Sahil Product Costing11

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A

SUMMER TRAINING PROJECT

ON

PRODUCT COSTING OF PISTON

UNDER TAKEN AT

FEDERAL MOGUL GOETZ INDIA LTD

PATIALA (Punjab)

Submitted to Punjab Technical University, Jalandhar in partial

fulfillment of the requirements for the degree of

Master of Business Administration

(Session 2009-2011)

Submitted by:

SAHIL KUMAR

SWAMI VIVEKANAND INSITUTE OFENGINEERING & TECHNOLOGY
http://www.federal-mogul.com/en/


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ACKNOWLEDGEMENT

I hereby want to thank Federal Mougal Goetz India Ltd. and its members for their help

given to me during my training. I was thrilled to find that people here were very co-

operative and helped me in all ways possible. They were very eager in solving my

queries and were ready to help all the time.

Moreover, I want to take this opportunity to thank Ms. SHUBKAMNA Despite being

one of the busiest people in the bank he took out time to attend to my questions. So for

this, I want to thank him for his co-operation and knowledge that he has imparted to me.

SAHIL KUMAR

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DECLARATION

I, SAHIL KUMAR hereby declare that the project entitledPRODUCT COSTING assigned to me by FEDERAL MOGULGOETZE (INDIA) LTD, during my 8 weeks training for the

partial fulfillment of MBA is the original work done by me and theinformation provided in the study is authentic to the best of my

knowledge.

This study has not been submitted to any other institution oruniversity for the award of any other degree.

SAHIL KUMAR

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TABLE OF CONTENTS

SR. NO. PAGE NO.

ACKNOWLEDGEMENT 02

CERTIFICATE BY PROJECT GUIDE 03

DECLARATION 04

01 INTRODUCTION

Company Profile [Goetze (India) Ltd.

Company profile [federal mogul

Federal Mogul Goetze (India) Ltd.

07

08

12

02 SCOPE & OBJECTIVE OF STUDY

Research Methodology

Limitations

32

33

03 PRODUCT COSTING

Product Costing of Goetze (India) Ltd.35

04 CONCLUSION

SWOT Analysis

Findings & Suggestions

70

72

05 BIBLIOGRAPHY 76

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Chapter 1

INTRODUCTION

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COMPANY PROFILE

It is good to have goodwillIt is good to have enthusiasmBut it is essential to have training

Pt. J.L.Nehru

The above quoted lines by the great soul Pt.J.L.Nehru rightly tell us that training isa very necessary part in ones life of one wants to achieve success &have properknowledge about a particular aspect.

Federal Mogul Goetze (India) Limited was established in 1954 as a joint venture

with Goetze-Werke of Germany.

Goetze-Werke of Germany is now owned by Federal-Mogul Corporation of USA,

a 6.3 billion company and one of the largest manufacturers of automotivecomponents in the world.

Federal Mogul Goetze (India) Limited is the largest manufacturer of PISTONS &

PISTON RINGS in India.

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Federal Mogul Goetze (India) Limited

Manufacturers of world class Pistons, Piston Rings, Sintered Parts & Cylinder

Liners covering wide range of applications: Two / Three - Wheelers, Cars, Jeeps,

Tractors, Light Commercial Vehicles, Heavy Commercial Vehicles, Stationary

Engines & High out-put Locomotive Diesel Engines. Widest range of Piston Rings

& Pistons varying from a 30mm to 300mm Dia. The most modern

production facilities at Bangalore & Patiala are TS 16949 and ISO14001

certified & at Bhiwadi TS 16949 certified. Market leaders both in OE

and Replacement Market. Exports too many countries.

Federal Mogul Goetze (India) Ltd. based in Bangalore was established in 1954 as

a joint venture between Goetze-Werke of Germany and Escorts Ltd. Goetze-

Werke, is however now part of Federal Mogul Corporation of US, a 6.17 billion

company and one of the largest manufacturers of automotive components in the

world. The Group's principal activities are the manufacture of piston rings (OE) for

shell moulding process and production of edible oil and leather garments exports.

The company is amongst the largest manufacturer of automotive pistons, gudgeon

pins in India and covers complete range of bi-wheelers, passenger cars, three

wheelers, LCVs, trucks, HCVs etc, and has a market share of 36%. The company

caters to both OE (Original equipment) and RM (replacement market) segment of

automotive industry. The major customers of the company include Telco, Ashok

Leyland, Bajaj, TVS, Mahindra & Mahindra, Maruti, defence and the Indian

Railways. The companys manufacturing facilities are situated at Bangalore and

Patiala. The companys plants are situated at Alwar, Bhiwandi, Bangalore and

Patiala.

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The present product range covers Piston Rings which constitute the Ring Activity

and Pistons, Piston-Pins and Circlips in Piston Activity. The company is the largest

manufacture of Piston Rings and Pistons in the country.

Over a period of time, keeping in view the nature of demand, additional capacities

were created besides upgrading technology to growing trends by virtue of stream

ling quality culture, adaptation of latest technology & equipment.

Technology leadership matched with innovated thinking has made GOETZE

products to enjoy a high degree of customer confidence and is the first choice of

every discerning customer for applications ranging from Bi-wheelers to Battle

Tanks.

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Our History

1899 1940: Founded on Innovation1941 1956: Diversifying for Success1957 1974: Going Global

1975 2005: A Bright FutureFederal-Mogul Corporation is an innovative and diversified $6.3 billion globalsupplier of quality products, trusted brands and creative solutions to theautomotive, light commercial, heavy-duty truck, off-highway, agricultural, marine,rail and industrial markets. The 45,000 people of Federal-Mogul located in 35countries drive excellence in all they do.

Companys globally networked engineering and technical centers in the U.S.,Europe and Asia enable to bring customers breakthroughs in advanced technologyand innovation.

Federal Mogul is a premier supplier of products, services and solutions to originalequipment manufacturers that use quality components in their vehicles andautomotive systems, and to aftermarket customers who sell companys worldrenowned brand-name replacement parts through repair shops and retail outlets. As

partner with a global network of suppliers whose commitment to excellence and

on-time deliver is crucial to company success.

For more than a century, Federal Mogul has developed the innovative productswhich customers need to produce in the next generation of vehicles. Federal-Mogul has been creating value through innovation and leading technology formore than 100 years. Today, the company is a key player in the globalmarketplace, serving industries that range from automotive and commercial

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http://www.federal-mogul.com/en/OurCompany/CompanyOverview/History/FoundedonInnovation/http://www.federal-mogul.com/en/OurCompany/CompanyOverview/History/DiversifyingforSuccess/http://www.federal-mogul.com/en/OurCompany/CompanyOverview/History/Goingglobal/http://www.federal-mogul.com/en/OurCompany/CompanyOverview/History/ABrightFuture/http://www.federal-mogul.com/en/http://www.federal-mogul.com/en/http://www.federal-mogul.com/en/OurCompany/CompanyOverview/History/FoundedonInnovation/http://www.federal-mogul.com/en/OurCompany/CompanyOverview/History/DiversifyingforSuccess/http://www.federal-mogul.com/en/OurCompany/CompanyOverview/History/Goingglobal/http://www.federal-mogul.com/en/OurCompany/CompanyOverview/History/ABrightFuture/


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vehicles to railroad and aerospace. Customers know they can rely on Federal-Moguls quality excellence in products, trusted brands and creative solutions.

This company started with a bold idea and over time grew into a FORTUNE 500companies with a global workforce thousands strong. The Federal-Mogul team hascelebrated countless victories and worked hard to overcome the inevitablechallenges.

Federal-Mogul is a global supplier of automotive components, modules and

systems serving the world's original equipment manufacturers and the aftermarket

industry. The company utilizes its engineering and materials expertise, proprietary

technology, manufacturing skill, distribution flexibility and marketing power to

deliver quality products and services, and leading brands. Federal-Mogul is

focused on driving global profitable growth and creating value to satisfy customer,

employee and stakeholder expectations.

Headquartered in Southfield, Michigan, the Company, which reported sales of $6.3

billion in 2005, employs 42,000 people worldwide. Federal-Mogul was founded in

Detroit in 1899. The Companys principal customers include many of the worlds

foremost original equipment manufacturers of automotive, light commercial,

heavy-duty truck, agricultural, marine, rail and industrial vehicles and equipment

as well as the worldwide aftermarket.

Federal-Moguls products are sold under a variety of power brands, including but

not limited to, AE engine products, ANCO wipers, Champion spark plugs

and wipers, Fel-Pro gaskets, Ferodo brake pads, Glyco bearings, Goetze

piston rings, Moog chassis products, National wheel-end components, Nral

pistons, Payen gaskets, Sealed Power engine products and Wagner lighting

and brake products

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BRAND

Federal-Mogul Goetze (India) Limited

Manufacturer of world-class pistons, piston rings, sintered parts and cylinderliners covering a wide range of applications including two/three-wheelers, cars,SUVs, tractors, light commercial vehicles, heavy commercial vehicles, stationary

engines and high output locomotive diesel engines.

Widest range of piston rings and pistons varying from 30mm to 300mm diameter.

The most modern production facilities at Bangalore, Patiala and Bhiwadi arecertified TS 16949, ISO14001 and OHSAS 18001.

Market leaders both in OEM and aftermarket. Exports to many countries.

Goetze and Goetze Brico provides leading-edge technologies and competitivesolutions for original equipment manufacturers and the automotive aftermarket.

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PROFILE

Federal mogul Goetze (India) Limited was established in 1954 as a joint venturewith Goetze-Werke of Germany.

Goetze-Werke of Germany is now owned by Federal-Mogul Corporation, a $6.3billion global company and one of the leading manufacturers of automotivecomponents in the world.

Federal-Mogul Goetze (India) Limited is the largest manufacturer of pistons and

piston rings in India.

Production Capacity:Piston rings 54.96 Million

Pistons 13.57 Million

Turnover:Dec, 31st 2009

INR 67253.44 Lacks

Net Profit (after tax): Dec, 31st 2009INR (689.23) Lacks

Product Range: pistons, piston rings, , lightalloy castings, sintered

products

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MILESTONES

1954 Incorporated as a JV with Goetze Werke

1957 Ring & liner production Patiala

1958 Piston production as escorts(Automotive Division)(Collaboration:Mahle)

Patiala

1960Cast iron / Forged pistonproduction started

Patiala

1968Pins / ring carrier productionstarted

Patiala

1977 Piston / ring production started Bangalore

1982Steel rings / Large borelocomotive piston

Bangalore

1985 Light alloy products Patiala

1989 Auto thermic pistons production Bangalore

1990Moly coated / IKA / chrome oilrings

Patiala

1992Large bore rings / pistons forbattle tanks

Bangalore

1994Composite pistons / new ringfoundry

Bangalore

1996 Escorts (Automotive Division) hived off into joint venture with M/SMahle, Germany

1997 Goetze TP (India) Ltd. - Manufacturer of steel rings

2001Merger of Federal-Mogul sintered products Ltd. with Goetze (India)Ltd.

2003 Merger of Escorts pistons activities with Goetze (India) Ltd.

2004Introduction of chrome-ceramic rings

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2004 Technical collaboration for pistons with Federal-Mogul Corporation

2006 Majority stakeholding acquisition by Federal-Mogul Corporation

2006Name changed "Goetze (India) Limited" to "Federal-Mogul Goetze(India) Limited"

Mission of the Company

Steadily moving towards leadership with piston with vision strategy seeing it asthe best way to leaders in business

Vision of the company

To be one of the worlds leading automotive solutions provider.

Share Holding Pattern:

Federal-Mogul Corporation. 51 %

Goetze India Ltd. 24.5 %

Teikoku Piston Rings Co. Ltd., Japan 24.5 %

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51

24.5

24.5

Federal Mugal

Goetze indialtdTeikoku piston

EXPORT DESTINATION

Dubai

Bangladesh

Singapore

Egypt

Mauritius

U.S.A

Germany

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Nepal

Sri Lanka

Uganda

COLLABORATIONS

A. GERMANY

Faun

Class

B. JAPAN

Yamaha

Kayaka

Mikni

C. UK

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JCB (Goetze)

Ford

D. USA

HUGHES

E. FRANCE

Bosch

Dynapal

PRODUCT RANGE

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FEDERAL MOGUL GOETZE (INDIA) LTD. BAHADURGARH, PATIALA

Goetze (I) Ltd., Bahadurgarh, Patiala was set up in 1954 with the collaboration of

M/s. Goetze Werke, Germany which started its production of Piston Rings for

automobile industry in 1957. The plant is situated at Bahadurgarh, about 10 kms.

From Patiala on the Patiala-Rajpura Road.

Considering the need of complete Piston assembly, Escorts Ltd. ventured into

manufacturing of Pistons in 1958 with the collaboration of M/s. Mahle GmbH,

Germany, which delivered the Indian automobile industry its Pistons in 1960.

Escorts entered in collaboration with M/s. SUKO GmbH, Germany for Piston

Rings in 1967 and manufacturing started in 1968. To meet the increasing

demand of market, in 1977, a parallel unit for manufacturing Pistons and Piston

Pins was set up in Bangalore.

From 1 October 1996, Escorts Ltd. entered into joint venture with M/s. Mahle

GmbH, Germany with the formation of the new company Escorts Mahle Ltd. in

1998, Goetze also became a part of Federal Mougal, a well-known group of

USA. In June 2000, both Escorts Mahle Ltd. and Goetze have become QS-9000

certified companies.

The present capacity of the company is 549.60 lacs nos. Piston Rings and

135.68 lac nos. Pistons (on 302 working days). The total capital employed as on

31 Dec 2009 is 168.84 crores in Ring Activity and Piston Activity. The

workforce including managers and supervisors is 830 nos. in Ring Activity and

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1420 in Piston Activity as on 31 Dec 2009. The turnover of the Patiala Plants

280.39 crores excluding Excise (combined in Ring Activity and Piston Activity)

as on 31 Dec 2009.

PRODUCTS MANUFACTURED AT PATIALA PLANT

Pistons

Piston Rings

Cylinder Liners

Gudgeon Pins

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d) COMMERCIAL VEHICLES (LCVs & MCVs)

Telco

e) DEFENCE

Vehicles Factory, Jabalpur

f) COMPRESSORS

Telco

g) STATIONERY ENGINES

Kirloskar Oil Engines Ltd.

Greaves Ltd.

Birla

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Chapter 2

ORGANISATION

OFFEDERAL MOGUL

GOETZE (INDIA) LTD

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ORGANISATION GOALS

The company has laid down for itself goal of improving the value to thecustomers through:

LEADERSHIP: to maintain leadership in following categories

Market share: to maintain its status as brand leaders in the country for

Piston and Piston Pins.

Product Development: to develop Piston and Piston Pins for all new

applications as identified.

Technology: modernization and upgradation of technology to the

latest improvements to meet customer requirements.

CUSTOMER SATISFACTION:

It shall strive to achieve customer satisfaction rating more than 90%.

TECHNICAL REQUIREMENT:

Products are manufactured as per specifications based on DIN /

JIS / IS / MAHLE NORMS / SUKO NORMS as also against

customers specific requirements.

QUALITY:

To improve quality consistently through quality assurance and

process control.

DELIVERY:

To strive to achieve 100% on time delivery as per customer

requirements

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ORGANISATION STRUCTURE

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CHAIRMAN

EXECUTIVE

DIRECTOR

VICE

PRESIDENT

CHIEF (plant

Services)

CHIEF

(Manufacturing)

CHIEF

(Finance)

CHIEF

(Stores)

CHIEF

(Personnel)

MANAGERS

STAFF

SUB STAFF &WORKERS


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ORGANISATION SET UP

The organizational set up of the following departments is studied in detail:

1. Finance Department

2. Personnel Department

3. Purchase and Store Department

4. Production Department

FINANCE DEPARTMENT

D.G.M. (Finance), Patiala who is directly responsible to Plant Head (Finance and

Accounts), one of the most reputed Functional Department in GOETZE (INDIA)

LTD. C.G.M. manage the Department and under him there are two managers, one

is Finance Manager and other is Costing Manager. The Finance Manager isassisted by two supervisors one of these is responsible for cash and bank balances

and other is responsible for bills payable. Each supervisor is given two or three

assistants to work under him.

The amount of investment to be put in current assets like cash in hand, bank

balance, loans and advances, inventories, accrued expenses; dividends payable etc.

all are decided by Finance Department.

The realization of cash for the purpose of raw materials components and spares to

pay wages and salaries to incur day to day expenses and overhead costs, to meet

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selling costs to provide credit facilities to customers and to maintain inventories is

also the function of this department.

The formulation of policies with regard to profitability risk and liquidity, decisions

about comparison and level of current assets and liabilities, formulation of

production policy to keep the production steady by accumulating inventories,

formulation and execution of credit policy is also the function of Finance

Department.

This Department is responsible for handling transaction relating to purchase of raw

material as well as accounts relating to sales. It is also concerned with payment of

all expenses incurred by the company like purchase of raw material, electricity

bills, repairs etc. It is also concerned with valuation of various costs relating to

inventories.

It deals with determination of monthly wages, salaries of employees, fringe

benefits of retirement, provident funds deduction, incentives, bonus and all the

rewards, which the employees get for rendering their services to the company

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Functions of Finance Department

Cash Flow:

C.F. statements are being prepared by the plant, to be conveyed to HO. These

include sources as well as application of funds. Similarly applications of funds

related to the salary, payment to suppliers. Major expenses (like Electricity,

Telephone Bills, Excise duty and other personal & sales & administration

expenses).

Costing:

The costing is being done for all the products manufactured at the plant. These

relate to Piston, Ring, Cylinder Liners and Light Alloy Products. The Historical

base is being followed for costing purposes.

Consumption:

Every item being received in the plant for consumption. Input is being accounted

for at the plant. The ledgers are maintained for every receipt and issue.

Management Information System (MIS):

At the end of every month, profit & loss A/C is being prepared, highlighting the

sales, the expenses and profit/loss there on. Similarly first information report (FIR)

on the projected profit is prepared to find out the profits at the start of month.

Working capital management

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RESEARCH METHODOLOGY

The methodology used for the collection of data has been divided into two groups:

Primary Data

This data is based upon personal discussion with managers, officers and other

employees working in various sections of Finance Department, Piston Ring

Foundry Shop and Piston Ring Machine Shop.

Secondary Data

It is mainly based upon office records, Cost-sheets and other published documents

of Federal Mogul Goetz (India) Ltd., Bahadurgarh, and Patiala.

OBJECTIVES

The major objectives of present study are as follows:

Major Objectives:

To study the manufacturing process of pistons.

To calculate cost per piston.

Minor Objectives:

To study whether the firm is able to cover its cost of production.

To study whether the firm is utilizing its productive capacity efficiently.

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Chapter-4

PRODUCT

COSTING

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COSTING

It is essential to calculate the amount of expenditure (actual or notional) incurred

on or attributable to, a given thing so that the profit objective of producing it can be

determined.

Costing is the process of ascertaining the cost of activities, processes, products or

services. Cost accounting is the classifying, recording and appropriate allocation of

expenditure for the determination of cost of products or services and for the

presentation of suitably arranged data for purposes of control and guidance of

management. It includes the ascertainment of the cost of every order, job, contract,

processes, services or unit as may be appropriate. It deals with the cost of

production, selling and distribution. It is thus the provision of such analysis and

classification of expenditure as will enable the total cost of any particular unit of

production or services to be ascertained with reasonable degree of accuracy and at

the same time to disclose exactly how much total cost is constituted (i.e. value of

material used, amount of labour and other expenses incurred) so as to control and

reduce its cost. Thus, cost accounting relates to the collection, classification,

ascertainment of cost and control relating to the various elements of cost. Itestablishes budgets and standard costs and actual cost of operations, processes and

departments.

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COSTING - AN AID TO MANAGEMENT

Costing mainly helps the management in three ways:

PLANNING

In planning, the management is concerned with laying down of objectives and

determining the courses of actions to be followed out of the several alternatives

available to achieve those objectives. Planning is thinking in advance, thus costing

provides the management tools to set targets and determining the course of actions.

DECISION MAKING

Management has to take multiple types of decisions. All rational decisions are

based on accounting information. Costing helps the management to take different

types of decisions like

Fixation of prices

Whether or not price should be reduced for increasing level of sales

Whether the change in production is followed

Determination of most profitable levels of production

Whether the product should be exported or not

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Whether the production should be discontinued due to current loss etc.

CONTROLLING

Controlling is that par of management activity where by managers compare actual

performance against the planned performance, find out the deviations and take

remedial steps to remove the deviations to make an improvement in performance

because promptness is the essence of an effective control.

Other ways by which costing helps the management are

classification and subdivision of costs

control of materials, labour and overhead costs

business policies

budgeting

standards for measuring efficiency

best use of limited resources

instrument of management control

cost audit

social factors

price determination expansion

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OBJECTIVES OF COST ACCOUNTING

The objectives of cost accounting are ascertainment of cost, fixation of selling

price, proper recording and presentation of costs data to the management for

measuring efficiency and for cost control. The aim is to know the methods by

which expenditure on materials, wages and overheads is recorded, classified and

allocated so that the cost of products and services may be accurately ascertained,

these costs may be related to sales and profitability may be ascertained. Yet with

the development of business and industry, its objectives are changing day by day.

The following are the main objectives are cost accounting:

To ascertain the cost per unit of the different products manufactured by a

business concern.

To provide requisite data and serve as a guide to price fixing of products

manufactured or services rendered.

To ascertain the profitability of each of the products and advice the

management as to how these profits can be maximized.

To exercise effective control of stocks of raw materials, work-in-progress,

consumables stores and finished goods in order to minimize the capital locked

up in these stocks.

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GENERAL PRINCIPLES OF COST ACCOUNTING

The following are the main principles of cost accounting:

Cause and effect relationship: Cause and effect relationship should be

established for each item of cost. Each item of cost should be related to its

cause as minutely as possible and the effect of the same on the various

departments should be ascertained. This cost should be shared only by those

units, which pass through the departments for which such cost has been

incurred.

Charge of cost only after its incurrence: Unit cost should include only

those costs, which have been actually incurred. For example, unit cost

should not be charged with selling cost while it is still in factory.

Cost accounting should ignore the convention of prudence: Cost

accounting statements should give the factual picture of profitability of the

project. If some contingencies need to be made, it should be shown

distinctly and separately.

Past cost should not form part of future costs: Past cost (which could not

be recovered in past) should not be recovered from future cost as it will not

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In this section important parameters are checked for each piston

like diameter, size, grooves and especially hardness.

PISTON MACHINE SHOP:

Piston machine shop consists of the following main sections:

PRODUCT LINES:-

There are around ten lines arranged in the product layout i.e.

blanks are fed into the first machine and finished pistons are obtained at the

end of the line. Planning and manufacturing is done batch wise. The

machine set up and inspection gauges are carried out lot wise or batch wise

for each machine. First line is used for pistons upto 100mm diameter. For

the pistons above 100mm of diameter next line is used. Third line is

exclusively for TATA pistons. Next two lines are of bi-wheelers and next

two lines are exclusively for MARUTI. Rest lines can be used for other

piston types. In each line similar type of machines are arranged, more or less

in the same sequence as the basis process is same across all the lines.

COATING:-

There are mainly three types of surface treatment (coating)

carried out i.e. Tin coating, Anodizing and Graphic coating based on

customer requirements. Latter two are mostly done for TATA pistons.

Anodizing is carried out on the crown surface to provide a resistance surface

at high temperature generated in the combustion chamber. Tin and graphic

coating is carried out for initial run lubrication. In tin coating, sodium

stannate solution liberates tin, which form metallic bonds on the piston

surface. In graphite coating, graphite particles are sprayed onto a heated

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Gross weight with R/R = Blank weight with R/R / {(100-Fdy scrap)/100*(100- M/c

scrap)/100}= .185/{(100-6.5/100*(100-8)/100}= .215 Kgs

NET RAW MATERIAL:Gross weight =.152 kgsRecovery = {final weight * m/c scrap}/{(100-m/c scrap)/100}

= {0.090* 8%)/0.92

= 0.008 kgsAlloy rate = Rs. 104.85 /kg

Net alloy requiredper piston (NAR) = Gross weight recovery

= .152-.008= .144 kgs

Cost of raw material = NAR * alloy rate= .144 * 104.85= Rs. 15.10 per piston

Scrap = Cutting loss+ Aluminium scrap+ Slag ash

Cutting loss Cost = Cutting Loss wt(kg) / {(100-m/c scrap)/100}

= .004 /.92

= .0043 kgs per blank

Recovery = scrap * rate (104.85 *87% Recovery of

Converted Alloy)

= .0043 * 91.20

= Rs. 0.39

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=Rs.

6.325

Blank wt. with R/R =0.215 kgs

Total cost =

6.325*0.215

= Re.1.36

Casting rate = total

manpower cost of casting/no. of castings per shift

= 50663003/26198.68

=Rs. 1933.80

Average casting

Per day

=411*80%

=329 castings

Shifts per piston

=1.121/329

=.00341

Personnel rate

=1933.80*.00341

=Rs.6.59

Heat treatment

Rate

=total personnel cost of heat/ total hrs.

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=435689/89842.04

=Rs.4.85 /hr

Cost per piston = (oil per hr*gross m/c time)/60

=4.85*14.13/60

=Rs.1.142

3) Maintenance

Total cost of maintenance on:

Manpower =Rs. 726300

Tools =Rs. 523000

Repairs =Rs. 1651500

Spares =Rs. 5424080

Total cost =Rs.7598580

Total hrs =1043054.5 hrs

Total Maintenance Cost

= total cost/ total hrs.

=14858000/1043054.5

=Rs. 14.245

Fixed cost =48.88%

=14.245*48.88%

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EFFICIENCY BONUS:

Bonus is calculated as a percentage on the personnel cost.Personnel cost of foundry=Rs. 4.712EB =21.43% of foundry cost

=Rs. 1.01Personnel cost ofmachine shop =Rs. 18.369

EB =16.52% of machine cost=RS. 3.034

Total EB =1.01+ 3.034=RS. 4.044

PLANT AND ADMINISTRATION COST:

Total P & A cost =Prime cost- raw material- components- EB

=59.588- 10.085- 4.044=Rs. 45.459

%age =9.03%Plant and admin Cost =45.459*9.03%

=Rs. 4.10

INSPECTION COST:Personnel cost of workers=Rs.9382044Personnel cost of managers=Rs.14092025%age of managers to workers cost

=150.20%

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DESCRIPTION COST (RS.)

VARIABLE FIXED TOTAL

GROSS ALLOY COST 15.12 15.12

LESS:- ALUMINIUM SCRAP 4.275 4.275

NET RAW MATERIAL COST 10.83 10.83

COST OF COMPONENTS:-

FOUNDRY COST-

STORES AND SPARES 1.092 1.092

DIESEL FOR FOUNDRY 0.872 0.872

OILS AND LUBS 0.068 0.068

MAINTENANCE 1.26 1.26DIES 0.90 0.90

POWER AND FUEL 4.63 4.63

PERSONNEL 8.43 8.43

DEPRECIATION 0.49 0.49

SUB TOTAL(FOUNDRY COST) 8.822 7.94 16.762

MACHINE SHOP COST-

STORES AND SPARES 1.91 1.91

OILS AND LUBS 1.14 1.14

MAINTENANCE 1.71 1.71TOOLS 0.57 0.57

POWER AND FUEL 1.53 1.53

PERSONNEL 29.33 29.33

DDEPRECIATION 6.02 6.02

SUB TOTAL(MACHINE SHOP COST) 6.86 35.35 42.21

EFFICIENCY BONUS 4.044 4.044

PRIME COST 27.159 32.429 59.588

INSPECTION COST 4.56 4.56

P & A COST 4.10 4.10

PACKING COST(PRIMARY & SECONDARY) 1.03 0.73 1.76

TOTAL COST 28.189 41.819 70.008

CORPORATE AND INTEREST COST 14.0016 14.0016

TOTAL COST PER PISTON 28.189 55.82 84.01

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Cost of production:

Cost of production must be reduced so that company can face competition in

the market and can reduce its prices. For example, in case of piston ring for

Yamaha, cost of production per ring is Rs. 100.47. But, its selling price is Rs. 92

per ring. I.e., company is suffering due to price less than the cost. Thus, the

company should try to reduce its cost of production.

Budgeting:

The company has adopted incremental approach for the preparation of its

budgets. Such approach carries forward previous years inefficiencies because

previous years figures are taken as a base for the development of a budget. Thus

incremental approach does not promote operational efficiency because it does not

require managers to review their past activities.

The company may use Zero Base Budgeting as a managerial tool where

taking zero as a base, a budget is developed on the basis of likely activities for the

future period.

Control of scrap and defectives:

To increase the profitability, company should try to reduce scrap and

defectives. These should be standardized properly by following standard costing

system. The actual scrap and defectives should be compared with the

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BIBLIOGRAPHY

Cost Accounting by S.P. Jain, K.L. Narang, Kalayani Publishers

Cost Accounting Theory and Problems by S.N. Maheshwari, S.N.

Mittal, Shree Mahavir Book Depot

Cost Accounting Study Material Board of Studies, The Institute of

Chartered Accountants of India

www.goetzeindia.com

Annual Reports Of FMGL
http://www.goetzeindia.com/http://www.federal-mogul.com/en/http://www.goetzeindia.com/

Sahil Product Costing11

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