This project analyzes the costing process for API grade steel and identifies areas not fully captured. It examines liquid steel costs, yield losses, inventory costs, and calculates the extra cost of producing special grades. The results show current costing understates costs for some grades. The analysis suggests capturing delayed payment costs from higher inventory levels and adjusting prices to recover full production costs.

1. By
Rahul Ravi
MBA, VGSoM,
IIT Kharagpur

2. Objective of Project
It involves analysis of :
Existing costing process.
Peculiarity in costing of API grade steel.
Suggestions.
Data Collection
Liquid steel costing and Grade extra calculation.
Cost benefit analysis and results.

3. Existing Costing Process
Cost of
Liquid Steel
Total Cost
of Special
Grade
Cost of
Yield Loss & Grade Extra
Other (calculated
Process Cost over
JVGL06)

4. Peculiarity of API Grade costing
Strict
Costly Ferro Higher rate Larger
quality Downgrade
Alloys of rejection inventory
check

5. Suggestion
Current costing process excludes extra cost incurred
due to higher rejection and cost of delayed payment
due to larger inventory turnover days. This project
analyses whether overall extra cost incurred into API
grade steel production is being recovered.

6. Current Costing Ignores following
Larger
Inventory Turn
over days
Cost of
Large Qty.
Delayed
of NCOs
Payment

7. Data Collection
Monthly Production Plan to calculate
raw materials required per ton of LS.
Ferro Alloy addition from SMS.
Chemistry of API grade steel.
Current Market Price of raw
materials and Ferro alloys.

8. Data Collection
Yield of different process in
preparing HR coils
Raw material import data.
Railway & Shipping freight.
Audited Financial Reports of JSW
Steel.

9. Various Costs in LS
Iron Ore Oxygen Other Cost
Iron Ore Transport Refractory By Product Credit
Coal Furnace Oil Net Thermal Energy
Coal Transport LPG Electricity
Flux Steel Scrap Labour
Flux Transport Ferro Alloys

10. Costing of LS
Item $/unit Factor Unit Unit cost Variable Total
Iron ore 1.855 t 2858 5301.59 5301.59
Iron ore transport 1.855 t 332 615.86 615.86
Coking coal 0.859 t 10692 9184.428 9184.43
Coking coal transport 0.859 t 1798 1544.482 1544.48
Furnace Oil 1.17 l 27.48 32.10 32.10
LPG 0.8 kg Data Hidden as it is confidential 74.57
93.21 74.568
Steel scrap 0.1 t 0 0 0.00
Scrap delivery 0.1 t 0 0 0.00
Oxygen 51.7 m 3 4.505 207.23 207.23
Ferroalloys 0 t 1650 0 0.00
Fluxes 0.441 t 2340 1031.94 1031.94
Fluxes Transport 0.441 t 778 343.098 343.10
Refractories 0.011 t 34450 378.95 378.95
Other costs 1 4168 4150.97
By-product credits -2168.9 -2168.90
Thermal energy, net -359 KWh 0 0 0.00
Electricity 0.495 MWh 3353.56 1660.012 1660.01
Labour 784.1917 784.19
Total Variable Cost /Ton LS 23140.52

11. 2000
8000
6000
12000
10000
4000
0
JVLNA1
JVLNJ2
JVLNS2
JVLN…
JVLNS1
JVLN06
JVLNP4
Grade Extra
JVLN…
JVLNS3
JVLNS6
JVLNP7
Data Hidden as it is confidential
JVLNS7
JVLNE7
JVLNP6
JVLN08
JVLNC8
JVLN…
JVLN…
JVLNB8
JVLN…
JVLN…
Grade Extra Calculation & Costing

12. Process Cost : LS-Slab
Yield Cost.
Utility Cost.
Electricity/Gas/Water/Steam
Manufacturing Overhead.
Oiling/Overhauling
Contract Cost.

13. Process Cost : Slab - Coil
Yield Cost.
Utility Cost.
Electricity/Gas/Water/Steam
Manufacturing Overhead.
Oiling/Overhauling
Contract Cost.
Cost of Rework.

14. Yield excluding NCO
Yield excluding NCO
120.00%
100.00%
80.00%
60.00% Data Hidden as it is confidential
40.00%
20.00%
0.00%
JVLNS1
JVLN02
JVLNG4
JVLNE7
JVLNJ2
JVLNP4
JVLNC6
JVLNM1
JVLNS2
JVLNA9
JVLNC8
JVLNG6
JVLNS3
JVLNM5
JVLNP8
JVLNV8

15. Inventory Turnover Days
Inventory Turnover Days
400
300
Data Hidden as it is confidential
200
100
0

16. Inventory Analysis
Inventory Handling Cost.
Cost of delayed payment.(avg. inventory turnover>0)
Productivity loss due to choking of yards.
Loss due to time value of money.

17. Cost of Delayed Payment
(Total Variable Cost of HR coil)*[(1+interest rate)^(inventory
turnover days/365)-1]
*Inventory turnover days are the average number of days a
particular grade stays in inventory before being released.

18. Result Analysis
Undercosting Vs. Grades
3000.00
2500.00
Data Hidden as it is confidential
2000.00
1500.00
1000.00
500.00
0.00
JVLNM1
JVLNP4
JVLNE7
JVLNG4
JVLNS1
JVLN02
JVLNJ2
JVLNS2
JVLNB8
JVLNC6
JVLNS3
JVLNC8
JVLNG6
JVLNM5
JVLNA9
JVLNV8
JVLNP8
-500.00

19. Suggestion
48000 Price Vs. Contribution Margin for different API Grades
46000 JVLN02
44000 Data Hidden as it is confidential JVLNA9
JVLNB8
42000 JVLNC6
JVLNC8
40000
JVLNE7
38000 JVLNG4
JVLNG6
36000 JVLNJ2
JVLNM1
34000
JVLNM5
32000 JVLNP4
0 1000 2000 3000 4000 5000 6000 7000 8000 9000 10000

20. References:
Datar, Shrikant M.;Madhav Rajan(2008), Cost Accounting: A Managerial
Emphasis, 13/E, ISBN No: 0136126634
http://www.steelonthenet.com/cost-bof.html, Retrieved on 24th May-2012.
http://www.jfe-21st-cf.or.jp/chapter_2/2d_2.html, Retrieved on 26th May-2012.
Ross, Stephen A., Fundamentals of Corporate Finance, Sixth Edition, ISBN
No:0390319996.