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Summer Training ReportOn
COSTINGCOSTING
LAKSHMI PRECISION SCREWS LTDROHTAK
Submitted in partial fulfillment of the award of degree of
MASTER OF BUSINESS ADMINISTRATIVE
Submitted to: Submitted by: Mr. Jitender Kumar Nitin Bansal
M.B.A. 2 YEAR ID-09mb020
Submitted toDepartment of Management Studies
The Technological Institute of Textile & SciencesBhiwani
Sept 2010
1
DECLARATION
I Nitin Bansal MBA 2 year 3rd Semester, The Technological Institute of Textile &
Sciences Bhiwani hereby declare that the summer training report entitled “costing of
LPS ” is an original work and the same has not been submitted to any other institute for
the award of any other degree. The interim report was presented to supervisor on
__________, 2010 and the pre-submission presentation was made on . The
feasible suggestions have been duly incorporated in consultation with the Supervisor.
Countersigned
Signature of the Candidate
Signature of the Supervisor
Forwarded by
Director/Principal of the Institute
2
ACKNOWLEDGEMENT
I am very grateful to all the employees of “LPS” Rohtak, who made me understand
various aspects of costing during my summer training at their office.
Their co-operation and help during my training at their office can be highlighted
by the fact that they not only provide me with the required literature.
The credits for helping me undergo this employable experience goes to all “LPS”
Rohtak especially Mr. AJAY GOYAT.
(SIGNATURE)
Nitin Bansal
3
TABLE OF CONTENTS
Sr. No. Title Page No.
1. Declaration
2. Certificate
3. Acknowledgement
4. Preface
5. Industry Profile
6. Company profile
7. Banker
8. Introduction to Project: -Costing
9. Importance of study
10. Objective of the study
11. Significance of the study
12. Scope the study
13. Research methodology
14. Analysis And interpretation
15. Finding
16. Suggestions
17. Limitations
18. Bibliography
4
PREFACE
As a part of curriculum it is imperative for the students passing this course to
undergo training is an organization of repute to understand it’s functioning and have a
practical exposure of management. I was thus assigned summer training for two
months with “LAKSHMI PRECISION SCREWS LIMITED” Rohtak.
Finance makes businesses. It must be managed efficiently because it is lifeblood
of any business organization. No business can exist and survive without finance. The aim
of this Project Report is to bring out the importance of finance for any organization for
performing many of its function well at tine and on continuous basis. Finance is essential
for each and every organization whether big, small trading and manufacturing etc.
For any organization/business firm “costing” is essential to attain long term goals.
Different types of budget are necessary for different types of operations. Without
costing no firm can pace a single step.
As the part of my M.B.A programme, I was accorded the opportunity to under go
project of LPS during IIIrd Sem. During the period in association with the company
the topic of “costing of LPS” was taken up. I have put my sincere efforts for analysis.
5
Industry Profile
Meaning of fasteners & types
Uses
Improved input front
Production
Export opportunity
6
INDUSTRY PROFILE
MEANING OF FASTENERS AND TYPES
A fastener is a broad term for nut, bolds & screws. It is an alternate of welding
and riveting. Fasteners can be classifying broadly in to two categories: -
1. Depending on their tensile
2. Mild Steel (MS) & high tensile fasteners.
USES
Mile steel fasteners are used in general application & produced by the SSI &
unorganized sector.
On the other trend (HT) fasteners that are relatively technology advance, are
manufactured by organized sector.
In India fasteners are used in textiles, machine tools, pumps automobiles & general
engineering largest consumer 50% HT fasteners.
MAJOR MANUFACTURES
In India there are 4 major players in fasteners industries:
1. Sundaram fasteners
2. Sterling tools
3. Precision fasteners
4. LPS
A Sundaram fastener Industries (SFI) is a leader of automotive fasteners. While,
precision fasteners limited (PFL) leads in industrial fasteners. Both are trying to enter in
the each other segment industry.
7
IMPROVED INPUT FRONT
Until a few years ago producer of HT fasteners had to input as much as 60% of
their Raw Material like careful steel & cold heading quality steel due to poor quality. But
availability of good steels in India also has changed the scenario. Now days Bihar alloys,
Shri SR alloys, Steel Authority of India Ltd, Salam Steel Corporation are producing the
special steel for fasteners.
The automobile boom is the major reason for continuous growth of fasteners
industry because the total sale of automobile (passenger cars, 2& 3 wheelers, multiutility
Vehicles, sport utility vehicles) has achieved the total figure of 10 lakhs figures and
commercial vehicles sales has also earned a growth of continuous increase in total sale.
The engineering segment has also registered 25 % growth, which is also a major
consumer of fasteners.
PRODUCTION
Near about 200000 metric ton of fasteners are being produced by various fasteners
manufactures in organized and unorganized sector.
Sundaram fastener is the largest manufacturer of HT fasteners. Which produces
approximately 48000 metric tons of high quality HT fasteners and it crossed the sales
figures of Rs. 800 crore in year 2000-2001.
Precision fasteners also have done well. It’s sales went up 32% to Rs. 251 Crore
in 2000-2001.
LPS has also come in a long way. It crossed the 4475 tones mark of production in
2000-2001 years and total sales of 8640 Lakh.
8
EXPORT OPPORTUNITY
The concept of outsourcing fasteners is under going a sea change globally. Auto
giants around the world have identified countries to buy a particular component
depending upon technology and cost. Arun Sharma, president PFL explains ‘India has
very good scope in this of globalize purchase and many auto giants are looking at India as
a sourcing lease’.
Quality is an important factor in export but not the only criterion; what is more
important is timely deliveries and after sales service through there is a vast potential to
export fasteners to DEMs abroad, it has not been exploited due to difficulties in setting up
service points near each of the DEM manufacture. Hence the domestic producer foray
abroad is limited to the replacement market.
To the successful in exports, Indian companies don’t require foreign technical
collaboration, as a fastener is not a very hi-tech item. What is required is a foreign tie up
for marketing and after sales service. This is evident from the fact that recently the
market leader, Sundaram fastener tied up with kamax – were Rudolf Kellies, Germany
for marketing. As India prepares to join the international economic mainstream, there will
be many such tie-ups.
9
COMPANY PROFILE2005
LAKSHMI PRECISION SCREWS LTD.46/1 MILE STONE, HISSAR ROAD
ROHTAK-124001, HARYANATel.: +91-1262-248288/248289/249920/249921
Fax.: +91-1262-248297/249922Email: [email protected] /[email protected]
Website: www.lpsindia.com
BRIEF INTRODUCTION OF COMPANY
10
LPS Limited was promoted by Late Sh. Bimal Parsad Jain. LPS was incorporated as a
Pvt. Limited Company on 27th Dec., 1968. It was converted into a Public Limited
Company in August 1971. At present it is operating as LPS Limited.
LPS Plant-II is another step forward in progress of the company.
The company has started with only one machine 3/8’’ Bolt Maker. Now it has
wide range of machine producing a wide range of products. Today the company is the
leading manufacturer of High Tenslile Fasterners in India. The Quality of the product is
well accepted in the market so demand is growing very fast and to meet the demands and
expand its production range the company is adding more production facilities.
Besides LPS the other leading companies are Sundram Fastners of TVC group,
Un-Brako and Guest Keen Williams. Recently Pandatogon Screws and Fasteners Limited
has also been introduced.
The installed capacity at present is about 8795 mt and annual turnover of the
company is 74 crores approximately. The number of employee are 2000 which only 20 at
the time of installation.
Company has covered 23500 sq. yards. The screws, nuts and bolts range from
3mm to 24mm in diameter. The products are marked under name and style of LPS.
11
BOARD OF DIRECTORS
L.K.Jain Chairman & Managing Director
D.K.Jain Vice Chairman & Managing Director
V.K.Jain Whole Time Director
R.K.Jain
S.D.Jain
J.R.Desai
M.M.Lal
S.R.Singh
S.K.Aggarwal
M.H.P.Byramji
B.S.Aggarwal
12
MANAGEMENT TEAM
S.K.Jain
Gagan Jain
Gautam Jain
Amit Jain
Niklesh Jain
B. B. Chhabra
R. k. Aggarwal
S. P. Arya
Sanjay Narula
R. P. Khanna
R.k. Rawat
Pardeep Dhawan
Sanjeev Sharma
AGM (FINANCE) & COMPANY SECRETARY
H.P.S. ChughAUDITORS
N.G. Gupta & Co.Chartered AccountantsDelhi
13
OUTLINE
1) Name of the Company : LAKSHMI PRECISION SCREWS LTD.
2) Founded on : March 10, 1972
3) Head Office & Factory : 46/1, Mile Stone Rohtak - 124 001 Haryana (India)
4) Chairman & Managing Director : Lalit Kumar Jain
5) Total Assets : 978 Mill. INR (March’ 2004)($19 Million)
7) Annual Sales : 1123 Mill. INR (March’ 2004)($24 Million)
8) Employees
Production Office QC R & D Others Total 372 90 48 60 54 62455% 14% 8% 10% 9% 100%
9. Factory
(Unit : m x m)
SECTION PLANTS TOTALPLANT I PLANT II
w.e.f. 1972-73 1993-94LAND 19,000 44,000 63,000BUILDING 16,000 23,000 39,000
COMPANY ORGANISATION14
Board of Directors
Chairman & Managing Director
Quality Management Corporate Strategy
Marketing R & D Planning Production QA General
D S D L C P P P P P F H EE A E A E R L L L U I R DV L V B N O A A A R N D PE E E O T D N N N C AL S L R R U N T T H NO O A A C I A CP P T L T N I II S E
M M O I G EE E R ON N Y NT T
15
CHRONOLOGICAL HISTORY OF LPS
1959 Established Nav Bharat Industries as small parts manufacturer.
1972 Established Lakshmi Precision Screws Pvt Ltd as Socket Head Screws Manufacturer
1973 Technical tie-up with the German firm M/s Richard Bergner.
1977 Acknowledged quality source of fastener.
1978 Technical tie-up with M/s Richard Bergner expires.
1983 Secured self certification status from FORD.
1984 Declared Public Limited Company.
1986 Secured self certification status from M/s Lakshmi Machine Works.
1988 Established as manufacturer-exporter.
1991 Received Regional Export Award from Engineering Export Promotion Council, (EEPC) India.
1992 Received Regional Export Award from EEPC for the second Consecutive year.
1993 Received Regional Export Award from EEPC for the third consecutive year.
16
HISTORY (Contd.)
1993 Established Plant - II.
1994 Received Employment Generation Award from Director of Industries, Haryana State.
1995 Accredited in Mechanical & Chemical Testing by A2LA, USA to meet Fastener Quality Act of US.
1995 Accredited in Mechanical Measurement, Mechanical & Chemical Testing by National Accreditation Board for Calibration & Testing Laboratories (NABL). Government of India.
1996 Certified to ISO-9002. 1998 Installed Bolt Maker (AF 2525) to add production capacity
to 12200 MT.- Self Certification status from TELCO.- Technical Tie-up with Sunil Machinery Corporation, Korea.- Joint Venture with Bossard AG-Switzerland.
1999 Licenced Manufacturers of TORX Screw from Camcar Co. –USA.
2000 QS 9000 Certification.
HISTORY (Contd.)
2001 ISO/TS-16949 Certification.- ISO-14001 Certification.
2002 Implemented ERP–SAP R/3. - Golden Peacock Award.
2003 Approved Volvo Global Suppliers.17
MAIN PRODUCTS
Division ProductsPrecision Cold Forming parts for Automobile
Engine Parts ( Con Rod, Cylinder Studs, Counter Weights, Cylinder Head, Rocker Arm, Engine Mounting, Main Bearing etc.)
Bolts & Nutsfor Automobiles
Chasis Parts (Wheel Bolts, Wheel Hub Bolts & Nuts, Axle Bolts/Pin, Flanged Bolts, Collar Bolt, Shock Absorber Mounting Pins etc.)Washer Assemblies BoltsThe other critical & safety parts bolts
Construction parts (Friction Grip) Bolts & Nuts for Agriculture Industry
FASTENERS Bolts & Nuts for Industrial MachineryCold formed parts for Automobile (Piston Pins, Switch Body, Ball Joints, Gear Blanks, Rocket Shaft, Ball Pins, Plunger etc.)Pins for Hydraulics & PumpsBolt for Refrigeration CompressorFriction Grip Bolts & Nuts for Construction Industry
Socket Head Cap ScrewLow Head Socket BoltShoulder BoltButton HeadCSK
Standard Set ScrewsFasteners Hex Wrench Keys
Hex Head BoltDovel PinNutsFriction Grip BoltsTrack Shoe BoltsStainless Steel Hex HeadStainless Steel Socket Head Cap Screws
18
MISSION OF LPS
To be a growth-oriented professional company promoting high standards of business
ethics and producing best quality products thereby achieving international standards
of excellence.
To establish a strong R & D facility to fulfill the demands of the automotive industry
as comprehensively as possible.
To make each member of the company feel proud and empowered by fostering a
culture of participation and innovation.
To strive for reduction in defects and achieve 6 sigma and beyond so as to make
quality a way of life in LPS.
To reduce cycle time in all processes as a step towards over-all improvement.
To provide prompt and excellent service to customers anywhere in the world.
To maximize shareholder’s wealth.
19
VISION OF LPS: -
Be recognized as the best and preferred supplier of national/international standard.
MOTTO: -
Total customer satisfaction and market leadership.
TARGET: -
Annual growth rate of 30% out of which export should contribute up to 50%
PLAN: -
Continuous up gradation of process and technology and development of
new products.
FUNCTION: -
System oriented approach.
PEOPLE: -
The driving force behind it.
IMAGE: -
To build up a high degree of customer confidence by sustaining international
standards of excellence in product quality, performance and service. To
fulfill the expectations which shareholders, employees, customers and
country have from LPS.
20
LPS PLANT – II
Lakshmi precision screws ltd. is one of the leading manufacturers and
suppliers of high tensile fasteners such as bolts, screws, nuts and similar
parts for automobile and other industrial sectors. LPS ltd. was founded
by shri Bimal Parsad Jain, in 1993, under the name of Nav Bharat
industries. LPS plant 2 was established in 1993. The company has latest
machines imported from abroad Japan, Germany and Taiwan. In
addition, the company has heat treatment; automatic microprocessor
controlled planting and phosphating plants. To update the both product
and process requirements, the company has its own research and
development cell which is well equipped with most modern chemical
and psychical labs.
21
OBJECTIVES OF LPS
BUSINESS MISSION: -
To achieve and maintain a leading position as supply of quality (precision)
fasteners and to serve the national and international market in th3 field of fasteners.
GROWTH: -
To ensure a steady growth in business to as to fulfill national expectation and
expand international operations.
PROFITABILITY: -
To provide a reasonable and adequate return on Capital employed primarily
through improvements in operational efficiency, capacity utilization and producing &
generating efficiency, capacity utilization and producing & generating adequate internal
resource to finance the company’s growth.
22
BUSINESS OF THE ORGANISATION
Here the organization in a manufacturing concern. It deals in the
domestic market and in the international market. The company
produces the High quality products, which are well accepted in both
domestic and foreign market. The Main market of LPS comprises of
1. DOMESTIC
Automotive
Aviation
Heavy & light machinery
Railways
Machine tools, jigs& fixture
Refrigerator & air conditioning
2.INTERNATIONAL
Australia
Germany
Hong Kong
Japan
Singapore
Sweden
U.K
South Korea
South Africa23
GROWTH IN PRODUCTION & SALES
YEAR/ SECTION 95-96 96-97 97-98 98-99 99-00 00-01 01-02
PRODUCTION, TONNES PER YEAR 6529 6385 5753 5607 6656 6165 6424
SALES, MILLIONS INR (TOTAL) 735 691 684 706 816 834 816
DOMESTIC MILLIONS INR 440 403 335 358 439 472 508
EXPORT MILLIONS INR 295 288 348 348 378 362 308
24
MAIN MARKETS
A) DOMESTIC (USER INDUSTRIES)
Automotive
Aviation
Heavy & Light Machinery
Hydraulic/Pneumatic Pumps
Machine Tools, Jigs & Fixtures
Railways
Refrigeration & Air Conditioning
25
MAIN MARKETS (Contd.)
B) INTERNATIONAL (COUNTRIES)
Australia
Germany
Holland
Hongkong
Japan
Singapore
South Africa
South Korea
Sweden
Switzerland
United Kingdom
United States of America
CERTIFICATES
01. NABL
02. ISO / TS 16949
03. ISO 14001
04. Volvo Global Supplier Certificate
26
LAKSHMI PRECISION SCREWS LIMITED
HEAD OFFICE & FACTORY46/1, MILE STONE, HISSAR ROAD, ROHTAK-124 001, HARYANA (INDIA)
Tel.: +91-1262-248288/248289/249920/249921Fax : +91-1262-248297/249922Email.: [email protected]; [email protected],
BANGALORE OFFICE305 A, Mittal Tower, 3rd floor, M G RoadBangalore - 560 001 (India)Phone : +91-80-25588587Fax : +91-80-25597232Email.: [email protected]
MUMBAI OFFICE153-A, Mittal Tower, Nariman PointBombay - 400 021 (India)Phone : +91-22-22821918/22843864/22325061/22325062Fax : +91-22-22834492Email : [email protected]. in
KOLKATA OFFICE8, Canning Street,3rd floor, Room No.303,KOLKATA-700 001.Phone :+91-33-2210754Fax : +91-33-4739087/ 2107269 / 2210754Email: [email protected]
NEW DELHI OFFICE146, New Cycle Market, Jhandewalan Extn.New Delhi – 110 055 (India)Phone : +91-11-23527642/23532135Fax : +91-11-27532138Email: [email protected]
LPS-RECOIL DIVISION505, 5th Floor, Ansals Mejestic Tower, G-17, Community Centre, Vikas Puri, New Delhi-110018Phone :+91-11-25617894Fax: +91-11-25514043E-mail: [email protected]
27
COST ANALYSIS
Cost: -
In general `cost means the amount of expenditure incurred On
or attributable to a given thing however the term cost cannot be Exactly
defined its interpretation depends upon
a) The nature of the business or industry
b) The context in which it is used
In a business where selling and distribution exp. Are quite nominal
The cost of the article may be calculated without considering the
Selling and distribution overheads while in a business where the
Nature of the product requires heavy selling and distribution
Expenses. Calculation of cost without taking into account selling and
Distribution expenses may prove very costly to the business moreover
Cost of sales and even an item of expense is also termed as cost
Element of cost
There are three broad elements of cost
a) Materials
Direct & indirect material
b) Labour
Direct & indirect Labour
c) Expenses
Direct & indirect Expenses
d) Overheads
Direct & indirect Overheads
28
ELEMENTS OF COST
DIRECT MATERIAL
DIRECT LABOUR
DIRECT EXPENSES
OVERHEADS
FACTORY OVER HEADS
OFFICE OVER HEADS
SELLING &DISTRIBUTION OVER HEADS
INDIRECT MATERIALS
INDIRECT LABOUR
INDIRECT EXPENSES
29
Components of total cost
a) Prime cost
b) Factory cost
c) Office cost
d) Total cost
Prime cost = direct material + direct labour + direct expenses
Cost centers: - Person, location or term of equipment for which cost may be ascertained.
Prime cost = direct material + direct labour + direct expenses
Works cost = Prime cost + factory overhead
Cost of production =works cost + administration overhead
Cost of sale = cost of production + selling & distribution overhead
Factory overhead:- Indirect labour
Salary paid to work manager
Salary of store keeper,
Time keeper etc
30
Indirect expenses:
Rent, rate of insurance
Power
Depreciation of factory building, plant
Gas, steam, water, lighting and heating
Oiling & cleaning
Office and administrative overhead:
Indirect expenses
General expenses
Bank charges
Legal charges
Office salaries
Telephone, postage & telegram
Indirect labour:
Salaries & fees of director’s, CEO and their staff
Salaries of cost accountant, financial accountant and their staff
Salaries and allowance of legal administrative, public relation officer
31
Selling and distribution overhead:
Indirect material
Catalogues, price list, mailing literature
Indirect labour
Salaries and commission of salesmen and sales manager
Wages of non-driver
Indirect expenses:
Traveling exp.
Bad debts.
Advertisement
Entertainment exp.
Packing and loading exp.
Trade exp.
Carriage outward
Depreciation of delivery vans
Window dressing exp.
32
TYPE OF COST
Costs are mainly three types
a) Variable cost b) Fixed costc) Semi Variable cost
Fixed cost:-
It is that cost, which does not vary with change in out, put
e.g. rent of building, interest on capital, insurance expenditure,
Manager’s salary.
Figure 1
33
2 Variable Cost:-
It is the cost, which vary more or less
Proportionately with variations in the volume of out put.
e.g. raw material, labour, fuel, power, light, sales commission,
packing expenses.
Figure 2
34
Semi-variable Cost:-
These are those costs which are neither
fixed nor variable in relation to out put. They do not change in the
same ratio in relation in which the output changes.
e.g. dep. Cost of repairs & maintenance etc.
Figure 3
35
COST ANALYSIS OF L.P.S.
Cost accounting is a recent development in the accounting world after
The first world war the industrialist become more and more cost
Conscious.
This is because
1) Growing competition between manufactures
2) Increasing Govt. control over pricing
Today it has assumed so much of important that if an industrial
Concern does not have an efficient costing system its very survival
Many become difficult
36
WHAT IS COSTING
Costing is the technique and process of ascertaining cost
WHY NEED FOR COST ACCOUNTING
1) Determining selling prices: -
Cost accounting provides information
Regarding the cost of make and sale such products of course many
Other factors such as the condition of market the area of distribution
The quantity, which can be supplied by the management before
Deciding the price. But the cost plays a dominating role.
2) Determining and controlling efficiency: - In cost accounting
Facilities measuring of the efficiency of the organization as a whole as
Well as dept. wise cost accounting also uses numbly of methods e.g.
Budgetary control, standard costing etc. for controlling cost. This
Greatly increases the operating efficiencies of the enterprise
Facilitating preparation of financial and other statements: -
In order to Operate the business at a high of efficiency. It is essential for the
Management to a frequent review of production, sales and operating
Results. A developed cost accounting system provides immediate
Information regarding stock of raw materials, work in progress and
Finished goods. This also helps in speedy preparation of financial
37
Stateme
INSTALLATION OF COSTING SYSTEM
The Installation of costing system required careful consideration of
The following two inter-related aspects overcoming the practical
Difficulties in introducing the system e.g.
1) Lack of support from top management
2) Resistance from existing staff
3) Non-cooperation at other levels
4) Shortage of trained staff
5) Heavy cost
Main consideration
1) The product
2) The organization
3) The objective
4) The technique
5) Informative and sample
6) Methods of maintenance of records
7) Elasticity
8) Accuracy of data
9) Current practices
38
METHODS OF COSTING
Costing has been defined as the technique and process of ascertaining
Costs. The principles in every type of costing are same but the method of
Analyzing and presenting the costs differ with the nature of business
Job costing:
This method applies where work is undertaken to customer’s special
requirements. Cost unit in job costing is taken to be a job for which costs are
separately collected & ascertained. A job comprises a specific quantity of a
product to be manufactured as per customer’s specifications. For e.g.
printing press, painters, repair shops etc.
Contract costing:-
The difference between job & contract is that job is small & contract is big.
It is well said that contract is big job & job is a small contract. The cost unit
here is a ‘contract’ which is long duration & may continue over more than
one financial year, it is most ruited to constriction of building, dams,
bridges, roads etc.
39
Batch costing:-
In this method, the cost batch of identical products is ascertained of thus,
each batch of products is a unit of cost for which costs are accumulated. It is
used in production of readymade garments, shoes, toys etc.
Process costing:-
In this method a product passes through different stages so costs for each
process are accumulated. In order to arrive at unit cost, total cost of process
is divided by no. Of units . the finished product of one process is passed on
to next process as raw material. For e.g. sugar mills, textile mills, chemical
works & soap manufacturing etc.
Operation costing:-
It is refined from of process costing. A process may insist of no. of
operations & operation costing involves cost ascertainment for each
operation instead of process.
40
Single or unit costing: -
This method is used when production is uniform & consists of single or two
or three varieties of same product. Here, cost per unit of production is
ascertained of as units of output are identical, cost per unit is found by
dividing total cost by no. of units produced. It is used in floor mills, steel
production etc.
Operating costing: -
This method is used in undertakings, which provide services instead of
manufacturing products. This is regarded as variation of process costing as
costs are complied for specific period. For e.g. electricity companied, hotels
hospitals, cinemas etc.
Multiple or composite costing: -
It is an application of more than one method of cost ascertainment in respect
of the same product. It is used in industries where a no. Of components are
product separately manufactured & then assembled into final product. E.g.
television co., scooter or car manufacture, refrigerator manufacture etc.
41
TECHNIQUES OF COSTING
1 Standard Costing:-
The preparation and use of Standard cost, their comparison with actual
costs and analysis of variance to their causes and points of incidence.
Standard costs are determined for each element of cost _direct material,
direct labour, overheads separately and then variations from actual costs are
computed in respect of each element distinctly so as to detect which part of
costs needs control and to which department, process or operation, the
responsibility may be placed.
2 Budgetary Costing: -
Budget is the expression of plan in financial form & budgetary control is a
technique applied to control of total expenditure on materials, wages &
overheads by comparing actual performance with planned one.
3 Marginal Costing: -
In this technique separation of costs into fixed & variable costs is of special
interest & importance. This is so because Marginal Costing regards only
variable costs as cost of products. Fixed cost is as period cost of no attempt
is made to allocate or apportion. this is transferred to costing P&L A/C of
42
period. This technique is used to study the effect on profit of changes in
volume or type of output.
4 Total Absorption Costing:-
It is traditional method of costing whereby total i.e. fixed & variable
costs are charged to products. But this is now days considered to have
only a limited application.
5 Uniform Costing:-
This term is used to refer to the use of uniform methods of costing for
different undertakings in the same industry.This helps to compare the
performance of one firm with that of other & thus to drive the benefit of
anyone’s better experience & performance.
43
PRODUCT COSTING SYSTEM IN L.P.S.
This is based on manufacturing cost as direct cost and indirect cost
Which is calculated on historical for a particular period likely
General consumables consumption, salary & wages, tool Consumption secondary dies consumption, power consumption,
General repair &maintenance, repair to machinery, water
Consumption, machine cost (depreciation) and other direct expenses
to each machine.
The direct manufacturing cost is directly absorbed to each machine.
In cost sheet hourly cost of labour, manufacturing (power,
Consumable, water, repair of machinery) and depreciation of
Machine used for various operation likely forging, secondary, and
Heat treatment, finishing which part of direct cost.
The cost per pc of manufacturing cost is calculated on the standard
Hourly output of each machine multiplied to hourly rate of each
Machine and for fixed cost hourly rate calculated on efficiency factor
Of each operation.
The sum of raw material cost/pc, labour cost/pc, manufacturing
Cost/pc, depreciation cost/pc and packing cost/pc is known factory
44
Cost/pc.
IMPORTANCE
A ) TO MANAGEMENT
1 Reveals profitable & unprofitable activities:- A system of
cost accounting reveals profitable & unprofitable activities so that
steps may be taken to reduce or eliminate wastage & inefficiencies
occurring in any form such as idle time, under utilization of capacity,
spoilage of material etc.
2 Helps in cost control:- Cost accounting helps in controlling costs
with special techniques like standard costing & budgetary control
3 Helps in inventory control:-Perpetual inventory system, which is
an integral part of cost accounting, helps in the preparation of interim
profit & loss account. Other inventory control technique like ABC
analysis, level setting etc. are used in cost accounting
45
4 Helps in cost reduction:= It helps in the introduction of a cost
reduction programme & finding out new & improved ways to reduce
costs.
5 Helps in decision-making:- It supplies suitable cost data &
other related information for managerial decision-making such as
introduction of new product line, replacement of old machinery with
an automatic plant etc.
6 Aids in formatting policies:- Cost accounting provides such
information as enables the management to formulate various types of
polices like production, pricing
7 Helps in making estimates:- Adequate costing records provide
the reliable information upon which tenders & estimates may be
prepared
8 Reveals idle capacity:- A concern may not be able to work to full
capacity due to reasons as shortage of demand, machine break down
or other difficulties in production. A cost accounting system can
easily work out the cost of idle capacity. So that may take immediate
steps to improve the position
9 Guides the fixing selling prices:- Cost is one of the most imp.
Factor to be considered while fixing the price of product. A system of
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cost accounting guides the management in the fixation of selling
prices particularly during depression period when prices may have to
fixed below cost.
10Checks the accuracy of financial accounts: Cost accounting
provides a reliable check on the accuracy of financial accounts of
accounting period
11 Prevents frauds and manipulation:- Cost audit system, which
is a part of cost accounting, helps in preventing frauds of those
reliable cost data can be furnished to management & others.
12 Assist in increasing productivity:- Productivity of labour &
material can easily be improved/increased as costing measures the
productivity & suggests the ways to improve it.
13 Costing makes comparison possible:- If costing records are
regularly kept, the comparative cost data for different periods &
various volume of production will be suitable that will helps the
management in forming future lines of action.
14 Helps in channelising production on right lines:-Costing
makes possible for management to distinguish between profitable &
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non-profitable activities so that it can only flows on the profitable
activities.
B) TO WORKERS
Workers are benefited by introduction of incentive plans which is an
integral part of a cost system. This results not only in higher productivity but
also higher earnings for them.
C) TO SOCIETY
An efficient cost system is to lower cost of production the benefit of which
is passed on to public at large in from of price of goods or services.
D) TO GOVT. AGENCIES & OTHERS
A cost system produces ready figures for use by govt., wage tribunals, trade
unions etc. For use in problems like price fixation, wage level fixation,
replacement of industrial dispute etc.
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PURPOSE OF COSTING
To know the earning capacity or profitability
To know the efficiency of machines
To make the comparative study with others
To know the trend of business
To know the efficiency of management
To provide the useful information to the management
PROVISION FOR OPERATING POLICY
In this also helps the management in formulating operating polices.
These are 1) Determine of cost-volume profit relationships
2) Shutting down or operating at a loss
3) Continuing with the existing plant and machinery or replacing
4) Them by improved and economical means.
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THE FOLLOWING ACCOUNTING HEADS ARE IN L.P.S.
Manufacturing expenses
Consumable stores, spare parts and tools
Electricity, water and diesel
Job work charges
Repair to machinery
Testing charges
R&D expenses
Technical know how Fee
Personal expenses
Salaries, wages and other amenities
Bonus
Co’s contribution towards gratuity trust, P.F., E.S.I.
Staff welfare
Staff recruitment & training
Watch & ward expenses
Selling & distribution expenses
Packing expenses
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The other accounting heads of balance sheet are shown separately in
Cost sheet under these with fixed percentage of administration cost,
sales & marketing and other expenses.
CONTRIBUTION
The difference between sales and variable cost is known as
Contribution
PROFIT/VOLUME RATIO
Establishes a relationship between the contribution and the sales
Value.
BREAK – EVEN POINT
The point, which breaks the total and the sales to show the level of
Output or sales at which there shall be neither profit nor loss is
Regarded as break-even point.
Importance of the study
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This two month training in any organization, though it seems a more
practical any fulfillment of diploma is very much important for a
student of PGDM. The purpose the study is develops the ability to
decision making. A right decision at right time itself helps an org. to
run smoothly without any problem arising on regular basis. Personal
relationship and industrial must be smooth by this training. This
training in any org. gives an idea of how decision is taken tactfully
before any Problem comes to an employee.
Objectives of the study
To know the cost analyze & to make the reader familiar about the financial aspects of the LPS.
Here the main objective of the study is as follow
To know the cost position of the organization.
What management system adopted by the organization to inform
all the Departments.
To provide a reasonable & adequate return on capital through
improvement
Efficiency, utilization, producing & generating adequate internal resources to Cost the company growth.
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Significance of the study:
1. To get acquainted the readers the information regarding costing
2. Aspects of the company.
3. To analyze the cost progress among last year.
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Scope of the study
It become quite difficult rather impossible to make judgment about the
position of any business by way of analyze the cost statements of one
year. To get a view about the business happenings, the past data of some
years relating to the problem are studied and is determined. The
present study covers a period of two years from march 2003 to
march 2005. A large period may prove inconvenient while a shorter
period would not give desired results. A period of four to six years is
to be considered to be the optimum one.
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FOCUS OF THE PROBLEM
Any type of research study suffers from certain limitations relating to either
the research itself or to the topic through. The degree and nature of the
limitations varies with the topic.The present study has been undertaken to
analyze of LPS Ltd. It aims to study how efficiency the costing is being
managed in the company and how for it contribution to the overall objective
of maximization of shareholder wealth and the organization wealth.
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Costing
Machine costing
Machine hour rate
Machine hour rate depends upon following
1) Period
2) Production
3) Actual planned hours
4) Actual running hours
5) Actual down time hours
6) Down time
Actual down time hours = Actual planned hours - Actual
running hours
Down time = Standard hours/ Actual planned hours/Budgeted 56
hours - Actual running hours
1) M.H.R. = Total expenses/total Actual planned hours
2) M.H.R. = Total expenses/total Actual running hours
3) M.H.R. = Total expenses/total Standard hours
4) M.H.R. = Total expenses/total Standard running hours
RESEARCH METHODOLOGY
The procedure adopted for conducting the research requires a lot of
attention as it has direct bearing on the accuracy, reliability and adequacy of
results obtained. It is due to this reason that research methodology, which we
used at the time of conducting, the research needs to be elaborated upon. It
provides the researcher criteria by which we can decide which techniques
and procedures will be applicable to a given problem. At the same times it
helps the researcher to clearly state what course of action he selects at the
time of conducting the research and why he select then so that they can be
evaluated by others also.
RESEARCH PROBLEM: -
In research process, the first and foremost step happens to be that of
selecting and properly defining a research problem. A research problem,
in general refer to some difficulty which a researcher experiences in the
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context of either a theoretical or practical situation and wants to obtain a
solution for the same.
The present project has been undertaken to analyse the various type of
budget i.e. sale budget variable/semi variable expenses budget,
depreciation budget. Also to see whether, there are deviation between
budget and actual if yes, than what cause behind this.
RESEARCH DESIGN: -
A research design is the arrangement of conditions for collection and
analysis of data in a manner that aims to combine relevance to the
research purpose with economy in procedure. In fact research is the
conceptual structure within which research is conducted; it constitutes the
blueprint for the collection, measurement and analysis of data.
Different research designs can be categorized as: -
Research design in case of exploratory research studies
Research design in case of descriptive research studies
Research design in case of diagnostic research studies
Research design in case of hypothesis-testing research studies
The present study is Descriptive in nature. Descriptive research studies are
those studies, which are concerned with describing the characteristics of a
particular individual, or of a group. Studies concerned with specific 58
predictions, with narration of facts and characteristics concerning individual,
group or situations are all examples of descriptive research studies. The
design in such studies must be rigid and not flexible and must focus
attention on the following: -
Formulating the objective of study
Selecting the sample (how much material will be needed)
Collecting the data (where can the required data be found)
Analyzing the data
Reporting the findings
SAMPLE DESIGN: -
A sample design is a definite plan determined before any data are actually
collected for obtaining a sample from a given population. The amount of
research work is always limited by shortage of time and resources. Due to
these limitations information should be such that it may be representative
of entire universe. So only alternative is of sampling.
In present project a sample size of past two years (2003-2004 and 2004-
2005) is taken to study the problem. It has been done due to the time
constraint.
DATA COLLECTION: -
In dealing with any real life problem it is often found that data at hand are
inadequate, and hence, it becomes necessary to collect data that are
appropriate. The task of data collection begins after a research problem
has been defined and research design chalked out. While deciding about
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the method of data collection to be used for the study, the researcher
should keep in mind two types of data viz., primary and secondary.
In present study we have made use of secondary data collected from
accounts of LPS.
ANALYSIS AND INTERPRETATION OF DATA : -
After the data have been collected, the task of analysis them are done. The
analysis of data requires a number of closely related operations such as
establishment of categories, the application of these categories to raw data
through coding, tabulation and then drawing statistical inferences.
In present study we have critically examined the accounting data in detail.
It helps us to obtain better understanding of firm’s position and
performance.
Interpretation means drawing inferences and conclusion after conducting
detailed analysis.
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MACHINE HOUR RATE OF FORGING SECTION
DURING THE YEARS2003-04 & 2004-05
MachineName
TotalVariableCost
TotalFixedCost
HourlyRate
164S 937 466 103133L 597 381 97863S 316 228 54413B5SL 243 699 94219B3S 456 474 930½”BM 784 933 17175/16”BM 323 415 7388B5SL 808 10711 115193/8”BM 507 627 1134AF2525 1634 4530 6164134BS 363 499 862
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MACHINE HOUR RATE OF SECONADRY SECTION
DURING THE YEARS2003-04 & 2004-05
MachineName
TotalVariableCost
TotalFixedCost
HourlyRate
DPR 16S 99 117 216DPR 12LL 115 98 213DPR 6S 49 76 125DPR 8L 96 115 211DPR 5L 62 72 134MTR 15-I 136 51 187MTGS 12 99 60 159YC 530 62 52 114WMW 132 75 207MTR 15-II 136 59 195UM-3S 71 152 223MTR 15-III 130 58 188PRX 24E 1173 1883 3056HR 3 116 251 367PW 10E 107 137 244MTR 20 173 104 277CGR 406H 179 203 382UM 3D 262 1363 1625
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MACHINE HOUR RATE OF SECONADRY SECTION
DURING THE YEARS2003-04 & 2004-05
MachineName
TotalVariableCost
TotalFixedCost
HourlyRate
MTR 15-IV 124 98 222DRILL 31 279 310JINNFA 51 50 101PMT-I 36 107 143PMT-II 36 43 79PMT-III 33 19 52NUT TAPPING 179 242 421RC 16-I 87 70 157RC 16-II 90 74 164RC 16-III 63 66 129RC 16-IV 65 96 161RC 1812 80 171 251GN 80P 48 87 135VAUN 21 40 61LT 16 94 92 186LSLO 84 104 188LT 2 83 110 193TC 250 113 168 281
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FINDING
1 The down hours in some machine have been too high as
compared to the actual time hours of the machine on the daily
basis.
2 Out put of the machine was found to be at 60% efficiency.
3 Motivation level of causal labour due to this wages is
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SUGGESTIONS
LPS should have control over the cost of sale. to do this LPS should
go through the cost effective management..
They should control over the fixed expenses. Because in every year
actual value founded more than budgeted value and there is high
deviation between actual & budgeted.
Down time hour can be decreased by decreasing the time in which
the tools and dies are changed for new product
Efficiency of the machine can be increased by performing proper
and timely servicing and maintenance of the machine
Last but not least motivation level of casual labour can be boosted
up by offering them the better wages overtime and attractive and
other facilities
operator of machine should be qualified and experienced
they knowledge about the machine
give the proper guide line to the operator
tools & dies should be proper ISI marked company not temporary.
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LIMITATIONS
The study of competitive firms could not be made. Thus comparative
study could not be possible.
The data could have been analyzed and probed form different angles,
interpreted and studied more deeply, but it could be studied upto a limit.
A deeper insight could have revealed more and better results.
The scope of the present study had to be limited due to paucity of time.
The secret policies of LPS does’t allow us to use more data.
It is only the study of interim of reports.
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BIBLIOGRAPHY
Mittal, Maheshwari, Cost Accounting and financial
Management,Shree Mahavir Book Depot
Kothari, C.R., Research Methodology-Methods and Techniques, New
Delhi, Wishwa prakashan Pvt. Ltd.
Aggarwal, M.D., Aggarwal, N.P., Financial Management, Jaipur,
Ramesh Book Depot
Records of L.P.S.
Website: WWW.lpsindia.com.
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