Case study on Cost Accounting

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Numerical Case Study

On

“Cost Accounting”

By

Aditya Purohit (BBA 2nd Year)

106/10 civil lines,

Ajmer 305001

Website: www.dezyneecole.com

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Contents

Introduction of Amul ice cream company……………….…… 3

What is cost sheet……………………………………………... 4

Objectives of cost sheet………………………………………..5

Format of cost sheet…………………………………………… 6

Cost sheet of Amul ice cream…...……………………………..12

Analysis of cost sheet………………………………………….14

Conclusion……………………………………………………..15

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INTRODUCTON OF AMUL ICE CREAM COMPANY

Amul Ice Cream was launched on 10th March, 1996 in Gujarat. The portfolio consisted of impulse products like sticks, cones, cups as well as take home packs

and institutional/catering packs. Amul ice cream was launched on the platform of ‘Real Milk. Real Ice Cream’ given that it is a milk company and the

wholesomeness of its products gives it a competitive advantage.

In 1997, Amul ice creams entered Mumbai followed by Chennai in 1998 and Kolkata and Delhi in 2002. Nationally it was rolled out across the country in

1999.

It has combated competition like Walls, Mother Dairy and achieved the No 1 position in the country. This position was achieved in 2001 and it has continued to

remain at the top.

Today the market share of Amul ice cream is 38% share against the 9% market share of HLL, thus making it 4 times larger than its closest competitor.

Not only has it grown at a phenomenal rate but has added a vast variety of flavours

to its ever growing range. Currently it offers a selection of 220 products. Amul has always brought newness in its products and the same applies for ice creams.

In January 2007, Amul introduced SUGAR FREE & ProLife Probiotic Wellness Ice Cream, which was a first in India. This range of SUGAR FREE, LOW FAT Diabetic Delight & ProLife Probiotic Wellness Ice Cream is created for

the health conscious.

Amul’s entry into ice creams is regarded as successful due to the large market share it was able to capture within a short period of time – due to price differential,

quality of products and of course the brand name.

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What is Cost?

Cost means ‘the amount of expenditure (actual or notional)

incurred on or attributable to a given thing.’

What is Cost Sheet?

“The system of cost accounting in which costs are determined

per unit of a single product in a continuous manufacturing

activity is known as Cost Sheet”

The per unit cost can be arrived at after dividing the total

expenditure by the quantity produced. A statement of cost or a

cost sheet is made out which throws light on every aspect of

cost.

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Objectives of Cost sheet

The main objectives of Cost Sheet are as follows:-

• To Find total cost and per unit cost.

• To analyze the expenses incurred on the cost unit.

• Comparative analysis.

• To find the proportion of each element of cost in the total cost.

• Basis for determining selling price.

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Format of detailed Cost Sheet

(Cost Sheet of…………….For the period……………)

Output……………. Units Unit………….

Particulars Total

Cost

Rs.

Cost per

Unit

Rs.

Rs.

Direct Material Consumed :

Opening Stock of Material ……… ………

Add: Purchases ……… ………

Carriage Inward ……… ………

Custom Duty and Octori ……… ………

Dock Charges ……… ………

Freight Inward ……… ………

Primary Packaging Material ……… ………

……… ………

Less: Closing Stock of Material ……… ………

Direct Wages

Royalty on Production ………

Other Direct Expenses/Chargeable Expenses ………

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PRIME COST

………

………

Add: Factory Overheads :

Factory, Rent, Rates and insurance ………

Factory Lighting ………

Factory Supervision ………

Drawing Office Salaries ………

Motive Power ………

Fuel & Oil ………

Grease, Water etc. ………

Steam ………

Welfare Expenses ………

Laboratory Expenses ………

Depreciation of Plant & Machinery ………

Depreciation of Factory Building ………

Repair & Maintenance of Factory ………

Indirect Wages ………

Technical Director’s fees ………

Haulage ………

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Loose Tools Written-off ………

Material Storage Expenses ………

Material Handling Charges ………

Factory Stationery ………

Works-Manager’s Salary ………

Works Clerical Staff’s Salary ………

Supervisor’s Salary ………

Storekeeper’s Salary ………

Service Department’s Expenses ………

Factory Cleaning ………

All Other Factory Expenses ……… ………

Add: Opening Work-in-Progress ………

………

Less: Closing Work-in-Progress ……… ………

FACTORY COST/WORKS COST ………

Add: Office Overheads: ………

Office Rent, Rates & Taxes ………

Staff Salaries ………

Office Lighting ………

Office Cleaning ………

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Printing & Stationery ………

Postage & Telegram ………

Office Conveyance ………

Depreciation of Office Bldg & Furniture ………

All Expenses of Directors ………

Depreciation on Office Equipments ………

Office Repairs ………

Sundry Expenses ………

General Expenses ………

Legal Expenses ………

Audit Fees ………

Bank Charges ………

Total Office Overhead ………

COST OF PRODUCTION/COST OF

OUTPUT

………

Add: Opening Stock of Finished Goods ………

………

Less: Closing Stock of Finished Goods ………

COST OF FINISHED GOODS SOLD ………

Add: Selling Overheads:

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Advertisement ………

Show Room Expenses ………

Travelling expenses ………

Commission on Sales ………

Salesman Salaries ………

Expenses on Market Research ………

Bad Debts (If treated part of Cost) ………

Sample and Gifts ………

Counting House Salaries ………

Service Expenses ………

Demonstration Expenses ………

Packaging Expenses ………

Loading and Carriage Charges on Sales ………

Rent of Warehouse (of finished goods) ………

Insurance & Lighting of Warehouse ………

Expenses of Delivery Van ………

Salaries of Packing Department ………

Collection Charges ………

Cost of Catalogues ………

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Cost of Mailing Literature ………

Cost of Tenders ………

Branch Expenses ………

Total Selling and Distribution Overhead ………

TOTAL COST OF GOODS SOLD OR

COST OF SALES

………

PROFIT

………

SALES

………

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Amul-Ice-Cream Company’s Cost Sheet

Following are the particulars of the Amul- Ice-Cream

company’s cost sheet:

Particulars Total

Cost Rs.

Cost per

Unit Rs.

Rs.

Direct Material

Consumed:

Opening stock of Material 100000 10

Raw material 300000 3

Dry fruit 250000 2.5

Milk 300000 3

Flavours 350000 3.5

Other ingredients 200000 2

Sugar 250000 2.5

Cup 150000 1.5

Cutlery 100000 1

Seasonal fruit 50000 0.5

Waffle 100000 1

Cocoa 150000 1.5 3200000

Carriage inward 1.845 184500

Raw material consumed 33.845 3384500

Direct expenses 2.2 220000

Direct labour 5.3 530000

Prime Cost 41.345 4134500

Factory overhead: Fixed:

Deprecation 250000 2.5

Rent 100000 1

Power 175000 1.75

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Insurance 150000 1.5

Superior’s Salary 60000 0.6

Variable :

Electricity 70000 0.7

Running expenses of machine

100000 1

9.05 905000

Work cost 50.395 5039500

Office overheads:

Employee cost 1000000 10

Other expenditure

Computer 120000 1.2

Telephone 10000 0.1

Taxes 40000 0.4

Carriage outward 20000 0.2

11.9 1190000

Cost of Production 62.295 6229500

Opening stock closing stock 2 200000

Cost of goods sold 64.295 6429500

Selling &Distribution

expenses:

Advertisement` 400000 4

Delivery vehicles 350000 3.5

Petrol 175000 1.75

Packaging Rates 50500 0.505

9.755 975500

Cost of sales 74.05 7405000

Profit 18.5 1851250

Sales 92.5625 9256250

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Question1: Comment of the company production and

sales aspects and estimate the profit?

Question2: Estimate the company’s per-unit profit of Ice-

cream?

Question3: Calculate the selling price (S.P.) the

company?

SOLUTIONS

Answer1: By analyzing the cost sheet of the Amul Ice Cream

Company, we can see that the total cost of Ice Cream production

of the company is Rs. 6229500; therefore, cost per unit of the

production will be Rs.62.295. After introducing the product (Ice

cream) into the market, the company estimated the cost of sales

to be Rs.7405000, therefore, cost per unit will be Rs.74.05 but

before introducing the product in the market, the company will

calculate its profit by adding 25% into the total cost of sales of

the product, so the company will generate a profit of

Rs.1851250.

Answer2: Total selling price of the company is Rs-9256250 and

the selling price of the ice-cream per unit is Rs-92.5625. Then

per unit profit for ice-cream would be Rs-18.5.

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Answer3: The selling price of the company is Rs.9256250

which is 20% at the cost.

CONCLUSION

By preparing the cost sheet, company can compare its

position with that of its competitors. According to the

analyses of the company’s cost sheet the company will

earn the profit of Rs.1851250 at the cost of Rs.7405000

which is a good profit to be considered.