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Cost analysis @ nirani sugars ltd project report

  1. 1. COST ANALYSIS NIRANI SUGARS LTD, EXECUTIVE SUMMARY The Nirani sugar mill was originally established as a khandasri sugar factory of1250 TCD in the year 1997-98. Subsequently making use of the govt of India’sliberalized policy. Govt of India notification DCS /S/ 14/ 97 dated 2-6-98, whichconversion of khandasri sugar unit into vacuum pan sugar factories. Cost accounting is an old as the human being itself. Since the financial accountinghas some limitation. Cost accounting has its own importance being an important categoryof accounting system. The cost accounting system is very helpful to sugar industry. After adopting costaccounting every business must analyze it cost accounting system very care fully Material, labour, over heads are the main elements of the Nirani Sugars Ltd. Theseelements play very important role in the organization. The company giving moreimportance to this on the other hand well trained labour force working towards thecompany objectives. Various records are maintained by Nirani Sugars Ltd and each department has itsown cost records. During my project there is improper maintains of cost records bycompany. BABASAB PATIL 1
  2. 2. COST ANALYSIS NIRANI SUGARS LTD,The study of Cost Analysis of sugar industry with special reference toNirani Sugar’s Ltd Mudhol: Introduction of cost accounting We have entered into an area of liberalization the development process has openedthe doors of economy and in globalised economic environment it is necessary to protectthe interest of consumers, investor, company and the country as a hole. In a liberalizedeconomy, there is no role of traditional management in corporate world now only theprofessional management is required to control of the costs of the present day origination Modern area is called the industrial area. Every where there is vast developing inthe field of industry. On account of the development of the industries, the modernindustries require minimum cost of production and such as maximization of profits. Forthis purpose, they depend on the financial statements such as trading profits and lossaccount and balance sheet but these financial statements give information as whole. Itmeans the entire industry is treated as one unit. It is difficult task to locate the errors. Cost account is recent development. It is the branch of financial accounting. Itmaintains the records unit wise, process wise, job wise, department wise. At the end, wecan easily control are help in reduction of costs by preparation of the statements unit wiseor job wise. So cost accounting is developed basically to remove the limitation offinancial accounting BABASAB PATIL 2
  3. 3. COST ANALYSIS NIRANI SUGARS LTD, OBJECTIVE OF THE STUDYThe following are the objective of study 1. To study the cost of production. 2. To identify the cost unit and cost centre. 3. To identify the difficulties of installation of cost accounting system. 4. To study the operating efficiency and cost control technique. Sources of data 1. primary data 2. secondary data Primary data:-  Is collecting through interview of financial departmental heads Secondary data:-  Is collecting from company data of accounts. INDUSTRY PROFILE BABASAB PATIL 3
  4. 4. COST ANALYSIS NIRANI SUGARS LTD,The Historical Background of the Indian Sugar Industry: The sugar industry is proud to be an industry, which spreads the taste ofsweetness to the mankind. The history of origin of this industry is as old as the history ofmain him self. Sugar is generally made from sugarcane and beet. In India, sugar isproduced mainly from sugarcane. India had introduced sugarcane all over the worlds andis a leading country in the making sugar from sugarcane. The sugars industry occupies potion in the organization industries of India. Itranks second next to cotton, textile industries in importance. The Sugars industrialestablished in 1830. It provides Employment to nearly 5 lakhs of people directly. Therewere more then 467 factories in the country in 1994-95 with an annual production of 150to 200 lakhs tones. The sugars industries contributed revenue of the Central and StateGovernment a sum or Rs 350 corores in the form of taxes. The sugarcane is being grown in about 2.5 lakhs acres. Every year the crop ismostly contracted around Bijapur,Bagalkot,Belgaum, Mandya and coastal areas. This canbe grown in all types of soil but higher yields can be obtained in a rich weet drained andmedium despoils.National Scenario Of Sugar Industry: BABASAB PATIL 4
  5. 5. COST ANALYSIS NIRANI SUGARS LTD, The first sugar mill in the country was set up in 1903 in the United Provinces.There are 566 installed sugar mills, of which 453 were in operation in the year 2002-03and utilized 194.4 million ton of sugarcane (69% of total cane production) to produce20.14 million tons of sugar. About 5 Lakh workmen are directly employed in the sugar.About 5 Lakh workmen are directly employed in the sugar industry besides many inindustries, which utilize by-products of sugar industry as raw material. India is the largest consumer and second largest producer of sugar in the world.The Indian sugar industry is the second largest agro-industry located in the rural India.Indian sugar industry has been a focal point for socio-economic development in the ruralareas. About 50 million sugarcane farmers and a large number of agricultural laborers areinvolved in sugarcane cultivation and ancillary activities, constituting 7.5% of the ruralpopulation. Besides, the industry provides employment to about 2 million skilled/semiskilled workers and others mostly from the rural areas. The industry not only generatespower for its own requirement but surplus power for export to the grid based on by-product–Bagasse. It also produces ethyl alcohol, which is used for industrial and potableuses, and can be used to the manufacture Ethanol, an ecology friendly and renewable fuelfor blending with petrol. The sugar industry in the country uses only sugarcane as input; hence sugarcompanies have been established in large sugarcane growing states like Uttar Pradesh,Maharashtra, Karnataka, Gujarat, Tamil Nadu, and Andhra Pradesh. In sugar year2003-04,these six states contribute more than 85%of total sugar production in thecountry; Uttar Pradesh, Maharashtra, and Karnataka together contribute more than 65%oftotal production. The government of India licensed new units with an initial capacity of 1250 TCDup to the 1980s and with the revision in minimum economic size to 2500 TCD, theGovernment issued licenses for setting up of 2500 TCD plants thereafter. Thegovernment de-licensed sugar sector in the year of 11.September.1988. The entrepreneurs have been allowed to set up sugar factories of expand theexisting sugar factories as per the techno-economic feasibility of the project. However,they are required to maintain a radial distance of 15 Kms from the existing sugar factory.After de-licensing, a number of new sugar plants of varying capacities have been set upand the existing plants have substantially increased their capacity. There are 566 installed sugar mills in the country as on March 31st 2005, with a BABASAB PATIL 5
  6. 6. COST ANALYSIS NIRANI SUGARS LTD,Production capacity of 180 lacks Mts of sugar, of which only 453 are working. Thesemills are located in 18 states of the country.The sector wise break up’s as follows:Table no#1 Sl. No. Sector No of factories 1. Private 189 2. Public 62 3. Co-operative 315 Total 566International Sugar Industry: Demand- Supply: Brazil and India are the largest sugar producing countries followed by China,USA, Thailand, Australia, Mexico, Pakistan, France and Germany. Global sugarproduction increased from approximately 125.88 MMT in 1995-1996 to 149.4 MMT in2002-2003 and then declined to 143.7 MMT in 2003-2004, whereas consumptionincreased steadily from 118.1 MMT in 1995-1996 to 142.8 MMT in 2003-2004 as shownin below given chart. The word consumption is projected to grow to 160.7 MMT by 2010and 176.1 MMT by 2015. The world’s largest consumers of sugar are India, China, Brazil, USA, Russia,Mexico, Pakistan, Indonesia, Germany and Egypt. According to USDA ForeignAgriculture Service, the consumption of sugar in Asian countries has increased at a fasterrate, as a direct result of increasing population, increasing per capita income andincreased availability.Diagram no#1 BABASAB PATIL 6
  7. 7. COST ANALYSIS NIRANI SUGARS LTD, 35000 30000 production consumption 25000 20000 15000 10000 5000 0 brazil india china usa thialand austrila mexico pakistan france germany russia indoneasia egyptContribution of Sugar Industry to Indian Economy: Sugar industry contributes about Rs.1650 Crores to the Central Exchequer asexcise duty and other taxes annually. In addition, about Rs.600 Crores is realized by theState Governments annually through purchase tax and cess on cane. At the prevailingsugarcane price, the total sugar cane produced in the country value at about Rs.24000Crores per yearWorld Sugar Trade: Word trade in raw sugar is typically around 22 MMT and white sugar around 16MMT. Brazil is the largest importer, followed by EU, Thailand, Australia and Cuba. Thelargest importers are Russia, Indonesia, UK, South Korea, Japan, Malaysia, the MiddleEast, and North Africa.Sugar Prices: World sugar prices fell steadily from 1994-1995 till 1998-1999 and have beenalmost stable at those levels. The trend seems to have now reversed and refined sugarprices have increased by 30% in the last 5 quarters – from 9.16 cents per pound inJanuary, 2004 to 12.02 cents in March,2005 (Source: USDA Foreign AgricultureServices).Sugarcane Availability: BABASAB PATIL 7
  8. 8. COST ANALYSIS NIRANI SUGARS LTD,Table showing sugar cane availability in cultivated area: Table no#2 Year Cultivated area (%) MMT 1980-81 2.7 154 1990-91 - 241 2000-01 - 296 2002-03 4.3 300 2003-04 3.9 - 2004-05 3.7 236 Sugarcane occupies about 2.7% of the total cultivated area and it is one of themost important cash crops in the country. The area under sugarcane gradually increasedfrom 2.7 million hectares in 1980-81 to 4.3 million hectares in 2002-03, mainly becauseof much larger diversion of land from other crops to sugarcane by the farmers foreconomic reasons. The sugarcane area, however, declined in the year 2003-04 to 3.9 million hectaresand to 3.7 million hectares in 2004-05, mainly due to drought and pest attacks. From alevel of 154 MMT in 1980-1981, the sugarcane production increased to 241 MMT in1990-1991 and further to 296 MMT in 2000-2001. Since then, it has been hoveringaround 300 MMT until last year. In the season 2003-2004, however, sugarcaneproduction declined to 236 MMT mainly due to drought and pest attacks. Not onlysugarcane acreage and sugarcane production has been increasing, even drawl ofsugarcane by the sugar industry has also been increasing over the years. In India,sugarcane is utilized by sugar mills as well as by traditional sweeteners like guru andkhandsari producers. However, the diversion of sugarcane to guru and khandsari is lowerin states of Maharashtra and Karnataka, as compared to Northern states like UP.SUGARCANE UTILIZATIONTable no#3 BABASAB PATIL 8
  9. 9. COST ANALYSIS NIRANI SUGARS LTD, % Sugarcane utilization for White Sugar Guru and Khandsari Seed, feed and chewing Year 1980-1981 33.4 54.8 11.8 1990-1991 50.7 37.4 11.8 2000-2001 59.7 28.8 11.5 2001-2002 57.4 31.5 11.1 2002-2003 68.9 20.1 11.1 2003-2004 56.1 32.5 11.4Sugar Production: Most of the sugar in India is manufactured and sold as “White CrystalSugar” which is produced by Double Suspiration Process, while the norm in developdand emerging nations is refined sugar, which is produced by the PhosphoflotationProcess. Most of the mills in India are not equipped to make refined sugar Mills which aredesigned to produce refined sugar can manufacture sugar not only from sugarcane butalso from raw sugar which can be imported. Therefore, such mills can run theirproduction all the year round, as opposed to single state mills, which are dependent uponthe seasonal supply of sugarcane.Conclusion India is a largest consumer of sugar in the world and second largest manufacturerof sugar followed by China, USA, Thailand, Germany, and Pakistan. In the sugarindustry the top position is Brazil as it is a world largest manufacturer of sugar. As seeingthe consumption of sugar the India is having a big market for sugar industry. As it is alarge-scale industry it provides large profit for the country and it can also be helpful for BABASAB PATIL 9
  10. 10. COST ANALYSIS NIRANI SUGARS LTD,development of industrial infrastructure. India is a world’s largest consumer and secondlargest manufacturing of sugar so the sugar must be cheaper. It can be provide by oursugar industry. BABASAB PATIL 10
  11. 11. COST ANALYSIS NIRANI SUGARS LTD, COMPANY PROFILE Name of the company : M/S Nirani Sugars Ltd Kulali road MUDHOLBABASAB PATIL 11
  12. 12. COST ANALYSIS NIRANI SUGARS LTD, Dist: Bagalkot Register Office : M/s Nirani Sugars Lokapur road MUDHOL Branch Office : At: Bijapur Managing Director : Muragesh .R. Nirani Status of the company : Sole trading concern Constitution of the firm : Registered under companies Act of 1956 Auditor of company M/s Bhattad & Company Financial institution : K.S.I.I. D.C of the company K.S.F.C Banker of the company : Sangli Bank Jamakhandi S.B.I. Mudhol Branch Indian Bank Lokapur Gramen bank of mudhol HISTORY OF NIRANI SUGARS LTD1. M/s Nirani Sugars Ltd,, set up in 1996 was promoted by Mr.Murugesh R Nirani. B.E, D.B.M., a technical Graduate and local MLA of Bilagi and Minister of large and Medium Scale Industry, Govt of Karnataka. He comes from an agricultural family from Bilagi Taluk of Bagalkot Dt. He started as an industrialist with setting up of a modern Khandasari Unit at Mudhol. He is also very actively involved as a Managing Director of Badgandi Sugars Ltd, a new 2500 TCD sugarBABASAB PATIL 12
  13. 13. COST ANALYSIS NIRANI SUGARS LTD, and Co-gen plant at his constituency Bilagi. The new unit has commenced commercial production in December 2005. He has also been recognized and awarded Bharat Udyog Ratna award from Govt of India. He has also taken over a sick mini cement plant of 100 TPD capacities at Mudhol area, which has now been put into commercial operation with a capacity of 200 TDP within a short span of time. He has also contributed his service in setting up residential school and D, Ed College at Mudhol.2. Nirani sugars Ltd. Is presently operating a sugar mill of 5000 tones cane day (5000 TCD). This sugar mill was originally established as a khandasari sugar factory of 500 TCD in the year 1997-98. In fact this was the most modern khandasari sugar factory & was first in the country to have started with high pressure boiler, turbo generator set with captive power generation, multiple effect pressure evaporator system with falling film evaporators etc. it successfully produced goods quality white crystal sugar. But as khandasari unit, it had its own constraints due to technical limitations and govt policies.3. Subsequently, making use of the govt. of India’s liberalized policy, vide govt of India notification DCS /S/14/97 dated 2-6-98, which permitted conversion of khandsari sugar Readopting vacuum evaporation & vacuum pan boiling systems along with related changes. NSL did not lose time to expand the capacity to 5000 TCD, side by side taking development measures to increase cane area & cane availability. Today NSL is a regular sugar factory with 5000 TCD capacity with improved efficiencies.4. Having regard to the above, the new sugar projects in the country, are coming up with a capacity of 5000 TCD & more with the facility of cogeneration of power. A number of existing mills in the country are expanding to even bigger capacities like 7500 TCD, 10000 TCD & so on.5. The cogeneration of power permits generation of surplus power, which is encashable and thus helps augmentation of income to the industry substantially on a sustained basis. The profitability of the cogeneration plant increases with increase in the size of the plant. Bigger cogeneration plants are feasible only with bigger sugar mills, either as forward integration or with back up support for fuel.6. The market and the price for the power produced is assured as the surplus power so generated is under written by KPTCL through “power purchase Agreement”.BABASAB PATIL 13
  14. 14. COST ANALYSIS NIRANI SUGARS LTD, The govt of Karnataka also shares the aforesaid viewpoint & encourages cogeneration of power by sugar factories using bagasse as a fuel. In support of this, the govt has announced a capital subsidy of Rs. 25 lakhs per MW of surplus power, for such cogen projects.7. In fact NSL has already entered into an agreement with TATA power trading company Ltd. For sale of power at a price of Rs3.61 per unit.8. To match the sugar mill expansion from 5000 TCD to 10000 TCD, NSL proposes to double its cogeneration capacity also from 16MW to 48MW.BABASAB PATIL 14
  15. 15. COST ANALYSIS NIRANI SUGARS LTD,LOCATION:-Name of the company : M/S NIRINI SUGAR’S LTD Sy no-166 near kulali cross Jamkhandi Road Mudhol – 587313. Register no : 9840/96 BABASAB PATIL 15
  16. 16. COST ANALYSIS NIRANI SUGARS LTD,OBJECTIVES OF NIRANI SUGARS LTD 1. Maximum utilization of man power production capacity and raw material for food recovery. 2. Proper co-ordination and co-operating among its members. 3. To manufacture good quality sugars and it’s by products with the help of the members who supply sugarcane raw material. 4. To provide comparative market rate to the farmers. 5. To inculcate modern techniques and methods of cultivation and To Supply seeds machines for the farmers. 6. To maintain proper of transport for the formers during season. 7. Utilization of raw material to the maximum level to get by Products like Molasses and to market them at proper rates. 8. To undertake such other activities are incidental and conductive to the development of the society. 9. Maintain continuous improvement programs in Technology. 10. Help farmers to increase there yield through research & development. 11. To produce good quality sugar at acceptable prices to meet the increasing demand BABASAB PATIL 16
  17. 17. COST ANALYSIS NIRANI SUGARS LTD, PRODUCT PROFILE The factory produces about 184400 Tones of plantation crystal white sugar. As perstatute from Govt of India the sugar can be packed in 100 Kg net Gunny bags and 50 Kgnet Polythene bags. As per the Indian sugar standards the sugar can be graded in 3 gradesby size and color namely L, M, S (size) and 29, 30 (color). The factory envisagesproducing M30 and s30 grades. The storage of sugar will be done in a warehouse built inmasonry and roofed with AC sheets. The size of the warehouse will be suitable to storeabout 50% of a season’s production. The molasses which is a by product, is a highly viscous liquid. The total productionof molasses in a season will be about 40,480 Tone. Two steel storage tanks of capacity4000 tone each will be added. This can accommodate about 2 month’s production. As thedemand for molasses is high, it is proposed to sell the molasses to distilleries as rawmaterial to produce alcohol. Beside the finished goods and molasses storage space is required for Bagasse, ashand filter mud. Adequate open will be provided for these in the factory for easy andsmooth working of the factory.Main Product- White Crystal Sugar:The main product of the sugar manufacturing process is white crystal sugar.This white crystal sugar is manufactured in the following 3 grades:1) L-30 [Large size sugar]2) M-30 [Medium size sugar]3) S1-30 [small size sugar]By-Products of Sugar Cane: The sugar mill produces many by-products along with sugar. A typical sugarcanecomprising of 3000 ton capacity can produce 345 on of sugar, 6000 liters alcohol, 3 tonsof yeast, 15 tons of potash fertilizer, 25 ton of press mud fertilizer and 750 KW of powerfrom bagasse. BABASAB PATIL 17
  18. 18. COST ANALYSIS NIRANI SUGARS LTD,Nature of Business Carried Nature of Business carried NSL is involved in the activity of manufacturing whitecrystal sugar products which is the main product. The process of production involveconversion of1) Raw sugarcane to sugar,2) Raw sugar into refined sugarMolasses, Bagasses are it’s by products.1. MOLASSES: Molasses is the final effluent obtained in the preparation of sugar by repeatedcrystallization. Molasses is the brown colored residue after sugar has been tracted fromthe juice. Molasses still contains some quantity of sugar, but this sugar cannot beextracted by usual technology. It is the end product from a refining process carried out toyield Sugar. Sucrose and invert sugars constitute a major portion (40 to 60%) ofMolasses. The yield of Molasses per ton of sugarcane varies in the range of 3.5% to 4.5%. Molasses is mainly used for the manufacture of ethyl alcohol (ethanol), Yeast andcattle feed. NSL produces alcohol from the molasses left after the extraction of sugarcanejuice, which can be used both for potable purpose as well as an industrial chemical.Further this alcohol can be again purified to produce fuel and ethanol that can be blendedwith petrol. Ethanol is in turn used to produce portable liquor and downstream value addedchemical such as acetone, acetic acid, buttonhole, acetic anhydride, etc. Face stiffcompetition from production through the petrochemical route. The government controls the export of molasses through export licenses issuedfor every quarter. Molasses and alcohol-based industries were decontrolled in 993 and arebeing controlled by respective state government policies. Nearly 70% of the alcoholproduced is consumed by the potable alcohol sector. BABASAB PATIL 18
  19. 19. COST ANALYSIS NIRANI SUGARS LTD,2. BAGASSE: Bagasse is a fibrous residue of cane stalk that is obtained after crushing anextraction of juice. It consists of water, Fiber an relatively small quantities of solublesolids, the composition of bagasse varies based on the variety of sugarcane, Maturity ofcane, Method of harvesting and the efficacy of the sugar mill. The usual bagassecomposition is given below. Table no#4 CONTENT RANGE % Moisture 46-52 Fiber 43-52 Soluble solids 2-6 Bagasse is usually used as a combustible in the furnaces to produce steam,which in turn is used to generate power; it is also used as raw materials for production ofpaper and as feedstock for cattle. By making use of bagasse, sugar mills have been successful in reducingdependence on state electric boards for power supply, for example requirement for FY98from captive generation from steam turbines. Further this bagasse based cogenerationplant is eligible for carbon credit compensation under the Kyoto protocol. The residue product from distillery operation blended with chemicals is beingsold as bio-fertilizers. BABASAB PATIL 19
  20. 20. COST ANALYSIS NIRANI SUGARS LTD,3. Power Generation Plant: Power plant uses the fiber of the processed sugar cane (bagasse) as fuel togenerate electricity in an environmentally responsible manner. An integrated 15 M.W.power generates and supplies electricity to the state grid produced from sugar cane wasteused to rotate turbines 5 M.W. power is utilized in the plant remaining power is suppliedto KPTCL. ORGANIZATION STRUCTURE OF NSLChairman & MD : Murugesh. R. Nirani. (B.E.Civil. MBA)Board of Directors : H .R. Nirani. Advocate BABASAB PATIL 20
  21. 21. COST ANALYSIS NIRANI SUGARS LTD, : Kamala .M. Nirani : L .R.Nirani : S .R.NiraniAdministration : Sangamesh .R. Nirani (Executive Director) : R .V .Vatnal (Technical Director) : S .V. Karriyannavar (CEO) : S .C .Iitnal (GM of Plant) : M .R. Dabade (Dy GM, Production) : M .S. Heggalagi (Manager, PMP) : B .S. Khandekar (GM, Cane) : M .M. Hiremath (Finance) : S .C. Salagare (Chief Engineer) : S .G. Yaragatti (Stores purchase officer) : M .R. Agnihotri (Personnel officer) Competitors Information: The main competitors are as follows: • Godavari sugar Ltd. BABASAB PATIL 21
  22. 22. COST ANALYSIS NIRANI SUGARS LTD, Crushing capacity-3500 TCD Recovery-10.5% Sugar production-4000 Qtls (per day)• Shree Prabulingeshwar sugar works Ltd. Crushing capacity-4500 TCD Recovery-11.2% Sugar production-9000 Qtls (per day)• Nandi sugars Ltd Crushing capacity -5000 TCD Recovery -12% Sugar production – 10000Qtls (per day)• Ryatara sahakari sakkare karkhane niyamit. Crushing capacity- Recovery- Sugar production- Vision Mission & GoalsVisionThe main vision of the company is to develop the rural area & provide the betterinfrastructure facilities to the localities & to farmers.BABASAB PATIL 22
  23. 23. COST ANALYSIS NIRANI SUGARS LTD,MissionThe mission of the company is to pay the better returns for its shareholder in terms ofhigher cane rate & to the stakeholders in terms reasonable salary & wages.Goals of Nirani Sugars Ltd• To expand its installed capacity, achieve end-to-end integration for all its plants to improve margins and reduce business cycle.• Achieve greater raw material security.• Increase its focus of corporate and high value consumers.• To become the most efficient and market driven integrated processor of sugarcane in the world.• While enabling the team to grow in a learning and motivating atmosphere, participating in the all round development of community.• Delivering consistently on returns to all its shareholders.• Bringing over all productivity and efficiency through out the organization, especially by value addition of it’s by products in sugar effluent waste etc.• Producing the best quality sugar to satisfy the domestic and internal norms FUNCTONAL ANALYSIS The functional of the organization are divided in to following Department and one divided in to sections. 1. Production  Laboratory SectionBABASAB PATIL 23
  24. 24. COST ANALYSIS NIRANI SUGARS LTD,  Manufacturing Section  Engineering Section  Go down Section 2. Human Resource Development  Administrative Section  Shares Section  Security Section  Vehicle Section  Time office section 3. Finance 1. Accounting Section  General Account Section  Cane Account Section 4. Marketing Section  Cane Development Section  Purchase section  Sale Section Production Department Production department is a most important part of the factory and it is divided intotwo departments. 1. Engineering department 2. Manufacturing department 1. Engineering department BABASAB PATIL 24
  25. 25. COST ANALYSIS NIRANI SUGARS LTD, The engineering department maintains all the work connected with plant and machinery. Engineering department aims at enhancement of the feeding capacity of factory. The department is assisted by workshop. Workshop Spares are fabricated using the lathe machine in the workshop and shaping likesquare, cutting fabcrising etc, are done in the workshop 75% of work of machinery aredone in workshop. This department having following machines. 1. Lathe machines for round job. 2. Shaping machine of 32 inch for right angle planning 3. hacksaw machine for cutting 4. Redial drilling machine for drilling hole 5. Grainding machine for tool grainding1. Manufacturing department Manufacturing department is divided in to 3 sections a) Laboratory department b) Manufacturing Department c) Go down1. Laboratory department Laboratory plays a significant role in sugar production. The key activity oflaboratory is checking the content of sugar in the Sugarcane and fixing the correct shapeand size of sugar. The Laboratory prepares hourly reports which advice in the addition ofother chemicals in the production. Activities of the laboratory 1. Determining and maintenance of temperature of boiling juice. 2. Determining the percentage of water content in the dilution of Juice. 3. Determining the percentage and content of chemicals to be added doming production. 4. Finding the PH of water through universal indicator. BABASAB PATIL 25
  26. 26. COST ANALYSIS NIRANI SUGARS LTD, 5. Choice of colour and size for sugar. 6. To manage the time and quality. Chemicals used in production of sugar 1. Burnt sugar --- Bleaching agent and PH Controller. 2. Sulphar --- Major bleaching agent 3. Orthophosphoric Acid --- Bleagent agent 4. Mill sanitation --- Preservative 5. Antiscalant --- Descaling agent 6. Floculent --- setting aid 7. Viscocity reducer --- Reduces viscocity 8. Hydro Sulphite of soda --- Bleaching agent 9. Hydrogen peroxide --- Bleaching agent -: Functions:- Bleaching agent: - Bleaches the juices and massecuites, and gives clarity. I Preservative: - Keeps the purity of juice constant. That means, it Should not allow going down the purity of juice. II Antiselant or Descalant: - It prevents the formation of scale. III Setting aid: - It allows to settle down the solid partials in the Juice.BABASAB PATIL 26
  27. 27. COST ANALYSIS NIRANI SUGARS LTD, Iv. Viscosity reducer: - It decreases the viscosity of the Massecuties and increases the rate of boiling. 2. Manufacturing Department:- Sugar manufacturing involves mainly 5 stages as mentioned below. 1. Crushing of sugarcane 2. Juice clarification (Double sulphitation of clarification) 3. Crystallization 4. Curing 5. Grading and Bagging.PROCUREMENT OF SUGAR BABASAB PATIL 27
  29. 29. COST ANALYSIS NIRANI SUGARS LTD, Sugarcane is harvested in the fields. Dressed and bundled in small bundles stocked in Lories, tractor or bullock carts supplied to factories, weighed and crushed in set of mills. Crushing takes place mainly in two stages. First, preparation and then milling. The milling takes place after preparing the cane in leveler and cutter. Milling is done by passing the prepared cane blanked through sets of mills. Weighted water also is added in the course of crushing for better extraction of juices. After crushing the bagasses is sent to boiler as fuel and juice sent for processing after weighment.2. Juice clarification (Double clarification) The weighed juice is primarily heated in juice heated at65-700C. It undergoes a process of clarification i.e. addition of lime and sulpher dioxide simultaneously. The juice thus sulphited heated again in another set of juice heaters at 100-1050 C and the hot juice is sent to a clarifier. Where it settles and clear juice is decanted out from the Clarifier and sent for evaporation in a set of multiple effect evaporator Bodies designed for steam economy (quadruple effects of evaporation) The juice thus evaporated gets concentrated to form thick syrup of about 58-600 C brix).3. Crystallization The syrup thus sulphited in syrup. Salphitor is sent to pan floor forfurther crystallization in vacuum pans. The syrup collected gets in supply tanks istaken to pans for pan boiling, where the syrup is further boiled attains super satiationstage. In such a condition sugar grains are formal and hardened, developed to form amass called massecuite. The massecite is dropped in crystallizers and cooled tocomplete the process of crystallization.4. Curing In centrifugals the massecuite is cured i.e. sugar crystals are separatedfrom mother ligouor in high speed centrifugal machines.The sugar crystals thusseparated are properly dried by blowing hot air and cold air. The molasses is collectedin separate tanks and Used for further boiling to recover more sugar.5. Grading and BaggingBABASAB PATIL 29
  30. 30. COST ANALYSIS NIRANI SUGARS LTD, The dried sugar after passing through elevator goes to the grade for graduation. The sugar falls into the bins with this fall sugar is packed in bags. The graded sugar is bagged weighted for 100kg & they are stitched numbered and stocked in the sugar go down in different lots as per grade and color. Godown Section: In the production department the godown are maintained for store the sugar. The Organization structure of godown section as follows : GODOWN KEEPER (1) CLERK (1) ATTENDER (2) The sugar will be supplied to god owns through belts. Numbers of God owns : 3 Old Godown : 1 New Godowns : 2 Capacity New Godowns : 2 lakhas Bags (100kg) Old Godowns : 50000 Bags (100kg)Store Section: BABASAB PATIL 30
  31. 31. COST ANALYSIS NIRANI SUGARS LTD, Organization structure of the store department Store in charge (3) Store Keeper (3) Store Helper (3) books The department maintains the following books 1. Transport register 2. Bin Card 3. Bin Card entry 4. Issues Identity Human Resource Development The management of Human Resource is a very complex and challenging task for those who are entrusted in the successful running of an organization to be able to stand up to the challenges efficiently the manages theoretically gained knowledge, but also be guide efficient in implementing their theoretically knowledge into practice successfully . Administrative Section: Administrative department is the main department in the organization this department is connected with so many sections like. 1. Shares Section 2. Security Section 3. Vehicle Section 4. Time office Section 1. Shares Section :-BABASAB PATIL 31
  32. 32. COST ANALYSIS NIRANI SUGARS LTD, Share Section is the sub section of the administrative department in the organization. The company having 2 types of shares. a) Preference Shares b) Equity Shares 2. Security Section :- The security section is operating under administrative department. It is also working in 3 shifts as maintained under time office section The main works of this section are as follows:- 1. They are maintaining the peace & discipline within a factory. 2. To maintain workers attendance. 3. They check the incoming raw material as per vouchers. 4. Avoid the misuse of items. 5. The out going material with paper gate pass will be recorded in outwards and they are sent outwards. 6. They submit daily report activity to the managing director. Structure of Security Section Security Officer Security Supervisor Security Head Guard Security GuardBABASAB PATIL 32
  33. 33. COST ANALYSIS NIRANI SUGARS LTD, Weigh bridge Section:- Total employee is 16. There are two type of Weigh Bridge in the factoryand capacity of each weigh bridge is 40 tons. It acts as weighment of sugar cane, seeds and other factory Weighment Vehicle Section:- The organization chart of this section Vehicle Section Clerk Attainder Drivers Time office Section:- Structure of time office Head Time keeper Time keeper Office clerk The factory runs there shifts in section First Shift : 6 -00 am To 2-00 pm Second Shift : 2-00 pm To 10-00 pm Third Shift : 10-00 pm To 6-00 am General Shift : 9-00 am To 6-00 pm BABASAB PATIL 33
  34. 34. COST ANALYSIS NIRANI SUGARS LTD, The main functions of the office department 1. Arranging duty to workers. 2. Distribution of salary according to workers attendance. 3. Sanctioning of leavers to workers. Attendance:- Time office maintain two types of attendance method a) Manual attendance b) Punching attendance a) Manual Attendance:- Factory give attendance cards to employees enter the coming Time in factory and out time in factory and signature of time office Officer. This is all entered attendance card by the time office officer. b) Punching Attendance:- This system is based software here all the information is Already entered in the computer regarding the employee name Department and shift time. The employee must show the card to punching machine and giving the finger impression to machine automatically entered in the employees list.BABASAB PATIL 34
  35. 35. COST ANALYSIS NIRANI SUGARS LTD, Finance Department 1. Account Sections:- Account department is divided in to two main sections, they are. a) General Account Section b) Cane Account Section a) General Account Section:- This section maintains all the transactions. Income Tax Sales Tax andcommercial Tax procedures are done by this section the Varieties maintained by thissection is. a) Advance register b) Bank register c) Contractors register d) Depositors register e) Fixed asset register b) Cane Account Section:- To ease the transaction with formers this section has been separated. The main function of this sections has been is to maintain records of those suppliers names who supplies the sugar cane to the factory and they maintains register of payment The registers maintained by this section are: a) self harvest payment register b) harvest bill c) cultivator payment register BABASAB PATIL 35
  36. 36. COST ANALYSIS NIRANI SUGARS LTD,Marketing Department:- a) Cane Development Department a) Development Section b) Procurement Section a) Development Section:- The organization set up of this department is as follows Chief Cane Development Officer (CCDO) Cane Development Officer Assistant Cane Development Officer Filed Assistant Slip Boy BABASAB PATIL 36
  37. 37. COST ANALYSIS NIRANI SUGARS LTD, Objectives of CDO:- 1. To get best quality of sugar cane to the factory in right time 2. To improve the variety of cane 3. To develop the backward area 4. To provide all facilities like seeds, fertilizers unloading & Loading charges. 5. To maintain registration of cane gong and plantation 6. To undertake seed distribution programmerCane development programmer 1. Plantation of high yield verity of sugar cane 2 Lift irrigation schemes 3. D G sets & Oil Engines 4. Seed treatment 5. Biological test control 6. Soil analyses & Soil treatment 7. Past harvesting & sugar losesTypes of Gangs 1. Local gangs :- It means local people groups is local gangs 2. Lose gangs:- All lose gongs are comes in Maharashtra company will be paid 1,60,000 inadvance one lose gangs including 8 pair and this gangs 16 to 18 tons sugar cane supplyper day. 3. Tractor attaches gangs:- Company will be Rs 200000 paid in advance Tractor attach gangs is including 10 to 12 pair This gangs 22 ton sugar cane supplied per day. BABASAB PATIL 37
  38. 38. COST ANALYSIS NIRANI SUGARS LTD, 4. Truck attaches gangs:- This gang use only local sugar cane not available that time import sugar cane in long route. Varity of Sugar cane 1. COC671 : 1200/ton 2. CO8603 : 1230 /ton 3. CO8011 : 1230/ton Purchase Sections: The organization structure of the purchase section Purchase Officer Clerks At tender It is also an important section in administrative department inperforming the activities purchasing in this section there are two employees one ispurchase manager and another one is purchase assistant.. The purchase manager issues the purchase order from various sectionof the factory. He estimates the cost of purchase and according him go for directpurchase purchases through purchase committee. BABASAB PATIL 38
  39. 39. COST ANALYSIS NIRANI SUGARS LTD,Sales Department: Functions of Sales Department 1. Sale Sugar and Molasses. 2. Subjection to production Department. Objectives Sales Department 1. Maximum Sales 2. Maximum Earn ProfitStructure of Sales Department 1. Sales Department heads 2. Clerk Years Sales 2007-08 82 Crors 2008 192 CrorsDifficulties of Sales Departments:- 1. Packing. 2 Payment from party. 3. Quality. 4. Quantity. 5. Staff behavior. This factory is producing two varieties of sugars they are S -30 & M-30 graderthe sale of the sugar occurs when gives a tender notice the sugar sold to that buyers whoquotes highest price tender are called once in a week if the rate is not satisfactory thetender will be cancelled The sales of sugar are done unless there is instruction from the government certain government rules should be followed for sale of sugar according to the recent government rules they will be given some figures of bags to sell within a month. BABASAB PATIL 39
  40. 40. COST ANALYSIS NIRANI SUGARS LTD, S.W.O.T.ANALYSIS FOR NIRANI SUGARS PVT LTD (STRENGTH, WEAKNESS, OPPORTUNITIES, THREATS) STRENGTHS:  It has own co - generation unit (62MW).  Sufficient water resources.  Good communication media.  Sufficient infrastructure.  Attendance maintained on Software bases. WEAKNESS  Poor marketing strategies.  Poor promotional activity.  Imbalance between sugar cane available and factory crushing capacity per day. OPPORTUNITIES  They can establish a liquor industry by using its by products  Providing the electricity power to the KPTCL  If importing of Sugar is restricted the company cabs grab the market as possible as.  The company is located in the rural area so labours availability is sufficient and cheaper. THREATS:  Free imports.  Unstable Government.  Poor agricultural policy.  Low availability of working capital.  Decreased in the average production rate of sugarcanBABASAB PATIL 40
  42. 42. COST ANALYSIS NIRANI SUGARS LTD,MEANING OF COST Cost in simple words, means the total of all expenses. Cost is defined as theamount of expenditure incurred on a given thing. Thus it is that which is given orsacrificed to obtain something. ICMA London “Cost is the amount of expenditure incurred on or attributable to agiven thing.” In a business where selling and distribution expenses are quite nominal, the cost ofthe article may be calculated without considering the selling and distribution overheads.While in a business, where the nature of the product requires heavy selling anddistribution expenses calculation of cost without taking in to account selling anddistribution expenses may prove very costly to the business. Then cost may be factorycost, office cost, cost of sales and even an item of expense is also termed as cost. Prime cost includes expenditure on direct material, direct labor and directexpenses. Money spent on materials is termed as cost of materials the spent on labor ascost of labor and so on. Thus, the used of term cost without qualification is also quitemisleading. Again, different costs are found out for different purposes. To work-in-process is valued at factory cost while stock of finished goods valued at office cost.Numerous other examples can be given to show the term cost des not mean the samething under all circumstances and for all purposes. Many items of production are handledin an optional manner, which may give different costs for the same production or jobwithout in any way of cost accounting. BABASAB PATIL 42
  43. 43. COST ANALYSIS NIRANI SUGARS LTD,ELEMENTS OF COSTElements of cost mean the essential parts or components of goods or service or jobs. Inother words elements of cost are part of the total cost and include the main item ofexpenditure incurred for production of goods, services and jobs.Analysis and classification of costCost is the amount of expenditure incurred for production of goods and services. Thuscost is composed of three elements, viz, material, labor, and expenses.Classification of costCost classification is the process of grouping costs according to their common features orcharacteristics. Classification is essential to find out the cost of production.Objective of classification of cost 1. It helps the management for implementing cost control and decision making. 2. It helps for calculation of cost of production. 3. It helps for valuation of work-in-progress.Element wise classificationCost classified on the basis of element wise is as follows 1. Material cost 2. Labor cost 3. ExpensesMaterial Cost: This is “the cost of commodities supplied to an undertaking.”(I.C.M.A) Materialsare further divided in to two parts (1) Direct materials (2) Indirect materials. 1) Direct materials: Direct materials are those materials which can enter into and form of the finished product. Direct materials cost is the which can be conveniently identified and allocated to cost units. BABASAB PATIL 43
  44. 44. COST ANALYSIS NIRANI SUGARS LTD, 2) Indirect Materials: Indirect materials are those materials which cannot be conveniently identified with cost units.Labor cost: These are costs of remuneration, such as wages salaries, commission, bonus etc.Of the employees of an undertaking 1) Direct wages: Wages paid to laborers who are directly engaged in converting raw materials into finished products. It is also called Direct Labor, Productive Labor, and Prime cost. 2) Indirect Labor: Indirect labor is not directly engaged in the production of goods but only to assist or help in production of goods or services.Expenses: The expenses means the cost of services provided to an undertaking and thenotional cost of the use of owned assets. In other-words costs other than the material andlabor are called expenses.Direct Expenses: Direct expenses are those expenses which can be specifically incurredin connection with a cost unit. E.g. hire of special plant for a particular job.Indirect expenses: Indirect expenses are those expenses which cannot be directlyidentified with a particular job.Overheads: An overhead includes indirect material, indirect labor, and indirect expenses. Ingeneral terms, overhead comprise all expenses incurred for in connection with the generalorganization of the whole or part of the undertaking that is the cost of operation suppliesand services used by the undertaking and including the maintenance of capital assets.The main groups into overheads may sub divided are as follows. BABASAB PATIL 44
  45. 45. COST ANALYSIS NIRANI SUGARS LTD, 1. Manufacturing overheads 2. Administration overheads 3. Selling overheads 4. Research and development overheads 5. Distribution overheads.Function wise Classification:- Costs classified on the basis of function wise are as follows:  Production cost or manufacturing cost or work cost  Administration cost  Selling cost  Distribution cost 1. Production cost: This is the cost which begins with supplying of materials, labor and service and ends with the completion of production other terms used in this connection are factory overhead.Examples: 1) Indirect labor • Foremen’s salary • Cleaner’s salary and wages • Gatekeepers’ salary • Salary of time keeping department • Tools operator’s wages • Store keeping department salary 2) Factory rent and rates 3) Insurance of factory 4) Consumable stores 5) Indirect materials cost such as cotton waste, nuts and bolts, lubricating oil, nails etc. BABASAB PATIL 45
  46. 46. COST ANALYSIS NIRANI SUGARS LTD, 6) Gas, fuel and water, stationery to the factory 7) Depreciation on factory equipment, factory building, plant and machinery 8) Repairs of factory equipment, factory building and machinery 9) Depreciation on loose tools 10) Laboratory expenses 11) Labor welfare expenses 12) Canteen expenses 13) Over time wages 14) Contribution to workmen’s compensation fund 2 Administration cost: This consists of all expenses incurred in the direction control and administrationof an undertaking.Examples: 1) Salaries of office staff, accounts, MD, GM 2) Director’s fees 3) Bank charges 4) Postage stationery telephone 5) Rent rates of office 6) Insurance of office building and equipments 7) Depreciation on office building equipment and furniture 8) Printing charges of office 9) Audit fees 10) Legal charges BABASAB PATIL 46
  47. 47. COST ANALYSIS NIRANI SUGARS LTD, 3 Selling cost: Other expenditures incurred for sales and stimulating demand and for securingorders are known as selling cost. Examples: 1. Salaries and commission of salesmen 2. Show room expenses 3. Samples, free gifts 4. Commission to agents or distributors 5. Advertising and Publicity expense 6. Marketing expenses 7. Expenses incurred for recovering the bad debts 8. Subscription to trade Journals and commercial Journals 4 Distribution cost: It is an expenditure incurred for distributing the goods Examples: • Packaging cost • Carriage outwards • Warehousing costs, such as repairs, depreciation lighting of warehouse • Loading charges • Dispatch expenses • Shortage of finished goods in warehouse • Finished goods damaged in transitClassification according to Behavior: Some costs are increased or decreased in production directly; some costs remainunaffected while others change but not in direct proportion to the change in volume ofproduction. BABASAB PATIL 47
  48. 48. COST ANALYSIS NIRANI SUGARS LTD,These are: 1. Variable cost 1. Fixed costs. 2. Semi-Variable or Semi-Fixed costsVariable cost: These cost an in direct proportion to the volume of output. Cost per unit willremain the same. If output increases total variable cost also increases and if outputdecreases total variable cost also decreases.e.g.: Direct materials. Direct wages PowerFixed cost: The total fixed costs remain unaffected either with the increase or decreases in theoutput. But cost per unit goes on changing. • Rent and rates of building. • Depreciation of building. • Insurance. • Interest on capital. • Municipal taxes.Fixed cost can be further classified into 1) Committed fixed costs 2) Discretionary fixed costs 1) Committed fixed cost: Consist largely of those fixed costs that arise from the possession of plant, equipment & basic organizational structure. For example, once building is elected and plant is installed nothing much can be done to reduce the costs such as depreciation. BABASAB PATIL 48
  49. 49. COST ANALYSIS NIRANI SUGARS LTD, 2) Discretionary cost: Are those which are set a fixed amount for specific time period by the management in the budgeting process. These costs directly reflect top management policies have no particular relationship with the volume of output. These cost therefore be reduced or entirely eliminated, if the circumstances so require. Examples of such costs are Research & Development costs advertising & sales promotion costs, donation management consulting fees etc. These costs are also termed as managed of programmed costs.Semi-Variable cost: These costs are partly fixed and partly variable. These costs are thus partlyaffected by fluctuations in the level of activity.Examples: Depreciation, Repair & maintenance, Telephone expenses.Other type of costs:Decision making costs: Decision making costs are special purpose costs that are applicable only in the situation in which they are complied they have no universal application. They need not tie into routine financial accounts to the accounting rules.Controllable and uncontrollable cost: Controllable costs are those which can be influenced by the action of a specificmember of the understanding costs which cannot be so influenced are termed asuncontrollable cost. For example the expenditure incurred by the room is controllable by the foremenin- charge of that section but the hare of the tool room expenditure which is apportionedto a machine shop cannot be contracted by a machine shop forces. BABASAB PATIL 49
  50. 50. COST ANALYSIS NIRANI SUGARS LTD,Differential, Incremental or Decrement cost: These are costs which do not involve cash outlay. They are not included in costaccounts but are important for taking into consideration while making managementdecisions. For example interest on capital is ignored in cost account through it isconsidered in cost financial accounts. In case two projects require unequal outlay & cashthe management must take into consideration interest on capital to judge the relativeprofitability of the projects. According to ICMA London “Costing is the techniques & process of ascertainingcosts” These techniques are the rules & regulations to govern or regulate the process ofascertaining the costs or services. Therefore these rules & regulations are carried fromunit to unit immediately to the industry & formation of policy. Thus costing is a routinework of cost ascertainment.Objectives of cost accounting: a) Ascertainment of cost. b) Determination of selling price. c) Cost control and cost reduction. d) Ascertaining the profit of each activity. e) Assisting management in decision making.Advantages of cost accounting: a) Discloses profitability of activities. b) It helps in cost control. c) It helps in formulating policies. d) It helps in decision making. e) It guides in fixed selecting prices. f) It helps for fixing the standard of efficiency of workers. g) It facilitates the assessment of tax. h) It helps to judge the financial position & credit worthiness of the business. BABASAB PATIL 50
  51. 51. COST ANALYSIS NIRANI SUGARS LTD,Disadvantages of cost accounting: a) Absence of a readymade system. b) Cost differences. c) Cost data have no usefulness in themselves. d) It is not true or exact cost.Cost unit and Cost center:Cost unit: It is a unit of product, service or time in relation to which costs may beascertained or expressed. We may for instance determine the cost per tone of steel, pertone kilometer of a transport service or cost per machine hour.Types of cost units: • Single cost: It is a single unit cost for example per tone, per kilogram. • Composite costs: It is a composite of two or more simple cost units. It is used where the simple cost is not possible for ascertain cost.Cost units are usually the units of physical measurement like number, weight, area,volume, length, time and value. Cost Center: It is defined as a location, person or an item of equipment for which cost may beascertained and used for the purpose of cost control. Cost centers are two types.Production Cost Center: It is a cost center where raw material is handled for conversion in to finished product. Here both direct and indirect expenses are incurred. Machine shops, Welding shops and assembly shops are examples of production cost center.Service Cost Center: It is a cost center which serves as an ancillary unit to a production cost center.Power house, gas production shop, material service centers, plant maintenance centers areexamples of service cost centers. BABASAB PATIL 51
  52. 52. COST ANALYSIS NIRANI SUGARS LTD,Mixed Cost Centers: It is cost center, which is engaged in both the production and service. Forexample, carpenter shop manufacturing as well as undertaking repair work.Cost estimation and cost ascertainment: Cost estimation is the process of pre-determining the costs of a certain product jobor order. Such pre-determined may be required for several purposes such as budgetingmeasurement of performance efficiency, preparation of financial statements (valuation ofstock etc), make or buy decision fixation of sale price of the product etc. Cost estimation as well as cost ascertainment both are interrelated and are ofimmense use to the management in case a concern has a sound costing system, theascertained costs will greatly help the management in the process of estimation of rationalaccurate costs which are so necessary for a variety of purpose stated above. Cost ascertainment is the process of determining the cost on the basis of actualdata. Hence, computation of historical cost is cost ascertainment while computation offuture costs is cost estimation.Cost allocation and cost apportionment Cost allocation and cost apportionment are the two procedures, which describe theidentification and allotment of costs to cost centers. Cost allocation refers to theallotment of whole item of cost to cost centers or cost units while, cost apportionmentrefers to the allotment of proportions of items of cost centers or cost units. Thus theformer involves the process of charging direct expenditure top cost centers or cost units.While the later involves the process of charging indirect expenditure to cost centers orcost units for example the cost of labor engaged in a service department can becharged wholly and directly to it . Canteen expenses of the factory cannot be charged directly and wholly to it. Itsproportionate share will have to be fount out. Changing of cost in the former case will betermed as “Allocation of costs” while in the later as “Apportionment of costs”. BABASAB PATIL 52
  53. 53. COST ANALYSIS NIRANI SUGARS LTD,Cost reduction and Cost control: The cost control is defined as “The regulation by executive action of the cost ofoperating an undertaking particularly where such action is guided by cost accounting”. Cost control is exercised through setting standard or norms or targets andcomparing actual performances there within a view to ascertaining deviation form settargets or norms or standards and taking corrective actions to ensure that futureperformance conforms to the set standards or norms or targets.Cost control techniques: Among the techniques which have become popular for ensuring cost control are • Material control. • Labor control. • Overhead control. • Budgetary control. • Standard control • Control of capital expenditure. • Productivity and Accounting rations.Cost reduction: Cost reduction may be defined “as the achievement of real and permanentreduction in the unit cost of goods manufactured or service rendered without impairingtheir suitability for the use intended or diminution in the quality of the product”. BABASAB PATIL 53
  54. 54. COST ANALYSIS NIRANI SUGARS LTD,Advantages of cost reduction: a) In so far as an individual company is concerned, cost reduction results in profit improvement. The more the profits, the more stable the company becomes. b) Society will be benefited by reduced prices which may be possible by savings from cost reduction programmers. c) Workers and staff of the industry may also be benefited through increased wages and improved welfare amenities. d) The country also stands to gain immensely by cost reduction programmers. e) Internal revenue will increase through more tax revenues.Areas of cost reduction:Cost reduction methods may be applied in the following areas: • Product Design: Cost reduction begins with the improvement in the design of the product. An investigation into the possibilities of cost reduction should be made. Both when introducing new design and when making improvement in the existing design. • Factory organization and production methods: All efforts should be constantly made to reduce the cost by the adoption of new methods of organization and new production methods. • Factory Layout • Administration • Marketing • Finance tools and techniques of cost reduction BABASAB PATIL 54
  55. 55. COST ANALYSIS NIRANI SUGARS LTD,Distinction between cost control and cost reduction: 1) Cost control aims at achieving the predetermined costs, where as cost reduction aims at reducing costs. 2) Cost control is a runtime exercise, which is carried out for attainment of operational efficiency, where as cost reduction aims at permanent and real savings by continuous search. 3) The process of cost control is to lay down a target, ascertain actual performance, compare it with the target and take corrective action. On the other hand, cost reduction is not concerned with maintenance of performance according to the predetermined standards. 4) Cost control seeks adherence to standards where as cost reduction is a challenge to the standards themselves. Cost reduction assumes that there are chances of improvements in predetermined standards. 5) The aim of cost control is to see that actual costs do not exceed the predetermined costs so it is a preventive function. On the other hand, cost reduction is corrective function because it challenges the predetermined costs and seeks to improve the performance by reducing cost of increasing production.Practical & difficulties of cost accounting system: 1) Lack of support from top management: Manager or MD do not supporting the cost accounting system because they arethinking that cost accounting is an obstacle and disturbs the work. Therefore topmanagement does not support whole heartedly. BABASAB PATIL 55
  56. 56. COST ANALYSIS NIRANI SUGARS LTD, 2) Resistance from the existing accounting staff: The existing financial accounting staff may be offer resistance to the systembecause of a feeling of their being declared under the new system. This fear can be done away with by explaining to the staff that the costaccounting system would not replace but strengthen the existing system. 3) Non co-operation at other level: The foremen and other supervisory staff may resent the additional paper workand may not co-operate I providing the basic data, which is so essential for the success ofthe system. This needs re-orientation and education of employed. They have to be told ofthe advantages that will accrue to them and the organization. 4) Shortage of trained staff: Cost accounting is a specialized job in itself. In the beginning thereforequalified staff may not be available. However, this difficulty can be overcome by givingthe existing staff requisite training and additional staff, if required. 5) Heavy costs: Unnecessary sophistication and formalities lead to heavy cost. The costaccounting office should serve as a useful service department.Main consideration: 1) The product: The nature of the product determines to a great extent the type of costaccounting system to be adopted. For e.g. a product requiring high value of materialcontent requires elaborate system of material control. 2) The organization: The existing organization should be disturbed as little as possible. It becomesnecessary top ascertainment the size and type of organization before introducing the costaccounting system. BABASAB PATIL 56
  57. 57. COST ANALYSIS NIRANI SUGARS LTD, 3) The objective: The objective and information, which the management wants to achieve andacquire, are also to be cared for. 4) Technical details: The system should be introduced after a detailed study of the technical aspectsof the business efforts should be made to secure the sympathetic assistance and support ofthe principal members of the supervisory staff and workmen. 5) Informative and simple: The system should be informative and simple.Presentation of total cost: First of all are classified on the basis of nature, such as materials, labor and otherexpenses. Further distinction should be made of direct and indirect costs. All the directcosts are grouped under the headings of prime costs and indirect costs are known asoverheads. All these cost are grouped under separate heads and present the cost data tothe management in the form of statement.Cost Sheet: A cost sheet or a cost statement is “a document which provides for the assemblyof the detailed cost of a cost center or cost unit’. It is a detailed statement depicting thesub-division of cost arranged in a logical order under different heads.  The prime cost.  The works cost.  Cost of production  The total cost.  It gives the breakup of by cost elements and sub-division  It discloses the total cost as well as cost per unit of production. BABASAB PATIL 57
  58. 58. COST ANALYSIS NIRANI SUGARS LTD,  It helps for fixing selling price.The main advantages of a cost sheet are as follows:1) It provides the total cost figure as well as cost unit of production.2) It helps in cost comparison.3) It facilitates the preparation of cost estimates required for submitting tenders.4) It provides sufficient help in arriving at the figure of selling price.5) It facilitates cost control by disclosing operational efficiency.BABASAB PATIL 58
  59. 59. COST ANALYSIS NIRANI SUGARS LTD, Format of cost or cost sheetParticular Total cost (Rs) Cost per unit (Rs)Direct material XX XXDirect labour XX XXPrime cost XXX XXXAdd : Works over head XX XXWorks cost / Factory cost XXX XXXAdd : administrative over head XX XXCost of production XXX XXXAdd : selling and distribution over head XX XXCost of sales XXX XXXCost Audit:Definition: BABASAB PATIL 59
  60. 60. COST ANALYSIS NIRANI SUGARS LTD, The term ‘audit’ concerns the examination of books of accounts and necessaryvouchers to ascertain the accuracy of accounting transaction. According to the Instituteof Cost and management Accounts of England, Cost Audit is defined as the verificationof cost accounts and a check on the adherence to the Cost Accounting plan.Functions of cost auditing: 1) To verify that the cost accounts are correctly kept in accordance with the principles of costing employed in the industry. 2) To measure that the cost accounting routine lay down by the business is properly carried out. 3) To detect errors and prevent frauds possible misappropriation.Process Costing:-Means When the raw materials are fed in to the machinery as an input, we get output. Inorder to convert the raw material into finished product i. e. input into output, it has to passor move through different stages. Each stage is known as a process. Raw Materials Finished Goods Input Process O/PDefinition of Process Costing: BABASAB PATIL 60
  61. 61. COST ANALYSIS NIRANI SUGARS LTD,Lunt and Riply observes, “Process costing is used to ascertain the cost of each stage ofmanufacture where material is passed through various operations to obtain a final productto result with products in many cases at different stages.”Application of process costing in the Industries:The industries in which process costing system may be used are many. In fact a processcosting system can usually be devised in all industries except where Job, Batch or Unitoperation costing is necessary. In particular, the following are examples of industrieswhere process costing is applied.Paper ManufacturePaint ManufactureDistilleriesPlastic ManufactureSugar IndustriesFood ManufactureFertilizer IndustryGlass IndustryDrug and MedicinesProducing IndustriesAluminum IndustryTimber IndustryRubber IndustryCharacteristics of Process Costing System: BABASAB PATIL 61
  62. 62. COST ANALYSIS NIRANI SUGARS LTD,(1) It is a form of Operation Costing in which the cost of the product is ascertained ateach Stage or process of its manufacture.(2) The output of one process becomes input of next process and that of last process istransferred to the finished stock.(3) The production of goods is continuous.(4) The finished product is the result of two or more processes.(5) The product is standardized.(6) Cost per the unit is the average cost.(7) Cost of each process is collected.Advantages of Process Costing System:(1) It helps for calculation of cost in short period.(2) It helps for calculation of cost of each process as well as finished product.(3) It involves less clerical works and expenses.(4) It helps for control over production and costs.(5) It is easy to allocate the expenses to processes in order to have accurate costs.Disadvantage of Process Costing System:(1) Average cost is not accurate cost.(2) Costs are historical.(3) Work-in-progress is required to be ascertained at the end of an accounting period forcalculating the cost of continuous process. Valuation of work-in-progress is generallydone on estimated basis which introduces further inaccuracies in total cost.4) There is a wide scope of errors while calculating average costs. An error in oneaverage cost will be carried through all processes to the valuation of work-in-process andfinished gods.Concepts in Process Costing System: BABASAB PATIL 62
  63. 63. COST ANALYSIS NIRANI SUGARS LTD,(1) Process Losses:While converting raw material into finished goods certain wastage may arise at variousstages of production. Such loss or waste may due to evaporation, inefficiency etc., andsuch wastage is known as process losses. Process losses may be classified into (a)Normal Loss and (b) Abnormal Loss.(a) Normal Loss:Any loss arising due to normal factors like evaporation, withdrawals for tests, shrinkage,sampling, unavoidable spoiled quantities etc. Constitute normal loss. These lossescannot be avoided. Total Cost Normal Loss = Total Units – Normal Loss(b) Abnormal Loss:Any losses arising due to abnormal factors are known as abnormal loss. Such loss is overand above normal loss. These losses may arise from the factors like carelessness, machinebreakdown, accident, use of defective material etc.(2) Process Gains:Abnormal Gain:If the actual loss is greater than normal loss, it is known as abnormal loss. But if theactual loss is less than normal loss a gain, is obtained which is called abnormal gain oreffectiveness.Treatment for Abnormal Gain – The value is calculated as if it good units. It is debitedto the process account and credited to abnormal gain account. FORMAT OF PROCESS ACCOUNT BABASAB PATIL 63
  64. 64. COST ANALYSIS NIRANI SUGARS LTD,Particulars Input Cost Total Particulars Output Cost Total per Cost per Cost Unit UnitUnits introduced XX XX XX Normal Loss XX XX XXMaterials XX XX XX Scrap XX XX XXLabor XX XX XX Abnormal Loss XX XX XXOverheads XX XX XX Sale of by productsAbnormal Gain XX XX XX Sent to warehouse XX XX XX(if any) for sale Actual output XX XX XX transferred to next processTotal XXX XXX XXX Total XX XX XXX BABASAB PATIL 64
  65. 65. COST ANALYSIS NIRANI SUGARS LTD,Cost reduction and cost control techniques used in Nirani Sugars 1) Avoiding of excessive overtime. BABASAB PATIL 65
  66. 66. COST ANALYSIS NIRANI SUGARS LTD, 2) Reduced wastage in packaging of sugar. 3) Reduction in transportation cost of sugar cane. 4) Simplification of the process of production. 5) Suitable communication system with telephone intercom. 6) Purchase computer for accounting process. 7) Keeping minimum level of inventory. 8) Effective and economical purchases of materials.Difficulties in installation of cost accounting system in Nirani SugarsLtd:Lack of support from top management: In existing system there is no time for top management to check the regularaccounting process. In this case there is no additional work should be taken in thecompany.Non-co-operation of supervisors: The sugar is the essential for day-to-day activities so the supervisors have no timeto record the different things related to costs.Heavy costs: For installation of cost accounting system is heavy cost to company. For theinstallation of cost accounting system in Nirani Sugars the separate department should bemade.Difficulties to calculate costs of work in progress in sugar: There is a difficulty in calculation of work in progress in sugar industry. BABASAB PATIL 66
  67. 67. COST ANALYSIS NIRANI SUGARS LTD,Recommendation for installation of cost accounting system:1) Divide the department according to the revenue producing and non revenue producingdepartment this helpful in determining cost centers.2) Simplify the working procedure in each cost center and design suitable and properforms and records for each of the departments.3) Fix the procedure for collection of both cost and non cost data for each center.4) Fix the standard for incurrence of costs in cost center.5) Prepare forms, cards reports, and books etc for keeping cost records.The following are the cost centers in Nirani Sugars Ltd:1) Production Cost Center:a) Packing.b) Quality control.c) Boiler section.d) Storage section.e) Pan section.f) Mill section.g) Power generation.2) Marketing Cost Center:a) Transportation cost center.3) Administration Cost Centers:a) Security and maintenance of plant.b) Human Resource Development.The following are the cost units of Nirani Sugars Ltd: Name of the item Cost unitSugar cane Per Tone BABASAB PATIL 67
  68. 68. COST ANALYSIS NIRANI SUGARS LTD,Sugar Per QuintalTransportation Per trip / per K.MWater charges Per thousand LitersOil & diesel Per litersCanteen Per person servedElectricity Per K.W.H.Boiler Per thousand kilo grams of steam BABASAB PATIL 68
  69. 69. COST ANALYSIS NIRANI SUGARS LTD, Material costingYear Tones Rate per tone Amount consumed BABASAB PATIL 69
  70. 70. COST ANALYSIS NIRANI SUGARS LTD,2006-2007 136903.6842 950 1300585002007-2008 202997.6470 850 1725480002008-2009 215068 1000 215068000 matrrial cost chart 250000000 200000000 150000000 Series1 100000000 50000000 0 2006-07 2007-08 2008-09The raw material consumption from the year 2006-2007 - 2008-2009. In case of2006-2007 the quantity of sugar cane consumed 136903.6842 tones and it is increased to202997.6470 and 215068 respectively in the year 2007-2008 and 2008-2009. Human resource departmentDepartments Total no of employees 2006 2007 2008Administration and HOD 41 43 44Manufacturing and engineering 340 345 351 BABASAB PATIL 70
  71. 71. COST ANALYSIS NIRANI SUGARS LTD,Cane department 65 68 70Security office 19 20 22Civil 7 15 19 Human Resourse department 400 350 300 250 2006-07 200 2007-08 150 2008-09 100 50 0 Administrative Manufacturing Cane Security office Civil & HOD and engineeringAll the department the manufacturing and engineering department having more numberof employees. This increasing trend indicates is a increasing production. Department wise salary per annumDepartments 2006 2007 2008Administration and HOD 1,95,600 2,09,341 2,16,651Manufacturing and engineering 7,50,596 7,90,900 8,07,175Cane department 1,60,156 1,80,300 1,95,200Security office 42,000 45,000 48,000Civil 41,000 43,300 46,000 BABASAB PATIL 71
  72. 72. COST ANALYSIS NIRANI SUGARS LTD, 900000 800000 700000 600000 2006 500000 2007 400000 2008 300000 200000 100000 0 Administrative Manufacturing Cane Security office Civil & HOD and engineering Over headsParticulars 2006-2007 2007-2008 2008-2009Factory overhead 9,180,600 15,972,950 237,300,00Administration and overheads 1,530,100 2,381,850 3,744,000Selling and distribution overheads 3,763,937 4,140,990 13,868,850Total 14,474,637 22,495,790 41,342,850 BABASAB PATIL 72
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Cost analysis @ nirani sugars ltd project report


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