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Cost Accounting

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Cost Accounting

  1. 1. Cost AccountingCost Accounting
  2. 2. Cost ClassificationCost Classification
  3. 3. Cost Classification Type Behaviour Fixed VariableDirect Indirect Element Function Material Labour Expense Product Period Administration Selling & Distribution Finance
  4. 4. Cost ClassificationCost Classification Classification by Type: • Direct Costs: Direct costs are the ones which can be specifically related to the production of a particular good. • Indirect Costs: Indirect costs are the ones that are not so specifically related. Indirect costs are also frequently called overheads.
  5. 5. Cost ClassificationCost Classification Classification by Behavior: • Fixed Costs: Fixed costs do not change as the quantity of output changes. Increasing output does not increase these costs. • Variable Costs: Variable costs do change. Variable costs increase as output increases.
  6. 6. Cost ClassificationCost Classification Directs costsDirects costs IndirectIndirect costscosts FixedFixed Depreciation onDepreciation on dedicateddedicated machinerymachinery RentRent VariablVariabl ee Raw materialRaw material EnergyEnergy Examples:
  7. 7. Cost ClassificationCost Classification Classification by Element: • Material Costs: • Direct Material Costs – Eg. Plywood, nails, screws, glue • Indirect Material Costs – Eg. Lubricants, cleaning materials • Labor Costs: • Direct Labor Costs – Eg. Drillers, painters, polishers • Indirect Labor Costs – Eg. Managers, supervisors, cleaners • Expenses: • Direct Expenses – Eg. Hiring machinery for special design • Indirect Expenses – Eg. Depreciation of equipment, building, water, rent, insurance
  8. 8. Cost ClassificationCost Classification Classification by Function: • Product Costs: Product costs are costs of manufacturing products. • Period Costs: Period costs are costs other than product costs that are charged to debited to, or written off to the income statement each period.
  9. 9. Cost ClassificationCost Classification Classification of Period Costs: • Administration Costs: Costs of running the administrative aspects of an organisation •Selling & Distribution Costs: Costs involved in selling and distribution of products. • Finance Costs: Costs associated with providing the permanent, long term and short term finance.
  10. 10. DO YOU KNOW HOW MUCH IT COSTS TO MAKE A CALL ?
  11. 11. MobileMobile Airtime CostingAirtime Costing
  12. 12. Process Map BTS – Base Terminal Station BSC – Base Station Controller
  13. 13. Process Map Scenario : Local Call from Vodafone to Other Operator MSC – Main Switch Center
  14. 14. Process Map
  15. 15. Process Map
  16. 16. Key Cost ComponentsKey Cost Components • Interconnect Usage Charge (IUC)Interconnect Usage Charge (IUC) • Network CostNetwork Cost • Access Deficit ChargeAccess Deficit Charge • License FeesLicense Fees • Other Operational ExpensesOther Operational Expenses
  17. 17. Interconnect ChargesInterconnect Charges • Payments made towards other operators forPayments made towards other operators for terminating calls on their networkterminating calls on their network • Example – Airtel Customer calling up a BPLExample – Airtel Customer calling up a BPL Mobile Number.Mobile Number. • Here the Originating network is Airtel andHere the Originating network is Airtel and Terminating Network is BPLTerminating Network is BPL • In this example Airtel would need to pay BPL forIn this example Airtel would need to pay BPL for landing calls on BPL Networklanding calls on BPL Network
  18. 18. Interconnect ChargesInterconnect Charges Nature of CallNature of Call Rs.Rs. Local Call to VodafoneLocal Call to Vodafone 0.000.00 Local Call to Other OperatorLocal Call to Other Operator 0.300.30 STD CallSTD Call 0.660.66 ISD CallISD Call 4.504.50 • Interconnect charges form the biggest variableInterconnect charges form the biggest variable componentcomponent • Table shows Interconnect Charges Payable for aTable shows Interconnect Charges Payable for a Call Originating from Home NetworkCall Originating from Home Network
  19. 19. Network CostNetwork Cost • Network consists of Base-Stations, Towers,Network consists of Base-Stations, Towers, Cell Sites, Servers & other applicationCell Sites, Servers & other application which support Voice Call Routing.which support Voice Call Routing. • The only Fixed component in Air-timeThe only Fixed component in Air-time CostingCosting • Network Cost works out toNetwork Cost works out to 12 Paise /12 Paise / MinuteMinute
  20. 20. Access Deficit ChargesAccess Deficit Charges (ADC)(ADC) • ADC refers to charges paid to theADC refers to charges paid to the Government towards a fund created toGovernment towards a fund created to promote rural telephonypromote rural telephony • The money in the fund is utilized by BSNLThe money in the fund is utilized by BSNL & invested in creating landline infrastructure& invested in creating landline infrastructure in rural areas.in rural areas. • The cost works out toThe cost works out to 0.75 %0.75 % of Revenuesof Revenues
  21. 21. License FeesLicense Fees • The current spectrum policy involves a fixedThe current spectrum policy involves a fixed payment at the time of spectrum procurementpayment at the time of spectrum procurement • Besides a fixed payment, there is a revenueBesides a fixed payment, there is a revenue sharing model towards usage of Spectrumsharing model towards usage of Spectrum • Operators need to payOperators need to pay 15.45 %15.45 % of theirof their revenues as “License Fees” to therevenues as “License Fees” to the GovernmentGovernment
  22. 22. Other OperationalOther Operational ExpensesExpenses • This includes Admin Cost, Sales &This includes Admin Cost, Sales & Marketing Cost, Customer Service Cost,Marketing Cost, Customer Service Cost, etc.etc. • This works out to Rs. 20 Crores / Month.This works out to Rs. 20 Crores / Month. • The per minute cost works out toThe per minute cost works out to 8 Paise /8 Paise / MinuteMinute
  23. 23. Lets Understand HowLets Understand How Rate Plans Work ?Rate Plans Work ?
  24. 24. Key InsightsKey Insights • Business Dynamics of Rate-PlansBusiness Dynamics of Rate-Plans • Better Understanding of Telecom IndustryBetter Understanding of Telecom Industry • Industry Initiatives to cut cost throughIndustry Initiatives to cut cost through “Competitive Collaboration”“Competitive Collaboration”
  25. 25. Thank YouThank You
  26. 26. Wish You All A Very Happy New Year Happy CALLING ….

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