SUBMITTED TO:
DR. VINOD LAKHANI SIR
COMPANY INTRODUCTION
SUBMITTED BY:
VATSAL ZAVERI
HITANSHU BANSIWALA
ABHI GONDALIYA
RAJ GUNDARIA
Today amul ice creams market share is 38% against the
9% market share of HLL(Kwality walls),thus making it 4
times larger tan its competitors.
RANGE OF PRODUCTS
Royal treat range – butterscotch, rajbhog,etc
Nut-o-mania – kesar pista, roasted almond, kaju radraksh, etc
Nature’s treat – fresh litchi, alphanso mango
Sundae range – mango, black current, double sundae
Assorted treat – choco bar, dollies, frostik, ice candy
Utterly delicious – vanilla, straberry, chocolate, chocochips,
cake magic
METHODS OF COSTING
TRADITIONAL COSTING
Traditional costing is the allocation of factory overhead to
products based on the volume of production resources
consumed. Under this method, overhead is usually applied
based on either the amount of direct labour hours consumed
or machine hours used. The trouble with traditional costing is
that factory overhead may be much higher than the basis of
allocation, so that a small change in the volume of resources
consumed triggers a massive change in the amount of
overhead applied. This is a particularly common issue in
highly automated production environments, where factory
overhead is quite large and direct labour is close to non-
existent.
ADVANTAGES
Adaptability
Managers appreciate cost accounting because it can be
adapted, tinkered with, and implemented according to the
changing needs of the business. Unlike static, Financial
Accounting Standards Board (FASB)-driven financial accounting,
cost accounting need only concern itself with internal eyes and
internal purposes.
Ease of Monitoring and Controlling Labour Costs
Labor costs are easier to monitor and control through cost
accounting. Depending on the nature of the business, wage
expenses can be taken from orders, jobs, contracts, or
departments and sub-departments. This means management
can pick and choose how it determines efficiency and
productivity. This is very important when estimating the
marginal productivity of individual employees.
Ability to View Data in Different Ways
Cost accounting can be thought of as a sort of three-
dimensional puzzle. Accounts, calculations, and reports can be
manipulated and viewed from different angles. Management
can analyse information based on criteria that it values, which
guides how prices are set, resources are distributed, capital is
raised, and risks are assumed.
Disadvantages of Cost Accounting
Costs
The benefits of cost accounting come with a price. Since
costing methods differ from organization to organization, it's
not clear how these costs might manifest themselves until a
specific firm is examined.
Complexity
Generally speaking, complex cost accounting systems require a
lot of work on the front end, and constant adjustments need to
be made for improvements.
Additional Steps to Verify Accuracy
Even if the rigidity of financial accounting creates some
inherent disadvantages, it does remove the uncertainty and
misapplication of accounting guidelines of cost accounting.
Uncertainty equals risk, which always comes at a cost. This
means additional—and often more vigorous—reconciliation to
verify accuracy.
Reliance on Highly-Skilled Talent
Higher-skilled accountants and auditors are likely to charge
more for their services. Employees have to receive extra
training and must sufficiently cooperate with data input. Non-
cooperation can render ineffective an otherwise beautifully
constructed system.
Special Considerations
The repeated trade-off in any accounting method is accuracy
versus expediency. Cost accounting reflects this more
dramatically than other accounting methods because of its
pliability. Every business needs to find its own balance between
the two.
ACTIVITY BASED COSTING (ABC)
Activity-based costing (ABC) is a costing method that
assigns overhead and indirect costs to related products and
services. This accounting method of costing recognizes the
relationship between costs, overhead activities, and
manufactured products, assigning indirect costs to products
less arbitrarily than traditional costing methods. However,
some indirect costs, such as management and office staff
salaries, are difficult to assign to a product. The ABC system is
a method of accounting to find the total cost of activities
necessary to make a product. This system assigns costs to each
activity that goes into production, such as workers testing a
product.
ADVANTAGES
1. Accurate Product Cost:
ABC brings accuracy and reliability in product cost
determination by focusing on cause and effect relationship in
the cost incurrence. It recognises that it is activities which
cause costs, not products and it is product which consume
activities.
2. Information about Cost Behaviour:
ABC identifies the real nature of cost behaviour and helps in
reducing costs and identifying activities which do not add value
to the product.
3. Tracing of Activities for the Cost Object:
ABC uses multiple cost drivers, many of which are transaction
based rather than product volume. Further, ABC is concerned
with all activities within and beyond the factory to trace more
overheads to the products.
4. Tracing of Overhead Costs:
ABC traces costs to areas of managerial responsibility,
processes, customers, departments besides the product costs.
DISADVANTAGES
1. Expensive and Complex:
ABC has numerous cost pools and multiple cost drivers and
therefore can-be more complex than traditional product costing
systems. It can prove costly to manage ABC system.
2. Selection of Drivers:
Some difficulties emerge in the implementation of ABC system,
such as selection of cost drivers, assignment of common costs,
varying cost driver rates etc.
3. Disadvantages to Smaller Firms:
ABC has different levels of utility for different organisation such
as large manufacturing firm can use it more usefully than the
smaller firms. Also, it is likely that firms depending on cost-plus
pricing can take advantages from ABC as it gives accurate
product cost.
4. Measurement Difficulties:
The main costs and limitations of an ABC system are the
measurements necessary to implement it. ABC systems require
management to estimate costs of activity pools and to identify
and measure cost drivers to serve as cost allocation bases.
TRADITIONAL COSTING
PARTICULARS Rs (in lakhs) Rs (in lakhs)
DIRECT COST
DIRECT RAW
MATERIAL :
Opening stock 100000
Raw material 32000
Closing stock 33845 8155
DIRECT LABOUR 2200
PRIME COST 10355
MANUFACTURING
OVERHEAD
Carriage inward 1845
Depreciation 2200
other 50395 54440
TOTAL 64795
MANUFACTURING
COST
Less- CLOSING 2000
STOCK
COST OF GOODS 62795
MANUFACTURED
OPENING OF 1000
FINISHED GOODS
ADD- COST OF 62795
GOODS
MANUFACTURED
CLOSING OF 1250
FINISHED GOODS
COST OF GOODS 62545
SOLD
SALES REVENUE 92562.5
LESS- COST OF 62545
GOODS SOLD
GROSS MARGIN 30017.5
LESS- SELLING AND 7405
DISTRIBUTION
EXPENSE
INCOME BEFORE 22612.5
TAX
INCOME TAX 4100
INCOME AFTER TAX 18512.5
ACTIVITY BASED ACCOUNTING
PARTICULARS Rs (in lakhs) Rs (in lakhs)
MILK PURCHASES 203787.69
MILK TRANSPORTATION 4517.91
EXPENSES
SUB TOTAL(A) 208305.6
RAW MATERIAL 57757.3
CONSUMPTION
PROCESSING EXPENSE 10497.51
PACKING EXPENSE 18526.24
POWER AND FUEL 11461.53
EXPENSE
SUB TOTAL(B) 98242.58
RESEARCH AND 737.25
DEVELOPMENT EXPENSE
SALARY AND WAGES 6792.09
REPAIRS AND 2161.09
MAINTAIENENCE
FREIGHT CHARGES 1031.05
MARKETING EXPENSE 107.47
POSTAGE 110.78
PARTICULARS Rs (in lakhs) Rs (in lakhs)
INSURANCE 173.57
PREMIUIM
RENT RATES 992.4
AUDIT FEES 196.9
ADMINISTRATIVE 898.46
EXPENSE
INTEREST AND 4259.26
BANK COMMISION
DEPRICIATION 3696.98
SUB TOTAL(C) 21157.21
TOTAL (A)+(B)+(C) 327705.39
CONCLUSION
