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MANAGEMENT AND CONTROL OF COST
PROCESS COSTINGOF
INDIAN OIL
SALONI SHARMA
BBA 4542/09
RAVISH CHANDRA
BBA 4544/09
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PROCESS COSTING
It refers to the costing of one or more processes involved in convertingThe raw materials into the finished products. It is a method of costingfollowed in case of continuous mass production industries, where; rawmaterial is fed into the production pipeline at one end and after variousstages of processing ,finished product is received at the other end.
In other words, in business where a product passes through
different stages of production each distinct and well defined, processcosting is used.
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JOINTPRODUCTAND BY-PRODUCT
JOINT PRODUCT: There are certain industries where two or more products ofdifferent significance are produced simultaneously with the helpof a common manufacturing process up to a stage, e.g. fuel oil,wax etc.
BY PRODUCT: They are the products recovered from materials discarded in a main
process , or from the production of some major product, where thematerial value is to be considered at the time of severance from themain product, e.g. butter milk.
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PROCESS COSTINGOFINDIAN OIL
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INTRODUCTION: INDIAN OIL
Indian Oil Corporation Ltd. is India's largest company by sales with a turnover of Rs.271,074 crore and profit of Rs. 10,221 crore for the year 2009-10.
Indian Oil is the highest ranked Indian company in the latest Fortune Global 500 listings,ranked at the 125th position. Indian Oil's vision is driven by a group of dynamic leaderswho have made it a name to reckon with.
In this section, read about Indian Oil's business and its spread across the country &abroad. You can also know about Indian Oil's current financial performance, special
initiatives and recognitions & awards that have come its way.
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VISION
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PRODUCTS OF INDIAN OIL
Indane Gas Auto Gas
Natural gas Petrol Diesal ATF/Jet fuel Servo lubricants Kerosene
Petrochemicals Bitumen Marine fuels CRUDE OIL
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VALUATION OF CRUDE OIL STOCK
Expected realisation valueCrude oil quantity processed during Apr. - therealisation of the products produced duringApr. at the price applicable for the month ofApr.For balance crude oil qty. (if any), the expected
product realisation for the month of May will beconsidered based on ILPSpecific customer prices and excise dutybenefit to be considered for above
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Replacement cost of crude oilThe elements for replacement cost will be same asconsidered for cost of crude oil, however, followingadditionally to be taken
FOB as intimated by HO based on actualprices during Apr.Other elements to be considered by Unitsbased on the estimated actual cost.Customs duty as based on %age, the sameshould be revised taking revised FOB value.
VALUATION OF CRUDE OIL STOCK
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Example: (Assuming downward trend in crude cost)Rs./MT
Weighted average cost of crude 15708Operating cost as per 648Total Cost of production 16356Realisable value of production 14394
(in terms of crude throughput)As the realisable value of production is lower than the actualcrude cost, the valuation to be done at lower of the actual andthe replacement cost.
VALUATION OF CRUDE OIL STOCK
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Crude & Product Accounting
Types of Crude
Imported Low Sulphur1. Sourced from West Africa & Malaysia.2. Brent is the benchmark Crude.3. Most common Low Sulphur crude imported by IOCL
are Bonny Light, Forcados, Escravos, Essider,
Labuan Imported Low Sulphur
1. Sourced from West Africa & Malaysia.2. Brent is the benchmark Crude.3. Most common Low Sulphur crude imported
by IOCL are Bonny Light, Forcados,
Escravos, Essider, Labuan
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Indigenous Crude-Major Indigenous crude oil suppliersare ONGC & OIL. Various Indigenous crude consumed inIOCL are as follows
Bombay High, Panna, Mukta, South Gujarat, NorthGujaratAssam.
The Prices of indigenous crude are based on the negotiatedterms & conditions with the oil producers:Bombay High- FOB of Bonny light Crude + 50% of applicablemarine freight Crude by VLCC tanker+50%(sales tax rate + customsduty rate)South Gujarat & North Gujarat- FOB of Bonny Lt. Crude + PLFreight + applicable sales taxAssam ONGC - FOB of South East Asian Crude + PL Freight.
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Crude Processing
Share of various crudes in IOCL Consumption
2007-08 2008-09 ( Dec08)
Indigenous 22.28% 20.70%Imported HS 48.92% 47.50%Imported LS 28.81% 31.80%
FOB Crude Oil Prices
Comparison of FOB Prices of High Sulphur & Low Sulphur
Crude $/BBL2006-072007-08Apr-Dec08
Average DubaiOman 61.27 77.39 94.67Brent 64.12 82.11 96.99
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Crude Oil Transportation
Crude oil is transported through a network of Indian Oil Crude Pipelines whichare linked from the port to the Refinery locations.
Pipelines CapacityPort Refineries(MMTPA)Salaya Mathura 20.000 Vadinar Gujarat
MathuraPanipat
Mundra Panipat 6.000 Mundra Panipat
Haldia Barauni 7.500 Haldia BarauniBRPL
Paradip Haldia 10.000 Paradip Haldia
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Elements of Crude Cost at Ports
Particulars High Sulphur Low Sulphur
FOB 20866 22920Marine Freight 340 819Daughter Vessel Freight - -(for East coast only)Marine Insurance 2 2Ocean Loss 64 71Port Handling Charges 13 13Customs duty 1165 1298Demmurage 50 50
Landed cost at Vadinar 22500 25174
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Elements of Crude Cost upto Refinery
Particulars High Sulphur Low Sulphur
Landed cost at Vadinar 22500 25174PL transportation Cost 227 227Entry Tax 1125 1259
Landed Cost at Refineries 23852 26660
(Mathura)
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Entry Tax on crude oil
Entry tax is a state levy and is currently applicable for five of ourseven refineries
It is a irrecoverable tax for which IOCL is not compensated eitherby govt. or through the sale of its products. So this is borne byIOCL.The present rate of entry tax is as followsGuwahati 2%Barauni 2%
Mathura 5%Panipat 4%Digboi 2%
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Finished Goods Inventory Valuation
Joint products A number of joint products are produced in theprocess of refining of the crude oil. The cost of each product iscalculated by allocating the total cost of refining based on their
sales realisation.All the products are classified in two groups
Straight run Products- where input is crudeSpeciality Products- where input is a straight run product.
Basis for valuation: Finished products are valued at Lower ofthe cost or the net realisable value.
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Pricingof Finished ProductsApplicable Customs duty
+Ocean Loss+LC charges
+ Inland freight from the port locationTrade Parity Price is a ratio of IPP & EPP (Export Parity Price): at present forMS & HSD trade parity refers to 80(IPP):20(EPP)Export Parity Price refers to the FOB+ the advance license benefit on crude.Refineries get import parity price for all its major products and trade parity pricefor MS & HSD.
Import Parity Price (IPP): IPP refers to the prices at which the same productscan be imported.Each refinery location is linked to a port location. IPP is calculated for a port.Various elements of import parity at the refinery location are given below:
FOB incl. Premium/Discount+Marine Freight of MR vessel
+Marine Insurance
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Finished Product Accounting
The Major Products produced by IOCL refineries and their %ages inthe total production are given below
Products PercentageLPG 3.44%SKO/ATF 14.32%
Naphtha/MS 14.61%HSD/LDO 41.74%FO/LSHS 10.48%Lubes 0.37%Fuel & loss 8.41%Others 6.63%
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