Cost Accounting (cost of production report & cost of goods sold) on Honda company
1Cost AccountingTopic: Production Process of Honda MotorcycleSubmitted to: Sir Hussain AhmedSubmitted by: Muhammad Farhan Javed MBA 3rdFederal Urdu University Islamabad
2 ACKNOWLEDGEMENTFirst and for most, millions of thank to Almighty ALLAH. The most merciful and gracious who gives us all the strength, patience, courage, forbearance, spirit and integrity needed to finish this report. This report is part of our course. This has to be great experience . I would like to thanks our gratitude teacher SirHussain Ahmad who has great knowledge and experience of Accounting. Thank you teacher. We are the flowers and you are our guardian.Especially for you. “Some flowers grow best in the sun; others do well in shade…! God always knows what the best is for us. So He puts us where we grow the best”
3 Table of ContentsIntroduction andHistory…………………………………………………………………………04Honda inPakistan………………………………………………………………………………..06Plants inPakistan………………………………………………………………………………...08The ManufacturingProcess……………………………………………………………………...09Cost of Productionreport………………………………………………………………………...14Cost of Goodssold………………………………………………………………………………17IncomeStatement………………………………………………………………………………...19
4Honda Motor Company Limited is perhaps best known as an automaker. It is the third largestautomaker in Japan but the company has its roots in motorcycles, and is the worlds topmotorcycle manufacturer.History:The Honda Motor Company was founded on in 1948, by Soichiro Honda (1906—1991), amechanic and engineer/inventor who began as a blacksmith, working at his father, GiheiHondas bicycle repair shop. In 1938, at the age of 32, Soichiro Honda was working at anauto repair-shop in Tokyo, called Art Shokai, where he began using his self-taughtmechanical and engineering skills. Honda briefly studied mechanical engineering and designat Hamamatsu Technical High School, where Honda perfected his new design for the pistonring.During the Japanese reconstruction period of the early 1940s, Soichiro Honda begandesigning motor-driven bicycles. Honda built his first motor-scooter, known simply as the"A-Type," in 1947.Honda started to make an international name for itself with the introduction of the CBmodels. Started by a CB72 (250cc) and the CB77 (305cc). The first series used the old presssteel frames and the better road handling came with the introduction of the steel tubularframes in the CB92. The CB77 (super hawk) was excellent, reliable motorcycle whichoutperformed many similar English modelsOne year later he started the Honda Motor Company and began building small-displacementtiddler style motor-scooters. Honda introduced his first motorcycle in 1949; the Dream D-Type with a 3 horsepower, 98cc engine. Hondas were also sold under the "Benly" name, with"Honda" appearing on the engine caseHonda started building bigger engine bikes with the first model CB450 in 1965. The blackbomber / black hawk were an attack to the dominating English bikes in this area. Althoughthe CB450 didnt match the British motorcycles (yet) the competition had begun..Starting in the 1980s Honda developed a series of V-four engines which setup the model lineof Honda VFs ranging between 400cc and 1000cc. But due to mechanical problems the VFline never really got going.
5The Fire blade (also a CBR model) was a new chapter for Honda and motorcycle fansworldwide. The introduction of the CBR900RR (893cc) in 1992 was a huge improvementfrom what was then out on the market. This came largely because of the engine capacity in asmaller light frame. The bike was redesigned a few times but only regained its originalsuccess with the 2000 model fire blade CBR929RR (929cc). Two years later the power wasincreased once again to 954cc Honda in PakistanAtlas Honda Limited (AHL) is a joint venture between the Atlas Group and Honda Motor Co.Ltd., Japan. The company was created by the merger of Panjdarya Limited and Atlas AutosLtd. in 1988. Both these motorcycle manufacturing concerns were established by the AtlasGroup. In addition, a third concern, Atlas Epak Ltd. was taken over by the Government ofBangladesh in 1971 after the fall of Dhaka. AHL manufactures and markets Hondamotorcycles in collaboration with Honda Motor Company. The Company also manufacturesvarious hi-tech components in-house in collaboration with leading parts manufacturers likeShowa Atsumitech, Nippon Denso and Toyo Denso. Honda motorcycles are by far the largestselling motorcycles in the country with an unmatched reputation for high quality, reliabilityand after-sales-service.AHL has undertaken to develop local manufacturing capabilities to the highest, economicallyfeasible level. While a major role in localization has been assigned to vendor industries, Atlashas the country’s largest in-house manufacturing capability at its Karachi and Sheikhupuraplants. To support the production facilities, the company has established an R&D wing andtool making facilities through CAD/CAM which are growing rapidly in size and function as
6the company expands. Atlas has managed to execute 12 Joint Venture/Technical AssistanceAgreements between local vendors and foreign manufacturers for transfer of technology.Besides, Atlas has directly executed 9 Joint Venture/Technical Assistance Agreements otherthan Honda.AHL management is striving to modernize company operations by adapting applicableaspects of research and theory and more specifically, Honda’s unique philosophy of hard/softtechnologies to the realities of Pakistani conditions. Company management structure, systemsand processes are changed according to the demands of the customer, growth and newtechnology. Efforts are being made to develop participation at all levels of personnel indecision-making and a substantial and effective delegation has been established at levelswhere applicable. Various participation programs such as ‘Ala Mayar’ Quality Circlesmovement, launched in 1985, are strongly encouraged to allow constructive self-expressionand teamwork. The Company training and development programs encourage all members todevelop themselves and contribute to their full potential.AHL is playing a pioneering role in creating conditions for easy and confident use ofmotorcycles all over the country. A vast and growing network of over 1600 sales service andspare parts dealers has been established. In order to back up this system, Atlas has set upWarranty & Training Centers (WTC) in Karachi and Lahore which provide several courses ofvarying duration and complexity for motorcycle mechanics and users each year. Mobiletraining facilities take the latest know-how, technology and maintenance of motorcycles tomajor rural and urban centers around the country.Annual Production Capacity750,000Authorized Capital1 Billion (Rupees)Paid Up Capital625.52 Million
7 Honda Plants in PakistanKarachi PlantCompany mother plant is based in the city of lights and provincial capital of Sindh, TheKarachi city. It is located at F-36, Estate Avenue, S.I.T.E. Karachi. Atlas Group signedtechnical agreement with Honda in 1963 and plant started commercial productionsubsequently. Plant spread over an area of 5 acres. In 1964, production began with 7motorcycles per day. Now plant production has reached to 300 units in a day. Plantmanufactures CD 70 only.Sheikhupura PlantAnother plant is situated in Sheikhupura city, Punjab. It is located at 26-27 KM Lahore-Sheikhupura Road Sheikhupura. The plant was built in 1981 and spread over an area of 27acres with the establishment of modern and synchronized 500K plant in 2006. The plantmanufactures all four models i.e. CD 70, CD 100, CG 125 and CG 125 Deluxe.Export ● Bangladesh ● AfghanistanRegional Offices ● Lahore: 1 Mecloed Road Lahore-54000 [ (042) 111-111-245, 37225015-17, 37233515-17 ] ● Rawalpindi: 60-Bank Road, Saddar [ (051) 5120494-6, 5120497 ] ● Multan: Azmat Wasti Road Multan-60000 [ (061) 4540054, 4540028, 4571989 ] ● Rahim Yar Khan: Atlas Honda Limited, 4-B Zamindara Colony [(068) 5888809 ]Products:1. CD 702. CD 1003. CG 1254. CG 125 DELUXE
8The Manufacturing Process:According to the need of the company for manufacturing of motorcycles the material isrequisitioned and a purchase order is sent to the suppliers by the purchase department and theHonda industry purchases the material from outside the country as well as within countrythrough local costing. Raw materials which consist of parts and components arrive at themanufacturing plant by truck or rail and the transportation charges are paid by the Hondaindustry. The material is being received by the receiving department and the slips are madeby that department after matching the purchase order with the material list provided by thesupplier. Then there is the work of inspection department that works on when it receives theorder from receiving department to inspect the material. The defected materials and parts arereturned to the places from where they come after inspection. Different materials are sent tothe different departments for the further procedure.The manufacturing process is completed in three major steps which are ● Paint Shop. ● Engine Assembling. ● Frame Assembling.Frame Assembling: This is the last step in the manufacturing process of motorcycle. In thisprocess the framing of the motorcycle takes place and all the parts of the motorcycle arecombined by labor energy. The framing consists of 12 steps.The motorcycle frame is composed almost completely of metal, as are the wheels. The frame maybe overlaid with plastic. The tires are composed of rubber. The seat is made from a syntheticsubstance, such as polyurethane. The power system consists of a four-stroke engine, acarburetor to transform incoming fuel into vapor, a choke to control the air-fuel ratio,transmission, and drum brakes. The transmission system contains a clutch, consisting of steelball flyweights and metal plates, a crankshaft, gears, pulleys, rubber belts or metal chains,and a sprocket. The electrical system contains a battery, ignition wires and coils, diodes,spark plugs, head-lamps and taillights, turn signals and a horn. Wheels, brakes, wiring cables,foot pegs, exhaust pipes, seats, saddlebags, lights, radios, and hundreds of other parts areinstalled on the motorcycle frame.
9Labor Force: There are 60 labors which are working in this department and we are giving hour wisewages to our labors. We are offering Rs.25/- per hour to our each labor.Direct Labor: There are 45 people who are working in this department in the production process.Labor Cost:One labor cost = Rs25/-per hourFor 45 Labors = Rs1125/-per hourIf the labors will work for one month and 8 hours in a day then the cost will be Rs270000/-.Indirect Labor: The remaining 15 are working as indirect labors. These 5 people includes ● 6 Supervisors. ● 4 Sweepers. ● 5 The people who are working on the rolling machine for shifting of material.Labor Cost:One labor cost = Rs25/-per hourFor 5 Labors = Rs125/-per hourIf the labors will work for one month and 8 hours in a day then the cost will be Rs30000/-.Material:There materials for this department are ■ Tires Rs850/- ■ Four-stroke engine Rs10000/- ■ Carburetor Rs30/- ■ Choke Rs150/- ■ Air-fuel ratio Rs75/-
10 ■ Drum Brakes. Rs650/- ■ Clutch. Rs150/- ■ Crankshaft. Rs400/- ■ Gears. Rs350/- ■ Pulleys. Rs250/- ■ Sprocket. Rs125/- ■ Rubber belts. Rs100 ■ Metal chains. Rs800/- ■ Battery Rs320/- ■ Ignition wires. Rs80/- ■ Coils. Rs225/- ■ Diodes. Rs175/- ■ Spark plugs. Rs40/- ■ Head-lamps. Rs60/- ■ Taillights. Rs320/- ■ Turn signals. Rs80/- ■ Horn. Rs120/- ■ Brakes. Rs125/- ■ Wiring cables. Rs425/- ■ Foot pegs. Rs200/- ■ Exhaust pipes. Rs150/- ■ Seats. Rs600/-Total Cost of the direct material= Rs16850/-If we are going to produce 150 units then the cost will be Rs2527500/-Indirect Material: The indirect material and cost for this are ■ Seat and Paper Cover Rs50/- If we are going to produce 150 units then the cost will be Rs7500/- Factory Over Head: ■ Factory Supplies. Rs12000/-
11 ■ Repairs and Maintenance. Rs2500/- ■ Electric Power. Rs8000/- ■ Fuel. Rs4500/- ■ Depreciation Machinery. Rs2000/- ■ Insurance. (Fire) Rs9000/- ■ Water Rs1000/- Factory Over Head = Rs39000/-Cost for this department: If we are going to produce 150 units and our labors work 8 hours in a day and they areable to produce 150 units in one month then the cost for this department will beDirect Material Rs2527500/-Direct Labor Rs270000/-Factory Over HeadIndirect Material Rs7500/-Indirect Labor Rs30000/-Factory Supplies Rs12000/-Repairs and Maintenance Rs2500/-Electric Power Rs8000/-Fuel Rs4500/-Depreciation Machinery Rs2000/-Insurance (Fire) Rs9000/-Water Rs1000/-Factory over head Rs76500Total Cost for this department Rs2874000/- (for 150 units)
12Cost of Production Report: HONDA Assembling department Cost of production reportQuantity schedule:Units received from previous dept. 90Units completed and transferred out 45Units still in process (all material, 2/3 of conversion cost) 35Units lost in process (1/2 of material and conversion cost) 10 90Cost charged to the department: Total cost Unit costTransferred to the next department 1722112.501 19134.58334Cost added by department:
13Material 2527500 29735.29412Labor 270000 3681.985545FOH 76500 1043.229238Total cost to be accounted for: 4596112.501 53595.09224Cost accounted for as follows:Transferred to the next department (45*53595.09224) =2411779.151Loss adjustment = 363632.3779Work in process-ending inventory:Adjusted cost from preceding dept. (35*19134.58334) =669710.4169Material (35*100%*29735.29412) =1040735.294Labor (35*2/3*3681.985545) =85912.99605FOH (35*2/3*1043.229238) =24342.01555Total cost accounting for =1150990.306 4596112.501Additional computations:Equivalent production: Materials=45+ (35*100%) + (10*1/2)=85 Labor=45+ (35*2/3) + (10*1/2)=73.33 Factory over heads=45+ (35*2/3) +(10*1/2)=73.33Loss adjustment:Loss from previous dept. (10*19134.58334) =191345.8334Material (10*1/2*29735.29412) =148676.4706Labor (10*1/2*3681.985545) =18409.92773
14FOH (10*1/2*1043.229238) =5216.14619Total Loss adjustment =363632.3779Pre-Delivery Inspection (PDI): At the end of the assembly line, the pre-delivery inspection takes place in whichinspectors undertake a visual inspection of the motorcycles painted finish and fit of parts.The inspectors also feel the motorcycles with gloved hands to detect any bumps or defects inthe finish. Each motorcycle is tested on a dynamometer. Inspectors accelerate the motorcyclefrom 0-60 mph. During the acceleration, the "dyno" tests for acceleration and braking,shifting, wheel alignment, headlight and taillight alignment and function, horn function, andexhaust emissions. After the dyno test, a final inspection is made of the completedmotorcycle.Store Room: After inspection the finished goods are sent to the store room and then from therethese are shipped to the customers from where these are demanded.
15Cost of Good Sold Statement:Number of unit = 150 Honda Cost of Good Sold StatementDirect material 1525000/-Purchases 225000/-Local purchases 450000/-Transportation in 150000/-Net purchases 825000/-Material available for use 2350000/Closing balance of raw material 714000/-Direct Material Consumed 1636000/-Direct Labor 270000/-Factory Over Head 76500/-Indirect Material (Paint) 10000/-Indirect Labor 75044.50/-Light and Power 69938/-Machinery Deep 60017.5/-Total Material Cost =2197500/-
16Opening work in process =590000/-Material available for manufacturing 2787500Work in process ending 945000/-Material used 1842500/-Opening balance of finished goods 6589100/-Cost of goods available for sale 8431600/-Closing balance of finished goods 640000/-COGs 7791600/-Per unit Cost:Total number of unit produced = 150COGs =7791600Per Unit Cost =7791600/150 = 51944/-
17 Honda Income statementSales =12000000/-LESS COST OF GOODS SOLD =7791600/-GROSS PROFIT =4208400/-MARKTING EXP 1800000GERNAL EXP 37500OTHER EXP 1762500TOTAL EXP 3600000NET PROFIT 608400/-