the departmental
heads of various departments. All the functional heads are entrusted with the responsibility
if ensuring proper implementation of their respective departmental costs.

The chief executive is the overall in charge of cost system. He constitutes a cost
committee for preparing realistic costs. A cost officer is the convener of the cost committee
who co-ordinates the costs of different departments. The managers of different departments
are made responsible for their departmental costs.

COST OFFICER:
The chief executive appoints cost officer. Such cost officer also called as “cost
controller or cost director”. His rank should be equal to other functional managers.

The cost officer does not have the direct responsibility of preparing the costs. The
various functional managers prepare the costs. His role is that of a supervisor. The cost
officer has the specific duty of administering the cost. He is responsible for timely
completion of costing activity by various departments and for co-ordination between them
so the t there is a proper link between them. He is empowered to scrutinize the costs
prepared by different functional heads and to make changes in them. If the situation so
demands.

49
 The cost officer works as a coordinator among different department. He
continuously monitors the actual performance of different departments. He determines the
deviations in the costs and takes necessary steps to rectify the deficiencies, if any. He also
informs the top management about the performance of different department.

The cost officer will be able to carry out his work only if is conversant with the
working of all the departments he must have technical knowledge of the business and
should also possess accounting knowledge.

3. COST COMMITTEE:
A cost committee is formed to assist the cost officer. The heads of the entire
important departments are made members of this committee. The committee is responsible
for preparation and execution of costs. The members of this committee put up the case of
their respective departments and help the committee to take collective decisions, if
necessary. The cost committee is responsible for reviewing the costs prepared by various
functional heads. Coordinate all the costs and approve the final costs, the cost officer acts
as coordinator of this committee. All the functional heads are entrusted with the
responsibility of ensuring proper of ensuring proper implementation of their respective final
departmental costs.

4. COSTS CENTERS:

A cost centers is that part of the organization for which the cost is prepared. A cost
center may be a department, section of a department or any other part of the department.
Ideally, the head of every center should be a member of the cost committee. However, it
must be ensured that each cost center at least has an indirect representation in the cost
committee.

The establishment of cost centers is essential for covering all parts of the
organization becomes easy. When different centers are establishment. The cost centers are
also necessary for cost control purposes.

5. COST MANUAL:

50
 a) A cost manual is a document that spells out the duties and responsible of the various
executives concerned it specifies among various functional areas. A cost manual
covers the following matters.
b) A cost manual clearly defines the objectives of cost control system. It also gives the
benefits and principles of this system.
c) The duties and responsibilities of various persons dealing with preparation and exec
ton of costs are also given in a cost manual. It enables the management to know the
persons dealing with various aspects to costs and provides clarity on their duties
and responsibilities,
d) It gives information about the sanctioning authorities of various costs. The financial
powers of different managers are given in the manual for enabling he spending
amount on various expenses.
e) A proper table for costs including the sending of performance reports is drawn so
that every work starts in time and systematic control is exercise.
f) The specimen forms and number of copies to be listed for cost repots is also stated.
Cost involved should be clearly stated.
g) The length of various cost periods and control points is clearly given.
h) The procedure to the followed in the entire system is clearly stated.
i) A method of accounting to be used for various expenditures is also stated in the
manual.

The cost manual helps in documentation the role of every employee, his duties,
responsibilities the ways of undertaking various tasks etc. thus it also in reducing ambiguity
at any point of time.

6. COST PERIOD:
A cost period is the length of time for which a cost is prepared. It depends upon a
number of factors. The choice of a cost period depends upon the following considerations.
The types of cost (long/short)

• The nature of demand for the products.

• The timings for the availability of the finance.
• The economic situations of the cycles.

51
 All the above-mentioned factors are taken into account while fixing the period of
costs. In this costing process the financial manager has to take the financial decision on the
costs.

The financial manager usually responsible for organizing this cost, he must perform
the following functions.

To decide the general policies and guidelines.

To officer technical advice
To suggest changes
To receive and review individual cost estimates
To reconcile divergent views
To co-ordinate costing activities.
To approve costs with or without revisions.
To scrutinize control reports later on
To scrutinize cost repots later on
To disseminate these guide lines.

CONTINUOUS COSTING SYSTEM:

A continuous costing system is a method of having two different cost periods with
in the same cost. The purpose of having this system is to have greater control in terms of
operational activities without losing sight is to have greater control in terms of it results in
incorporating the effect of changes in the short term on the long-term targets of the
organization.

DETERMINATION OF KEY FACTOR:

The costs are prepared for all functional areas. These costs are interring dependent
and inter-related. A proper co-ordination among different costs in necessary for cost control
to be successful. The constraints on some costs may have an effect on other costs too. A
factor which influences all other costs is known as “key factor or principal factor”.

52
 The key factor may not necessity remain the same. The raw materials supply may
be limited at one time but it may be easily available at another time. Similarly, other factors
may also improve at different times. The key factor highlights are limitations of the
enterprise. This will enable the management to improve the working of these departments
where scope for improvement exists.

REQUISITES FOR A SUCCESSFUL COST

CONTROL SYSTEM
For making a cost control system successful requisite are required.

1. CLARIFYING OBJECTIVES:
The costs are used to realize objectives of the business. The objective must be
clearly spelt out to that costs are properly prepared. In the absence of clear goals, the costs
will also be unrealistic.

2. PROPER DELEGATION OF AUTHORITY AND RESPONSIBILITY:

Cost preparation and control is done are every level of management. Even though
costs are finalized at top level but involvement of persons from lower levels of management
is essential for their success. This necessitates proper delegation of authority and
responsibility.

3. PROPER COMMUNICATION SYSTEM:

An effective system of communication is required for a successful cost control. The
flow of information regarding costs should be quick so that these are implemented. The
upward communication will help in knowing the difficulties in implementation of costs.
The performance reports of various levels will help top management in cost control.

4. COST EDUCATION:
The employees should be educated about the benefit of costing system. They should
be the benefits of costing system they should be educating about their roles in the success

53
of this system. Cost control may not be taken only as a control device by the employees but
it should be used as a tool to improve their efficiency.

5. FLEXIBILITY:

Flexibility in costs is required to make them suitable under changed circumstances.

Costs are prepared for the future, which is always uncertain, even though costs are prepared
by considering the future possibilities but still some adjustment.
Flexibility makes the costs more appropriate and realistic.

6. MOTIVATION:
Costs are to be implemented by human beings. Their successful implementation
will depend upon the interest shown by the employees. All persons should be motivated to
improve their working so that costing is successful. A proper system of motivation should
be introduced for making this system a success.

TYPES OF COSTS:

1. LONG -TERM COSTS:

The long-term costs prepared for a long period of five to ten years. They are
concerned with planning the operations of a firm over a considerably long period of time.
The financial “controller” exclusively for the top management usually prepares long-term
costs. These costs are very useful in terms of physical units (i.e. quantities) or percentages,
since accrued values may be difficult to forecast over such long-period. Capital
expenditure, research and development costs, etc., are examples of long-term costs.

2. SHORT TERM COSTS:

Short-term costs are costs prepared for a short period of one to two year. They are
prepared for those activities the trend in which cannot be for seen easily over long periods.

54
These costs are very useful in case of consumer goods industries such as sugar, cotton,
textiles, etc. they are generally prepared in terms of physical units (i.e. quantities) as well
as monetary units (i.e. values) materials cost. Each cost etc., are example of short-term cost.
They are useful to lower level of management for control purpose.

3. CURRENT COSTS:

Current cost is a cost, which is established for use over a short period of time and is
related to current conditions. Thus, current costs are essentially short-term costs adjusted
to current (i.e., present or prevailing) condition or circumstances. They are prepared for a
very short period. Say, a quarter or a month. They related to current activities of the costs.

4. INTERIM COSTS:
Interim costs are costs, which are prepared in between two cost periods. These costs
may get integrated with the cost of the following period.

CLASSIFICATION OF COSTS ACCORDING TO CONTENT:

Costs may be classified into costs in physical terms and into costs in monetary
terms.

A) COSTS IN PHYSICAL TERMS:

Costs in physical terms are cost in terms quantities only. They do not include
corresponding rupee value. Long-term costs are usually prepared in physical terms.
Examples of such costs are production costs, material cost etc.

B) COSTS IN MONETARY TERMS:

Costs in monetary terms are costs that cost in terms of quantities as well as their
corresponding rupee value, sales cost, purchase cost, etc. are example of such costs. Costs
such as cash cost, capital expenditure cost, etc. that may not have physical quantities also
from part of costs in monetary terms.

55
CLASSIFICATION OF COSTS ACCORDING TO FUNCTION:
Costs can be classified into:
1. operating costs
2. financial costs
3. master costs

1) OPERATING COST:
These costs relate to different activities or operations of a firm. The number of such
costs depends upon the size and nature of the business, the commonly used operating costs
are:
1) Sales costs
2) Purchase costs
3) Raw material costs
4) Labor costs
5) Factory utilization cost
6) Manufacturing expenses or works overhead cost 7) Administrative and selling
expenses cost etc.

The operating cost for a firm may be constructed in terms of programmers or

responsibility areas, and hence may consist of:
Programmed cost
Responsibility cost

A) PROGRAMME COST:
It consists of expected revenues and costs of various products or projects that are
Termed as the major programmers of the firm, such a cost can be prepared for each
product line or project showing revenues, cost and the relative profitability of the
various in locating areas where efforts may be required to reduce costs and increase
revenues. They are also useful in determining imbalance and inadequacies in
programmers so that corrective action may be taken in future.

56
B) RESPONSIBILITY COSTS:

Where the operating cost of a firm is constructed in terms of responsibility Areas,

such a cost shows the plan in terms of persons responsible for achieving them. It is used by
the management as a control them. It is used by the management as a control device to
evaluate the performance of executives who are in charge of various cost centers. Their
performance is compared to the targets (costs), set for them and proper action is taken for
adverse results.
Responsibility areas may be classified under three broad categories:
Cost /expense center
Profit center
Investment center

2) FINANACIAL COSTS:
Financial costs are concerned with cash receipts and disbursements, working
Capital, financial position and results of business operations. The commonly used financial
costs include cash cost, working capital cost and income statement cost, statement of
retained earnings cost, costed balance sheet or position statement cost.

3) MASTER COSTS:
The master cost is the summary cost incorporating its functional costs.
All The operational and financial costs are integrated into the master cost. The cost officer
for the benefit of the top-level management prepares this cost. This cost is used to
coordinate the activities of various functional departments. It is also used as an effective
control device.

CLASSIFICATION ON THE BASIS OF FLEXIBILITY:

A) FIXED COST:
According to ICMA London a fixed cost is a cost which is designed to

57
Remain unchanged irrespective of the level of activity actually attained it is based on a
fixed volume of activity and shows one volume of output and related cost. It is not adjusted
according to the actual level of activity attained.
A fixed cost is useful only when the actual level of activity corresponds with the
costed level of activity. But this generally does not happen as such a fixed cost is not useful
for managerial purposes.

B) FLEXIBILE VARIABLE SLIDING SCALE OR CONTROL TYPE COSTS:

According to ICMA London a flexible cost is a cost which is designed to Change
in accordance with the level of activity actually attained. Thus, a flexible cost changes
according to the change in the level of activity. In other words, it provides the costed costs
at any level of activity. Business activity cannot be accurately predicted on account of
uncertainties of
Business environment. A flexible cost contains several estimates for different assumed
circumstances instead of just one estimate, it provides for automatic adjustments with
changes in the volume of activity. Hence, a situation operating in an unpredictable
environment.

ZERO BASED COSTING:

Zero-based costing is the latest technique of costing and it has increased use as a
managerial tool. This technique was first used in America in 1962, by the former president
America, Jimmy Carter.

As the name suggests, it is starting from a “scratch”, the normal technique of costing
is to use previous years cost levels as a base for preparing this year’s cost. This method
carries previous years inefficiencies to the present year because we take last year because
we take last year as a guide, and decide “what is to be done this year when this much was
the performance of the last year”.

58
 In zero based costing every year is taken as a new year and previous year is not
taken as a base, the cost for this year will have to be justified according to present situation,
zero is taken as a base and likely future activity are decided according to present situations.
In zero base costing a manager is to justify why he wants to spend. The performance of
spending on various activities will depend upon their justification and priority for spending
will have to be proved that an activity is essential and the amounts asked for are really
reasonable taking into account the volume of activity.

COST AND COST SYSTEM IN ULTRA TECH CEMENTS.

The costing process is used in the performance costing for the construction of phase.
Which includes pre-commission activities. Besides meeting the essential requirements of
managerial control. The costing exercise also covers the long-term capital costing, which
is presented in the form of annual plan.

OBJECTIVES OF THE COST SYSTEM:

To prepare annual costs in such a manner those managers at various levels in the
organization carry out periodical exercise in respect of each contact or
responsibility center for physical planning and matching resources broke up into
monthly targets or cash flows.
To introduce and operate responsible for achievement of specified targets with the
resources allocated for the purpose.
To bring about effective co-ordination of all activities of the organization of all
activities of the organization and to gear up service divisions to meet effectively the
requirement of projects.

COST PERIOD AND PHASING:

The cost period or annual costs should correspond with the financial year. The cost
should be drawn up for the ensuring financial year in the form of cost estimates financial
year in the form of Revised Estimates (R.E) in addition, the cost are to be reviewed on
monthly basis by project review teams, in the light of actual expenditure and projections in
the cost period. Costs should indicate monthly phasing of expenditure and targets for the
first and quarterly phasing for the second half of the year. At the time of review of the cost

59
estimates to frame revised estimates the quarterly phasing should be broken up into monthly
phasing.

While drawing up the actual cost in October every year, the long-term capital cost
for ongoing and new schemes should be formulated as a part of the exercise for preparation
of Annual plan. The long-term capital cost should indicate for a period of six years
following the cost period project wise annual phasing of the capital expenditure and
physical schedules resource based network.

COST HEADS:
For uniform accounting, it is essential that costs are collected for each system of the
factory tough this may involve splitting up of payments against contracts which embrace
more than one system. Allocation of the cost as system wise affords a sound basis for cost
accounting, inter-firm comparisons and provides valuable inputs to data bank. Cost
provisions are related to project estimated and monitoring of actual expenditure whereas
control cables for part control and instrumentation system. Factory piping which include
pipelines, for ash water mains, compressed air system and civil works piping.
Auxiliary pumps for water treatment plant and civil works system. If there are, any
contracts not covered in the cost heads provision for such contracts should be shown against
the appropriate system head by adding code number.

5 TYPES OF COSTS IN ULTRA TECH CEMENTS:

According to the nature expenditure cost are classified as under

Direct capital outlay on works
Technical consultancy
Incident expenditure during construction
Employee cost

Other establishment expenses:

Training and recruitment
Preliminary expenses
Misc. brought-out assets
Township cost

60
BRIEF EXPLANATION TO THE NATURE OF EXPENDITURE
INCLUDED IN EACH COST INDICATED BELOW:
These comprises of salaries, wages, allowance, contribution to PF and other funds
and welfare expenses such as LIC, Medical reimbursement, canteen subsidy etc., and
provision for areas of salary/D.A.

OFFICE AND OTHER EXPENSES:

Expenses incidental to construction and capital works not traceable directly to
incidental expenditure, during contribution equipment’s, vehicle running expense, office
rent. Cost of drawings, traveling expenses, printing & stationery, communication expenses,
advertisement for tenders etc., are major items in this category.

TRIANING RECRUITMENT & OTHER DEFFERED REVENUE

EXPENDITURE:
The first part of the cost consists of expenses for training executives, and non-
executive trainees, rent for training halls and expenses for management development
courses. The second part consists of expenses for recruitment such as advertisement for
recruitment, interview expenses for to candidate etc., the third part combines preliminary
expenses including share registration lees and research and development expenses.

MISCELLANEOUS BOUGHT OUT PASSESS:

Vehicles, furniture and fixtures equipment’s, hospital and medical equipment,
miscellaneous assesses town ship figure in this cost.

REVIEW OF PROJECT COST:

MONTHLY REVIEW:
At monthly intervals, the costs should be reviewed by project review committee
(PRC). Project cost should report actual expenditure against cost heads. Works heads and
corporate cost by the 7th of the month following the reporting month. The monthly review

61
should be examined by project review team (PRT), who should record reasons for any
aviation’s and action proposed for expending works in the minutes of the meetings reasons
for any variations in the case of cost heads exceeding 10% of the cost estimates revised
estimates or whichever is lower Rs.5 lakhs should be analyzed and reported upon.

QUATERLY REVIEW:
PRT should conduct a quarterly cost review with a view to projecting anticipated
expenditure during the year against approved cost estimates/ revised estimates. As time is
essence of such review, only a quick estimate of anticipated expenditure for individual cost
heads involving provisions exceeding for individual cost heads involving provisions
exceeding Rs 50 lakhs in each case should be made and reported upon in minutes of PRT.
For this purpose, project cost should furnish all the relevant data to general manager
(project) and planning and systems by the 10th of the month following the quarter project
cost committee should review the actual expenditure and assess anticipated expenditure
contract coordination/engineers in charge the assessments of anticipated expenditure
should be furnished by the project cost committee to general manager (project) by the 30th
of the month following the quarter under review.

62
 CHAPTER-IV

DATA INTREPRETAION AND

ANALYSIS

63
 1. REVENUE COST ANALYSIS
1.1 HYUNDAI’s REVENUE COST (2013-14)

TABLE- 1.1 (Rs in cr)

Sl.no Cost estimated for Actual cost for the

PARTICULAR
the 2013-14 year 2013-14

% %
1 Sales

350.24 35.02 354.58 35.45

Fixed cost recovery

247.58 24.75 211.55 21.15

Variable cost recovery

149.65 14.96 120.88 12.08

Fuel price adjustment
recovery
55.84 5.58 41.17 4.11
Own consumption

803.31 80.33 728.18 72.18

Total of 1

296.65 29.66 245.68 24.56

2 Average intensives

225.67 22.56 208.64 20.86

3 Other income

1325.63 132.56 1182.50 118.25

GRAND TOTAL (1+2+3)

64
 1400

1200

1000

800

600

400

200

0
Fixed cost Variable cost Fuel price Own Total sales Average Other income GRAND TOTAL
recovery recovery adjustment consumption intensives
recovery

Cost estimated for the 2013-14 Cost estimated for the 2013-14%
Actual cost for the year 2013-14 Actual cost for the year 2013-14 %

INTERPRETATION

The data pertaining to the generation and consumption have been obtained from the year 2013-
14 and represented in table 1.1. The aspect included are total generation in (crores Rs) and
utilization for auxiliary consumption respectively.

During the year 2013-14 the sales, fixed costs, variable cost, own Consumption was decreased.
When the estimated coasted so sales consumption is 728.18 respectively.

During the year 2013-14 the average intensive is 24.56 the other Income also 20.86
respectively.

Finally, with regard to the result in revenue cost of Hyundai Motors India Limited (HMIL)
totally 118.25 % in the year 2013-14 respectively.

65
 1.2 HYUNDAI’s REVENUE COST (2012-13)

TABLE-1.2 (Rs in cr)

Sl.no Cost estimated for Actual cost for the

PARTICULAR
the 2012-13 year 2012-13

% %
1 Sales

Fixed cost recovery 321.54 32.15 302.54 30.25

Variable cost recovery 198.64 19.86 158.97 15.89

Fuel price adjustment recovery 149.65 14.96 120.88 12.08

Own consumption 55.84 5.58 41.17 4.11

Total of 1 725.67 72.56 623.56 62.35

2 Average intensives 254.68 25.46 199.68 19.96

3 Other income 201.21 20.12 181.76 18.17

GRAND TOTAL (1+2+3) 1181.56 118.15 1005.00 100.50

66
 1400

1200

1000

800

600

400

200

0
Fixed cost Variable cost Fuel price Own Total sales Average Other income GRAND TOTAL
recovery recovery adjustment consumption intensives
recovery

Cost estimated for the 2012-13 Cost estimated for the 2012-13%
Actual cost for the year 2012-13 Actual cost for the year 2012-13 %

INTERPRETATION
The data pertaining to the generation and consumption have been obtained from the year 2012-
13 and represented in table 1.2. The aspect included are total generation in (crores Rs) and
utilization for auxiliary consumption respectively.

During the year 2012-13 the sales, fixed costs, variable cost, own Consumption was decreased.
When the estimated coasted so sales consumption is 623.56 respectively.

During the year 2012-13 the average intensive is 19.96 the other Income also 18.17
respectively.

Finally, with regard to the result in revenue cost of Hyundai Motors India Limited (HMIL)
totally 100.50 % in the year 2012-13 respectively.

67
 1.3 HYUNDAI’s REVENUE COST (2011-12)

TABLE-1.3 (Rs in cr)

Sl.no Cost estimated for Actual cost for the

PARTICULAR
the 2011-12 year 2011-12

% %
1 Sales

Fixed cost recovery 285.67 28.56 241.69 24.16

Variable cost recovery 158.94 15.89 120.84 12.08

Fuel price adjustment recovery 139.62 13.96 112.66 11.26

Own consumption 31.31 3.13 20.29 2.29

Total of 1 615.54 61.55 495.48 49.54

2 Average intensives 119.67 11.96 93.96 9.39

3 Other income 154.68 15.46 107.75 10.77

GRAND TOTAL (1+2+3) 889.89 88.98 697.19 69.71

68
 1000
900
800
700
600
500
400
300
200
100
0
Fixed cost Variable cost Fuel price Own Total sales Average Other income GRAND TOTAL
recovery recovery adjustment consumption intensives
recovery

Cost estimated for the 2011-12 Cost estimated for the 2011-12%
Actual cost for the year 2011-12 Actual cost for the year 2011-12 %

INTERPRETATION
The data pertaining to the generation and consumption have been obtained from the year 2011-
12 and represented in table 1.3. The aspect included are total generation in (crores Rs) and
utilization for auxiliary consumption respectively.

During the year 2011-12 the sales, fixed costs, variable cost, own Consumption was decreased.
When the estimated coasted so sales consumption is 495.48 respectively.

During the year 2011-12 the average intensive is 93.96 the other Income also 107.75
respectively.

Finally, with regard to the result in revenue cost of Hyundai Motors India Limited
(HMIL)totally 284.80 % in the year 2011-12 respectively.

69
 1.4 HYUNDAI’s REVENUE COST (2010-11)

TABLE-1.4 (Rs in cr)

Sl.no Cost estimated for Actual cost for the

PARTICULAR
the 2010-11 year 2010-11

% %
1 Sales

Fixed cost recovery 452.61 45.26 383.21 38.32

Variable cost recovery 236.67 23.66 191.60 19.16

Fuel price adjustment recovery 137.84 13.78 100.47 10.04

Own consumption 42.61 4.26 27.16 2.71

Total of 1 869.73 86.97 702.44 70.24

2 Average intensives 102.57 10.25 86.02 8.60

3 Other income 116.92 11.69 97.76 9.77

GRAND TOTAL (1+2+3) 1089.22 108.92 886.22 88.62

70
 1200

1000

800

600

400

200

0
Fixed cost Variable cost Fuel price Own Total sales Average Other income GRAND TOTAL
recovery recovery adjustment consumption intensives
recovery

Cost estimated for the 2010-11 Cost estimated for the 2010-11%
Actual cost for the year 2010-11 Actual cost for the year 2010-11 %

INTERPRETATION
The data pertaining to the generation and consumption have been obtained from the year 2010-
11 and represented in table 1.4. The aspect included are total generation in (crores Rs) and
utilization for auxiliary consumption respectively.

During the year 2010-11 the sales, fixed costs, variable cost, own Consumption was decreased.
When the estimated coasted so sales consumption is 702.44 respectively.

During the year 2010-11 the average intensive is decreased 86.02 the other Income also
decreased 97.76 respectively.

Finally, with regard to the result in revenue cost of Hyundai Motors India Limited (HMIL)
totally increased to 886.22 in the year 2010-11 respectively.

71
 1.5 HYUNDAI’s REVENUE COST (2009-10)

TABLE-1.5 (Rs in cr)

Sl.no Cost estimated Actual cost for the

PARTICULAR
for the 2009-10 year 2009-10

1 Sales % %

Fixed cost recovery 359.67 35.96 347.84 34.78

Variable cost recovery 201.64 20.16 173.84 17.38

adjustment recovery 108.64 10.86 81.05 8.10

Own consumption 18.57 1.85 11.04 1.10

Total of 1 688.52 68.85 613.77 61.37

2 Average intensives 85.64 8.56 69.80 6.98

3 Other income 81.17 8.11 62.23 6.22

GRAND TOTAL (1+2+3) 855.33 85.53 745.80 74.58

72
 900

800

700

600

500

400

300

200

100

0
Fixed cost Variable cost adjustment Own Total sales Average Other income GRAND TOTAL
recovery recovery recovery consumption intensives

Cost estimated for the 2009-10 Cost estimated for the 2009-10%
Actual cost for the year 2009-10 Actual cost for the year 2009-10 %

INTERPRETATION
The data pertaining to the generation and consumption have been obtained from the year 2009-
10 and represented in table 1.5. The aspect included are total generation in (crores Rs) and
utilization for auxiliary consumption respectively.

During the year 2009-10 the sales, fixed costs, variable cost, own Consumption was decreased.
When the estimated costed so sales consumption is 613.77 respectively.

During the year 2009-10 the averages intensive is decreased 69.80 the other Income also
decreased 62.23 respectively.

Finally, with regard to the result in revenue cost of Hyundai Motors India Limited (HMIL)
decreased 745.80 in the year 2009-10 respectively.

73
 2. OPERATIONAL COST ANALYSIS
2.1 HYUNDAI’s OPERATIONAL COST (2013-14)

TABLE- 2.1 (Rs in cr)

SL. COST ESTIMATED ACTUAL COST

PARTICULAR
NO FOR THE 2013-14 FOR THE YEAR
2013-14

AMOUNT % AMOUNT %

1 VARIABLE COST 225.68 22.56 196.65 19.66

OPERATIVE
2 88.61 8.86 55.65 5.56
MAINTENANCE COST
3 FINANCE CHARGES

Deprecation 45.68 4.56 33.67 3.36

Interest on fixed capital 289.78 28.97 289.62 28.96

Total of – 3 335.46 33.54 323.29 32.32

GRAND TOTAL (1+2+3) 649.75 64.97 575.59 57.55

700

600

500

400

300

200

100

0
VARIABLE COST OPERATIVE Deprecation Interest on fixed Total Finance GRAND TOTAL
MAINTENANCE COST capital charges

Cost estimated for 2013-14 Cost estimated for 2013-14 % Actual cost for 2013-14 Actual cost for 2013-14 %

74
 INTERPRETATION
Observed from the above table that the operational expenditure cost of Hyundai
Motors India Limited (HMIL) in the year 2013-14. Maintenance, employee cost, stationary
& general expenses, rebate and share of other expenses is all are fluctuating with the expenses
of the year 2013-14. However, the total operating maintenance costs are 28.54 % increasing
respectively.

In finance charges depreciation and interest on fixed capital, has been included the total
finance charges recording decreasing of 575.79 in the year 2013-14 respectively.

The overall costs result of Hyundai Motors India Limited (HMIL) are earning more
profits.

75
 2.2 HYUNDAI’s OPERATIONAL COST (2012-13)

TABLE- 2.2 (Rs in cr)

SL. COST ESTIMATED ACTUAL COST

PARTICULAR
NO FOR THE 2012-13 FOR THE YEAR
2012-13

AMOUNT % AMOUNT %

1 VARIABLE COST 184.89 18.48 149.61 14.96

OPERATIVE
2 39.65 3.96 28.54 2.85
MAINTENANCE COST
3 FINANCE CHARGES

Deprecation 35.68 3.56 29.67 2.96

Interest on fixed capital 225.85 22.58 218.94 21.89

Total of – 3 261.53 26.15 248.61 24.86

GRAND TOTAL (1+2+3) 486.07 48.60 426.76 42.67

600

500

400

300

200

100

0
VARIABLE COST OPERATIVE Deprecation Interest on fixed Total Finance GRAND TOTAL
MAINTENANCE capital charges
COST

Cost estimated for 2012-13 Cost estimated for 2012-13 % Actual cost for 2012-13 Actual cost for 2012-13 %

76
 INTERPRETATION

Observed from the above table that the operational expenditure cost of Hyundai
Motors India Limited (HMIL) in the year 2012-13. Maintenance, employee cost, stationary
& general expenses, rebate and share of other expenses is all are fluctuating with the expenses
of the year 2012-13. However, the total operating maintenance costs are 28.54
% increasing respectively.

In finance charges depreciation and interest on fixed capital, has been included the total
finance charges recording decreasing of 248.61 in the year 2012-13 respectively.

The overall costs result of Hyundai Motors India Limited (HMIL) are earning more
profits.

77
 2.3 HYUNDAI’s OPERATIONAL COST (2011-12)

TABLE- 2.3 (Rs in cr)

SL. COST ESTIMATED ACTUAL COST

PARTICULAR
NO FOR THE 2011-12 FOR THE YEAR
2011-12

AMOUNT % AMOUNT %

1 VARIABLE COST 158.94 15.89 120.84 12.08

OPERATIVE
2 21.58 2.15 15.15 1.51
MAINTENANCE COST
3 FINANCE CHARGES

Deprecation 30.57 3.05 21.79 2.17

Interest on fixed capital 184.51 18.45 163.11 16.31

Total of – 3 215.08 21.50 184.90 18.49

GRAND TOTAL (1+2+3) 395.60 39.56 320.89 32.08

450

400

350

300

250

200

150

100

50

0
VARIABLE COST OPERATIVE Deprecation Interest on fixed Total Finance GRAND TOTAL
MAINTENANCE capital charges
COST

Cost estimated for 2011-12 Cost estimated for 2011-12 % Actual cost for 2011-12 Actual cost for 2011-12 %

78
 INTERPRETATION

Observed from the above table that the operational expenditure cost of Hyundai
Motors India Limited (HMIL) in the year 2011-12. Maintenance, employee cost, stationary
& general expenses, rebate and share of other expenses is all are fluctuating with the expenses
of the year 2010-11. However, the total operating maintenance costs are 15.15 % increasing
respectively.

In finance charges depreciation and interest on fixed capital, has been included the total
finance charges recording decreasing of 184.90 in the year 2011-12 respectively.

The overall costs result of Hyundai Motors India Limited (HMIL) are earning more
profits.

79
 2.4 HYUNDAI’s OPERATIONAL COST (2010-11)

TABLE- 2.4 (Rs in cr)

SL. COST ESTIMATED ACTUAL COST

PARTICULAR
NO FOR THE 2010-11 FOR THE YEAR
2010-11

AMOUNT % AMOUNT %

1 VARIABLE COST 236.67 21.56 191.60 19.16

OPERATIVE
2 9.67 0.96 4.09 0.40
MAINTENANCE COST
3 FINANCE CHARGES

Deprecation 25.67 2.56 16.74 1.67

Interest on fixed capital 245.68 24.56 220.29 22.02

Total of – 3 271.35 27.13 237.03 23.70

GRAND TOTAL (1+2+3) 517.69 49.66 432.72 43.27

600

500

400

300

200

100

0
VARIABLE COST OPERATIVE Deprecation Interest on fixed Total Finance GRAND TOTAL
MAINTENANCE capital charges
COST

Cost estimated for 2010-11 Cost estimated for 2010-11 % Actual cost for 2010-11 Actual cost for 2010-11 %

80
 INTERPRETATION
Observed from the above table that the operational expenditure cost of Hyundai
Motors India Limited (HMIL) in the year 2010-11. Maintenance, employee cost, stationary
& general expenses, rebate and share of other expenses is all are fluctuating with the expenses
of the year 2010-11. However, the total operating maintenance costs are 4.09 % decreasing
respectively.

In finance charges depreciation and interest on fixed capital, has been included the total
finance charges recording decreasing of 237.03 % in the year 2010-11 respectively.

The overall costs result of Hyundai Motors India Limited (HMIL) are earning more
profits.

81
 2.5 HYUNDAI’s OPERATIONAL COST (2009-10)

TABLE- 2.5 (Rs in cr)

SL. COST ESTIMATED ACTUAL COST

PARTICULAR
NO FOR THE 2009-10 FOR THE YEAR
2009-10

AMOUNT % AMOUNT %

1 VARIABLE COST 201.64 19.56 173.84 17.38

OPERATIVE
2 9.67 0.96 5.89 0.58
MAINTENANCE COST
3 FINANCE CHARGES

Deprecation 24.57 2.42 17.64 1.76

Interest on fixed capital 208.67 20.86 199.47 19.94

Total of – 3 233.24 23.32 217.11 21.71

GRAND TOTAL (1+2+3) 444.55 43.85 396.84 39.68

500

450

400

350

300

250

200

150

100

50

0
VARIABLE COST OPERATIVE Deprecation Interest on fixed Total Finance GRAND TOTAL
MAINTENANCE capital charges
COST

Cost estimated for 2009-10 Cost estimated for 2009-10 % Actual cost for 2009-10 Actual cost for 2009-10 %

82
 INTERPRETATION
Observed from the above table that the operational expenditure cost of Hyundai
Motors India Limited (HMIL) in the year 2009-10. Maintenance, employee cost, stationary
& general expenses, rebate and share of other expenses is all are fluctuating with the expenses
of the year 2009-10. However, the total operating maintenance costs are 5.89 decreasing
respectively.

In finance charges depreciation and interest on fixed capital, has been included the total
finance charges recording decreasing of 217.11 in the year 2009-10 respectively.

The overall costs result of Hyundai Motors India Limited (HMIL) are earning more profits.

83
 CHAPTER-IV

FNDINGS, SUGGESTIONS AND

CONCLUSION

84
 FINDINGS

• The result in revenue cost of Hyundai Motors India Limited (HMIL) totally18.25 % in the
year 2013-14 respectively. During the year 2013-14 the average intensive is 72.18 the other
Income also 208.64 respectively.
• During the year 2010-11 the average intensive is decreased 86.02 the other Income also
decreased 97.76 respectively. The result in revenue cost of Hyundai Motors India Limited
(HMIL) totally increased to 886.22 in the year 2010-11
respectively.
• During the year 2009-10 the averages intensive is decreased 69.80 the other Income also
decreased 62.23 respectively. the result in revenue cost of Hyundai Motors India Limited
(HMIL) decreased 745.80 in the year 2009-10 respectively.

• During the year 2008-09 the average intensive is decreased 70.98 the other Income also
decreased 56.36 respectively. the result in revenue cost of Hyundai Motors India Limited
(HMIL) decreased 753.99 in the year 2008-09 respectively.

• The total finance charges recording decreasing of 323.29 in the year 2013-14 respectively
• The total finance charges recording decreasing of 237.03 % in the year 2010-11

respectively.
• The total finance charges recording decreasing of 217.11 in the year 2009-10 respectively.

85
SUGGESTIONS

Planning has become the primary function of management most of

the planning relates to individual and individual proposals. Costs are
nothing but his expressions, largely in financial terms, cost control has,
therefore become and essential tool of management for controlling and
maximizing profits.

 The company objectives of the organization and how they can be

achieved through cost control
 Time tables for all stages of costing follow

 Reports, statements, forms and other record to be maintained

 Continuous comparison of actual performance with coasted performance.

86
 CONCLUSION

Every organization has pre-determined set of objectives and goals, but reaching those
objectives and goals only by proper planning and executing of the plans economically.

The Hyundai Motors India Limited (HMIL) is objectives of planning promoting and
organizing an integrated development of Auto motors Company.

The corporation mission of Hyundai Motors India Limited (HMIL)is to make

available and quality service in increasingly large quantities, the company will spear head the
process of accelerated development of this sector by expeditiously.

The organization needs the capable personalities as management to lead the

organization successfully, the management makes the plans and implement of these plans are
expressed in terms of cost and cost control.

The Hyundai Motors India Limited (HMIL)has cost process in two stages. One is
the capital expenditure cost and another is operating maintenance cost, the capital expenditure
cost shows the list of capital projects selected for investment along with their estimated cost,
operating & maintenance cost refers to the repairs & maintenance costs, the special costs are
rarely used in the organization like long-term costs, research & development cost and cost for
consultancy.

It is to make available and quality work efficient resources and implementation of

sophisticated technology and generation and also creating ambience of collective working of
its employees.

87
 BIBLIOGRAPHY

 FINANCIAL ACCOUNTING RP TRIVEDI

 FINANCIAL MANAGEMENT I.M. PANDEY

 ANNUAL REPORT OF HYUNDAI LTD 2012-2013.

 FUNDAMENTAL OF FINANCIAL MANAGEMENT

PRASANNA CHANDRA

DETAILED PROJECT REPORT OF Hyundai Motors India Limited (HMIL)

www.google.com

www.hundai.com

www.costcontrolinindia.com

www.yahoofinance.com

88
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1
Oldewurtel, Timothy J. Regan. "Cardiac
1%
conduction abnormalities produced by chronic
alcoholism", American Heart Journal, 1976
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