INTRODUCTION

For the purpose of ISA assignment on Paper ‘ADVANCED COSTING’ for semester three (Academic Year 2014-2015). We have been asked to prepare an estimated job cost sheet on any product of our choice.

Taking into consideration some of the major production in Goa and subsequently the demand in the local market, the cost, production aspects and the availability of the raw materials; I felt it feasible to select such a product which has its command in Goan market. So the product I have selected is the Goan Cashew fenny.

In Goa there is a huge demand for cashew liquor throughout the year and also Goan legal environment also is quite friendly to cashew liquor Production and license mechanism. But the production can be done only in the season of cashew. Therefore only three months is available every year for the production of cashew liquor.

Assuming that there is a job order of 6000 bottles (750 ml each) of Cashew liquor, I have attempted to prepare a job cost sheet of the said job. The production would be done under the product name “BRAND ‘G’ FENNY”.

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STRUCTURE OF BUSINESS AND PRODUCTION PROCESS

General requirements

The production is done in a village area to reduce cost and to have ease in acquiring raw materials. The cost structure is designed considering the production being done in PARYE village of SATTARI taluka (GOA).

The Entire finance is arrange by a banl loan for Rs 3,00,000 at the rate of 12% interest. Further an office is take for rent, production plant called ‘Bhati’ is also taken for rent, two labour and one part time accountant is employed, wood being the primary source of power in the production of Brand’G’ fenny.

It is assumed that job order is for 6000 bottles of 750 ml each, the bottles required is been outsourced, additionally labelling, and packing cost is also considered. 12 bottles would contribute to be 1 case, so there will be 500 cases of Brand ‘G’ fenny.

Legal requirements

Every year auction is been carried out by Government of Goa for allotting liquor production zone. The highest probable bid in the PARYE zone is considered while estimating the cost. The state excise regulation and bottling fees are also been considered while estimating the costs of production of Brand ’G’ fenny

Production Process

The production method used is the traditional labour oriented method of production in which the cashew apple juice are first distilled to produced ‘urrak’(the ratio being 4:1 respectively). Further distillation of cashew juice and ‘urrak’ at the ratio 5:1 respectively, produces fenny. The distillation is done in a big earthen pot and is condensed by cold water.

1 kg of cashew apples can give approx. 625 ml of juice. Therefore to produce 4500 litres (6000 x 750 ml) of Brand ‘G’ fenny we would require a total 72000 kgs of cashew apple.

i.e. 72000 kgs of apple would produce 45000 litre juice.

Out of which 22500 litre juice will be utilized to produce urrak

i.e. 22500 / 5= 4500 litres of urrak (4:1)

Then 22500 litres of cashew apple juice and 4500 litres of urrak would produce 4500 litres of Brand ‘G’ Fenny.

i.e. (22500 + 4500) / 6 = 4500 litres of Brand ‘G’ Fenny.

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DETAILED COST STRUCTURE

Following is the detail of each cost/expenses to be incurred for the production of Brand’G’ fenny

Direct material

The raw material that is used for the production of Brand’G’ fenny is the cashew apples. To produce a total of 6,000 bottles (750 ml each) of fenny would require 72,000 kgs of cashew apple. The cashew apples are purchased at the rate of Rs. 1.75 per kg. Additionally carriage for acquiring these would be Rs. 100 per day.

Calculation of Direct Material cost

Purchase of raw material (72,000 kg x 1.75 Rs) = 126000 Rs

Carriage inward (100 Rs x 72 days) = 7,200 Rs

Direct materials 1,33,200 Rs

Direct labour

There can be only two labours employed, each paid at the rate of Rs. 4500 for 24 days of work.

Calculation of Direct labour cost

Labour (Rs 4,500 x 2 nos x 3 months) =

27000 Rs

Direct labour 27,000 Rs

Direct expenses

Direct expenses are the strange costs, occurs on special events. Therefore auction cost is included as direct cost

Calculation of Direct Expenses

Auction fees = 100 Rs

Auction Bid (Highest possible) = 6500 Rs

Direct Expenses = 6600 Rs

Factory over heads

The production of Brand ‘G’ Fenny was practiced by the traditional method of making fenny in Goa, where the production unit is called as ‘Bhati’ in local language. The ‘Bhati’ is taken

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on rent for Rs 12000 for the period of 3 months, additionally woods are used as power i.e. at the rare 2000 per month and maintenance expenses.

Calculation of Factory over heads

Rent of ‘bhati’ (Rs 4000 x 3 months) =

Rs 12000

Woods (power) (2000Rs x 3 months)= Rs 6000

Maintenance expenses = Rs 3000

Total Factory overheads = Rs 21000

Administrative Over head

For the administration purpose a part time accountant is employed for the period of three months (job period) to handle administrative and accounts work. Office is taken for rent for three months at Rs 3800 per month.

Bank loan instalment would be 60250 annually and bank charges (ie. Opening a bank account, cheque book charges, etc) would amount to Rs 500.

Stationary and other general expenses are taken on expected bases.

Calculation of Administrative Over head

Stationary = Rs 500

Office Rent (1300 Rs x 3 months)= Rs 3,900

Bank loan Instalment (annual)= Rs 60,250

Bank Charges = Rs 200

Accountant salary ( Rs 3800 x 3 months) = Rs 11,400

General Expenses = Rs 500

Total Administration Over Heads = Rs 76,750

Selling and Distribution Over head

Being the job of Brand ‘G’ fenny is for 6000 bottles of 750 ml, there is a requirement to bottle the produced liquor and that is been outsourced as mentioned above at the rate of Rs 2.50 per bottle. There are legal charges for acquiring the bottling licence called as bottling fees ie Rs 2.50 per case (max 9 litres per case) subject to minimum of Rs 2000. In addition to this; labelling at Rs 0.20 per bottle, packing Rs 15 per case and excise duty of Rs 1.50 per litre.

These bottles are delivered at the end of every month; delivery cost being Rs 1000.

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Calculation of Selling and Distribution Over head

Carriage Outward (Rs 1000 x 3 months) = Rs 3,000

bottling charges (Rs 2.5 x 6000 bottles) = Rs 15,000

Bottling fees (Minimum Rs 2000) = Rs 2,000

labling (Rs 0.20 x 6000 bottles) = Rs 1,200

packing (Rs 15 x 500 cases) = Rs 7,500

Exise duty (Rs 1.50 x 6000 bottles) = Rs 6,750

Total Selling and distribution Over Head Rs 35,450.00

Bases on the above aggregate cost; a profit margin is fixed per bottle of production. While fixing the profit rate; it is considered that the job for producing Brand ‘G’ fenny is undertaken seasonally therefore the profit margin is also kept high to cover the losses that can occur due to this time gap.

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ESTIMATED JOB COST SHEET

Estimated job cost sheet of Brand ‘G’ Fenny

Particulars Per Bottle Per Case

(12 bottles)

Amount

(6000 bottles)

Direct Materials* 22.20

266.40 1,33,200.00

Direct Labour* 4.50

54.00 27,000.00

Direct Charges 1.10

13.20 6,600.00

Prime cost (A) 27.80

333.60 1,66,800.00

Add :- Factory Over Heads:

Factory Rent 2.00

24.00 12,000.00

Factory Power* 1.00

12.00 6,000.00

Maintenance Expenses 0.50

6.00 3,000.00

Total Factory Over Heads (B) 3.50

42.00 21,000.00

Works cost (A) + (B) 31.30

375.60 1,87,800.00

Add:- Administration Over Heads:-

Stationary 0.08

1.00 500.00

Office Rent 0.65

7.80 3,900.00

Bank loan Instalment 10.04

120.50 60,250.00

Bank Charges 0.03

0.40 200.00

Accountant salary 1.90

22.80 11,400.00

General Expenses 0.08

1.00 500.00

Total Administration Over Heads (C) 12.79

153.50 76,750.00

Cost of Production (C) + (A)+(B) 529.10 2,64,550.00

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44.09

Add:- Selling and Distribution OH:-

Carriage Outward* 0.50

6.00 3,000.00

bottling charges* 2.50

30.00 15,000.00

Bottling fees* 0.33

4.00 2,000.00

Labelling* 0.20

2.40 1,200.00

packing* 1.25

15.00 7,500.00

Excise duty* 1.13

13.50 6,750.00

Total Selling and distribution OH (D) 5.91

70.90 35,450.00

Cost of Sales (D)+(A)+(B)+(C) 50.00

600.00 3,00,000.00

Profit 30.00

360.00 1,80,000.00

Sales 80.00

960.00 4,80,000.00

Variable Costs

Fixed cost

CONCLUSION

In the above estimated Job cost sheet of Brand ‘G’ fenny; I have tried to cover all the aspects related to the production of cashew liquor in Goa. The figures give an impression that it can be a very profitable job considering the prevailing market status for the similar product.

Goan Government is not so strict on their policies regarding liquor production, licensing and other legal proceed. The above job cost sheet shows a total cost of Rs 50 per bottle and hence the profit fixed is 30 per bottle which is 60% on cost.

There is a total of 2,01,650 Rs of variable cost and 98,350 Rs of fixed cost. This makes the production process flexible to produce required quantity of product as per the job.

REFFERNCES

http://www.goastateexcise.goa.gov.in

Oral questioning to local liquor producers and seller

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Jaykrishna Gaonkar

Sundar Bugde.

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