shilpa final document 2

8/12/2019 Shilpa Final Document 2

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A STUDY ON COST REDUCTION AND CONTROL

CHAPTER -1 INTRODUCTION

PROBLEM STATEMENT

The main stressing problem of the organisation is to control the unnecessary cost of

production and avoid abnormal losses of the organisation.

The problem selected to analysis is To study the effectiveness of cost reduction and control

system at the effectiveness of the cost reduction and control system is analyzed

simultaneously. The variation of cost is also analyzed with their effects on the overall

working of the unit.

The cost reduction and control system are also seems to be very difficult for easy

functioning of the company.

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INDUSTRY PROFILE

The Indian textile industry has a great legacy, which is perhaps sun matched in the

history of Indias industrial development. Indias textile industry evolved and developedat a very early stage and its manufacturing technology was amongst the best. !rior to

colonization, Indias manually operated textile machines were among the best in the

world, and served as a model for production of the first textile machines in newly

industrialized "ritain and #ermany. Indian textiles were sought after for their finesse,

$uality and design. %ccording to &houta'(uan, the &hinese observer preference was

given to the Indian weaving for its and delicacy !restige trade textiles such as !atola

from !atan and %hmedabad, coast were sought after by the )alaysian royalty and

wealthy traders of the !hilippines.

Textiles have historically formed an important component of Indias exports. )arco

!olos records show that Indian textiles used to be exported to &hina and *outh'+ast

%sia. Textiles have also comprised a significant portion of the !ortuguese trade with

India. These included embroidered bedspreads, wall hangings and $uits of embroidered

wild silk on a cotton or ute ground. % *tudy of !roductivity and -inancial +fficiency of

Textile Industry of India The attractiveness of the fast dyed, multi'colored Indian prints

on cotton /chintz0 in +urope led to the formation of the 1ondon +ast India &ompany in

2344, followed by 5utch and -rench counterparts. "y the late 2344s there was

overwhelming demand for their governments to ban the import of these cottons from

India.

The legacy of the Indian textile industry stemmed from its wealth in natural resources

silk, cotton and ute. The textile industry stemmed from its wealth in natural resources

silk, cotton and ute, the technology used was superior and the skills of the weavers gave

the finished product a most beautiful and ethnic look. The Indian textile industry with

such a great pedigree could have gone only on way from here. "ut same did not happen.

Overview of the Go!" Te#tie M"r$et

The end of the $uota regime, which marks the phasing out of the )-% from 6anuary

2, 447, has ushered a new phase of l8global opportunity for the Textile 9 &lothing

*ector. The removal of $uotas could witness the :orld Trade in Textile, which is at

present ;* < =>7 billion to surge to over ;* < 374 billion by 424. The expected future

&%#? is expected to be @A with Textiles %ccounting for 7.@A and &lothing being the

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real driver of growth with an expected &%#? of % *tudy of !roductivity and -inancial

+fficiency of Textile Industry of India >.3A. Bence, there lies a distinct opportunities for

countries possessing competitive advantages resulting from labor, technology, and raw

materials, rather than for those arising from favorable trade agreements.

Ch"%&i%& Sh"re' i% (or) Tr")e

:orld trade in textiles and clothing amounted to ;* < =>7 billion in 44=, of which

textiles accounted for C=A and clothing around 7DA. 5eveloped countries accounted for

little over one'third of world exports in textile and clothing in 44 with developing

countries contributing to the remaining two'thirds. The scene was completely opposite in

2>>4 with the share of developed countries amounting to 7A and that of developing

countries around C@A. In other words, in the period from % *tudy of !roductivity and

-inancial +fficiency of Textile Industry of India 2>>4 to 44, there has been a shift in

worked textiles and clothing trade from developed to developing countries. >.3A. Bence,

there lies a distinct opportunities for countries possessing competitive advantages

resulting from labour, technology, and raw materials, rather than for those arising from

favourable trade agreements.

Sh"re i% (or) Tr")e !* Re&io%

The transition period, starting from 2>>7, has seen an increase in the share of %sias

exports to the world in textiles rather than clothing. The share of %sia in textile exports

rose from C.3A in 2>>7 to CC.=A in 44=, while its share in clothing exports has

remained stagnant at around CCA. :estern +urope has seen a decline in share in both

textile and clothing exports in the transition period. En the other hand Forth %merican

textile exports have risen from 7.DA in 2>>7 to D.@A in 44= and fallen slightly I clothing

exports, from C.@A to =.=A in 44=. % *tudy of !roductivity and -inancial +fficiency of

Textile Industry of IndiaTrade in textile and clothing was dominated by the developed countries in the )-%

period with the +uropean ;nion /270 accounting for about C>A of total textile exports

and CA of clothing exports in 2>@4. +;, ;*%, &anada, 6apan and *witzerland

accounted for 3>A of total textile exports in 2>@4. 5eveloped countries dominance in

clothing exports was relatively less with ;*% and +; together accounting for around

C7A of total exports in 2>@4. Bowever, developed countries share in both textiles and

clothing exports declined in the >4s and stood at

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2 around CDA and @A respectively, in 44. The decline in the share of developed

countries was driven by a sharp decline in the share of +;, in both textile and clothing

exports. 1eading exports amongst the developing countries, as per :T

I%)i"% Te#tie I%)+'tr* , Pre'e%t Se%"rio

The Indian Textile Industry is a vertically integrated industry which covers a large

gamut of activities ranging from production of its own raw material namely, cotton, ute, silk

and wool to providing to the consumers high value added products such as fabrics and

garments. India also produces large varieties of synthetic and manmade fibers such as %

*tudy of !roductivity and -inancial +fficiency of Textile Industry of India filament and spun

yarns from polyester, viscose, nylon and acrylic which are used to manufacture fabric and

garments. The textile sector plays a significant role in Indian economy by contributing to the

#ross 5omestic product, generating employment and earning foreign exchange. %n estimated

=7 million people are directly employed in the Indian Textile Industry, which contributes to

CA of #5! and 2A of total export earnings. India is globally a significant player in the

textile sector and is globally the

G Third largest producer of cotton and cellulose fibreHyarn.

G *econd largest producer of cotton yarn.

G 1argest producer of ute, second largest producer of silk.

G -ifth largest producer of synthetic fibreHyarn. &otton is one of the maor corps cultivated in

India. India has the largest cotton acreage in the world and cotton is the dominant fibre in

Indian Textile Industry. %bout D7A of the total yarn and about 73A of the total fabric

produced in India was cotton in 44C'47. %lmost all cotton used in India is grown locally and

a tiny amount is imported. &otton textiles account for H=rd of Indias textile exports5uring the last five decades, the production of cotton in India increased from =4 lakh bales

of 2D4 kgs each in 2>74'72 to an estimated % *tudy of !roductivity and -inancial +fficiency

of Textile Industry of India 2= lakh bales /2D4 kg each0 in 44C'47. There has also been a

rise in area under cultivation from 7@.> lakh hectres in 2>74'72 to an estimated @>.D lakh

hectres in 44C'44C.

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Proe'' of Go!"i."tio%

The characteristics of garment production like low sunk costs and relative absence of

advanced technology and skills, have always induced apparel firms in the advanced capitalist

countries to shift labour intensive operations to peripheral economies. *tudies supportive of

the Few International 5ivision of 1abour hypothesis, in fact, view the process of

globalization as a movement from high wage cost region to low wage cost ones. This process

has its origins in the 2>74s when manufacturers began to shift production to 6apan to take

advantage of the lower wages prevailing there. This sourcing of garments from 6apan with

still lower wage levels followed the earlier movement of ;* garment production from the

northern part of the country to the less unionized and lower waged southern regions.

*ubse$uent to the economic boom in 6apan during this period accompanied by rise in wage

rates, manufacturers began to shift production to Bong (ong. -rom Bong (ong, capital

migrated to *outh (orea and Taiwan to tap the benefit from the lower wages prevalent in

those economies.

% *tudy of !roductivity and -inancial +fficiency of Textile Industry of India The

period thus witnessed a trend towards movement of 6apanese apparel capital to offshore

locations like neighboring *outh (orea. The 2>@4s witnessed the incorporation of other

%sian countries with relatively low wage levels like &hina, Thailand, Indonesia, *ri 1anka,

!akistan, India and "angladesh into the world garment trade. "etween 2>D7 and 2>>4, the

share of third world in the total output of global textiles has increased from [email protected] percent to

3.2 percent, and that of clothing from 22.D percent to 4.C percent. En the other hand,

garment sector has become a growth pole for economies at lower levels of development like

"angladesh, &hina, *ri 1anka, Indonesia, India and Thailand.

%s the leading sector of globalization, the garment industry continues to increase its

share in world trade fro manufactured commodities. :orld garment trade has in fact grownfaster than trade in manufactured good as a whole. %ccompanying this global expansion,

there have also been changes in the organization of production with important implications

for garment production in peripheral economies.

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1/0 COMPANY PROFILE

The National Textile Corporation Limited (NTC) is a Central Public Sector nterprise

under the !inistr" o# Textiles $hich $as incorporated in %pril 1&' #or manain the a##airs

o# sic* textile underta*ins+ in the pri,ate sector+ ta*en o,er b" the -o,ernment. Startin

$ith 1' mills in 1&'+ this number raduall" rose to 1/3 b" 1&0203. n the "ear 1&04 all

these units $ere nationalied under the Sic* Textile nderta*in (Nationaliation) %ct 1&04.

The number o# units increased to 11& b" 1&&5 as NTC too* o,er more mills under its control

throuh S$adeshi Cotton !ills Compan" Ltd. (%cuisition and Trans#er o# nderta*ins) %ct+

1&' and Textile nderta*ins (Nationaliation) %ct+ 1&&5.

These 11& mills $ere controlled b" NTC(6oldin Compan")Ltd $ith the help o# &

subsidiar" Corporations+ $ith an authoried capital o# 7s 1/ crores $hich $as raised #rom

time to time and $hich is no$ 7s 5/// crores and the paid up share capital o# the

corporation is 7s 3/'2.1' crores as on 31./3.2//. 897 sanctioned rehabilitation schemes

#or NTC in 2//2:2//5+ $hich $ere modi#ied in 2//' (!7S/') and 2// (!S/). %ll the &

subsidiaries o# the compan" ha,e been mered $ith the 6oldin Compan" on /1./4.2//'+

ma*in it a sinle entit"+ economisin the scale o# operation. Till no$+ 0' un,iable mills ha,e

been closed. 4/ mills ha,e been identi#ied as ,iable. ;# these+ 22 mills are bein modernised

b" NTC. Till no$+ 10 mills ha,e been modernised as per the details belo$+ and the

remainin #i,e mills are at di##erent staes o# moderniation. ;ut o# these+ 10 mills+ mills

ha,e ot S; certi#ication. 1' mills ha,e been o##ered #or


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Startin $ith 1' mills in 1&'+ this number raduall" rose to 1/3 b" 1&0203. n the

"ear 1&04 all these units $ere nationalied under the Sic* Textile nderta*ins

(Nationaliation) %ct 1&04. The number o# units increased to 11& b" 1&&5. These 11& mills

$ere controlled b" NTC Ltd $ith the help o# & subsidiar" Corporations+ $ith an authoried

capital o# 1/ crore (S=1.1 million) $hich $as raised #rom time to time and $hich is no$

about 0+/// crore (S=1.20 billion) and the paid up share capital o# the corporation is about

4+/// crore (S= 020 million).

Loo*in to the reduced number o# mills and in line $ith the contemporar" industr">s

trend all & subsidiar" companies ha,e been mered $ith NTC 6ead o##ice+ located at Ne$

?elhi+ ma*in it into a sinle Compan" $ith e##ect #rom /1./4.2//'.

NTC has so #ar closed 0 mills and has trans#erred 2 mills in the State o# Pondicherr" to the

State -o,ernment.

NTC is to modernie all its mills b" itsel# throuh eneration o# #unds #rom the sale o#

its surplus assets and 5 mills are put in @oint ,enture $ith corporates. NTC has put up 3

Composite Textile -reen#ield nits in %hmedabad (-u


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cotton. The next process is carding here the cotton will become smoothly and white. Fext

goes to the simple method in this method cotton becomes big layers and it makes the group.

The next process is procedure is rolling and grilling here the big layers are rolled and it is

separated from the group and comes in the form of loose thread and next process is drafting

and twisting and the thread becomes strong and it comes layer by layer in the form of thin

yarn. The next is nothing here if thread goes into two parts the machine will oin it and it is

called noting process. -inally after all these process the raw material is converted into the

finished goods which are in the form of yarn

2ISION AND MISSION3

2ISION

To be a :orld &lass +co'-riendly Integrated Textile &ompany, catering primarily to

the clothing needs of the Fation.

MISSION

The Erganization shall dedicate its effects to involve all its employees towards achievingJ

Bighest standards in $uality

Bighest productivity at lowest costs

?eduction of losses 9

Kero accidents

COMPANY GOAL

1eadership in $uality.

&onsistent growth

?easonable profit *atisfied customer.

Bappy community

2ALUES

%t Few )inerva mills, we cherish the following valuesJ

&oncern for +nvironment

?espect for dignity and potential of all the employees

%im for excellence in every area

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Transparency in every operation

&ontinued emphasis on Training and 5evelopment

Bard work coupled with best rewards "etter work culture through better people orientation

Bigh emphasis on Technology and &ommunication.

4EY GOALS

1/ Profit"!iit*

To achieve the minimum /return on investment as measured in terms of profit before

tax on capital employed0

5/ Growth

To achieve a group turnover in excess of 244 crores per annum by year 422 L 42

0/ C+'to6er7' o*"t*

To ensure that customers become and remain our loyal friends and our most effective spokes

men and advertisement.

4EY BUSINESS FACTORS

Bighly competitive, wide spread market.

&ontinuous changes in customers needs, which is fashion led.

1abor oriented hence high 1abor -orce

Too many controls by #overnment and trade.

Bigh variable raw materials with fluctuations in price.

%ppropriate technology to meet global competition.

SUCCESSI2E FACTORS OF THE COMPANY

!roduct MualityJ %s re$uired by the customer delivery on time

!roductivity J Improvement and real growth

&ost of manufactureJ ?eduction in cost high realization.

-inanceJ +conomically managed funds and shorter cycle time

%ppropriate TechnologyJ To have an edge in market.

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&ustomer relation and satisfaction.

*upplier performanceJ &onsistency in supply and delivery.

+ffective support service. *killed and satisfied employees with empowerment.

&ommunity support

Bo"r) of Diretor'

Or&"%i."tio%" Ch"rt of NTC

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A(ARDS

*.

F

E

)I11

I*E

&+?TI-I&%TI

EF

I**;+5

EF+N!I?O

I**;IF#

%#+F&O

2 "arshi I*E >[email protected]

43

[email protected]

2

?enewe

d on

4=.4>.4

4>

?IF% *p%,

Italy

&oimbatore

)urugan )ills

I*E >442J444 C.22.44

D

=.22.42

4

?enewe

d w.e.f.

C.22.44

D

on

T;P

?heinland

#roup

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2C.42.4

4@

=(aleeswarar )ills

" unitI*E >442J44@

24.4=.4

4>

4>.4=.4

2

Intertek

*ystems

&ertification,

)umbai

C!ankaa )ills,

&oimbatore

I*E >[email protected]

4>

47.4C.4

2

"*I

)anagement

*ystems, Few5elhi

7

%lgappa Textile

)ills, Trichur,

(erala


4>

=.47.4

2

"*I

)anagement

*ystems, Few

5elhi

3 !odar )ills,)umbai

I*E >442J44@ 24.43.44>

24.43.42

?IF% *p%,Italy

DTata )ills,

)umbaiI*E >442J44@

=.43.4

4>

.43.4

2

("*

&ertification

*ervices

!vt.1td.,

-aridabad

@

&ambodia )ills,

Endipudur,

&oimbatore

I*E >442J444

I*E >442J44@

=.4C.4

4@

4.C.42

2

.4C.4

22

2>.C.42

C

T;P *;5

*outh %sia

!vt. 1td.,

)umbai

> "urhanpur Tapti

)ills, "urhanpur,

I*E >442J44@ 3.22.4

4>

3.22.4

2

?IF% *p%,

Italy

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).!

24

?angavilas #ng.

*pg.9 :vg.)ills,

!eelamedu,&oimb

atore


22

2=.4.4

2C

T;P *;5

*outh %sia

!vt. 1td.,

)umbai

22!ioneer *pinners,

?amnad 5ist.I*E >442J44@

22.4=.4

22

22.=.42

C

?IF% *p%,

Italy

2

India ;nited )ills

Fo.7, )umbai I*E >442J44@

22.4=.4

22

22.=.42

C

?IF% *p%,

Italy

2=

Few "hopal

Textile )ills,

&handbadh,

"hopal


22

=.43.4

2C

!&

)anagement

*ystems, Few

5elhi

2C

(erala 1akshmi

)ills, Thrissur,

(erala


22

=.43.4

2C

T;P India

&ertification

"ody

27-inlay )ills,

%chalpurI*E >442J44@

[email protected]

22

2D.22.4

2C

!.&.)anagem

ent *ystem

!vt.1td.

23

Piaya )ohini

)ills,

Thiruvanathapura

m, (erala

I*E 442J44@[email protected]

22

[email protected]

2C

?IF%

*ervices

*.p.%,

#enova, Italy

Ice

s

%rati &otton )ills,

BowrahI*E >442J44@

22..42

24..42

7

*#* ;(as

*ystem, ;(

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Products

The ma


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To analyze the cost volume profit of national textile corporation

To suggest the managers to the effective cost control techni$ues

%nalyse balance sheet and profitability ratio to find out the efficiency of the

organisation.

SCOPE OF THE STUDY

The study was mainly concentrated cost reduction and cost control system adopted by

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the company. The companies cost control will influence more on the level of cost

management of the company.

The study of cost has important role understand the efficient system of the company.The studies is also standard costing analysis which is adopted by the company for cost

control which will give a clear picture about the effectiveness and in selection of

appropriate cost control system.

The study also includes "reak even analysis and preparation of cost sheet of the

company.

This study covers the areas of cost control aspects of the company.

This study also covered budgeting aspects of the organisation

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1/: METHODOLOGY

The methodology is used in studying the problem here it is used to study the &ost

%ccounting and &ontrol at F%TIEF%1 T+NTI1+ &E?!E?%TIEF in this report indicated

the types of cost control and cost reduction system were used.

LOCATION OF THE STUDY

The study was conducted at F%TIEF%1 T+NTI1+ &E?!E?%TIEF

DURATION OF THE STUDY

5uration of the study is of 43 weeks.

DATA COLLECTION METHOD

In order to fulfill the obectives of the study the data has been collected from

Q *econdary 5ata

Seo%)"r* D"t"

The secondary data was collected from the magazines, ournals, Internet and other

publication to understand the relevant concept of cost accounting.

-or gathering secondary data various other source were used, they are'

Q 5ifferent accounting records of the company.

Q Internets and other publication.

Q The statement of cost sheet of the company.

1/; LIMITATION OF THE STUDY

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%s this study is undertaken to fulfill the academic re$uirement. It is bound to have certain

limitations. )ost prominent among them are as followsJ

% detailed study could not be carried out because of lack of information.

Fon'co'operation from some head of the departments has restricted the study to some

extent.

It is a general study of the cost sheet of few years.

The study is primarily based on secondary data.

&ost accounting is the classifying, recording and appropriate allocation of expenditure for the

determination of the costs of products of services, and for the presentation of suitably

arranged data for the purposes of control and guidance of management. It includes the

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ascertainment of the cost of every order, ob, contrast, process, service or unit as maybe

appropriate.

)+%FIF#J

%ccording to :eldon, cost accounting is the application of accounting and costing

principles, methods and techni$ues in the ascertainment of costs and the analysis of saving or

excess cost incurred as compared with previous experience or with standards. Thus, cost

accounting relates to the collection, classification, and ascertainment of cost and its

accounting and control relating to the various elements of cost.

It establishes budgets and standard costs and actual cost of operation, processes, departments

or products and the analysis of variances, profitability and social use of funds.

CHAPTER -5 RE2IE( OF LITERATURE

S/No/ Tite Fi%)i%&' So+re


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2. &ost &ontrol %

*trategic #uide

Industries is always complex and is has

become further complicated due to

international competition fast changing

technology and information 9

communication. The author has dealt

with subect in simple style. The four

maor headings Kero based budgeting,

)angement by obectives, %ctivity

"ased costing, and Everhead value

analysis The management not to get

obsessed with cutting cost and get

distracted with the main focus of

customer retention.

*. %runaatesam

The Bindu Tuesday

Fov 4 442.

. (eeping proects

under &ost

&ontrol

+xamining the various approaches to

estimating and costing. %nalysing data

and budget information. -orecasting

proect schedule cost for completion.

6ohn )cmanus

6une 443

=. %ctivity "ased

&osting /% Tool

of cost control0

+nterprises were able to improve their

efficiency and reduce the cost without

sacrificing the value for the customer.

The main reason for such low adoption

rate of %"& is because of difficulties

and complexities associated with the

system.

%shok (umar

!anigrahi

C. &hanging

!aradigms of

&ost )anagement

Fumerous innovative cost control

practise have been evolved during the

last two decades primarily to e$uip and

assist mangers to better serve the needs

of the customers and mage the firms

business processes that are used to

create customer value.

)ano!illai The

accounting :orld

)arch 44>

7. 1ife &ycle &osting the looks at a products entire ?. *ridhar and 5.

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&osting /%sset

)anagement0

value chain from a cost perspective. It

tracks 9 evaluates costing from the

research and development phase of a

products life, though to the decline and

eventual conclusion of a products life.

*rinivas

The accounting

:orld )arch 44>

3. )arginal &osting

L !ossible

Bazards and

!itfalls

%ll business decisions should be based

on strategic relevance with proper

analysis of data in relation to all

external factors.

T. *. (. )enon

The accounting

:orld %pril 442

3. )arginal &osting

L a dynamic

approach

The non incorporation of the period

concept in marginal costing may lead

to many inaccuracies. The author

proposes to convert fixed cost also as

functions of output and form a break

even function by dividing fixed cost

functions by contribution function.

1. (ailasam,

The accounting

:orld %ug 44

D. % &ost L "enefit

%pproach, &ost'

benefit analysis

&ost Lbenefit analysis is a conceptual,

systematic framework for evaluating

alternative means of satisfying a

specified set of obectives. The

highlights of this analysis are to

postulation of alternative means, the

determination of costs and benefits

1eonard +ugene

"erry,

#eorgia,44=

@. *ales growth

versus cast

control

This research instigates the moderating

effect of sales growth and casts

contract on the value relevance of

coming and book value. The results

elemonstrate that the market responds

differently to the revenue and casts

component of carryings.

The general obective of this research

its to assets the summary measures

presented in the financial statement.

5r. ?aymcnamara

*eptember 443

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10

Product Cost

stimationE

Techniue

Classi#icatio

n and

!ethodolo"

7e,ie$

This paper pro,ides a detailed

re,ie$ o# the state o# the art in

product cost estimation co,erin

,arious techniues and

methodoloies de,eloped o,er the

"ears. The o,erall $or* is

cateoried into ualitati,e and

uantitati,e techniues. The

ualitati,e techniues are #urther

%dnan Niai+@ian S.?ai+Sta,roula

8alabaniand La*mal

Sene,iratne!arch 21+

2//5F 7e,ised

September 1/+ 2//5

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>. The four pillars

often effective

cost system

?evenue costs products are a basic and

well know e$uation in business.

-urther casts play an important rate in

product pricing that responsibility has

to be fixed at over all level and near

rowed to lower level more should be a

chain of responsibility.

%tuel (umar

?aput -ebruary

442

24. &ost reduction in

warehousing

The embraces all elements form the

time of manufacture of product to its

receipt by ultimate consumer. %t times

management would prefer to incur

extra cost in one activity so that a

benefit is derived in another activity.

!. 6eer

The management

accountant *ep

442

22. &osting in Indian

Industries

Indian companies can smoothly switch

from a traditional costing system to an

%"& system at low risk and with

minimal investment. Is also provides

the conceptual framework of %"&.

). *uresh "abu

#.

!urushothamachari
http://manufacturingscience.asmedigitalcollection.asme.org/solr/searchresults.aspx?author=Adnan+Niazi&q=Adnan+Niazihttp://manufacturingscience.asmedigitalcollection.asme.org/solr/searchresults.aspx?author=Jian+S.+Dai&q=Jian+S.+Daihttp://manufacturingscience.asmedigitalcollection.asme.org/solr/searchresults.aspx?author=Jian+S.+Dai&q=Jian+S.+Daihttp://manufacturingscience.asmedigitalcollection.asme.org/solr/searchresults.aspx?author=Stavroula+Balabani&q=Stavroula+Balabanihttp://manufacturingscience.asmedigitalcollection.asme.org/solr/searchresults.aspx?author=Stavroula+Balabani&q=Stavroula+Balabanihttp://manufacturingscience.asmedigitalcollection.asme.org/solr/searchresults.aspx?author=Lakmal+Seneviratne&q=Lakmal+Seneviratnehttp://manufacturingscience.asmedigitalcollection.asme.org/solr/searchresults.aspx?author=Lakmal+Seneviratne&q=Lakmal+Seneviratnehttp://manufacturingscience.asmedigitalcollection.asme.org/solr/searchresults.aspx?author=Adnan+Niazi&q=Adnan+Niazihttp://manufacturingscience.asmedigitalcollection.asme.org/solr/searchresults.aspx?author=Jian+S.+Dai&q=Jian+S.+Daihttp://manufacturingscience.asmedigitalcollection.asme.org/solr/searchresults.aspx?author=Jian+S.+Dai&q=Jian+S.+Daihttp://manufacturingscience.asmedigitalcollection.asme.org/solr/searchresults.aspx?author=Stavroula+Balabani&q=Stavroula+Balabanihttp://manufacturingscience.asmedigitalcollection.asme.org/solr/searchresults.aspx?author=Stavroula+Balabani&q=Stavroula+Balabanihttp://manufacturingscience.asmedigitalcollection.asme.org/solr/searchresults.aspx?author=Lakmal+Seneviratne&q=Lakmal+Seneviratnehttp://manufacturingscience.asmedigitalcollection.asme.org/solr/searchresults.aspx?author=Lakmal+Seneviratne&q=Lakmal+Seneviratne


23/68


subdi,ided into intuiti,e and

analoical techniues+ and the

uantitati,e ones into parametric

and anal"tical techniues. ach o#

the techniues is then described

and discussed+ in detail+ $ith

#urther subdi,isions. The paper also

sini#ies the importance o# cost

estimation in the earl" phases o#

the desin c"cle and+ as such+

brie#l" discusses the current trends

and #uture directions in the area.

7esearch $or* carried out in the

#ield $ith re#erence to speci#ic

applications is also re,ie$ed. The

paper pro,ides a comprehensi,e

literature re,ie$ in the #ield and

should be use#ul to researchers

and practitioners interested in this

#ield.

18 Co't re)+tio% "

iter"t+re review

The practice o# manain and:or

reducin business expenses. Cost

controls starts b" the businesses

identi#"in $hat their costs are and

e,aluate $hether those costs are

reasonable and a##ordable. Then+ i#

necessar"+ the" can loo* #or $a"sto cut costs throuh methods such

as cuttin bac*+ mo,in to a less

expensi,e plan or chanin ser,ice

pro,iders. The costcontrol process

see*s to manae expenses ranin

#rom phone+ internet and utilit" bills

to emplo"ee pa"roll and outside

pro#essional ser,ices.

in,estopedia

[Type text] Page 23


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1: &ost ?eductionEpportunities

Product de,elopment

determines /G o# product

cost. The concept:architecture

phase alone determines '/G o#

costH See ho$ ?esin

?etermines Cost

Ne$ article on ?esinin Lo$

Cost Productssho$s the top 5

desin strateies to lo$er costE

brea*throuh concepts+

desinin out ualit" costs+

eliminatin chane orders+

,endorpartnerships+ and

desinin to minimie part cost

and material o,erhead.

1; %ctivities

*upportive to1ow &ost!roduct5evelopment

Colocatin nineerin $ith

!anu#acturin ensures the best

team$or*F a,oid

distant o##shorin

# outsourcin+ choose local

,endors $hich ensures earl"

and acti,e ,endor participation

in product de,elopment teams

Preselect Iendor:Partners$ho

$ill help de,elop

productsF a,oid lo$biddin so

that ,endors $ill help $ith

desin

mplement standardiationand

ood product port#olio plannin

?r. ?a,id !. %nderson+

P..+ #%S!+ C!C

[Type text] Page 24
http://www.halfcostproducts.com/dfm_article.htm#Design%20Determines%20Costhttp://www.halfcostproducts.com/dfm_article.htm#Design%20Determines%20Costhttp://www.design4manufacturability.com/designing_low_cost_products.comhttp://www.design4manufacturability.com/designing_low_cost_products.comhttp://www.halfcostproducts.com/outsourcing.htm#Outsourcing%20and%20Product%20Developmenthttp://www.halfcostproducts.com/outsourcing.htm#Outsourcing%20and%20Product%20Developmenthttp://www.halfcostproducts.com/offshore_manufacturing.htmhttp://www.fandmmag.com/print/Fabricating-and-Metalworking/Tearing-Down-the-Walls-/1$1689http://www.halfcostproducts.com/low-bidding.htmhttp://www.halfcostproducts.com/Standardization.htmhttp://www.halfcostproducts.com/Credentials.htmhttp://www.halfcostproducts.com/Credentials.htmhttp://www.halfcostproducts.com/dfm_article.htm#Design%20Determines%20Costhttp://www.halfcostproducts.com/dfm_article.htm#Design%20Determines%20Costhttp://www.design4manufacturability.com/designing_low_cost_products.comhttp://www.design4manufacturability.com/designing_low_cost_products.comhttp://www.halfcostproducts.com/outsourcing.htm#Outsourcing%20and%20Product%20Developmenthttp://www.halfcostproducts.com/outsourcing.htm#Outsourcing%20and%20Product%20Developmenthttp://www.halfcostproducts.com/offshore_manufacturing.htmhttp://www.fandmmag.com/print/Fabricating-and-Metalworking/Tearing-Down-the-Walls-/1$1689http://www.halfcostproducts.com/low-bidding.htmhttp://www.halfcostproducts.com/Standardization.htmhttp://www.halfcostproducts.com/Credentials.htmhttp://www.halfcostproducts.com/Credentials.htm


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#or the best #ocus

Total cost measurements(J)

to uanti#" all costs a##ected b"

desin

CorrectinCounterproducti,e

Policies. Ne$ ,entures and

startups $ill be able to

implement these principles riht

a$a". stablished companies

ma" ha,e to #irstcorrect counterproducti,e

policies+ b" prioritiin port#olio

plannin+ scrutiniin hih

o,erhead sales+ emphasiin

thorouh up#ront $or*+

uanti#"in all costs+ and

a,oidin timedrainin attempts

to reduce cost a#ter desin+

oin #or the lo$bidder+

ormo,in production o##shore.

See #ullarticle on

counterproducti,e policies.

1=

Cost Control+

!onitorinand

%ccountin

5uring the execution of a proect,

procedures for proect control and

record keeping become

indispensable tools to managers and

other participants in the

construction process. These tools

serve the dual purpose of recording

the financial transactions that occur

as well as giving managers an

indication of the progress and

Cited in Aoll+ Peter 9.+

K?atabase Structures #or

Pro


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problems associated with a proect.

The problems of proect control are

aptly summed up in an old

definition of a proect as Rany

collection of vaguely related

activities that are ninety percent

complete, over budget and

late.R S2The task of proect control

systems is to give a fair indication

of the existence and the extent of

such problems.

In this chapter, we consider the

problems associated with resource

utilization, accounting, monitoring

and control during a proect. In this

discussion, we emphasize the

proect management uses ofaccounting information.

Interpretation of proect accounts is

generally not straightforward until a

proect is completed, and then it is

too late to influence proect

management. +ven after completion

of a proect, the accounting results

may be confusing. Bence, managers

need to know how to interpret

accounting information for the

purpose of proect management. In

the process of considering

management problems, however,

we shall discuss some of the

common accounting systems and

[Type text] Page 2'
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conventions, although our purpose

is not to provide a comprehensive

survey of accounting procedures.

The limited obective of proect

control deserves emphasis. !roect

control procedures are primarily

intended to identify deviations from

the proect plan rather than to

suggest possible areas for cost

savings. This characteristic reflects

the advanced stage at which proect

control becomes important. The

time at which maor cost savings

can be achieved is during planning

and design for the proect. 5uring

the actual construction, changes are

likely to delay the proect and lead

to inordinate cost increases. %s a

result, the focus of proect control is

on fulfilling the original design

plans or indicating deviations from

these plans, rather than on

searching for significant

improvements and cost savings. It

is only when a rescue operation is

re$uired that maor changes will

normally occurring in the

construction plan.

-inally, the issues associated with

integration of information will

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28/68


re$uire some discussion. !roect

management activities and

functional concerns are intimately

linked, yet the techni$ues used in

many instances do not facilitate

comprehensive or integrated

consideration of proect activities.

-or example, schedule information

and cost accounts are usually kept

separately. %s a result, proect

managers themselves must

synthesize a comprehensive view

from the different reports on the

proect plus their own field

observations. In particular,

managers are often forced to infer

the cost impacts of schedulechanges, rather than being provided

with aids for this process.

&ommunication or integration of

various types of information can

serve a number of useful purposes,

although it does re$uire special

attention in the establishment of

proect control procedures.

Co%+'io%'

The literature supports the assumption that inter'governmental cooperation can

provide &ost and $uality efficiencies .in addition to discussing the benefits of shared

services and Ether forms of cooperation, the literature provides insights into how to

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29/68


increase the %mount of service delivery consolidationJ

Muality improvements

)ost shared services success stories assess cost savings use some of these

cases state that improvements in service delivery and $uality should be the primary

motivator in forming shared services. *haring seldom reduces $uality of the service,

and often sharing improves $uality. Muality issues are the sole motivation for some

arrangements.

!roviding high cost service improvements

There are functional service areas, such as information technology, in which local

government has made only limited investments. Traditionally, this is because the

government perceives the cost to be unpalatable to the citizenry. *ervice sharing offers

the potential for $uality improvement in areas such as this, without incurring the

skepticism of the public about expensive investments.

&ase'by'case resolution of obstacles

%lthough there are hurdles to implementation of shared services, they are situation'

specific, and should be assessed and resolved in forming an agreement. There are a great

many successful shared service arrangements. +ven the concern with loss of local control

or local delivery of the service is an infre$uently mentioned obstacle in the literature.

!ublic safety services

?eports from around the country indicate a reduction inpublic safety costs is possible.

The transfer of police, fire, and dispatch services to other units of government are

common potential efficiencies cited in the literature. !olice and fire are difficult services

to consolidate, because of the publics concerns

:ith safety /in terms of response times0 and organized labors concerns with

+mployment security.

*tate encouragement

+vidence shows that governments want to do more service sharing than they actually

accomplish. *tates are trying to encourage collaboration through grant and education

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30/68


programs. *ome have tried to launch more of an outreach 4program, and others have

tried to created abases of needs to meet through *haring.

Feed for focus

*uccessful shared services re$uire planning. !robably the greatest obstacle to doing what

everybody seems to want L shared services that result in economies L is not spending the time

and detailed effort to focus on it. The fact that most sharing arrangements come from

informal networks and

&ontacts is testimony to the factgovernments do not spend enough time thinking about how

to be efficient. Theyneed to be encouraged to invest time and resources to do so.

Incentives to productive organizations

#rants, such as Few 6ersey made available to develop county offices dedicated to promoting

shared services, create incentives and the focus to evaluate more cost'effective strategies.

These state grants to counties are a good step in the direction suggested

"y the *omerset county business !artnerships proposal to fund effective sharing

organizations in order to continue their successful work.

!ositive effects of fiscal stress

-iscal and budgetary pressures also encourage cooperation between units of government.

&onversely, aid or grants, which maintain a service, are disincentives to finding alternative

service delivery arrangements. -inding the right level of government to deliver a servile, s.

/44@0. *uburbs split on shared servicesU city as hired help gets mixed reviews. !ittsburgh

post'gazette !ittsburgh.

[Type text] Page 3/


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DATA ANALYSIS OF NATIONAL TE>TILE CORPORATIO COSTING

SYSTEM

F%TIEF%1 T+NTI1+ &E?!E?%TIEF is a manufacturing concern. It consists of

different process. F%TIEF%1 T+NTI1+ &E?!E?%TIEF 1td is one of the maor cloths

manufacturing with the products &otton Oarn. !P H !& Oarn ,#reige fabric ,:ider width

fabric Fon'wovens company in India. These include products with a high degree of

specialization which demand a high level of accuracy.

!rocess costing of F%TIEF%1 T+NTI1+ &E?!E?%TIEF has prepared four types of cost

statements they areJ

*tandard &ost *tatement

)onthly &ost *tatement

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%dusted &ost *tatement

%nnual &ost *tatement

DATA ANALYSIS

T"!e 1 M"?or Ee6e%t of Co't of Pro)+tio%

S

No

Co't' Pere%t"&e

5@1@-11

2 5irect )aterial D4.34

5irect +xpenses 2.4>

= -actory &ost D.D4

C %dministrative

&ost

4.34

Tot" 1@@

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A%"*'i'

&ost of production in 424'22 include more of material cost D4.34Adirect expenses

ac$uired 2.4>A,factory cost are D.D4A, and administrative overheads is the least amount

that was only 4.34A.

T"!e 5 M"?or Ee6e%t of Co't of Pro)+tio% for the *e"r 5@11-15

Sl No Costs Percentae

2/1112

1 ?irect !aterial 03.54

2 ?irect xpenses 2/./2

3 9actor" Cost 5.&

[Type text] Page 33


34/68


4 %dministrati,e Cost /.55

Total 1//

A%"*'i'

&ost of production in 422'2 include more of material cost D=.7CA direct expenses4.4A factory cost 7.>4A and administrative overheads cost was o.77A


[Type text] Page 34


35/68


[Type text] Page 35


2/1213

1 ?irect !aterial 04.05

2 ?irect xpenses 1&.1&

3 9actor" Cost 5.5'


Total 1//


36/68


A%"*'i'

&ost of production in 42'2= includes more of material cost DC.D7Adirect expenses

ac$uired 2>.2> A, factory cost are 7.73A, and administrative overheads is the least amount

that was only 4.72A.


[Type text] Page 3'


1314

1 ?irect !aterial 0'.&'

2 ?irect xpenses 1.'4

3 9actor" Cost 4


Total 1//


37/68


Analysis and interpenetration: &ost of production in 42='2C' include more of material cost

D3.>3A direct expenses ac$uired [email protected], factory cost are CA, and administrative overheads

is the least amount that was only 4.C4A

T"!e : Co6"r"tive M"?or Ee6e%t of Co't of Pro)+tio%

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S

No

Co't' Pere%t"&e

5@1@-11

Pere%t"&e

5@11-15

Pere%t"&e

5@15-10

Pere%t"&e

10-18

2 5irect )aterial D4.34 D=.7C DC.D7 D3.>3

5irect +xpenses 2.4> 4.4 2>.2> [email protected]

= -actory &ost D.D4 7.>4 7.73 C.44

C %dministrative

&ost

4.34 4.77 4.72 4.C4

Tot" 1@@ 1@@ 1@@ 1@@

A%"*'i'

&ost of production in 424'22 include more of material cost D4.34Adirect expenses

ac$uired 2.4>A,factory cost are D.D4A, and administrative overheads is the least amount

that was only 4.34A table 7. &ost of production in 422'2 include more of material cost

D=.7CA direct expenses 4.4A factory cost 7.>4A and administrative overheads cost was

o.77A maor element cost of production. &ost of production in 42='2C' include more of

material cost D3.>3A direct expenses ac$uired [email protected], factory cost are CA, and

administrative overheads is the least amount that was only 4.C4A.

I%terret"tio%/

[Type text] Page 3


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-rom the above observation I can say that the production cost of the organisation is

increasing year by year due to changes in the price of the raw materials, inflation, and

economic factors. This leads to increase the overall cost of production.

TABLE 5 COST OF PRODUCTION OF NATIONAL TE>TILE CORPORATION

*e"r Co't of Pro)+tio% R'

422'2 34D422=3>

42'2= DCD7

42='2C 2227CC7D23

COST ACCOUTING OF NATIONAL TE>TILE CORPORATION

NATIONAL TE>TILE CORPORATIONis leading manufacturer cloths follows process

costing, ob costing and labor costing. % report on the working of costing department of

national textile corporationand the main functions of costing department are as followsJ

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2. &omputation of works cost and allocation to finished goods products along with

details of cost

. *tock valuation.

=. ?aw materials cost is analyzed by making comparison between actual vs. standard.

C. )aintenance of statutory cost records under sec 4>/20 of the companies act to

facilitate conduct of cost audit.

7. *ending of monthly annual return to statutory body like annual survey of industries

and other statistical organization.

3. !reparation of budget and budgetary control preparation of management information

report in turn to help in controlling the functions of factory. &omparisons of certain

reports are done, the report likeJ

"udget vHs actual L work cost statement, work cost actual vHs month work cost

statement on monthly basis.

D. -urther product contribution statement which helps in taking decision on production

and selling of finished goods on priority.

COSTING SYSTEM ADOPTED BY NATIONAL TE>TILE CORPORATION/

There is several methods cost accounting system. "ased on the size and nature of our

industry, we have the following costing system. *tandard costing is a techni$ue which is

used as tool for taking vital managerial decisions besides maintaining the cost accounts to

meet the statutory re$uirement of cost audit, statutory audit etcV

*tandard cost if a product may be classified intoU two maor groupsJ

2. *tandard material cost.. *tandard overhead.

1/ St"%)"r) M"teri" Co't

%t the beginning of the financial year, standard prices for raw materials are fixed in

consultation with material department, taking into account the prevailing actual prices, the

expected trend in the price front and applicable levels to arrive at the landed cost of each raw

[Type text] Page 4/


41/68


material. The modal credit available on the inputs is deducted from the landed cost and

standard material price not of modal are arrival at. "y applying this rate standard raw material

cost of various.etc., is calculated.

"ased on the technical specification issued by technical department, the standard

material rates are applied on standard weight of each material component to arrive at standard

raw material cost. % model of the raw material cost sheet is enclosed vide. Ence the standard

rates are fixed. ;sually they remain constant unless the actual landed cost varied beyond

percentage. Thus the variations in the raw material price on day'to'day basis are reflected

only in price variance account for consideration while preparing the periodical !rofit and

1oss account.

5/ St"%)"r) Overhe")

%t the time of preparation of budget cost centre'wise. +lement'wise overheads are

collected. *tandard overheads are collected from budget approved by the board.

a. %ll production cost centers wages are treated as direct wages.

b. +ach element of overhead is classified based on nature of expenses into variable and

fixed and also by functions intoJI. )anufacturing.

II. )arketing.

III. %dministration and are absorbed to product as detailed below.

St"%)"r) Co'ti%&

F%TIEF%1 T+NTI1+ &E?!E?%TIEF follows the techni$ue of standard costing

for controlling cost. In standard costing first the standards are set and then compare the

standard costs with the actual costs to find the differences between the two. The difference

between standard cost and actual cost is known as variance. *tandard cost is useful for

analyzing causes for variations with a view to maintain maximum efficiency of production.

St"%)"r) Co'ti%& Proe)+re i% NATIONAL TE>TILE CORPORATION 3

2. *etting of standard costs for different size of types which is used in pumps, engines,

alternators and compressors, which demand a high level of accuracy.

. %scertaining the actual costs i.e., %ctual consumption. %ctual cost cant be derived

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because operation is a continuous process. %ctual raw material cost is based on

reconciliation. %ctual raw materials cost can be ascertained by taking into

consideration the opening work'in'progress in the shop floor and issue of raw

materials to the shop floor and closing work'in'progress at the end of the month. This

can be symbolically represented asJ

%ctual ?aw )aterial cost W Epening work'in'progress X Issue to shop floor L &losing

work'in'progress

2. &omparing *tandard with actual costs to determine the difference between the two

known as Pariances.

. %nalyzing variances for ascertaining reasons thereof.

=. ?eporting of these variances and analysis thereof to management for appropriate

action, where necessary.

The main advantages, has come across in standard costing areJ

+ffective cost control is absorbed. It is exercised comparing actual

performance with standard and taking action on the basis of variances so

rendered.

*tandard &osting helps in planning which installs the management a habit of

thinking in advance.

The standard has provided incentives and motives to with grated effort.

*tandard cost has proved a valuable aid to management in determining price

and formulating production policies.

*tandard costing is less experience, simple and more concessive to

F%TIEF%1 T+NTI1+ &E?!E?%TIEF.

It helps in eliminating wastesU such as raw materials wastage, idle time, lost

machines hours are reduced.

It helps in valuation of stocks because the stock is valued at standard cost.

This ensures a uniform pricing of stocks in the form of raw materials, work in

progress, and finished goods.

*tandard costing is economical and simple.

Ee6e%t' of Pro)+t Co't

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Traditionally, product costs are divided into three elements. They are direct material,

direct labor and overhead.

Diret M"teri"3 5irect material is a material that can be directly identified with eachunit of finished product and economically traceable to specific units of output. The term

direct material is denoted by certain other names also such as process material, prime cost

material

F%TIEF%1 T+NTI1+ &E?!E?%TIEF is basically a raw material the maor raw material

like9ibber+ machine tools+ harness C;TT;N ;;LN+ d"in colorin materials and man"

supportin materials.

F"tor* Overhe")

-actory overhead also called manufacturing overhead or factory burden may be define

as the cost of indirect material, indirect labor and indirect expenses. These are incurred in the

factory included in these are expenses relating to production management. *uch as rent,

insurance, power and depreciation so on.

A)6i%i'tr"tio% Overhe")

%dministration over head includes cost of planning and controlling the general

policies and operations of business enterprise. These pertain to management of business and

include office rent lighting and heating, postage, telephone, fuse and other charges data entry

charges accounting audit fees etc.

Sei%& "%) Di'tri!+tio% of E#e%'e'3

*elling and distribution overheads usually when the factory costs end such expenses

are generally incurred when the product is in saleable condition. It covers the cost of making

sales and delivering products. That cost includes advertising, salesmen salaries and

commissions, transportation etc. The main disad,antaes F%TIEF%1 T+NTI1+

&E?!E?%TIEF has come across in adoptin standard costin areE %ctual position in

certain cases $ill not be *no$n because the #irm operation is a continuous process.

T"!e 0 B+)&ete) Co't Sheet for the Ye"r 5@11-15

[Type text] Page 43


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T"!e 8 At+" Co't Sheet for the Ye"r 5@15-10

Particulars Rs. Rs.

Direct Materials:

Opening Stock 2'/3/5

Add: Purchases 4&3455

05'513

Less: Closing Stock 51344

[Type text] Page 44

Particulars Rs. Cr Rs.cr

Direct Materials:

Opening Stock 41344

Add: Purchases 5033&'2

&'1/

Less: Closing Stock 5&/5/03

3&'3030

Direct Wages 12'315

Direct Expenses 3''3

Prie Cost !"#$%#!

Add: &actor' O(erheads

)ndirect Wages 05&5&/

Rent &25Po*er+ ,uel - Water 1/13'1'

Repairs and Maintenance 42403

Contriution to Pro(ident &unds 120/'42

Eplo'ee Wel,are Expenses 1//4&1/

Work Cost ##/%010#

Add: O,,ice - Adinistrati(e Expenses

Rates - 2axes 2145&

)nsurance &1520

Adinistrati(e expenses 51213ank Charges 2/545'5

Audit &ee 31'25/

Cost o, Production #!"/!"!0

Add: Selling - Distriution Expenses

2ra(elling Expenses 01522

3ad Dets '505

Cost o, 4oods Sold #51616"1

Sales 601/!"/5

Pro,it "16!0$5


45/68


2451''5

Direct Wages 25/&3&

Direct Expenses ''500

Prie Cost !"011$#


)ndirect Wages 1/&52&

Rent 54'3

Po*er+ ,uel - Water 1/04532

Repairs and Maintenance 1'&52

Contriution to Pro(ident &unds 1/''&12

Eplo'ee Wel,are Expenses 512'//

Work Cost #1%/0"6!

Add: O,,ice - Adinistrati(eExpenses

Rates - 2axes 153110/

)nsurance 15&2'33

Adinistrati(e expenses ''3'''

3ank Charges 4'&'22

Audit &ee 205///

Cost o, Production #!//!5#"

Add: Selling - DistriutionExpenses

2ra(elling Expenses 0/5'31

3ad Dets 4/5111

Cost o, 4oods Sold #"!!"/!$Sales 6616%"5"

Pro,it !/506#$

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Table 5 Actual Cost Sheet for the Year 2013-14

[Type text] Page 4'

Particulars Rs. Rs.

Direct Materials:Opening Stock 2205'1

Add: Purchases 32&&14&

'12'01/

Less: Closing Stock 5'/3/5

523'52

Direct Wages 240'000

Direct Expenses &/5'5

Prie Cost 0$%1%%/


)ndirect Wages 51/5'Rent '42415

Po*er+ ,uel - Water 4/&/2

Repairs and Maintenance 352/4

Contriution to Pro(ident &unds 205/31

Eplo'ee Wel,are Expenses 33034&

Lease Rent 155031

Work Cost ""55!$6

Add: O,,ice - Adinistrati(e

Expenses

Rates - 2axes 500'&)nsurance 2&232&2

Adinistrati(e expenses 11'0'&/

3ank Charges '/'4&/

Audit &ee 40////

Cost o, Production

#6/665!6

Add: Selling - Distriution

Expenses

2ra(elling Expenses 2'4&0

3ad Dets 2/11/2'Cost o, 4oods Sold #/56165!

Sales 61105"10

Pro,it !0+#5+06$


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Table 6 the overall cost statement

Particulars 61#17## 61#67#0 61#07#/

Prie cost 3&/&&4 5'3//1 5'1&15

Work cost ''0052 1/&43'25 114&3/31

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Cost o, production 12422052 1544501' 15'45'53

Cost o, goods sold 1402/205 1'55'45 10/2/2'/

Sales 2//30'/3 22/2&'0' 23/45'40

Pro,it 531032 540321 '/2530

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COST 2OLUME PROFIT ANALYSIS BREA4 E2EN CHART

ANALYSIS/

The break even chart is a graphic relationship between costs, volume and profits. It

shows not only the "+! but also the effects of costs and revenue at varying levels of sales.

The break even chart can also call as cost volume profit graph.

Bre"$ Eve% A%"*'i'

"reak even analysis show the relationship between the cost and profit with sales

volume , which e$uates total revenue with related costs and results in neither profit nor loss is

called the break even volume or breakeven point. In other words it is the point where there isno loss no profit.

Bre"$ Eve% Poi%t

The breakeven point can be defined as the point can be defined as the point or sales level at

which profit are zero and there is no less. That is breakeven point is that point at which total

cost are e$ual to total sales revenue. %t the breakeven point profit zero, contribution /sales'

variable cost0 is e$ual to the fixed cost.

If the actual volume of sales is higher than the break even volume there will be a profit

beyond the breakeven point. %ll the marginal contribution represents income.

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Bre"$ Eve% Ch"rt

The break even chart is a graphical representation of sales volume and sales. If shows

not only the "+! but also the effects of cost and revenue at varying levels of sales.

se o# CIP %nal"sis

To earn a budgeted profit, what should be the volume of sales

To know what will be the "+! under various situation of changing sales mix, price

and cost.

To know what are the most and least profitable products.

To know what is the minimum level sales re$uired to avoid the losses.

To understand what is the impact on profit when sales mix is changed.

To know what will be impact of expansion plan on &P! relationship.

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2"ri"!e Co't3

&ost which trends to follow the level of activity. Be cost varies directly with output.

There are also called direct cost. +xampleJ 5irect labour, direct materials, direct expenses.

Fi#e) Co't3

The cost which accurse in relation to the passage of time and unaffected by

fluctuations in the levels of activity. +xampleJ ?ent and rates, salaries of works manager,

administration manager, sales manager etc.

Se6i-2"ri"!e Co't3

These costs contain partly and partly variable elements. These costs are thus partlyaffected by fluctuation in the levels of activity. +xampleJ Formal maintenance of building

and plants salary of supervisor depreciation on plan and machinery, service department

wages, etc.

T"!e = C"+"tio% of BEP for three Ye"r' i% +%it' < R'/

!articulars 422'2 42'2= 42='2C

*ales 2>473D= 44=D34= 4>3D3

Pariable cost 73C4D2= 327=>=4 @C>2>34

&ontribution 2==@7744 2=@@=3D= 2=7=DD23

-ixed cost 7>C2>4 7DC72D4 C7=4>2

!rofit C3>4@D3 7=2D=@ 7CD=2@

"+! in units. /-&Hcontribution0N 244 CC .23 C2.=@ ==.CD

In amount for 74444 units 4@444 43>444 23D=@D3

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A%"*'i'3

The no profit no loss point is called as "+! /"reak +ven !oint0. The "+! fornF%TIEF%1 T+NTI1+ &E?!E?%TIEF., are shown in the table and chart and it is

explained below.

F%TIEF%1 T+NTI1+ &E?!E?%TIEF produce number of units ?s. 2>473D= in

422'2 The &ompany has the capacity to achieve the "+! at ?s.4@444. "ut the company

crossed the break'even point and made profit of ?s. C3>4@D3.

F%TIEF%1 T+NTI1+ &E?!E?%TIEF produced units of towels bedspreads, nylon

clothes worth ?s. 44=D34= in 42'2=. The company has the capacity to achieve the "+! in

of towels bedspreads, nylon clothes. The "+! of towels bedspreads, nylon clothes is at

?s.43>444. "ut the company crossed the break'even point and made profit of ?s. 7=2D=@.

F%TIEF%1 T+NTI1+ &E?!E?%TIEF produced units of yarns towels bed sheets

and oworth ?s.4>3D3 in 42='2C. The company has the capacity to achieve the "+! in

Indicators, of towels bedspreads, nylon clothes. The "+! is ?s.23D=@D3. "ut the company

crossed the break'even point and made profit of ?s. 7CD=2@.

I%terret"tio%3"+! of F%TIEF%1 T+NTI1+ &E?!E?%TIEF have higher fluctuation

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level where as in 422'2 the "+! was at ?s.4@444, in 42'2= the "+! was decreased

even though the performance was excellent.

TO 4NO( OPERATING LE2ERAGE

Lever"&e

The emplo"ment o# an asset or source o# #unds #or $hich the #irm has to pa" the #ixed

cost or #ixed return ma" be termed as le,erae. Conseuentl"+ the earnins a,ailable

to the share holders has also the ris*s are a##ected. ts earnins less than ,ariable

cost exceeds #ixed return reuirement+ the le,erae is called #a,orable+ $hen the" do

not+ and the result is un#a,orable le,erae.

The term leverage generally refers to circumstances, which brings about an increase

in income instability /irregularity0. In business, leverage is the means of increasing profits. It

may be favorable or unfavorable. The favorable leverage increases profit available to the

e$uity shareholders where as unfavorable leverage reduces profit to the e$uity shareholders.

De&ree of Oer"ti%& Lever"&e

Eperating leverage may be defined as the firms ability to use fixed operating costs to

magnify the effects of changes in sales on its earnings before interest and taxes. Eperating

leverage occurs any time a firm has fixed costs that must be met regardless of volume. :e

employ assets with fixed cost in the hope that volume will produce revenues more than

sufficient to cover all fixed and variable costs.

The degree of operating leverage may be defined as a percentage change in the

earnings before interest and tax /+"IT0 relative to percentage change in the sales.

I%terret"tio%

The bellow table @ and chart demonstrates that in the year 424'22 the 5egree of

Eperating 1everage was .37 times, which implies for a given changes in sales the +"IT is

74C7D3C.

In the year 422'2 the 5E1 was .@ times implies that for a given changes in

sales the +"IT also changes. +ven as compare to the year 424'22, operating risk is reduced

by 4.=D times

In the year 42='2C the 5E1 was .4D times that mean there is minor decreases of

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4.2 times of operating risk and there .

5egree of operating leverage, degree of implies that involvement of operating risk,

financial risk and combined risk. %nd operating leverage cause with fluctuation in +!* for agiven changes in sales. If a company employs a high level of operating leverage even a small

change in the level of sales will a dramatic effect on +!*.

The F%TIEF%1 T+NTI1+ &E?!E?%TIEF was enlarged its sales and at the

same time it has increased cost of production year by year. &onse$uently +"IT and +!* are

diverse, but still shareholders are getting sufficient profit.

T"!e De&ree of Oer"ti%& Lever"&e

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!articulars 422'2 42'2= 424'22

*ales 2>473D= 44=D34= 4>3D3

Pariable cost 73C4D2= 327=>=4 @C>2>34

&ontribution 2==@7744 2=@@=3D= 2=7=DD23

-ixed cost 7>C2>4 7DC72D4 C7=4>2

!rofit C3>4@D3 7=2D=@ 7CD=2@+"IT 74C7D3C 343C2DD 37C=2C=

5E1/contributionH+"IT0 .37 .@ .4D


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R"tio A%"*'i'

5ebt e$uity ?atio

5ebt He$uity N 244

C"+"tio% of )e!t'

==4>3>744

24444444

.D7J2

The companys total debts to e$uity ratio is .D7J2 national textile corporation is

government oriented company and that company is running with more own capital than

borrowings the total borrowing is only = crores and the rest of the capital is own fund the

company is not maintaining the proper capital structure becos the company is liable to pay all

the profits to the owners of the company, and the company must complete this obligation.

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5ebt +$uity ?atio

==4>3>74 24444444 .D7J2


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C+rre%t r"tio

&urrent assets

'''''''''''''''''''''

&urrent liabilities

743272

''''''''''''''''''''''''''''''''''

2D==D4

2.CCJ2

&urrent assets &urrent liabilites ?atio

743272 2D==D4 2.CC J2

I%terret"tio% J FT&s current ratio is 2.CCJ2 is the standard of the current ratio is J2

company has to maintian in the proportion of J2 because the the comapnies liabilities little

bit high this may cause to the adverse situations in future.

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+i$ R"tio

Muick assets

'''''''''''''''''''''''''''''''''

Muick liabilities

2D2322

''''''''''''''''''''''''

2D==D4

4.>>J2

Interpreation J $uick ratio of the company is 4.>>J2 comapnysratio is very near to the

standard value it is $uite satisfactory

+i$ A''et' +i$ Li"!iitie' R"tio

1=51;11 1=00=5@ @/31

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A!'o+te i+i) r"tio

A!'+te i+i) "''et'

-------------------------------------------

C+rre%t i"!iitie'

A!'o+te i+i) "''et' "'h !"%$ "%) M"r$et"!e 'e+ritie'

CC243C

''''''''''''''''''''''''''''

2D==D4

4.7CJ2

%bsolute li$uid assets &urrent liabilities ?atio

CC243C 2D==D4 4.7CJ2

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Interpretation J FT&s absolute li$uid ratio is 4.7CJ2 one and there is no marketable

securities in the company.

FINDINGS

The firm cost of production was decrease over years due to change of fluctions in

sales.

5irect material covers the most of the part in cost./D4A0

Eperating leverage of the firm dramatically decrease.

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!roduction and sales increases a year and year.

&ompany following general accounting system

&ompany issuing standard costing and process costing methods to analyse the costing

systems

The company sales is increases every year

&ost of production is also increasing every year

Muick ratio of the company is $uiet satisfactory

&ompany has to increase the stability of borrowing

&ompany must meet current ratios standard to main item is the optimum capital

structure .

SUGGESTION AND RECOMONDTIONS

The following are some of the recommendation to improve the cost accounting

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system in F%TIEF%1 T+NTI1+ &E?!E?%TIEF

The company should increase their sales to ac$uire increased level of market share in

the domestic market. This may help in achieving goals of the organization. The material price variance should be calculated at the time of materials purchase

rather than when materials are used. This is beneficial from the viewpoint of

performance measurement and corrective action.

It can adopt 6ust'in'time approach which not only make stores activities effective, but

also eliminate unnecessary activities involved in the stores. This will help in control

of costs.

%ttempts should be made to reduce production costs with the help of ?esearch and5evelopment department.

)anagers must adopt ust in time and and other techni$ues to avoiod unecessary

costs.

CONCLUSION

-rom the study undertaken in F%TIEF%1 T+NTI1+ &E?!E?%TIEF 1td, it can be

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concluded that cost accounting system is essential in every manufacturing company. &ost

accounting provides information of the nature of cost data to managerial personnel for

efficient performance of their functions. %s such, cost accounting is the foundation of the

management information system. It is a means to achieve its defined goals.

In the modern world of competitive economy, one of managers important functions

is the management of cost. % manufacturer who produces the product cheaper than another is

more efficient and better chances of progress and expansion as compared to another whose

costs are higher.

%s there is huge competition in apparels and textile industry, F%TIEF%1 T+NTI1+

&E?!E?%TIEF should reduce its cost. It is reducing the cost of production from the past =

years by increasing the efficiency of workers and replacing old machines. 5ue to this

companys profit has increased to ?s. 347=@D in the year 42='2C as against ?s. 7CD=2@ in

the year42'2=

To achieve and maintain a competitive advantage in todays global market place,

many companies are heavily investing in new technology. In addition to new technology,

many organizations are implementing new cost management systems to better meet the needs

of management in an economy that continually grows more competitive.

)embers use the information generated under cost accounting system by management

at different levels. Thus, different sets of information could be developed under cost

accounting and supplied to different persons responsible for activities in the organizations. It

is used for the purpose of analysis and decision'making.

To conclude, cost accounting system provides the service to aid the managers in

achievement of the goals and targets laid by the management and its effectiveness isevaluated from time to time.

BIBLOGRAPHY

?eferences "ooks

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'I ) !andey

'*hashi ( #upta

? ( *harma

'(han 9 6ain

&ost management and cost strategy

The accounting instructor is one of the authors, &atherine

*tenzel, who has taught undergraduate and )"% level

courses in financial and management accounting since the

mid'2>@4s.

. (ohlers 5ictionary for %ccountants, 3th ed. /+nglewood &liffs,

F6J !rentice'Ball &ollege 5ivision, 2>>40, 7@L7>.

=. ?obert *. (aplan and ?obin &ooper,&ost 9 +ffectJ ;sing

Integrated &ost *ystems to 5rive !rofitability and !erformance

/"ostonJ Barvard "usiness *chool !ress, 2>>@0, viiiLix. Id., CLD.

7. &6 )cFair,5efining and *haping the -uture of &ost )anagement, 6ournal of

&ost )anagement 2C, no. 7 /4440J=3. (aplan and &ooper, 24.

D. "rian )askell,)aking the Fumber &ountJThe %ccountant as &hange %gent.

%nnual report of national textile corporation ltd

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%nnexure

N%T;N%L TTL C;7P;7%T;N

8alance Sheet as on 31st march 2/1213

Liabilities %mount %ssets %mount

Capital %ccount 12/+//+//// 9ixed %ssets 42/20

9urniture M 9ixturesComputer

Pheripherals

5/04/

Computer So#t$are 25//20

uipments M Spares 1224'5

9actor" 8uildin 35501&01

3

9urniture 155/345

Loans (Liabilit") 33/&'&5//

nsecured Loans 3&'&5//

Current Liabilities 103302/?uties M Taxes 2/45'2 Plant M !achiner" 1/'4/543

Pro,isions 4//+///

Sundr"

Creditors

112&15

Tools 1530'0 1/&3&////

S Pa"abl Sub

contract r'.5G

P9 Pa"able

Pro#it M Loss %:c

1/540321

Current %ssets

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Closin Stoc* 0/414/

Sundr" ?ebtors 12/540

Cashinhand 24////

8an* %ccounts 2/1/'4

Prepaid /4// 25/'151

Total 3/&10'43 Total 3/&10'43

shilpa final document 2

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