AcknowledgementWe are thankful to Prof. Victor Louis Anthuvan for giving us an opportunity to prepare a cost sheet andanalyze it. This has been very helpful for us in understanding concepts like break even analysis, marginalcosting and its practical implications in business. This project would not have been successful without hiscontinuous guidance and theoretical inputs. Elizabath Eappen(F11076) Neethu Thresa Jacob(F11096) Swarupa Rani Sahu(F11116)
Objective of the ReportThe objective of the report is to study the balance sheet of a manufacturing company and carry out thefollowing: Prepare Cost Sheet Analyze the cost sheet Apply the concepts of marginal costing and CVP analysisTo achieve this purpose we have chosen Dabur IndiaLtd. and studied its annual report 2010-11.Dabur At-a-Glance Dabur India Limited has marked its presence with significant achievements and today commandsa market leadership status. The story of success is based on dedication to nature, corporate and processhygiene, dynamic leadership and commitment to the partners and stakeholders. Dabur India Ltd isconsidered as the leading consumer goods company in India with a turnover of Rs. 2834.11 Crore(FY09). The three major strategic business units (SBU) - Consumer Care Division (CCD), ConsumerHealth Division (CHD) and International Business Division (IBD). It has 17 ultra-modern manufacturingunits spread around the globe. Products marketed in over 60 countries. Wide and deep market penetrationwith 50 C&F agents, more than 5000 distributors and over2.8 million retail outlets all over India. Themaster brands are : Dabur-Ayurvedic healthcare products),Vatika - Premium hair care, Hajmola - Tastydigestives, Réal - Fruit juices & beverages, Fem - Fairness bleaches & skin care products.
COSTINGCosting is the technique of ascertaining cost.A cost sheet is a statement of cost prepared at given interval of time showing various elements of cost of aproduct produced, or service rendered during a particular period. This statement gives details about totalcost and cost per unit at different stages of production.Important components of cost are: a) Prime Cost = Direct material cost + Direct labour cost b) Works Cost = Prime cost + Factory overheads. c) Cost of production = Works cost + Office & Administrative overheads. d) Total Cost (Cost of sales) = Cost of production + Selling & Distribution overheads.From the balance sheet of Dabur India Ltd. as on 2011 and with the help of schedules to accounts andnotes to schedules we have prepared the cost sheet. We have assumed the following for the preparation of cost sheet Rent has been assumed to be factory rent Insurance has been taken on building We assume that the land is used only for factory purpose. As the company has variant products, the selling price per unit cannot be estimated.So all the calculation of sales has been limites to sales in rupees.
ANALYSIS OF COST SHEET Freight and forwarding charges form about 12.018% of selling and distribution overhead. Advertisement expense constitutes about 74.589% i.e the company focuses more on advertisements. General expenses account to major portion of Administrative overhead which is 52.1%. Direct material constitutes 5.91% of the prime cost while Direct labour constitutes only 12.12 % The factory overhead consists mainly of power and fuel which is 36.08%. and followed by processing charges which is 17.86% . Depreciation forms the major part of the factory overhead which is 24.87% Rent paid for the building constitutes 12.07%. Profit margin is 32.049 % of net sales.Factory OH as a % of Direct labour 65.25Administrative OH as a % of works cost 11.14Selling OH as a % of Cost of production 29.71 The total depreciation expense incurred during the year is Rs. 3496 crores out of which Rs. 2118 crore is towards plant and machinery and Rs.170 crore is only for office furniture and fixtures. Depreciation on Plant and machinery is 71.18% of depreciation on factory assets Overall deprecation constitute of 1.98 % of total cost of production.
MARGINAL COSTINGMarginal costing is the ascertainment ,by differentiating between fixed cost and variable cost of marginalcosts and of the effect on profit of changes in volume or type of output.It is not a system of ascertaining cost but a special technique which is concerned with the changes in costsresulting from the changes in volume or range of output.The technique of marginal costing involves: Differentiation between fixed cost and variable cost Ascertainment of marginal costs Ascertaining the effect on profit due to changes in volume i.e cost volume profit analysis.Tools of marginal costing: Contribution P/V Ratio Break even point Margin of safety FIXED COSTS Rs.in crore Depreciation on Building 727 Depreciation Plant & Machinery 2118 Depreciation lease on land 10 Rates And Taxes 348 Depreciation Vehicle 196 Depreciation furniture & fixtures 170 Depreciation computer 275 R&D 368
Auditors Remuneration 76General Expenses 9201Security 446Insurance 286Directors Fee 2192Telephone and Fax 355Legal and Professional 2159Repair and Maintenance Building 281Processing charges 2098Other Repairs 678Rent 2132Advertisement 39019Total Fixed costs 63135VARIABLE COSTRepairs To Machinery 423Direct Labour 18000Raw Material 77335Primary Packing Material 50071Power and Fuel 4239Stores and Spares 1172Excise Duty 3099Sales tax 289
Freight and forwarding 6287 Travel and Conveyance 3007 Commission and Discount 3166 Total Variable costs 167088 Total Cost 230223All the expenses have been classified under two categories of cost: Fixed cost Variable cost Fixed cost as a % of Total Cost 27.423 Variable cost as a % of Total Cost 72.575 Major part of the expense is variable cost accounting to 27.423% while only 27.423% is fixed cost. That means if variable cost per unit is controlled to some extent then cost can be controlled. Though fixed cost seems to be low when compared to variable cost it is also an indication that company has invested well in fixed assets as 27.423% is a comparably high value. The company has invested a considerable amount in advertisement and publicity which accounts to around 63.13% of fixed cost Expense on raw materials and primary packing material together constitutes 76.25% of variable cost. This depends mainly on the market demands as well the capacity of production.
Calculation of Marginal Costing ToolsParticulars Formula Calculation ResultBreak EvenSales(in Rs. Fixed cost/(P/VCrores) ratio) 129336.24 (Contribution /P/V ratio Sales )*100 3737.91/16910.06 0.48815Margin of Actual Sales -safety BEP(Rs) 16910.06-3032.036 197100.76 (Margin of SafetyMargin of /Actualsafety Ratio Sales)*100 13878.02/16910.06 60.38Working NotesSales 326437Fixed Cost 63135Variable Cost 167088Contribution 159349P/V Ratio 0.488146258
Suppose the company expects a profit of Rs. 150000 crores for the next financialyear Column1 Column2 Desired Profit 150000 P/V Ratio 0.488146258 Fixed Cost 63135 Desired sales 436621.1899ANALYSIS OF MARGINAL COSTING Margin of safety is an advantage to the company. It indicted the extra profit the company earnsover the breakeven point.Dabur’s MOS is 60.38% which is high. This means that the firm will earnprofits even if there is a slight fall in production or sales.This also contributes to a high angle of incidence BEP sales is Rs.129336.24 crores which is extremely low in comparison to current sales(Rs.326437 crores). BEP analysis will help the banker in appraisal of actual/projected performance of the borrower.Italso acts a sensitivity analysis tool to judge the projected performance. For the company to reach a profit value of Rs.150000 it has to impove its sales by Rs.110184crores.