Cost Accounting Project on Small and Medium Sector Industry

1. Submitted to
Submitted by
Prof. Gauri Shankar
Neelutpal Saha
Shan Lal
Mrinmoy Sarkar
Pankaj Srivastava

2. ACKNOWLEDGEMENT
We would like take this opportunity to express our profound gratitude and deep regards to our guide Professor
Gouri Shankar for his exemplary guidance, monitoring and constant encouragement throughout the course of
this project.
We also take this opportunity to express a deep sense of gratitude to Mr Rajkumar, owner RajKumar Paper
Mills, for his cordial support, valuable information and guidance, which helped us in completing this task
through various stages.
Neelutpal Saha
Shan Lal
Mrinmoy Sarkar
Pankaj Srivastava
2|Page

3. Contents
INTRODUCTION TO SME INDUSTRY
GENERAL INFORMATION OF COMPANY
COST ACCOUNTING POLICY
PRODUCT GROUP DETAILS
QUANTITATIVE INFORMATION
ABRIDGED COST STATEMENT
OPERATING RATIO ANALYSIS
MARGINAL COSTING AND ANALYSIS
ABSORPTION COSTING
ANALYSIS OF PROFIT VOLUME RATIO
RECOMMENDATIONS
CONCLUSION
BIBLIOGRAPHY
3|Page

4. INTRODUCTION
Micro, small and medium enterprises (MSME) sector has been recognized as an engine of growth all over the world. The
sector is characterized by low investment requirement, operational flexibility, location wise mobility, and import
substitution. In India, the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 is the first single
comprehensive legislation covering all the three segments. In accordance with the Act, these enterprises are classified in
two:- (i) manufacturing enterprises engaged in the manufacture or production of goods pertaining to any industry
specified in the first schedule to the Industries (Development and regulation) Act, 1951. These are defined in terms
of investment in plant and machinery; (ii) service enterprises engaged in providing or rendering of services and are
defined in terms of investment in equipment.
India has a vibrant micro and small enterprise sector that plays an important role in sustaining the economic growth, by
contributing around 39 per cent to the manufacturing output and 34 per cent to the exports in 2004-05. It is the second
largest employer of human resources after agriculture, providing employment to around 29.5 million people (2005-06) in
the rural and urban areas of the country. Their significance in terms of fostering new entrepreneurship is wellrecognized. This is because, most entrepreneurs start their business from a small unit which provides them an
opportunity to harness their skills and talents, to experiment, to innovate and transform their ideas into goods and
services and finally nurture it into a larger unit.
Over the years, the small scale sector in India has progressed from the production of simple consumer goods to the
manufacture of many sophisticated and precision products like electronics control systems, microwave components,
electro medical equipment, etc. The process of economic liberalization and market reforms has further exposed these
enterprises to increasing levels of domestic and global competition. The formidable challenges so generated for them
have led to a novel approach of cluster development for the sector. As a result, private and public sector institutions,
both at the Central and State levels are increasingly undertaking cluster development initiatives.
Clusters are defined as sectorial and geographical concentration of enterprises, particularly, small and medium
enterprises, faced with common opportunities and threats which give rise to external economies; favour the emergence
of specialized technical, administrative and financial services; create a conducive ground for the development of interfirm cooperation to promote local production, innovation and collective learning. Clustering and networking has helped
the small and medium enterprises in boosting their competitiveness. India has over 400 SME clusters and about 2000
artisan clusters.
It is estimated that these clusters contribute 60 per cent of the manufactured exports from India. Almost the entire gems
and jewellery exports are from the clusters of Surat and Mumbai. Some of the small scale enterprise clusters are so big
that they account for 90 per cent of India's total production output in selected products. For example, the clusters of
Chennai, Agra and Kolkata are well known for leather and leather products.
The Government has been encouraging and supporting the sector through policies for infrastructural support, technology
upgradation, preferential access to credit, reservation of products for exclusive manufacture in the sector, preferential
purchase policy, etc. It has been offering packages of schemes and incentives through its specialized institutions in the
form of assistance in obtaining finance; help in marketing; technical guidance; training and technology upgradation, etc.
4|Page

5. GENERAL INFORMATION OF COMPANY

Name of the company:
o Rajkumar Paper Mills Limited

Registered office address:
o Chinchwad, Pune 411 039.

Corporate office address:
o R.S.Gandhi Marg, Fort, Mumbai 400080

Company's financial year to which the Cost Audit Report relates:
o 1st April 2011 to 31st March 2012

E-mail Address of the Company: rk@rajkumar.com
5|Page

6. COST ACCOUNTING POLICY
1.0
1.1
Cost accounting policy adopted by the company for the following areas are as
under:
Basics of Costing Policy
The company follows the historical process cost convention on accrual basis of accounting in accordance with the
Generally Accepted Cost Accounting Principle (GACAP) and Cost Accounting Standards keeping in view the
requirements of the Companies (Cost Accounting Records) Rules, 2011, the Companies (Cost Audit Report) Rules,
2011.
The preparation of cost statements requires that the management of company makes reasonable estimates and
assumptions that affect the allocation / apportionment and absorption of expenses recognized in the period to
determine correctly the cost of production / operation, cost of sales realization and margin of the product /
activity groups separately of the unit / plant.
1.3
Identification of cost centers/cost objects and cost drivers:
The company emphasis on direct identification of expenses with product / plant and common expenses as
classified overheads as under:
6|Page

7. Accounting for material cost including packing materials, stores and spares etc., employee cost, utilities and
other relevant cost components.
1.4 Material and Stores Accounting :
Material Cost
Indigenous materials and stores receipts are valued at landed cost inclusive of all expenses incurred for the
procurement of the materials. Imported material are accounted at the custom exchange rates prevailing at the
time of receipts an includes all incidental expenses like, insurance, freight, import duty, clearing charges, etc.
The Stores' issue is booked at moving weighted average rate / FIFO. Normal shortages/excesses observed during
physical stock verification are periodically adjusted in consumption of respective materials.
Packing Material
Packing material used for packing of reels and reams are identified on the basis of packing recipe & charged to
product. Secondary packing like palatisation, etc.is considered as dispatching cost.
Consumption of wrapping paper manufactured and consumed as packing material is transferred and valued at
COP during the year.
Stores & Spares
Consumable Stores and spares are identified with consumption cost centre. Machinery spares issues are treated
as repairs to Plant & machinery.
1.5 Employees Cost
Employee Records are maintained Cost center wise for direct allocation of employee cost. Employee cost
includes benefits payable available such as over time, incentives, payment & provision for leave salary,
Company's contribution to Provident / Pension Fund and Employees State Insurance, linked insurance, Provision
for bonus & Gratuity, etc.
The engagement of contractor's labour for certain specific jobs/operations are identified and allocated as direct
labour cost. The Common labour payment is considered as either Works Overhead or Administration overhead as
per the nature of work.
1.6 Utilities :
The cost of each utility like power, raw water, treated water, steam, Power generation plant, cooling water and
ETP is worked out for each of the above cost centres. The utilization of utilities allocation / apportionment is
done on the basis of monthly utilization of these facilities by recipient plants on technical basis and are
reconciled.
Repairs & Maintenance
Machinery spares and repairs job labour bills are identified with respective plant and machinery. Repairs to
building are apportioned on the basis of area and other repairs are considered as plant overheads or
administration overheads.
7|Page

8. 1.7 Accounting, allocation/apportionment and absorption of overheads
Expenses are identified with cost center / activity / product as far as possible. In case where it is not possible to
identify directly, the same is considered as production / administration / selling and other overheads based on
nature & purpose of expenses in the inbuilt system of Financial Accounting on the basis of Generally Accepted
Cost Accounting Principles.
1.8 Absorption (into product cost)
Factory Overheads
The total conversion cost of the production departments including factory administration overheads are then
divided by the Machine Hours worked during the year to obtain Machine Hour Rate for each production
department. The actual time taken for each lot are recorded in the Departmental log books from where total
time worked during the year for producing each variety of paper is ascertained. This cumulated time multiplied
by the Departmental Machine Hour Rate gives the total conversion cost for each variety of paper produced
whereas, finishing and packing department expenses are absorbed on the basis of tonnage packed in reels and
reams.
Corporate Administrative Overheads
The Corporate administrative overheads are absorbed directly into the variety of paper on the basis of sales
realization of paper sold.
Selling and Distribution Overheads
The element wise selling and distribution overheads are absorbed either on the basis of quantity sold or the net
sales realization depending upon nature of expense. Commission on Sales is identified with each type of paper.
Cost of the samples is ascertained separately & considered as Selling & Distribution expenses.
1.9 Accounting for Depreciation/Amortization
Depreciation on machinery & building has been provided on straight line method and on the other assets on
written down value method in accordance with Schedule XIV of the Companies Act, 1956 as in force as on the
date of Balance sheet. Depreciation on all assets is in the first instance departmentalized, based on the locations
of the assets. Depreciation on Buildings is apportioned on the basis of area occupied by each cost centers.
Depreciation on Machinery is allocated on the basis of identification. Depreciation on furniture, office
equipment and fixtures, vehicles etc. is considered as overheads depending upon location and usage.
Accounting for by-products/joint-products, scraps, wastage etc.
There are no by-products or joint products generated while manufacture of paper. Broke is waste generated
while finishing of paper which is reused as pulp. Broke is valued at average cost of waste paper purchased since
the sales realization of Broke is not feasible and quality of broke resembles waste paper. The scrap generated
due to sale of empty drums, MS scrap, etc. is analyzed and credited on appropriate basis.
8|Page

9. 1.10 Basis for Inventory Valuation
Raw material, Packing material, Stores & Spares are valued at landed cost on moving weighted average / FIFO
method.
Semi-finished and Finished goods is valued at variety / gram age wise cost of production according to the stage of
completion and location where stored excluding any taxes and duties.
1.11
Methodology for valuation of Inter-Unit/Company and Related Party transactions
Direct Cost of job work processing of Pulp and Steam plus share of fixed overheads allocated / apportioned and
absorption on the basis of normal capacity utilization and reasonable profit margin. Raw material is at landed
cost of purchases at relevant time and sale of finished goods at comparable price on arms-length basis.
Share of common utilities and services in respect of security, communication, Quality Control, Space utilization,
etc. on the appropriate cost basis considering common cost of salaries, direct allocated expenses, etc. for each
type of services. Interest received is on account on loan given is charged at the prevailing bank rate.
1.12
Treatment of abnormal and non-recurring costs including classification of other non-cost items.
In case of significant under-utilization normal conversion cost per production is considered for absorption of
labour & overheads.
Non cost / Non recurring income and expenses such as Provision for obsolete items, Loss on Sale of Fixed
Assets, Donations, Provision of doubtful Debts and Bad Debts written off, etc. and Other Income such as
Exchange diff, interest / Dividend on Investments, etc.
1.13
Other relevant cost accounting policy adopted by the Company
Treatment of Foreign exchange gain (/Loss) on Plant & Machinery, imported material, sales of FG, etc.
Company Social responsibility
Treatment of expenditure during construction period.
Financial Cost
Interest on term loans, premium on redemption of Debenture/Debts, interest on working capital.
1.14
Revenue sales recognition
Domestic Realization
Export realization
Export benefits
Central excise duty and service tax
9|Page

10. PRODUCT GROUP DETAILS (for the company as a whole)
Sr. Name of each Product Group
Names of
no.
Products/
Activities
included in
the Product
Group
Net Sales (net of
taxes,
Duties, etc.) (Rs.
Lakh)
2011-12
2010-11
A Manufactured Product Groups
1 White Printing Paper
Maplitho,
M.G. Poster,
etc.
Sanitary
3507.98
2 Tissue Paper
4016.01
Tissues
3
4 etc.
Sub-Total (A)
B Services Groups
1 Nil
Sub-Total (B)
C Trading Activities (Product Group-wise)
1 Nil
Sub-Total (C)
D Other Incomes
1 Dividend, Interest
2 Profit on Sales of Fixed Assets
3 Misc., Scrap Sales, etc.
Sub-Total (D)
E Total Income as per Audited Annual Report (A+B+C+D)
10 | P a g e
-
7523.98
-
-
-
-
-
12.57
2.07
5.20
19.84
7543.82

11. QUANTITATIVE INFORMATION
Name of the Company
:
Name of the Product Group
:
Name of the Products covered in the Product Group : Paper
Financial Year
S.N
. Particulars
1. Available Capacity
(a) Installed Capacity
(b) Capacity enhanced during the year, if any
Capacity available through leasing arrangements,
(c) if
Capacity available through loan license / third
(d) parties
(e) Total available Capacity
2. Actual Production
(a) Self-manufactured
(b) Produced under leasing arrangements
(c) Produced on loan license / by third parties on job work
(d) Total Production
3. Production as per Excise Records
4. Capacity Utilization (in-house)
5. Stock Purchased for Trading
(a) Domestic Purchase
(b) Imports
(c) Total Purchases
6. Stock & Other Adjustments
(a) Change in Stock of Finished Goods
(b) Self / Captive Consumption (incl. samples etc.)
Other Quantitative Adjustments, if any (wastage
(c) etc.)
(d) Total Adjustments
7. Total Available Quantity for Sale [2(d) + 5(c) - 6(d)]
8. Actual Sales
(a) Domestic Sales (manufacturing)
(b) Domestic Sales (trading)
(c) Export Sale (manufacturing)
(d) Export Sale (trading)
(f) Total Quantity Sold
Rajkumar Paper Mills Limited
White Printing
Paper
(Qty. in MT)
2011-12
2010-11
Cur. Year
9000
Prev. Year
9,000
0
9,000
9,000
-
8086
-
8086
8086
90
-
0
0
-
-40
0
-
0
-40
8046
8046
-
8046
Notes:
The variation in the utilization of installed capacity is due to change in the product mix which is dependent upon
demand of various types and gram mage of paper and on account of loss due to set up time for the lot change from
time to time
11 | P a g e

12. Name of the Company
Name of the Product Group
:
:
Rajkumar Paper Mills Limited
Tissue Paper
Name of the Products covered in the Product Group : Paper
Financial Year
Sr.
1.
(a)
(b)
(c)
(d)
(e)
2.
(a)
(b)
(c)
(d)
3.
4.
5.
(a)
(b)
(c)
6.
(a)
(b)
(c)
(d)
7.
8.
(a)
(b)
(c)
(e)
(f)
Particulars
Available Capacity
Installed Capacity
Capacity enhanced during the year, if any
Capacity available through leasing arrangements,
if
Capacity available through loan license / third
parties
Total available Capacity
Actual Production
Self-manufactured
Produced under leasing arrangements
Produced on loan license / by third parties on job work
Total Production
Production as per Excise Records
Capacity Utilization (in-house)
Stock Purchased for Trading
Domestic Purchase
Imports
Total Purchases
Stock & Other Adjustments
Change in Stock of Finished Goods
Self / Captive Consumption (incl. samples etc.)
Other Quantitative Adjustments, if any (wastage
etc.)
Total Adjustments
Total Available Quantity for Sale [2(d) + 5(c) - 6(d)]
Actual Sales
Domestic Sales (manufacturing)
Domestic Sales (trading)
Export Sale (manufacturing)
Export Sale (trading)
Total Quantity Sold
2011-12
Cur. Year
10,000
10,000
(Qty. in
MT)
201011
Prev.
Year
10,000
10,000
8865
-
8865
8865
89
-
-
-
-124
-
-124
8741
-
8726
-
15
-
8741
Notes:
The variation in the utilization of installed capacity is due to change in the product mix which is dependent
upon demand of various types and grammage of paper and on account of loss due to set up time for the lot
change from time to time.
12 | P a g e

13. ABRIDGED COST STATEMENT
(for product group - Paper)
White Printing Paper
Sr.n Particulars
Units
Quantity
1 Materials Consumed
a) Imported
(MT)
2873
b) Indigenous Purchased
(MT)
c) Self-Manufactured / Produced
(MT)
6639
Total (a to c)
9512
2 Process Materials/Chemicals
a) Sizing & Loading Materials
526332
b) Dyes & other chemicals
47211
Total (a to b)
3 Utilities
Power
(KWH)
5548908
Steam
(MT)
21182
Water
(KL)
324531
E.T.P.
4 Direct Employees Cost
5 Direct Expenses(cutting & Reeling chgs)
6 Consumable Stores & Spares
7 Repairs & Maintenance
8 Quality control
9 Research & Development Exps
10 Technical know-how Fee / Royalty, if any
11 Depreciation/Amortization
12 Other Production Overheads
13 Total (1 to 12)
14 Add/Less: Work-in-Progress Adjustments
23
15 Less: Credits for Recoveries, BROKE
431
16 Primary Packing Cost
17 Cost of Production/Operations (13 + 14 to 16)
8086
18 Increase/Decrease in Stock of Finished Goods
-40
19 Less: Self/Captive Consumption (incl. Samples, etc.)
20 Other Adjustments (if any)
21 COP of Goods/Services Sold (17 + 18 to 20)
8046
22 Administrative Overheads
23 Secondary Packing Cost
24 Selling & Distribution Overheads
25 Interest & Financing Charges
26 Cost of Sales (21 + 22 to 25)
8046
Increase in margin is due to increase in sales realization
13 | P a g e
Rate
Amount
In Rupees
Cost Rate per Unit
2010-11
2009-10
26802 76992685
9557
24309 161398272
238390957
20034
29591
3768
2228
18955
24951
10994790
13181430
24176220
1365
1636
3001
1307
1393
2700
5 27855518
961 20360626
5 1460390
643407
6273267
2672679
2351715
1300530
3458
2527
181
80
779
332
292
161
3848
2431
151
45
750
337
338
96
210618
26
15
3378804
3067995
336416430
1590414
-6203652
6177045
337980237
-4225392
419
381
41759
591
419
37062
767
41798
1025
37475
-1400
333754845
4273704
41479
530
37471
390
6769785
2100081
342624711
841
261
42581
770
205
39036

14. ABRIDGED COST STATEMENT (for product group - Paper)
Tissue Paper
Sr.n Particulars
Units
Quantity
1 Materials Consumed
a) Imported
(MT)
2193
b) Indigenous Purchased
(MT)
1755
c) Self-Manufactured / Produced
(MT)
6927
Total (a to c)
10876
2 Process Materials/Chemicals
a) Sizing & Loading Materials
156707
b) Dyes & other chemicals
25564
Total (a to b)
3 Utilities
Power
(KWH)
9638311
Steam
(MT)
37017
Water
(KL)
513454
E.T.P.
4 Direct Employees Cost
5 Direct Expenses
6 Consumable Stores & Spares
7 Repairs & Maintenance
8 Quality control
9 Research & Development Exps
10 Technical know-how Fee / Royalty, if any
11 Depreciation/Amortization
12 Other Production Overheads
13 Total (1 to 12)
14 Add/Less: Work-in-Progress Adjustments
32
15 Less: Credits for Recoveries, BROKE
16 Primary Packing Cost
Cost of Production/Operations (13 + 14 to
17 16)
8865
Increase/Decrease in Stock of Finished
18 Goods
-124
19 Less: Self/Captive Consumption (incl. Samples, etc.)
20 Other Adjustments (if any)
21 COP of Goods/Services Sold (17 + 18 to 20)
8741
22 Administrative Overheads
23 Secondary Packing Cost
24 Selling & Distribution Overheads
25 Interest & Financing Charges
26 Cost of Sales (21 + 22 to 25)
8741
Rate
26063
22897
23915
Amount
In Rupees
Cost Rate per Unit
201011
2009-10
6471
4551
18757
29779
3859
3424
18681
25964
5085646
9388018
14473664
5
961
5
57156758
40193234
165666176
263016168
576
1063
1639
696
1079
1775
48384321
35581481
2310543
1017957
10362714
960035
6153481
2347438
5478
4029
262
115
1173
109
697
266
5529
3647
215
64
1077
20
681
154
237437
27
16
3928990
4526362
398361209
1259649
-11191839
6500614
445
512
45103
586
548
40704
733
811
394929633
44549
39197
-9422853
-1400
385506780
5060618
44102
573
38986
428
8287341
2428609
396222730
948
278
45328
902
220
40916
There is no significance variance since increase in cost is compensated by increase in sales realization
14 | P a g e

15. OPERATING RATIO ANALYSIS
Tissue Paper
Sr. Particulars
no.
Units
2011-12
2010-11
2009-10
Ratio of Operating Expenses to Cost of Sales
1 Materials (incl. Process Materials) Cost
%
67.21
67.79
2 Utilities Cost
%
22.03
23.11
3 Direct Employees Cost
%
2.62
2.63
4 Direct Expenses
%
0.24
0.05
5 Consumable Stores & Spares
%
1.55
1.66
6 Repairs & Maintenance Cost
%
0.01
0.38
7 Depreciation / Amortization Cost
%
0.99
1.43
8 Packing Cost
%
1.64
1.98
9 Other Expenses
%
0.06
0.04
10 Stock Adjustments
%
(1.47)
(4.20)
11 Production Overheads
%
1.14
1.34
12 Administrative Overheads
%
1.28
1.05
13 Selling & Distribution Overheads
%
2.09
2.20
14 Interest & Financing Charges
%
0.61
0.54
15 Total
%
100.00
100.00
Note:
There are no significance variance in operating ratio
15 | P a g e

16. White Printing Paper
Sr. Particulars
no.
Units
2011-12
2010-11
2009-10
Ratio of Operating Expenses to Cost of Sales
1 Materials (incl. Process Materials) Cost
%
73.08
74.22
2 Utilities Cost
%
14.34
17.38
3 Direct Employees Cost
%
1.79
2.01
4 Direct Expenses
%
0.76
0.90
5 Consumable Stores & Spares
%
0.67
0.91
6 Repairs & Maintenance Cost
%
0.37
0.26
7 Depreciation / Amortization Cost
%
0.96
1.59
8 Packing Cost
%
1.76
2.75
9 Other Expenses
%
0.06
0.04
10 Stock Adjustments
%
1.58
(4.85)
11 Production Overheads
%
0.87
1.12
12 Administrative Overheads
%
1.22
1.05
13 Selling & Distribution Overheads
%
1.93
2.07
14 Interest & Financing Charges
%
0.60
0.55
15 Total
%
100.00
100.00
Note:
There are no significance variance in operating ratio
16 | P a g e

17. MARGINAL COSTING AND ANALYSIS
The increase or decrease in the total cost of a production run for making one additional unit of an item. It is computed in
situations where the breakeven point has been reached: the fixed costs have already been absorbed by the already
produced items and only the direct (variable) costs have to be accounted for.
*in rupees
Cost Rate Per Unit
White Printing Paper
Amount
2010-11
2009-10
Net Sales Realization(A)
350797659
43597
37257
Cost of Sales(B)
342624711
42581
39036
8172948
1016
-779
Margin [P/(L) as per Cost
Accounts]= (A-B)
There was a loss in cost price for each unit in 2009-10, but it recovered well by its profits on 2010-11
*in rupees
Cost Rate Per Unit
Tissue Paper
Amount
2010-11
2009-10
Net Sales Realization(A)
401600823
45943
41710
Cost of Sales(B)
396222730
45328
40916
5378093
615
794
Margin [P/(L) as per Cost
Accounts]= (A-B)
There has been a minor decrease in profit per unit item manufactured from 2009-10 to 2010-11
ABSORPTION COSTING
Absorption costing means that all of the manufacturing costs are absorbed by the units produced. In other words, the
cost of a finished unit in inventory will include direct materials, direct labor, and both variable and fixed manufacturing
overhead. As a result, absorption costing is also referred to as full costing or the full absorption method.
Absorption costing is often contrasted with variable costing or direct costing. Under variable or direct costing, the fixed
manufacturing overhead costs are not allocated or assigned to (not absorbed by) the products manufactured. Variable
costing is often useful for management's decision-making. However, absorption costing is required for external financial
reporting and for income tax reporting.
17 | P a g e

18. *in rupees
Cost Rate Per Unit
White Printing Paper
Amount
2010-11
2009-10
Net Sales Realization(A)
350797659
43597
37257
Cost of Production(B)
337980237
41798
37475
Absorption [P/(L) as per
Cost Accounts]= (A-B)
12817422
1799
-218
Profitability as per absorption costs has increased in subsequent years after initial loss.
*in rupees
Cost Rate Per Unit
Tissue Paper
Amount
2010-11
2009-10
Net Sales Realization(A)
401600823
45943
41710
Cost of Production(B)
394929633
44549
39197
6671190
1394
2513
Absorption [P/(L) as per
Cost Accounts]= (A-B)
Profitability as per absorption costs has decreased in subsequent years.
CALCULATION AND ANALYSIS OF PROFIT VOLUME RATIO
A profit-volume ratio is one financial calculation used in operating a business to determine profitability and to make
decisions about the future of the business. The profit-volume ratio, as it suggests, compares the profit earned based on
the volume of your product sold and examines how the two figures relate at different values. The profit-volume ratio
can help you determine at what size your business will be most profitable.
Cost Rate Per Unit (in rupees)
Change in Profit
Change in Sales
P/V ratio= Change in profit/change in
sales
White Printing Paper
1016-(-779)=1795
43597-37257=6340
Tissue Paper
615-794=-179
45943-41710=4233
0.28
-0.04
The ratio shows a negative loss that is a loss in case of production of Tissue paper, whereas the white printing paper
shows a slight amount of growth in P/V ratio
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19. RECOMMENDATIONS
Reduce Labor Costs
If physical labor is the biggest expense in manufacturing your product, controlling labor costs will give you the quickest
path to increased profits. Labor cost reductions can be generated by lowering the dollars paid to factory workers or by
making workers more efficient. Although low-cost labor can be obtained by employing unskilled labor, another way to
decrease labor costs is to improve the efficiency of experienced labor. Study all production practices to eliminate wasted
steps in the process. Reduce the time required to produce an average unit by providing specialized training that allows
employees to work at a faster pace. Offer incentives to employees who can introduce labor-saving techniques into your
production facility.
Reduce Material Costs
When material costs dominate product expense, focus on ways to procure materials for less money or find ways to use
less material in the building process. Purchase materials in large lots to drive down unit costs. Research and determine
the right type of material required; if features are not vital to the function or quality of your goods, don’t pay for them.
Provide documentation, training and proper tooling to reduce the amount of material scrapped during production.
Deploy lean manufacturing initiatives such as like Six Sigma to evaluate opportunities for savings.
Reduce Overhead Costs
Monitor and control the expenses associated with running the factory – often referred to as overhead costs. Building,
utility, supply, storage, handling, travel, supervisory and administrative costs all add to manufacturing costs. Set budgets
for these support costs and review them on a weekly, monthly and yearly basis. Research purchase versus rental options
for cost savings. Limit employee costs to those that benefit production or increase sales. Keep debt and interest expense
as low as possible. Review and shop for the lowest employee benefit costs each year. Monitor tooling and supply costs,
and keep them in a secure area to deter loss.
Invest in Capital
Sometimes the way to save money is to spend money. Investing in equipment that makes the manufacturing process
faster can actually lower the production costs in the long run. Likewise, machinery that uses less material can also lower
costs. However, it is imperative to thoroughly research potential capital investment benefits versus costs required
before purchasing new equipment. Determine the return on investment by computing the gain from the investment less
the cost of the investment divided by the cost of the investment.
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20. Process control and supply chain management
If profit margins are narrow, reduced manufacturing and supply chain costs can often be the difference between profit
and loss.
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Improve management of work in process
Reduce inventory
Optimize availability and use of production tools
Minimize distribution of non-conforming products
Scalability, low cost, and easy deployment enable manufacturers to incorporate machine vision systems and industrial ID
as part of the production process itself in order to catch and correct assembly errors before scrap is made, or reject
flawed parts before adding value by further processing.
CONCLUSION
As we have seen, cost is a complex subject that reaches far beyond the individual budget of any given project. Different
areas of the company use cost information in different ways, and the information must be formulated to suit the
company area that it serves.
When project managers are planning a project, and in particular are creating a project budget, knowledge of the
different kinds of costs that the project will incur is essential to successful budgeting. In addition, an understanding of
overall cost at a particular company in a specific industry will help project managers create budgets that take cost into
proper consideration and deliver winning results.
Cost accounting information is designed for managers. Since managers are taking decisions only for their own
organization, there is no need for the information to be comparable to similar information from other organizations.
Instead, the important criterion is that the information must be relevant to decisions that managers operating in a
particular environment of business including strategy make. Cost accounting information is commonly used in financial
accounting information, but first concentrating in its use by managers to make decisions
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21. BIBLIOGRAPHY
1. Annual Report of Rajkumar Mill
2. Management Accounting, 1/e by Paresh Shah
3. Management Accounting - Khan & Jain
4. http://www.smechamberofindia.com/
5. http://www.indiasmeforum.org/
6. http://msme.gov.in/
7. http://www.casbicwai.org/casb/index.asp
8. Principles of Cost Accounting, 16th ed. By Edward J. Vanderbeck
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