Chapter 4 for College

COST

The ICMA, London has defined cost as “the amount of expenditure (actual

or notional) incurred on or attributable to a specified thing or activity”.

COST CONTROL

Cost control refers to management’s effort to influence the actions of

individuals who are responsible for performing tasks, incurring costs, and

generating revenues. Cost control is a particularly important area of focus

for small businesses, which often have limited amounts of time and money.

VARIOUS ELEMENTS OF COST

There are three main elements of cost. They are

1. Material

2. Labour

3. Overhead

MATERIALS

The term “material” is generally, used to refer to raw materials used in the

process of production, semi-finished materials or products, components and

spare parts, consumable stores or factory suppliers, such has oils and fats,

soaps, detergents, chemicals etc. and packing material, such as boxes

cellophane papers etc. The substance from which the product is made is

known as material. It may be in raw or manufactured states. It can be direct

CHAPTER 4 : DATA ANALYSIS AND INTERPRETATION Page 84

as well as indirect. It may be noted that the term the “materials” differs from

the term “stores” and “inventory”.

Materials are, usually, classified into two categories. They are direct

material and indirect material. This classification of materials is mostly

based on convenience rather than on any strict principle.

DIRECT MATERIALS at KSDL

Direct materials refers to those materials which become part and parcel of

the finished product, and which can be conveniently identified with and

wholly allocated to a particular cost center or cost unit. The cost of direct

materials form a major production of the total cost of the product the cost

direct material varies directly in proportion to output.

In KS & DL, Direct materials are raw materials, materials used by the cost

centers, within the geographical area of production work. All other materials

are shall be indirect materials.

All materials are components specifically purchased, Palm acid oil, other

oils and fats, Linear alkyl benzene, perfumery materials, packing

materials, sandalwood etc. The high value materials are monitored.


PALM ACID OIL

Palm oil is an edible vegetable oil derived from the mesocarp (reddish pulp)

of the fruit of the oil palms, primarily the African oil palm. Palm oil is

naturally reddish in colour because of a high beta-carotene content.

Along with coconut oil, palm oil is one of the few highly saturated vegetable

fats. It is semi-solid at room temperature and contains several saturated and

unsaturated fats


TABLE: 4.1

TABLE SHOWING THE COST BREAKUP IN MATERIAL

OF PALM ACID OIL AND UNIT COST OF KS & DL.

PARTICULARS 2011 2012 2013

Palm acid oil 166960374 185607552 254262576

Total unit cost 43254 46672 48642

GRAPH: 4.1

GRAPH SHOWING THE COST BREAKUP IN MATERIAL

OF PALM ACID OIL COST

2011 2012 20130

50000000

100000000

150000000

200000000

250000000

300000000

166960374185607552

254262576

Palm acid oil


ANALYSIS AND INTERPRETATION

Graph 4.1 shows the mixed the movement of direct material cost. The

reason for increase and decrease of expenditure on material, at KS & DL is

due to the consumption of direct material. The direct material consumption

fluctuates due to the production order which the company receives that year.

Total unit cost is increased considerably over the three years. Total unit cost

in the year 2011 it was 43254 units, in the year 2012 it was 46672 units and

in the year 2013 it was 48642 units. Considering the above three year it

indicates that the company consumed more direct material. This shows that

the company spent more cost on direct material.

OILS AND FATS

Fats and oils, group of organic substances that form an important part of

the diet and also are useful in many industries. The fats are usually solid,

the oils generally liquid at ordinary room temperatures. Some tropical

products, liquids in their sites of origin, become solids in cooler climates.

Example : palm oil, coconut oil etc.


TABLE: 4.2


OF OTHER OILS AND FATS AND UNIT COST OF KS&DL.


Other oils and fats 66560497 93028630 109614504

Total unit cost 53036 73674 65340

GRAPH: 4.2


OF OTHER OILS AND FATS COST

2011 2012 20130

20000000

40000000

60000000

80000000

100000000

120000000

66560497

93028630

109614504

Other oils and fats







Total unit cost is fluctuating considerably over the three years. Total unit

cost in the year 2011 it was 53036, in the year 2012 it was73674 and in the

year 2013 it was 65340. Considering the above three year it indicates that

the company spent less cost in the year 2011 when compared to 2012.

When compared to 2012 and 2013 the company spent less cost in 2013

compared to 2012.

Linear alkyl benzene

Linear alkyl benzene is a family of organic compounds. They are mainly

produced as intermediate in the production of surfactants, for use in

detergent. They are sometimes called LABs. LAB sulfonic acid is the

largest-volume synthetic surfactant because of its relatively low cost, good

performance, the fact that it can be dried to a stable power and the

biodegradable environmental friendliness as it has straight chain.


TABLE: 4.3


OF LINEAR ALKYL BENZENE AND UNIT COST OF

KS&DL.


Linear alkyl benzene 18507418 19655620 21362735

Total unit cost 63772 83140 87209

GRAPH: 4.3


OF OTHER LINEAR ALKYL BENZENE AND COST

2011

2012

2013

17000000175000001800000018500000190000001950000020000000205000002100000021500000

18507418

19655620

21362735

Linear alkyl benzene








in the year 2011 it was 63772, in the year 2012 it was 83140 and in the year

2013 it was 87209. Considering the above three year it indicates that the

company consumed more direct material. This shows that the company

spent more cost on direct material.

Packing materials

Packing material any material used especially to protect something.

Packaging is the box or wrapping in which a product is offered for sale.

Packing materials in KS&DL are MSG 125 CARTONS, BT stickers, MRS

Wrappers, SBT (S) CBS, Carbolic CBS, Gift Pack 6x1 CBS etc..

TABLE: 4.4



OF PACKING MATERIALS AND UNIT COST OF KS&DL.


Packing materials 94893095 107435742 117505203

Total unit cost 94893095 107435742 117505203

GRAPH: 4.4


OF PACKING MATERIALS AND COST

2011 2012 20130

20000000

40000000

60000000

80000000

100000000

120000000

94893095107435742

117505203

Packing materials








in the year 2011 it was 94893095, in the year 2012 it was 107435742 and in

the year 2013 it was 117505203. Considering the above three year it

indicates that the company consumed more direct material. This shows that

the company spent more cost on direct material.

SANDALWOOD

Sandalwood is the name of a class of fragrant woods from trees in the genus

Santalum. The woods are heavy, yellow and fine-grained, and unlike many

other aromatic woods, they retain their fragrance for decades. Sandalwood

oil is extracted from the woods for use. Both the wood and oil produce a

distinctive fragrance that has been highly valued for centuries.

TABLE: 4.5



OF SANDAL WOOD AND UNIT COST OF KS & DL.


Sandal wood 141487562 179787025 265845294

Total unit cost 3917587 4204266 4610567

GRAPH: 4.5


OF SANDAL WOOD AND COST

20112012

2013

0

50000000

100000000

150000000

200000000

250000000

300000000

141487562179787025

265845294

Sandal wood

Sandal wood








in the year 2011 it was 3917587, in the year 2012 it was 4204266 and in the

year 2013 it was 4610567. Considering the above three year it indicates that

the company consumed more direct material. This shows that the company

spent more cost on direct material.

INDIGENOUS RAW MATERIALS AT KS&DL


Indigenous materials are raw material from the environment. Indigenous

may refer to the (ecology) presence in a region as the result of only natural

processes, with no human intervention. Raw materials are the components

that are used in the making of a product. It is the basic material that is used

in the manufacture of a final product. For instance, the main ingredient of

chocolate is cocoa, thus making it its raw material.

Examples of indigenous materials are leaves, sticks, old clothe etc. Some of

the examples of indigenous material at KS&DL for Perfumery materials are

sandalwood oil clove leaf oil, sandalwood oil booster/BBA, sandalwood oil

fraction, sandal Mysore core, lemon grass oil etc.

Example of indigenous material at KS&DL for chemicals are soap

noodles70:30, soap noodles 85:15, talc 300 mesh cosmetic, white clay,

HCL, china clay, urea, sodium hydrochloride, pigment yellow paste etc.

TABLE: 4.6


TABLE SHOWING THE COST BREAKUP IN

INDIGENOUS MATERIAL AT KS & DL


Indigenous material (%) 89.14 89.85 91.9

AMOUNT 729245646 881097126 1151750758

GRAPH: 4.6

GRAPH SHOWING THE COST BREAKUP IN

INDIGENOUS MATERIAL

2011 2012 2013

89.14

89.85

91.9

Indigenous material (%)Indigenous material (%)



Graph 4.6 shows the consumption indigenous raw materials cost. The

reason for increase and decrease of expenditure on material, at KS&DL is

due to the consumption of indigenous raw material. The indigenous raw

material consumption fluctuates due to the production order.

Consumption of indigenous raw material has been considerably increased

over the 3 years. Material consumed in the year 2011, it was 89.14%, in the

year 2012, it was 89.85% and in the year 2013, it was 91.90%. Therefore it

indicates that the company has incurred more of indigenous material when

compared to imported materials, which means there is a cost control during

the years.

LABOUR AT KS & DL


Direct labour is the most important element in production, it is the second

most important of cost analysis. Labour takes an active direct part in

production of an item. Labour influences the cost of production not only

through its cost but also through its influence on other elements of cost such

as inefficient labour results (low efficiency) increase in wastage, spoil, scrap

etc. Therefore labour influences the cost of production both directly and

indirectly through its influence on cost control.

At KS&DL, the earnings and incentives of employee are considered as

direct labour. If an employee is working with in the geographical area of

production. Statutory welfare requirements have been met. Workmen and

staff have been encouraged with all help and assistance to take part in sports,

fine, arts and cultural activities. In order to motivate the workmen for better

productivity, workers education/training programmes were conducted during

the year. Labour charges are calculated based upon the number of hours the

work through fully biometric system. Fringe benefits are paid to the

employees as per the Memorandum of Understanding (MOU) concluded

between the Management and the Employees.

TABLE: 4.7


TABLE SHOWING THE COST BREAKUP IN SALARIES

AND WAGES, BONUS AND EX-GRATIA AT KS & DL


Salaries and wages, bonus &

ex-gratia

29234299

6

30171384

8

32091271

5

GRAPH: 4.7

GRAPH SHOWING BREAKUP IN SALARIES AND

WAGES, BONUS AND EX-GRATIA

20112012

2013

Salaries and wages,bonus & ex-gratia

Salaries and wages,bonus & ex-gratia



Graph 4.7 shows the comparison of the direct labour i.e, salaries and wages,

bonus and ex-gratia of the three years 2011, 2012, 2013. In 2011, the cost of

salaries and wages of employee benefit is 292342996, in the year 2012 it

was 301713848. When compared to 2011, in 2012 there is an increase in the

salaries and wages, bonus and ex-gratia.

In the year 2012, the cost of salaries and wages of employee benefit in

labour is 301713848, in the year 2013 it was 320912715. When compared to

2012, in 2013 there is an increase in the salaries and wages, bonus and ex-

gratia.

From the above analysis made for the years it can be inferred that labour is a

major component of cost and an effective manner also to control cost.

Overall cost for the three years, the utilization of man power in a proper way

is essential for the company’s growth.

TABLE: 4.8


TABLE SHOWING THE COST BREAKUP IN DIRECTORS

REMUNERATION AT KS & DL


Directors Remuneration 1836576 1868957 230248

3

GRAPH: 4.8

GRAPH SHOWING THE COST BREAKUP IN DIRECTORS

REMUNERATION

2011 2012 20130

500000

1000000

1500000

2000000

2500000

18365761868957

2302483

Directors Remuneration



Graph 4.8 shows the comparison of the direct labour i.e, directors

remuneration of the three years 2011, 2012, 2013. In 2011, the cost of

directors remuneration is 1836576, in the year 2012 it was 1868957. When

compared to 2011, in 2012 there is an increase in directors remuneration.

In the year 2012, the cost of salaries and wages of employee benefit in

labour is 1868957, in the year 2013 it was 2302483. When compared to

2012, in 2013 there is an increase in directors remuneration.






TABLE: 4.9

TABLE SHOWING THE COST BREAKUP IN PROVIDENT

FUND AND OTHERS FUND AT KS & DL


Provident fund and other

funds

2809719

8

2807329

8

3309502

0

GRAPH: 4.9

GRAPH SHOWING THE COST BREAKUP IN PROVIDENT

FUND AND OTHER FUNDS

2011 2012 2013

28097198 28073298

33095020

Provident fund and other funds



Graph 4.9 shows the comparison of the direct labour i.e, provident fund and

other funds of the three years 2011, 2012, 2013. In 2011, the provident fund

and other funds is 28097198, in the year 2012 it was28073298. When

compared to 2011, in 2012 there is an decrease in provident fund and other

funds.

In the year 2012, the cost provident fund for employee benefit in labour is

28097198, in the year 2013 it was 33095020. When compared to 2012, in

2013 there is an increase in provident fund and other funds.






TABLE: 4.10

TABLE SHOWING THE COST BREAKUP IN GRATUITY

AT KS & DL


Gratuity 2391025

6

6175330 2800978

8

GRAPH: 4.10

GRAPH SHOWING THE COST BREAKUP IN SHOWING

GRATUITY

2011 2012 2013

23910256

6175330

28009788

GratuityGratuity



Graph 4.10 shows the comparison of the direct labour i.e., gratuity of the

three years 2011, 2012, 2013. In 2011, the cost of gratuity is 23910256, in

the year 2012 it was 6175330. When compared to 2011, in 2012 there is an

decrease in gratuity.

In the year 2012, the cost of gratuity in labour is 6175330, in the year 2013

it was 28009788. When compared to 2012, in 2013 there is an increase in

directors remuneration.

From the above analysis made for the years it can be inferred that labour is

a major component of cost and an effective manner also to control cost.




TABLE: 4.11

TABLE SHOWING THE COST BREAKUP IN LABOUR

WELFARE EXPENSES AT KS &DL


Labour Welfare Expenses 1859147

6

2010327

1

2566877

2

GRAPH: 4.11

GRAPH SHOWING THE COST BREAKUP IN LABOUR

WELFARE EXPENSES


2011 2012 20130

5000000

10000000

15000000

20000000

25000000

30000000

1859147620103271

25668772

Labour Welfare Expenses


Graph 4.11 shows the comparison of the direct labour i.e., labour welfare

expenses of the three years 2011, 2012, 2013. In 2011, the cost of labour

welfare expense it was 18591476, in the year 2012 it was 20103271. When

compared to 2011, in 2012 there is an increase in labour welfare expense.

In the year 2012, the cost of labour welfare expense it was 20103271, in the

year 2013 it was 25668772. When compared to 2012, in 2013 there is an

increase in labour welfare expenses.

From the above analysis made for the years it can be inferred that labour is

a major component of cost and an effective manner also to control cost.




INVENTORY MANAGEMENT

Inventory management and control refers to the task of keeping

inventory level in such a way as to maintain smooth production and sales

operations and at the same time keeping investment in inventories at the

minimum level.

TECHNIQUES IN INVENTORY MANAGEMENT

The following are the tools and techniques commonly applied for inventory

management and control.

1. Economic Order Quantity (EOQ)

2. Setting up of various stock levels

3. ABC Analysis

4. Perpetual Inventory System

5. JIT Control System

6. Inventory Turnover System

7. VED Analysis

8. Ageing Schedule

INVENTORY TURNOVER RATIO


Inventory turnover ratio is also known as stock velocity. Every firm has to

maintain a certain level of inventory of finished goods so as to be able to

meet the requirement of the business. But the level of inventory should b

neither be too high nor too low.

ITR= COSTOF SALESAVERAGE INVENTORY

INVENTORY CONVERSION PERIOD

Inventory conversion period is the average time taken for clearing the

stocks. This period is calculated by dividing the number of days by

inventory turnover.

ICP= 365INVENTORY TURNOVER RATIO

TABLE: 4.12

TABLE SHOWING INVENTORY TURNOVER RATIO AT

KS & DL

NAME OF THE

PRODUCTS

COST OF

SALES

AVERAGE

INVENTORY

INVENTORY

TURNOVER

RATIO

Soaps 2005805380 229045938 8.75

Detergents 72834174 14595203 4.99

Sandalwood oil 7284905 1128806 6.45


Agarbathies 90072105 7105748 12.67

Talcum powder 64846844 1251567 51.81

Coconut oil 43669728 2296527 19.01

Others 26719661 2560380 10.43

GRAPH: 4.12

GRAPH SHOWING INVENTORY TURNOVER RATIO


Soaps Detergents Sandalwood oil

Agarbathies Talcum powder

Coconut oil Others0

10

20

30

40

50

60

8.75

4.996.45

12.67

51.81

19.01

10.43

INVENTORY TURNOVER RATIO



From the analysis of the above table 4.12, the inventory turnover ratio of the

company for the year 2011-2012 of the product i.e. soaps it was 8.75 times,

detergents it was 4.99 times, sandalwood oil it was 6.45 times, agarbathies it

was 12.67 times, talcum powder it was 51.81 times, coconut oil it was 19.01

times and others 10.43 times.

The above graph shows that the turnover of talcum powder is more when

compared to that of all other inventory and the turnover of detergents is less

when compared to others.

TABLE: 4.13


TABLE SHOWING INVENTORY TURNOVER

CONVERSION IN NUMBER OF DAYS FOR THE PERIOD

2011-2012 AT KS & DL

NAME OF THE

PRODUCTS

360/365

DAYS

INVENTORY

TURNOVER

RATIOS

INVENTORY

CONVERSION

PERIOD

Soaps 365 8.75 41.71

Detergents 365 4.99 73.14

Sandalwood oil 365 6.45 56.58

Agarbathies 365 12.67 28.80

Talcum powder 365 51.81 7.04

Coconut oil 365 19.01 19.2

Others 365 10.43 34.99

GRAPH: 4.13

GRAPH SHOWING INVENTORY CONVERSION PERIOD




Coconut oil Others

41.71

73.14

56.58

28.8

7.04

19.2

34.99

INVENTORY CONVERSION PERIODINVENTORY CONVERSION PERIOD



The above table shows the inventory conversion period of 2011-2012. In the

above year the various products like soaps, detergents, sandalwood oil,

agarbathies, talcum powder, coconut oil and other products. The inventory

conversion period of talcum powder is more in the company. The company

requires much of talcum powder for every 7.04days when compared to other

inventory. The company requires less of detergents for every 73.14days

when compared to others.

TABLE: 4.14


TABLE SHOWING INVENTORY TURNOVER RATIO FOR

THE PERIOD OF 2012-2013 AT KS & DL

NAME OF THE

PRODUCTS

COST OF

SALES

AVERAGE

INVENTORY

INVENTORY

TURNOVER

RATIO

Soaps 2490291162 190702907 13.05

Detergents 7642402 9180562 0.83

Sandalwood oil 10691327 13951224 0.76

Agarbathies 122972481 7965309 15.53

Talcum powder 72481357 10686469 6.78

Coconut oil 58065327 2609707 22.24

Others 31388762 1409742 22.26

GRAPH: 4.14

GRAPH SHOWING INVENTORY TURNOVER RATIO




Coconut oil Others

13.05

0.8300000000000010.760000000000003

15.53

6.78

22.24 22.26

INVENTORY TURNOVER RATIOINVENTORY TURNOVER RATIO



From the analysis of the above table 4.14, the inventory turnover ratio of the

company for the year 2011-2012 of the product i.e. soaps it was 13.05 times,

detergents it was 0.83 times, sandalwood oil it was 0.76 times, agarbathies it

was 15.53 times, talcum powder it was 6.78 times, coconut oil it was 22.24

times and others 22.26 times.

The above graph shows that the turnover of other products is more when

compared to all other inventory and the turnover of sandalwood oil is less

when compared to other inventory.

TABLE: 4.15


TABLE SHOWING INVENTORY TURNOVER

CONVERSION IN NUMBER OF DAYS FOR THE PERIOD

2012-2013 AT KS & DL

NAME OF

THE

PRODUCTS

360/365

DAYS

INVENTORY

TUNOVER

RATIO

AVERAGE

CONVERSIO

N PERIOD

Soaps 365 13.05 27.96

Detergents 365 0.83 439.75

Sandalwood oil 365 0.76 480.26

Agarbathies 365 15.53 23.5

Taclum powder 365 6.78 53.83

Cocount oil 365 22.24 16.41

Others 365 22.26 16.39

GRAPH: 4.15


GRAPH SHOWING INVENTORY TURNOVER

CONVERSION PERIOD


Agarbathies Taclum powder

Cocount oil Others

27.96

439.75

480.26

23.5

53.83

16.41 16.39

INVENTORY CONVERSION PERIODINVENTORY CONVERSION PERIOD



The above table shows the inventory conversion period of 2012-2013. In the

above year the various products like soaps it is 27.96 days, detergents it is

439.75 days, sandalwood oil it is 480.26days, agarbathies it is 23.5days,

talcum powder it is 53.83days, coconut oil it is 16.41days and other products

it is 16.39days.

The inventory conversion period of sandalwood oil is more when compared

to other products.


Chapter 4 for College

Documents

cost of direct materials

cost direct material

cost unit

total cost

raw materials

indirect materials

cost breakup

cost centers