Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
By
KODUMURI VIJAY
Reg. No. 10241E0024
Under the Guidance of
K.K.SUNIL KUMAR
Associate Professor
CERTIFICATE
This is to certify that the project entitled A STUDY ON COST ANALYSIS &
CONTROLhas been submitted by Mr.Kodumuri Vijay(Reg. No.10241E0024) in partial
fulfillment of the requirements for the award of Master of Business Administration from
Jawaharlal Nehru Technological University, Hyderabad. The results embodied in the project
have not been submitted to any other University or Institution for the award of any Degree or
Diploma.
K.K.SUNIL KUMAR
Internal Guide
DepartmentofManagement Studies
GRIET
DECLARATION
I hereby declare that the project entitled A STUDY ON COST ANALYSIS &
CONTROL"Submitted in partial fulfillment of the requirements for award of the
degree of MBA at Gokaraju Rangaraju Institute of Engineering and Technology,
affiliated to Jawaharlal Nehru Technological University, Hyderabad, is an
authentic work and has not been submitted to any other University/Institute for
award of any degree/diploma.
KODUMURI VIJAY
(10241E0024)
MBA, GRIET
HYDERABAD
ACKNOWLEDGEMENT
Firstly I would like to express our immense gratitude towards our institution Gokaraju Rangaraju
Institute of Engineering & Technology, which created a great platform to attain profound
technical skills in the field of MBA, thereby fulfilling our most cherished goal.
I would thank all the finance department of HERO MOTOCORP PVT LTD. specially Mr.Anil
Kumar(Asst.Manager), and the employees in the finance department for guiding me and helping
me in successful completion of the project
I am very much thankful to our professor Mr.K.K.Sunil Kumar sir(Internal Guide) sir for
extending his cooperation in doing this project.
I am also thankful to our project coordinator Mr.S. Ravindra Chary Sir for extending his
cooperation in completion of Project.
I convey my thanks to my beloved parents and my faculty who helped me directly or indirectly
in bringing this project successfully.
KODUMURI VIJAY
(10241E0024)
ABSTRACT
The total cost of producing a specific level of output is the cost of all the factors of input used.
Conventionally economist use models with two inputs capital, K. and labor, L. Capital is
assumed to be the fixed input meaning that the amount of capital used does not vary with the
level of production. The rental price per unit of capital is denoted r. Thus the total fixed costs
equal Kr. Labor is the variable input meaning that the amount of labor used varies with the level
of output. In fact in the short run the only way to vary output is by varying the amount of the
variable input. Labor is denoted L and the per unit cost or wage rate is denoted w so the total
variable costs is Lw. Consequently total cost is fixed costs (FC) plus variable cost (VC)
Valuation in terms of money of (1) effort, (2) material, (3) resources, (4) time and utilities
consumed, (5) risks incurred, and (6) opportunity forgone in production and delivery of a good
or service. All expenses are costs, but not all costs (such as those incurred in acquisition of an
income-generating asset) are expenses.
The profession places itself at the service of the nation, government, industry, and the society to
realize the objectives of a welfare state resulting in the prosperity and the well being of its people
- a fact increasingly realized with the opening up of the country's economy and change in the
economic scenario of the world. In today's world, the profession of conventional accounting and
auditing has taken a back seat and accountants increasingly contribute towards the management
of scarce resources like funds, land and apply strategic decisions. This has opened up further
scope and tremendous opportunities Cost and Works accountants to shoulder responsibility as
Cost and Management Accountants in accordance with new dimensions and vision here in India
and abroad. Members of this profession will be the driving force in the team of management
while in employment and a key consultant, an effective Cost and Management Auditor and an
appropriate advisor in place. This is why Cost Accountants in India are called Management
Accountants all over the world. Its our other name. We invite you to browse through our web
site. Complete Information on our working, history and professional accreditation are all
available.
INDEX
CHAPTER-1
PAGES
INTRODUCTION
Introduction about Project
01---03
04-----
05-----
06-----
CHAPTER-2
INDUSTRY PROFILE &COMPANY PROFILE
Automobile Industry in India
07-----
08---12
Corporate Profile
13---18
19---24
25---28
29---34
Customer Relationshiop
03---05
CHAPTER-3
REVIEW OF LITERATURE
Determination of Cost & Cost Control
37---45
46---56
57---64
CHAPTER-4
DATA ANALYSIS AND INTERPRETATION
(Data Reporting by Tables)
65---81
CHAPTER-5
FINDINGS & CONCLUSIONS
83-----
SUGGESTIONS
84-----
BIBLIOGRAPHY
85-----
INTRODUCTION
INTRODUCTION
COST:
Cost is essential in every walk of our life national, domestic and Business. A cost is
prepared to have effective utilization of funds and for the realization of objective as efficiently as
possible. Costing is a powerful tool to the management for performing its functions i.e.,
formulation plans, coordination activities and controlling operations etc., efficiently. For efficient
and effective management planning and control are tow highly essential functions. Costing and
cost control provide a set of basic techniques for planning and control.
A cost fixes a target in terms of rupees or quantities against which the actual performance
is measured. A cost is closely related to both the management function as well as the accounting
function of an organization.
As the size of the organization increases, the need for costing is correspondingly more
because a cost is an effective tool of planning and control. Cost is helpful in coordinating the
various activities (such as production, sales, purchase etc) of the organization with result that all
the activities precede according to the objective. Costs are means of communication. Ideas of the
top management are given the practical shape. As the activities of various department heads are
coordinated at the much needed for the very success of an organization. Cost is necessary to
future to motivate the staff associated, to coordinate the activities of different departments and to
control the performance of various persons operating at different levels.
Costs may be divided into two basic classes. Capital and operating costs. Capital cost is
directed towards proposed expenditure for new projects and often require special financing.The
operating costs are directed towards achieving short-term operational goals of the organization
for instance, production or profit goals in a business firm. Operating costs may be sub-divided
into various departmental of functional costs.
A process by which business` decisions are analyzed. The benefits of a given situation or
business-related action are summed and then the costs associated with taking that action are
subtracted. Some consultants or analysts also build the model to put a dollar value on intangible
items, such as the benefits and costs associated with living in a certain town. Most analysts will
also factor opportunity cost into such equations.
You may have been intensely creative in generating solutions to a problem, and rigorous
in your selection of the best one available. This solution may still not be worth implementing, as
you may invest a lot of time and money in solving a problem that is not worthy of this effort.
Cost Benefit Analysis or cba is a relatively simple and widely used technique for
deciding whether to make a change. As its name suggests, to use the technique simply add up the
value of the benefits of a course of action, and subtract the costs associated with it.
Costs are either one-off, or may be ongoing. Benefits are most often received over time.
We build this effect of time into our analysis by calculating a payback period. This is the time it
takes for the benefits of a change to repay its costs. Many companies look for payback over a
specified period of time e.g. three years.
In its simple form, cost-benefit analysis is carried out using only financial costs and
financial benefits. For example, a simple cost/benefit analysis of a road scheme would measure
the cost of building the road, and subtract this from the economic benefit of improving transport
links. It would not measure either the cost of environmental damage or the benefit of quicker and
easier travel to work.
OBJECTIVES OF STUDY
THE STUDY HAS THE FOLLOWING:
To provide the material frame work of cost and Cost Control Analysis
To describe the profit of the organization as a backdrop for undertaking a study of Cost
Benefit Analysis.
To analyze the cost system in practice in Hero MotoCorp Ltd. (Formerly Hero Honda
Motors Ltd.) (Phoenix Motors Pvt. Ltd)with particular reference to their objectives and
phases of organizational and re-appropriation.
In addition to the analysis of the conventional cost system in practice in Hero MotoCorp
Ltd. (Formerly Hero Honda Motors Ltd.) (Phoenix Motors Pvt. Ltd) The study aims at
evaluation and modification to the current cost system with reference to the various types of
costs. The scope in the formulation of performance cost is also studied.
SOURCES OF DATA:
The data of Hero MotoCorp Ltd have been collected mainly from secondary sources
viz.,
Form the concerned officers of the Hero MotoCorp Ltd
Hero MotoCorp Ltd journals.
Accounting books, records.
Key books of concerned title.
Statistical records
Hero MotoCorp Ltd library.
METHODOLOGY:
The proposed study is carried with the help of both primary and secondary sources of
data.
PRIMARY DATA:
The primary data is collected by interacting with the finance manager and other
concerned executives at the administrative office of the company.
SECONDARY DATA:
All the secondary data used for the study has been extracted from the annual reports,
manuals and other published material of the company.
LIMITATIONS:
Estimates are used as basis for cost plan and estimates are based mostly on available facts
and best managerial judgment
Cost control cannot reduce the managerial function to a formula. It is only a managerial.
Tool which increase effectiveness of managerial control.
The use of cost may be to restricted use of resources. Costs an often taken as limits.
Efforts may therefore not be made to exceed the performance beyond the cost targets.
Frequent changes may be called for in costs due to first changing industrial climate.
In order that a system may be successful, adequate costs education should be imparted at
least through the formative period. Sufficient training programs should be arranged to make
employees give positive response to cost activities.
The study is the limited up to the date and information provided by Hero MotoCorp Ltd and
its annual reports.
INDUSTRY PROFILE
&
COMPANY PROFILE
motorcycle? May seem like a simple question, safety, bicycle, i.e., bicycle with front and
rear wheels of the same size, with a pedal crank mechanism to drive the rear wheel. Those
bicycles in turn described from high-wheel bicycles. The high wheelers descended from an
early type of pushbike, without pedals, propelled by the riders feet pushing against the ground.
These appeared around 1800, used iron banded wagon wheels, and were called bone-crushers,
both for their jarring ride, and their tendency to toss their riders. Gottiieb Daimler (who credited
with the building the first motorcycle in 1885, one wheel in the front and one in the back,
although it had a smaller spring-loaded outrigger wheel on each side. It was constructed mostly
of wood, the wheels were of the iron-banded wooden-spooked wagon-type and it definitely had a
bone-crusher chassis!
FURTHER DEVELOPMENTS:
Most of the developments during the early phase concentrated on three and four-wheeled
design since it was complex enough to get the machines running with out having to worry about
them falling over. The next notable two-wheeler though was the Hildebrand & Wolf Mueller,
patented in Munich in 1894. In 1895, the French firm of DeDion-button built and engine that
was to make the mass production and common use of motorcycle possible. The first motorcycle
with electric start and a fully modem electrical system; the Hence special from the Indian
Motorcycle Company astounded the industry in 1931. Before World War 1, IMC was the largest
motorcycle manufacturer in the world producing over 20000 bikes per year.
INCREASING POPULARITY:
The popularity of the vehicle grew especially after 1910, in 1916; the Indian motorcycle
company introduced the model H racer, and placed it on sale. During World War 1, all branches
of the armed forces in Europe used motorcycles principally for dispatching. After the war, it
enjoyed a sport vogue until the Great Depression began in motorcycles lasted into the late 20th
century; weight the vehicle being used for high-speed touring and sport competitions. The more
sophisticated of a 125cc model. Since then, an increasing number of powerful bikes have blazed
the roads.
The two wheelers market was opened were opened to foreign competition in the mid80s. And the then market leaders-Escorts and Enfield were caught unaware by the onslaught of
the 100cc bikes of the four Indo- Japanese joint ventures. With the availability of fuel-efficiency
low power bikes, demand swelled, resulting in Hero Honda then the only producer of four
stroke bikes (100cc category), gaining a top slot.
The first Japanese motorcycles were introduced in the early eighties. TVS Suzuki and
Hero Honda brought in the first two-stroke and four-stroke engine motorcycles respectively.
These two players initially started with assembly of CKD Kits, and later on progressed to
indigenous manufacturing.
The industry had a smooth ride in the 50s, 60s and 70s when government prohibited new
entries and strictly controlled capacity expansion. The industry saw a sudden growth in the 80s.
The industry witnessed a steady of 14% leading to a peak volume of 1.9 mn vehicles in 1990.
In 1990 the entire automobile industry saw a drastic fall in demand. This resulted in a
decline of 15% in 1991 and 8% in 1992, resulting in a production loss of 0.4mn vehicles.
Barring Hero Honda, all the major producers suffered from recession in FY93 and FY94. Hero
Honda showed a marginal decline in 1992.
The reason for recession in the sector were the incessant rise in fuel prices, high input
costs and reduced purchasing power due to significant like increased production in 1992, due to
new entrants coupled with recession in the industry resulted in companies either reporting losses
or a fall in profits.
CONCLUSION:
The two-wheelers market has had a perceptible shift from a buyers market to a sellers
market with a variety of choice, players will have compete on various fronts viz. pricing,
technology product design, productivity after sale service, marketing and distribution. In the
short term, market shares of individual manufacturers are going to be sensitive to capacity,
product acceptance, pricing and competitive pressures from other manufacturers.
As incomes grow and people grow and people feel the need to own a private means of
transport, sales of two-wheelers will rise. Penetration is expected to increase to approximately to
more than 25% by 2005.
The motorcycle segment will continue to lead the demand for two-wheelers in the
coming years. Motorcycle sale is expected to increase by 20% yoy as compared to 1% growth in
the scooter market and 3% by moped sales respectively for the next two years.
The four-stroke scooters will add new dimension to the two-wheeler segment in the
coming future.
The Asian continent is that largest user of the two-wheelers in the world. This is due to
poor road infrastructure and low per capita income, restrictive policy on bike industry. This is
due to oligopoly between top five players in the segment, compared to thirsty manufacturers in
the bike industry.
Hero Honda motors LTd., is one of the leading companies in the two-wheeler industry.
At present it is the market leader in the motorcycle segment with around 47% the market share
during FY 2000 01. During the year, company posted a 41.15% yoy rise in turnover to Rs.31,
686.5mn in motorcycles which driven by a 35.17% yoy rise in Motorcycle sales volumes. The
company has emerged as one of the most successful players, much ahead of its competitions an
account of its superior and reliable product quality complemented with excellent marketing
techniques. The company has been consistently addressing the growing demand for motorcycles
and has been cumulative customer base of over 4 million customers, which is expected to reach
5min mark with rural and semi-urban segment being the new class of consumers.
COMPANY PROFILE
CORPORATE PROFILE
Technology
In the 1980's Hero Honda Pioneered the introduced of fuel-effecient,environment friendly
four-stroke motorcycles in the country.Today,HeroHonda continues to be technlogy pioneer.It
become the first company to launch the Fuel Injection(FI) technology in Indian motorcycles,with
the launch of the Glamour FI in June 2006.
Products
Hero Honda's product range includes variety of motorcycles that have set the industry
standards across all the market segments. The company also started manufacturing scooter in
2006. Hero Honda offers large no. of products and caters to wide variety of requirements across
all the segments.
Distribution
The company's growth in the two wheeler market in India is the result of an intrinsic
ability to increase reach in new geographies and growth markets. Hero Honda's extensive sales
and service network now spans close to 4500 customer touch points. These comprise a mix of
authorized dealerships, Service & Spare Parts outlets, and dealer-appointed outlets across the
country.
Brand
The company has been continuously investing in brand building utilizing not only the
new product launch and new campaign launch opportunities but also through innovative
marketing initiatives resolving around cricket,entertainment and ground-level action.
Hero Honda has been actively promoting various sports such as hockey, cricket and golf.
Hero Honda was the title sponsor of the Hero Honda FIH Hockey World Cup that was played in
Delhi during Feb-March 2010. Hero Honda also partners the Commonwealth Games Delhi 2010.
2010-11 Performance
Total unit sales of 54,02,444 two-wheelers, growth of 17.44 per cent
Total net operating income ofRs. 19401.15 Crores, growth of 22.32 per cent
Net profit after tax at Rs. 1927.90 Crores
Total dividend of 5250% or Rs. 105 per share including Interin Dividend of Rs. 70 per share on
face value of each share of Rs.2 each
EBIDTA margin for the year 13.49 percent
EPS of Rs.96.54
2009-10 Performance
Total unit sales of 46,00,130 two-wheelers,growth of 23.6 percent
Total net operating income of Rs.15860.51 Crores,growth of 28.1 percent
Net profit after tax at Rs.2231.83 Crores,growth of 74.1 percent
Final dividend of 1500% or Rs30 pershare on face value of each share of Rs.2 EBIDTA margin
for the year 17.4 percent
BOARD OF DIRECTORS
No.
Designation
Technical Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
10
11
12
13
14.
Mr. M. Damodaran
15.
16.
Mr. Brijmohan Lall Munjal is currently on the board of the following companies:
Nature of Office
Director
Director
Director
2006 Hero Honda is World No.1 for the 5th year in a row
15 million production milestone achieved
2007 Hero Honda is the World No.1 for the 6th year in a row
New 'Splender NXG' launched
New 'CD Deluxe' launched
New 'Passion Plus' launched
New motorcycle model 'Hunk' introduced
20 million production milestone achieved
2008 Hero Honda Haridwar Plant inauguration
New 'Pleasure' launched
Splender NXG launched with power start feature
New motorcycle model 'Passion Pro' launched
New 'CBZ Xtreme' launched
25 million production milestone achieved
CD Deluxe launched with power start feature
New 'Glamour' launched
2009 'Hunk' (Limited Edition) launched
Splender completed 11 million production landmark
New motorcycle model 'Karizma-ZMR' launchedSilver jubilee celebrations
New model Splender Pro launched
Launch of new Super Splendor and New Hunk
2010 New licensing arrangement signed between signed Hero and Honda
Launch of new refreshed versions of Glamour, Glamour FI, CBZ Xtreme, Karizma
2011 Crosses the landmark figure of 5 million cumulative sales in a single year
Bike Maker of the Year by ET-ZigWheels Car & Bike of the Year Awards 2009
2009 'Two-wheeler Manufacturer of the Year' by NDTV Profit Car & Bike Awards 2009 and
Passion Pro adjudged as CNB Viewers' Choice two-wheeler
Top Indian Company under the 'Automobile - Two-wheelers' sector by the Dun &
Bradstreet-Rolta Corporate Awards
Won Gold in the Reader's Digest Trusted Brand 2009 in the 'Motorcycles' category
NDTV Profit Business Leadership Awards 2009 - two-wheeler category
2008 NDTV Profit Business Leadership Award 2008 - Hero Honda Wins the Coveted "NDTV
Profit Business Leadership Award 2008"
TopGear Design Awards 2008 - Hunk Bike of the Year Award
NDTV Profit Car India & Bike India Awards - NDTV Viewers Choice Award to Hunk
in Bike category
IndiaTimes Mindscape and Savile Row ( A Forbes Group Venture ) Loyalty Awards Customer and Brand Loyalty Award in Automobile (two-wheeler) sector
Asian Retail Congress Award for Retail Excellence (Strategies and Solutions of business
innovation and transformation) - Best Customer Loyalty Program in Automobile category
NDTV Profit Car India & Bike India Awards - Bike Manufacturer of the year
Overdrive Magazine - Bike Manufacturer of the year
TNS Voice of the Customer Awards:
2007 The NDTV Profit Car India & Bike India Awards 2007 in the following category:
2006 Adjudged 7th Top Indian Company by Wallstreet Journal Asia (Top Indian Two Wheeler
Company).
One of the 8 Indian companies to enter the Forbes top 200 list of worlds most reputed
companies.
No. 1 in automobile industry by TNS Corporate Social Responsibility Award.
Best in its class awards for each category by TNS Total Customer Satisfaction Awards
2006:
CD Deluxe (Entry)
Splendor & Passion - Top two models in two wheeler category by ET Brand Equity Survey
2006.
Adjudged 7th Top Indian Company by Wallstreet Journal Asia (Top Indian Two Wheeler
Company).
Top Indian company in the Automobile - Two Wheeler sector by Dun & Bradstreet American Express Corporate Awards 2006.
Hero Honda Splendor rated as India's most preferred two-wheeler brand at the Awaaz
Consumer Awards 2006.
Certificate of Export Excellence for outstanding export performance during 2003-04 for twowheeler & three- wheelers - Complete (Non SSI) by Engineering Export Promotion Council.
The NDTV Profit Car India & Bike India Awards 2006 in the following category:
plants.
The Raman Munjal Vidya Mandir began with three classes (up to class II) and 55
students from nearby areas. It has now grown into a modern Senior Secondary, CBSE affiliated
co-educational school with over 1200 students and 61 teachers. The school has a spacious
playground, an ultra-modern laboratory, a well-equipped audio visual room, an activity room, a
well-stocked library and a computer centre.The Raman Munjal Sports Complex has basketball
courts, volleyball courts, and hockey and football grounds are used by the local villagers. In the
near future, sports academies are planned for volley ball and basket ball, in collaboration with
National Sports Authority of India.
This Scheme was launched on 21st September, 1999, covering the nearby villages of
Malpura, Kapriwas and Sidhrawali. The project started with a modest enrolment of 36 adults.
Hero Honda is now in the process of imparting Adult Literacy Capsules to another 100 adults by
getting village heads and other prominent villagers to motivate illiterate adults.
Besides setting up a modern hospital, the Foundation also regularly provides doorstep
health care services to the local community. Free health care and medical camps are now a
regular feature in the Hero Group's community outreach program.
and
rather
must
serve
mankind.
"We must do something for the community from whose land we generate our wealth."
A famous quote from our Worthy Chairman Mr.Brijmohan Lall Munjal.
Environment Policy
We at Hero Honda are committed to demonstrate excellence in our environmental
performance on a continual basis, as an intrinsic element of our corporate philosophy.
To achieve this we commit ourselves to:
Integrate environmental attributes and cleaner production in all our business processes and
practices with specific consideration to substitution of hazardous chemicals, where viable and
strengthen the greening of supply chain.
Continue product innovations to improve environmental compatibility.
Comply with all applicable environmental legislation and also controlling our environmental
Quality Policy
Excellence in quality is the core value of Hero Honda's philosophy.
We are committed at all levels to achieve high quality in whatever we do, particularly in
our products and services which will meet and exceed customer's growing aspirations through:
Innovation in products, processes and services.
Continuous improvement in our total quality management systems.
Teamwork and responsibility.
Safety Policy
Hero Honda is committed to safety and health of its employees and other persons who
may be affected by its operations. We believe that the safe work practices lead to better
business performance,motivated workforce and productivity.
We shall create a safety culture in the organization by:
Integrating safety and health matters in all our activities.
Ensuring compliance with all applicable legislative requirements.
Empowering employees to ensure safety in their respective work places.
Promoting safety and health awareness amongst employees, suppliers and contractors.
Continuous improvements in safety performance through precautions besides participation
INTRODUCTION
ABOUT
PHOENIX
DEALER
PROFILE
(PHOENIX MOTORS)
PHOENIX MOTORS PVT LTD is dealership type of business. PHOENIX MOTORS PVT
LTD. is established on 21st march 2003.
The business is running by only one man. The owner name is ch .madhu mathi the firm
is located at habsiguda in Hyderabad.
Generally the sale will be either on cash basis or on institutional basis. Bank like ICICI,
HDFC and CENTURION are providing loans to customers.
Advertising strategy of phoenix motors:
They are giving the ads through newspapers, wall paintings, hoardings and field staff.
They are upgrading sales by introducing the schemes, group bookings, institutional sales and
customer door-to-door activities.
Customer relationship:
They entertain the showroom providing a customers huge having pool game, internet
facility and television with home there system. They provide bile maintenance programs on
every week.
According to other dealers PHOENIX motors in first in sales and best in service. They
treat customer, is the very important person at PHOENIX motors customer satisfaction is their
motto, why because, they will satisfied customer is the best advertisement. They provide better
value for the customers and as well as employees also. At PHOENIX motors the customer is the
boss.
If any other six services or subsequent paid services is not availed as per the
recommended schedule given in the owners manual. If HERO HONDA recommended engine
oil is not used. To normal wear & tear components like bulbs, electric wiring, filters, spark plug,
clutch plates, braded shoes, fasteners, shim washers, oil seals, gaskets, rubber parts (other than
tyre and tube) plastic components, chain$ sprockets and in case of wheel rim misalignment or
bend.
If there is any damage due o modification or fittings of accessories other than ones
recommended by HERO HONDA. If the motor has been used in any competitive events like
tracking races or rallies. If there is any damage to the painted surface due to industrial pollution
or other extraneous factors. For clams made for any consequential damage due to any previous
malfunction. For normal phenomenon like noise, vibration, oil seepage, which do not affect the
performance of the motorcycles.
CUSTOMER RELATIONSHIP:
To entertain the customers the showroom providing a customers huge having pool game,
Internet facility and television with home theatre system. They provide bike maintenance
programs on every week. According to other dealers PHOENIX motors in first in sales and best
in service. They treat customer, is the very important person at PHOENIX motors customer
satisfaction is their motto, why because, the well satisfied customer is the best advertisement.
They provide better value for the customers and as well as employees also. At PHONIX motors
the customer is the boss.
REVIEW OF LITERATURE
MEANING OF COST:
It is a financial and quantitative statement, prepared and approved prior to a defined
period of time of policy to be pursued during that period for purpose of attaining a given
objective. It may include income, expenditure and employment capital.
In other words is a pre-determined detailed plan of action developed and distributed as
a guide to current operations and as a partial basis for the subsequent evaluation of performance.
MEANING OF COSTING:
The process of planning all flows of financial resources into with in and from an entity
during some specified future period. It includes providing for the detailed allocation of expected
available future resources to projects, functions, responsibilities and time periods.
From above definition it is clear that costing is the actual act of preparing the cost. It is
the process of evolving the final statement. Cost is the end product of costing.
In the word of J.A Solt cost control is the system of management control and
accounting in which all operations are forecast and so as possible planned ahead and actual
results compared with the forecast and the planned ones.
2. CO-ORDINATION:
Co-ordination is managerial functions under which all factors of production and all
departmental activities are balanced and integrated achieve the objectives of the organization.
Costing provides the basis for individual in all department to exchange ides on how best the
organizations objectives can be realized. Executives are forced ot think of the relationship
between their department and the company as a whole. This removes unconscious bases against
other departments. It also helps to identify weaknesses in the organization structure.
3. COMMUNICATIONS:
All people in the organization must know the objectives, policies and performances of the
organizations. They must have a clear understanding of their part in the organizations goals. This
is made possible by ensuring their participation in the costing process.
4. CONTROLS AND PERFORMANCE EVALUTION:
Control ensures control by continuous comparison of actual performance with the costed
performance. Variances are highlighted and corrective action can be initiated. Costs also from
the basis of performance evaluation in an organization as they reflect realistic estimates of
acceptable and expected performance.
2.COST OFFICER:
The chief executive appoints cost officer. Such cost officer also called as cost controller
or cost director. His rank should be equal to other functional managers.
The cost officer does not have the direct responsibility of preparing the costs. The various
functional managers prepare the costs. His role is that of a supervisor. The cost officer has the
specific duty of administering the cost.
He is responsible for timely completion of costing activity by various departments and for coordination between them so the t there is a proper link between them. He is empowered to
scrutinize the costs prepared by different functional heads and to make changes in them. If the
situation so demands.
3. COST COMMITTEE:
A cost committee is formed to assist the cost officer. The heads of the entire important
departments are made members of this committee. The committee is responsible for preparation
and execution of costs. The members of this committee put up the case of their respective
departments and help the committee to take collective decisions, if necessary. The cost
committee is responsible for reviewing the costs prepared by various functional heads. Co
ordinate all the costs and approve the final costs, the cost officer acts as coordinator of this
committee. All the functional heads are entrusted with the responsibility of ensuring proper of
ensuring proper implementation of their respective final departmental costs.
4. COSTS CENTERS:
A cost centers is that part of the organization for which the cost is prepared. A cost center
may be a department, section of a department or any other part of the department. Ideally, the
head of every center should be a member of the cost committee. However, it must be ensured
that each cost center at least has an indirect representation in the cost committee.
The establishment of cost centers is essential for covering all parts of the organization
becomes easy. When different centers are establishment. The cost centers are also necessary for
cost control purposes.
5. COST MANUAL:
a) A cost manual is a document that spells out the duties and responsible of the various
executives concerned it specifies among various functional areas. A cost manual covers the
following matters.
b) A cost manual clearly defines the objectives of cost control system. It also gives the benefits
and principles of this system.
c) The duties and responsibilities of various persons dealing with preparation and exec ton of
costs are also given in a cost manual. It enables the management to know the persons dealing
with various aspects to costs and provides clarity on their duties and responsibilities,
d) It gives information about the sanctioning authorities of various costs. The financial powers
of different managers are given in the manual for enabling he spending amount on various
expenses.
e) A proper table for costs including the sending of performance reports is drawn so that every
work starts in time and systematic control is exercise.
f) The specimen forms and number of copies to be listed for cost repots is also stated. Cost
involved should be clearly stated.
g) The length of various cost periods and control points is clearly given.
h) The procedure to the followed in the entire system is clearly stated.
i) A method of accounting to be used for various expenditures is also stated in the manual.
The cost manual helps in documentation the role of every employee, his duties,
responsibilities the ways of undertaking various tasks etc. thus it also in reducing ambiguity at
any point of time.
6. COST PERIOD:
A cost period is the length of time for which a cost is prepared. It depends upon a number
of factors. The choice of a cost period depends upon the following considerations. The types of
cost (long/short)
All the above mentioned factors are taken into account while fixing the period of costs. In
this costing process the financial manager has to take the financial decision on the costs.
The financial manager usually responsible for organizing this cost, he must perform the
following functions.
To suggest changes
To diss
1. CLARIFYING OBJECTIVES:
The costs are used to realize objectives of the business. The objective must be clearly
spelt out to that costs are properly prepared. In the absence of clear goals, the costs will also be
unrealistic.
4. COST EDUCATION:
The employees should be educated about the benefit of costing system. They should be
the benefits of costing system they should be educating about their roles in the success of this
system. Cost control may not be taken only as a control device by the employees but it should be
used as a tool to improve their efficiency.
5. FLEXIBILITY:
Flexibility in costs is required to make them suitable under changed circumstances. Costs
are prepared for the future, which is always uncertain, even though costs are prepared by
considering the future possibilities but still some adjustment. Flexibility makes the costs more
appropriate and realistic.
6. MOTIVATION:
Costs are to be implemented by human beings. Their successful implementation will
depend upon the interest shown by the employees. All persons should be motivated to improve
their working so that costing is successful. A proper system of motivation should be introduced
for making this system a success.
TYPES OF COSTS:
3. CURRENT COSTS:
Current cost is a cost, which is established for use over a short period of time and is
related to current conditions. Thus current costs are essentially short term costs adjusted to
current (i.e., present or prevailing) condition or circumstances. They are prepared for a very short
period. Say, a quarter or a month. They related to current activities of the costs.
4. INTERIM COSTS:
Interim costs are costs, which are prepared in between two cost periods. These costs may
get integrated with the cost of the following period.
1) OPERATING COST:
These costs relate to different activities or operations of a firm. The number of such costs
depends upon the size and nature of the business, the commonly used operating costs are:
1) Sales costs
2) Purchase costs
3) Raw material costs
4) Labor costs
5) Factory utilization cost
6) Manufacturing expenses or works overhead cost
7) Administrative and selling expenses cost etc.
The operating cost for a firm may be constructed in terms of programmers or responsibility
areas, and hence may consist of:
Programmed cost
Responsibility cost
A) PROGRAMMED COST:
It consists of expected revenues and costs of various products or projects that are Termed
as the major programmers of the firm, such a cost can be prepared for each product line or
project showing revenues, cost and the relative profitability of the various in locating areas
where efforts may be required to reduce costs and increase revenues. They are also useful in
determining imbalance and inadequacies in programmers so that corrective action may be taken
in future.
B) RESPONSIBILITY COSTS:
Where the operating cost of a firm is constructed in terms of responsibility Areas, such a cost
show the plan in terms of persons responsible for achieving them. It is used by the management
as a control them. It is used by the management as a control device to evaluate the performance
of executives who are in charge of various cost centers. Their performance is compared to the
targets (costs), set for them and proper action is taken for adverse results.
Responsibility areas may be classified under three broad categories:
Cost /expense center
Profit center
Investment center
2) FINANACIAL COSTS:
Financial costs are concerned with cash receipts and disbursements, working Capital,
financial position and results of business operations. The commonly used financial costs include
cash cost, working capital cost and income statement cost, statement of retained earnings cost,
costed balance sheet or position statement cost.
3) MASTER COSTS:
The master cost is the summary cost incorporating its functional costs.All The
operational and financial costs are integrated into the master cost. The cost officer for the benefit
of the top level management prepares this cost. This cost is used to coordinate the activities of
various functional departments. It is also used as an effective control device.
There is another diagram which will show the curve of Total Variable Cost:
At last, we can say that costs are very important in decision making because though all
the units are sold in the same price but the cost of production of these units are not same.
Marginal cost and incremental cost are relevant in decision making whereas sunk cost are
irrelevant.
COST HEADS:
For uniform accounting, it is essential that costs are collected for each system of the
factory tough this may involve splitting up of payments against contracts which embrace more
than one system. Allocation of the cost as system wise affords a sound basis for cost accounting,
inter-firm comparisons and provides valuable inputs to data bank. Cost provisions are related to
project estimated and monitoring of actual expenditure where as control cables for part control
and instrumentation system.
Factory piping which include pipelines, for ash water mains, compressed air system and civil
works piping.
Auxiliary pumps for water treatment plant and civil works system. If there are, any
contracts not covered in the cost heads provision for such contracts should be shown against the
appropriate system head by adding code number.
BRIEF
EXPLANATION
TO
THE
NATURE
OF
EXPENDITURE
TRIANING
RECRUITMENT
&
OTHER
DEFFERED
REVENUE
EXPENDITURE:
The first part of the cost consist of expenses for training executives, and non-executive
trainees, rent for training halls and expenses for management development courses. The second
part consists of expenses for recruitment such as advertisement for recruitment, interview
expenses for to candidate etc., the third part combines preliminary expenses including share
registration lees and research and development expenses.
QUATERLY REVIEW:
PRT should conduct a quarterly cost review with a view to projecting anticipated
expenditure during the year against approved cost estimates/ revised estimates. As time is
essence of such review, only a quick estimate of anticipated expenditure for individual cost
heads involving provisions exceeding for individual cost heads involving provisions exceeding
Rs 50 lakhs in each case should be made and reported upon in minutes of PRT. For this purpose,
project cost should furnish all the relevant data to general manager (project) and planning and
systems by the 10th of the month following the quarter project cost committee should review the
actual expenditure and assess anticipated expenditure contract co ordination/engineers in charge
the assessments of anticipated expenditure should be furnished by the project cost committee to
general manager (project) by the 30th of the month following the quarter under review.
INITIAL PROPOSAL:
In the initial proposal, the project is required to indicate yearly targets. In he addition, to
furnishing basic information like synchronization and commercial generation dates
Constraints on coal operation at less than the designed specification, calorific value of
raw material and lime stone, material consumption in physical terms for items whose
consumption value in Rs.5 lakhs or more, planned shut down for a maintenance and overhauling
and norm for various operation parameters provided for design specification and in the tariff
agreements to the corporate cost committee.
In the initial proposals is planned to be submitted after considering these factors and
keeping in view the perspective plan of the organization, fixes as well as norms for various
operating parameters. These targets and norms are then communicated to all stations and
transmissions line offices in the last week of July to be used for formulating detailed cost in the
firm of final proposal.
FINAL PROPOSAL:
Costed balance sheet, costed profit & loss account and costs in the form of cash cost
along with the proposal will consist of detailed supporting schedules for each of the investment
center / cost center. This final proposal needs to be submitted to corporate center with in 3 weeks
of receiving approval for initial proposal.
The final proposal, after approval by board, will become the basis of monitoring
performance for cost centers and investment centers.
The frequency and extent review and monitoring will be done is under:
i.
The monitoring of actual performance against costed targets for investment center / profit
center on monthly basis and for cost centers on quarterly for remedial / corrective actions.
ii.
The review of performance cost on quarterly basis to assess the anticipated profitability.
The first step in the preparation of performance cost, O & M is formulation of maintenance
and overhauling schedules for Boiler and to which generation, then considering the grid
demand, the availability or inputs and factory problems. The utilization of capacity will be
worked out on month-month basis for the cost period the gross generation targets can be
worked and accordingly.
NEXT GENERATION:
The sales value will be determined from quantum of net generation (i.e. gross generation
aux. Consumption)
The automobile consumption by each of the cost centers for individuals unit auxiliaries,
station auxiliaries as well as transformer losses are to be estimated separately based on designed
specifications and added in order to workout total auxiliary consumption rather than fixing a
overall percentage. Similarly consumption by utilities will also need to be indicated by
concerned cost centers / departments like township and construction department. This will be
valued at cost net generation to arrive at the sales values for owns consumptions.
CHEMICAL CONSUMPTION:
The chemical are used by many cost centers for treatment of water. The consumption of
chemicals will be correlated with volume of water treated and certain norms will have to be
developed for different type of chemicals and different types of treatment.
Based on these norms, each of the cost centers will indicate consumption of chemical in
quantitative as well as financial terms. The cost center wise requirement will be consolidated to
arrive at total chemicals consumption to be charged to profit and loss account. The valuation of
chemical will be done at current prices only.
EMPLOYEE COST:
The basis employee cost will be approved manpower cost effective for respective years
of cost period. The estimation of employee cost is to be done for each grade considering midpoint of the scale as basis pay and after adding various allowance like D.A., H.R.A., C.C.A
project allowance etc., as admissible in respective grades. This is to be worked 49 out or each of
the cost period based on existing strength (at the time of estimation) in each grade and additions
during each quarter (taking 70% satisfaction for additions).
The provisions for LTC, medical reimbursement, PF and other welfare expenses are to be
made based on trend of expenses in previous years and taking into account polices changes, if
any. The details of welfare expenses like liveries and uniforms, safety expenses, accident
compensation, games & sports, canteen subsidy etc., are to list out as per chart of account. The
provisions for incentive, bonus and payments of one time nature are to be shown separately
based on total employee cost for executives, supervisors and non-supervisors and total man
power in these categories, separate rates of cost per employee will be worked out for each of
these categories as under.
1. Salaries and allowance
2. Contribution to PF and other funds
3. Welfare expenses
The cost center of employee cost will be worked out based on these rates separately for
executives, supervisors and non-supervisors. This will again be consolidated separately for
operations. Maintenance and common service function. The employee cost of common function
will be appropriated between construction and O & M costs in the ratio of capital expenditure
and sales during the respective years.
The cost center wise total separately for three activities will be added to arrive at
summary of material consumption and maintenance jobs, which will be reflected in the profit &
loss account.
The material consumption especially of spares can be estimated based on the expected
life of various consumption / spears in the installed equipment the frequency of breakdowns in
the past and the requirement for prevented maintenance and major overhauls. The actual life of
components may be different from that indicated in the manufacturers specification. Therefore,
it is very difficult t estimate requirements of spares. But this new station it will be advisable to
collect such information from old stations that have gained experience in this field.
Normally maintenance of equipment through contractors should be avoided. But in
certain areas, if the expertise and in house capability or sufficient man power is not available,
maintenance jobs can be got done through contractors. Such contracts will need to be listed out
separately. If any owner supply items are covered in such contracts the cost of these items will be
included in the material cost.
DEPRECIATION:
This is to be charged as per ES act from the year following the year in which assets have
been capitalized. This will be done separately by each of the cost centers on the basis of
capitalized value and rates of depreciation furnished by site finance and account for different
categories of assets. Cost center-wise depreciation will be added at total depreciation for the
investment center.
the 2010-11
2010-11
(Rs in corers)
(Rs in corers)
724
72.4
618
61.8
840
84.0
740
74.0
820
82.0
863
86.3
Own consumption
132
13.2
148
14.8
Total of 1
2516
251.6
2369
236.9
Average intensives
102
10.2
98
9.8
Other income
56
5.6
49
4.9
2674
267.4
2516
251.6
PARTICULAR
Sales
INTERPRETATION
The data pertaining to the generation and consumption have been obtained from the year
2010-11 and represented in table -1. The aspect included are total generation in (crores Rs) and
utilization for auxiliary consumption respectively.
During the year 2010-11 the sales, fixed costs, variable cost , own Consumption was
decreased. When the estimated costed so sales consumption is 267% respectively.
During the year 2010-11 the average intensive are decreased 9.8% the other Income also
decreased 7% respectively.
Finally with regard to the result in revenue cost of HERO MOTOCORP LTD
totally decreased 251.6% in the year 2010-11 respectively.
the 2009-10
2009-10
(Rs in corers)
(Rs in corers)
702
70.2
598
59.8
802
80.2
680
68.0
adjustment recovery
790
79.0
852
85.2
Own consumption
121
12.1
122
12.2
Total of 1
2398
239.8
2168
216.8
Average intensives
96
9.6
84
8.4
Other income
51
5.1
40
4.0
2545
254.5
2292
229.2
PARTICULAR
Sales
INTERPRETATION
The data pertaining to the generation and consumption have been obtained from the year
2009-10 and represented in table -2. The aspect included are total generation in (crores Rs) and
utilization for auxiliary consumption respectively.
During the year 2009-10 the sales, fixed costs, variable cost, own Consumption was
decreased. When the estimated costed so sales consumption is 254.5% respectively.
During the year 2009-10 the average intensive are decreased 13% the other Income also
decreased11% respectively.
Finally with regard to the result in revenue cost of HERO MOTOCORP LTD
totally decreased 229.2% in the year 2009-10 respectively.
PARTICULAR
the 2008-09
2008-09
(Rs in corers)
(Rs in corers)
Sales
657
65.7
565
56.5
762
76.2
563
56.3
adjustment recovery
750
75.0
798
79.8
Own consumption
121
12.1
102
10.2
Total of 1
2290
229.0
2028
202.8
Average intensives
89
8.9
84
8.4
Other income
51
5.1
40
4.0
2430
243.0
2152
215.2
INTERPRETATION
The data pertaining to the generation and consumption have been obtained from the year
2008-09 and represented in table -3. The aspect included are total generation in (crores Rs) and
utilization for auxiliary consumption respectively.
During the year 2008-09 the sales, fixed costs, variable cost , own Consumption was
decreased. When the estimated costed so sales consumption is 243.0% respectively.
During the year 2008-09 the average intensive are decreased 5% the other Income also
decreased11% respectively.
Finally with regard to the result in revenue cost of HERO MOTOCORP LTD
totally decreased 215.2% in the year 2008-09 respectively.
PARTICULAR
the 2007-08
2007-08
(Rs in corers)
(Rs in corers)
Sales
680
68.0
569
56.9
789
78.9
623
62.3
adjustment recovery
695
69.5
812
81.2
Own consumption
121
12.1
122
12.2
Total of 1
2285
228.5
2126
212.6
Average intensives
96
9.6
84
8.4
Other income
51
5.1
40
4.0
2432
243.2
2250
225.0
INTERPRETATION
The data pertaining to the generation and consumption have been obtained from the year
2007-08 and represented in table -4. The aspect included are total generation in (crores Rs) and
utilization for auxiliary consumption respectively.
During the year 2007-08 the sales, fixed costs, variable cost , own Consumption was
decreased. When the estimated costed so sales consumption is 243.2% respectively.
During the year 2007-08 the average intensive are decreased 13% the other Income also
decreased11% respectively.
Finally with regard to the result in revenue cost of HERO MOTOCORP LTD
totally decreased 225.0% in the year 2007-08 respectively.
TABLE I
S.N
O
COSTED
PARTICULAR
YEAR
(Rs in corers)
2010-11
(Rs in corers)
AMOUNT
RS/MT
AMOUNT
897
89.7
856
85.6
254
25.4
215
21.5
Deprecation
42
4.2
15
1.5
18
1.8
20
2.0
Total of 3
60
6.0
35
3.5
1211
121.1
1106
110.6
VARIABLE COST
OPERATIVE
MAINTENANCE COST
S/MT
FINANCE CHARGES
INTERPRETATION
Observed from the above table that the operational expenditure cost of Hero MotoCorp
Ltd in the year 2010-11. Maintenance, employee cost, stationary & general expenses, rebate and
share of other expenses is all are fluctuating with the expenses of the year 2009-10. However the
total operating maintenance costs are 25.4% decreasing respectively.
In finance charges depreciation and interest on fixed capital, has been included
The total finance charges recording decreasing of 9.5% in the year 2010-11 respectively.
The overall costs results of Hero MotoCorp Ltd are earning more profits.
TABLE II
COSTED
S.NO
PARTICULAR
YEAR
(Rs in corers)
2009-10
(Rs in corers)
AMOUNT
RS/MT
AMOUNT
841
84.1
822
82.2
247
24.7
201
20.1
Deprecation
39
3.9
12
1.2
15
1.5
18
1.8
Total of 3
54
5.4
30
3.0
1142
114.2
1053
105.3
VARIABLE COST
OPERATIVE
MAINTENANCE COST
S/MT
FINANCE CHARGES
INTERPRETATION
Observed from the above table that the operational expenditure cost of Hero MotoCorp
Ltd in the year 2008-09. Maintenance, employee cost, stationary & general expenses, rebate and
share of other expenses is all are fluctuating with the expenses of the year 2009-10. However the
total operating maintenance costs are 24.7% decreasing respectively.
In finance charges depreciation and interest on fixed capital, has been included
The total finance charges recording decreasing of 2.4% in the year 2009-10 respectively.
The overall costs results of Hero MotoCorp Ltd are earning more profits.
TABLE III
SL.N
O
COSTED
PARTICULAR
YEAR
(Rs in corers)
2008-09
(Rs in corers)
AMOUNT
RS/MT
AMOUNT
811
81.1
798
79.8
214
21.4
157
15.7
Deprecation
36
3.6
11
1.1
15
1.5
18
1.8
Total of 3
51
5.1
29
2.9
1076
107.6
984
98.4
VARIABLE COST
OPERATIVE
MAINTENANCE COST
S/MT
FINANCE CHARGES
INTERPRETATION
Observed from the above table that the operational expenditure cost of Hero MotoCorp
Ltd in the year 2008-09. Maintenance, employee cost, stationary & general expenses, rebate and
share of other expenses is all are fluctuating with the expenses of the year 2008-09. However the
total operating maintenance costs are 21.4% decreasing respectively.
In finance charges depreciation and interest on fixed capital, has been included
The total finance charges recording decreasing of 2.2% in the year 2008-09 respectively.
The overall costs results of Hero MotoCorp Ltd are earning more profits.
TABLE IV
COSTED
S.NO. PARTICULAR
YEAR
(Rs in corers)
2007-08
(Rs in corers)
AMOUNT
RS/MT
AMOUNT
754
75.4
658
65.8
198
19.8
135
13.5
Deprecation
29
2.9
0.9
15
1.5
18
1.8
Total of 3
44
4.4
27
2.7
996
99.6
820
82.0
VARIABLE COST
OPERATIVE
MAINTENANCE COST
S/MT
FINANCE CHARGES
INTERPRETATION
Observed from the above table that the operational expenditure cost of Hero MotoCorp
Ltd in the year 2007-08. Maintenance, employee cost, stationary & general expenses, rebate and
share of other expenses is all are fluctuating with the expenses of the year 2007-08. However the
total operating maintenance costs are 19.8% decreasing respectively.
In finance charges depreciation and interest on fixed capital, has been included
The total finance charges recording decreasing of 5.3% in the year 2007-08 respectively.
The overall costs results of Hero MotoCorp Ltd are earning more profits.
The corporation mission of Hero MotoCorp Ltd is to make available and quality service
in increasingly large quantities, the company will spear head the process of accelerated
development of banking sector by expeditiously.
The organization needs the capable personalities as management to lead the organization
successfully, the management makes the plans and implement of these plans are expressed in
terms of cost and cost control.
The Hero MotoCorp Ltd has cost process in two stages. One is the capital expenditure
cost and another is operating maintenance cost, the capital expenditure cost shows the list of
capital projects selected for investment along with their estimated cost, operating & maintenance
cost refers to the repairs & maintenance costs, the special costs are rarely used in the
organization like long-term costs, research & development cost and cost for consultancy.
It Is to make available and quality work efficient resources and implementation of
sophisticated technology and cement generation and also creating ambience of collective
working of its employees.
SUGGESTIONS
Planning has become the primary function of management most of the planning relates to
individual and individual proposals. Costs are nothing but his expressions, largely in financial
terms, cost control has, therefore become and essential tool of management for controlling and
maximizing profits.
The company objectives of the organization and how they can be achieved through cost
control
Time tables for all stages of costing follow
Reports, statements, forms and other record to be maintained
Continuous comparison of actual performance with coasted performance.
BIBLIOGRAPHY
FINANCIAL ACCOUNTING
RP TRIVEDI
FINANCIAL MANAGEMENT
I.M. PANDEY
www.google.com
www.hero.com
www.costcontrolinindia.com
www.yahoofinance.com