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A case study of cost analysis and pricing decision of sme
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Introduction:
Business organization is mainly divided into three categories as production, department and
service. All these three sectors are closely related in case of their main objectives. In case of
taking pricing decision, a firm should consider many things like it all input cost that it is either
related directly or indirectly. Every success of a business is largely depends on the selling price
determination of that business.
Origin of the report:
Recently Education is also in the age of competition .So the procedures and standards of teaching
are upgraded by different universities and institution in our country .In respect to that report is
mandatory for every course in BBA program offered by Faculty of Business Administration and
Management, Patuakhali Science and Technology University. In this respect our honorable
course instructor has assigned us the on “A case study of Cost Analysis and pricing decision of
SME”. So we have prepared this report.
Objectives of the Study:
Every work has some distinctive objectives. We also started the preparation of this report with
some important and distinct objective to fulfill.
As objective is the main overlooking part of a report, we set the following of object that will
likely be a reflection of our report to understand.
To identify cost terminology involved in pricing decision;
To know about the cost sheet including its format;
To know about the pricing system of the organization
Methodologyof the Study:
A well designed work always deserves appraisal and greetings. Every work is needed to have a
standard methodology to make it quite successful in the course of its preparation.
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To make this report the best one as well as a means to further necessary analysis that are given
bellow:
ConceptualDiscussion:
Cost sheet
Cost sheet is a statement which shows various components of total cost of a product and analyses
the components of cost of a product. Previous period data is given in the cost sheet for
comparative study. It is a statement which shows per unit cost in addition to total cost. Selling
price is ascertained with the help of cost sheet. The details of total cost presented in the form of a
statement are termed as cost sheet. Cost sheet is prepared on the basis of:
1) Historical cost
2) Estimated cost
Processing Data and Information
Collect Data and Information
Go to working Sector
Selection of the Sample
Fixation of the Term Paper
Final work ground of Term Paper
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Historical cost
Historical cost sheet is prepared on the basis of actual cost incurred. A statement of cost prepared
after incurring the actual cost is called historical cost sheet.
Estimated cost sheet
Estimated cost sheet is prepared on the basis of estimated cost. The statement prepared before the
commencement of production is called estimate cost sheet. Such cost sheet is useful in quoting
the tender of a job or a contract.
Importance of cost sheet
The importance of cost sheet is as follows;
Cost ascertainment
The main objective of the cost sheet is to ascertain the cost of a product. Cost sheet helps in
ascertainment of cost for the purpose of determining cost after they are incurred. It also helps to
ascertain the actual cost or estimated cost of a job.
Fixation of selling price
Fixation of selling price of a product or service, it is essential to prepare the cost sheet .it helps in
fixing selling price of a product or service by providing detailed information of the cost.
Help in cost control
For controlling the cost of a product it is necessary for every manufacturing unit to prepare a cost
sheet. Estimated cost sheet helps in the control of material cost, labourcost and overheads cost at
every point of production.
Facilitates managerial decisions
It helps in taking important decisions by the management such as whether to produce or buy a
component, what prices of goods are to be quoted in the tender, whether to retain or replace an
existing machine etc.
Components of total cost
The components of cost are shown in the classified and analytical form in the cost sheet.
Components of total cost are as follows:
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Prime cost
It consists of direct material, direct wages and direct expenses. In other words “Prime cost
represents the aggregate of cost of material consumed, productive wages and direct expenses. “It
is also known as basic, flat, first or directs cost of a product.
Direct material means cost of raw material used or consumed in production.
Opening stock of material is added and closing stock of raw material is deducted in the material
purchased and we get material consumed or used in production of a product. It is calculated as:
Material consumed = material purchased + opening stock of material – closing stock of
material
Factory cost
In addition of prime cost it includes works or factory overheads. Factory overheads consist of
cost of indirect material, indirect wages and indirect expenses incurred in the factory. Factory
cost is also known as works cost, production or manufacturing cost.
Factory cost = prime cost + factory overhead
Total cost & cost sheet
If office and administrative overheads are added to factory or works cost, total cost of production
is arrived at. Hence the total cost of production is calculated as:
Total cost of production = Factory cost + Office & Administration Overhead
Cost of goods sold
It is not necessary that all the goods produced in a period are sold in the same period. There is
stock of finished goods in the opening and at the end of the period. The cost of opening stock of
finished goods is added in the total cost of production in the current period and cost of closing
stock of finished goods is deducted. The cost of goods sold is calculated as:
COGS = total cost of production + opening stock of finished goods – closing stock of
finished goods
Prime cost = Direct material + Direct wages + Direct expenses
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Total Cost i.e., Cost of Sales
If selling and distribution overheads are added to the total cost of production, total cost is arrived
at. This cost is also termed as cost of Sales. Hence the total cost is calculated as:
Total cost = Cost of goods sold + Selling and Distribution overhead
Sales
If the profit margin is added to the total cost, sales are arrived at. Excess of sales over total cost is
termed as profit. When total cost exceeds sales, it is termed as Loss.
Sales = Total Cost + Profit
Costand Profitability Analysis:
About The Business of M. Keramot Ali Hall Dining
Address
M. Keramot Ali Hall Dining is situated at Patuakhali Science & Technology University.
Owner of the business
It is a sole-proprietorship business. The name of the owner is Md. Moniruzzaman. The business
was established in 2007, at Patuakhali Science & Technology University.
Source of capital
There is only one source of capital for this business. The internal funds from the owner’s
personal cash and help from the relatives.
Number of employees
At present there are 13 workers work in the dining hall. They have only one selling and
distribution center.
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Costsheetanalysis of M. Keramot Ali Hall Dining:
Raw material consumed: Daily Basis
SL. Item of Product Quantity Price(Tk.) Total Amount
1. Rice 75 kg 30 2250
2. Vegetable 30 kg 20 600
3. Fish 10 kg 130 1300
4. Meat 15 kg 140 2100
5. Egg 100 nos 8 800
6. Oil 7 kg 75 525
7. Potato 25 kg 18 450
8. Pulses 2 kg 100 200
9. Other direct
Expenses
600
Total Amount 8825/=
Transportation cost: 1200 Tk. (Monthly)
Direct wages: 7000 Tk. (Monthly)
Factory Expenses:
SL. Items Quantity Price(Tk.) Total Amount
1. Wood 180 Maund 120 21600
2. 30 Nos’ 13 390
Total Amount 21990/=
Selling & Distribution Overhead: Monthly
Bad Debt : 1700 Tk.
Sales man salary : 3000 Tk.
Sold items: Daily Basis
SL. Items Unit Price(Tk.) Total Amount
1. Rice 400 8 3200
2. Vegetable 250 5 1250
3. Fish 160 12 1920
4. Meat 160 12 1920
5. Egg 100 12 1200
6. Special Food(Meat) 40 27 1080
Total Amount 10570/=
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Cost Sheet:
M. Keramot Ali Hall Dining
Statement of cost sheet
Period : For the month ended April 30, 2016
Particulars
Daily Cost Monthly Cost
Unit Price Per Unit Total Cost Unit Price Per Unit Total Cost
Raw Material Consumed
Purchase Of Raw Materials
Rice (kg) 75 30 2250 2250 30 67500
Vegetable(kg) 30 20 600 900 20 18000
Fish(kg) 10 130 1300 300 130 39000
Meat(kg) 15 140 2100 450 140 63000
Eggs (Nos’) 100 8 800 3000 8 24000
Oil (Litter) 7 75 525 210 75 15750
Potato(kg) 25 18 450 750 18 13500
Pulses(kg) 2 100 200 60 100 6000
OtherProducts 600 18000
Total Raw Material Consumed 8825/= 264750/=
Add : Carriage Inward 1200
Add: Direct Wage 7000
Prime Cost 272950/=
Add : Factory Overhead
Wood (maund) 6 120 720 180 120 21600
SundryFactory expense(soap) 1 13 13 30 13 390
Cost of Production / COGS 294940/=
Add; Selling& DistributionOverheads
Bad debt 1700
SalesManager'sSalary 3000
Total Cost Of Production 299640/=
Profit 17460/=
Sales 317100/=
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Profit & loss account:
M. Keramot Ali Hall Dining
Profit & loss account
For the month ended 30th April, 2016
Particulars Daily Basis Monthly Basis
Unit Per unit
price
Total
Amount
Unit Per unit
price
Total
Amount
Rice 400 8 3200 12000 8 96000
Vegetable 250 5 1250 7500 5 37500
Fish 160 12 1920 4800 12 57600
Meat 160 12 1920 4800 12 57600
Egg 100 12 1200 3000 12 36000
Special
Food(Meat)
40 27 1080 1200 27 32400
Total Sales 317100/=
Less: Total cost 299640/=
Profit 17460/=
Findings of the report:
We have surveyed Dining named “M. Keramot Ali Hall Dining”. And through making this
report we have some findings. Our findings are:
Inappropriate accounting practice.
Inaccurate information about total monthly sales volume according to the product line.
Imperfect pricing system.
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Recommendations:
We have some recommendation from our own for these M. Keramot Ali Hall Dining. Those are:
1. Proper accounting practice should be developed.
2. They should be more conscious about the total volume of sales.
3. They should also pay attention to the costing system in case of pricing of product along with
the market price.
4. They should increase the production of most profitable product.
Conclusion:
Most of the businessmen of our country are not well educated. That’s why they cannot make
maximum profit by using minimum asset. Their strategies are not appropriate all the time. And
moreover it the labor force and the management are most of the time unskilled, and that’s why
they cannot help in achieving the goal of wealth maximization.
References:
We follow the above mentioned point to complete our report,
Information given by the representatives of the Dining.
Cost Accounting (Revised 13th Edition).
-------- Basu & Das
Appendix:
Interview Schedule of “M. Keramot Ali Hall Dianing.”