F-302 Final

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DEPARTMENT OF FINANCE

UNIVERSITY OF DHAKA

Cost Accumulation

Process of a

Manufacturing Company

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Submitted To:

Mohammad Salahuddin Chowdhury, ACA

Lecturer

Department of Finance

University of Dhaka

Submitted By:

Group Members

Name ID

Mohammad Junaid Shawon 16-017

Md. Zahidul Islam 16-051

Md. Rashed Karim 16-125

Rashid Muntasir 16-165

Md. Zahirul Islam Khan 16-171

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Letter of Transmittal

June 7, 2012

Mohammad Salahuddin Chowdhury, ACA

Lecturer


University of Dhaka

Subject: Submission of report titled Cost Accumulation and Reporting Procedure

of a Manufacturing Firm.

Sir

It gives us immense pleasure to submit our report on Cost Accumulation and

Reporting Procedure of a Manufacturing Firm. This report was assigned to us as

a partial requirement of the Cost and Management Accounting (F-302) course in 3rd

year 1st

semester.

While making the report, we came across many hurdles and pleasant experiences. But

the valuable experiences we have gained during the period will undoubtedly benefit usin the years ahead. This report gave us an opportunity to apply our theoretical

expertise, sharpen our views, ideas, and communication skills, and bridge them with

the real world of practical experience, which will be a good head start for our future

professional career.

We have tried sincerely to comprehend and translate our knowledge in writing this

report. We enjoyed this project work and gladly attend any of your calls to clarify on

our point, if necessary. We hope you would find the report in appropriate manner.

Sincerely yours

______________________Rashid Muntasir

On behalf of the Group

Section- A

16th

Batch


University of Dhaka

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Acknowledgement

We are thankful and grateful to almighty Allah who has given us the strength

and ability to complete the report on Cost Accumulation and Reporting Procedure

of a Manufacturing Firm. We are also grateful to our Course Instructor

Mohammad Salahuddin Chowdhury to prepare this very important report. He has

given all sorts of help required to complete this. We are again grateful to those whohave given us necessary information and documents.

We also do sincerely declare that this report has been submitted, in partial

fulfillment of the requirement for the Cost and Management Accounting (F-302)

course. This report is written in our own language. Though we studied and followed

some books of cost and management accounting, no part of this report consists of

materials, copied or plagiarized from published or unpublished work of other writers

and that all materials borrowed and reproduced from other published or unpublished

sources have either been put under quotation or duly acknowledged with full reference

in appropriate places. Data used in this report is collected by visiting the Dhaka office

of Meghna Cement Mills Ltd. and browsing the companys website. As costing data is

sensitive and related to companys overall strategy, it is not available to the general.

As a result, we have used hypothetical data to form a case. We understand that the

report may be cancelled if subsequently it is discovered that this report is not our

primeval work that it consists of materials copied or plagiarized or borrowed without

proper acknowledgement.

We, at last, express special thanks from the bottom of our heart to all who help us

directly & indirectly to complete this report.

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Classification of costs

Manufacturing costs:

Manufacturing costs consist of:

Direct materials

Direct labor

Manufacturing overhead

Direct materials:

Direct materials are those materials that become an integral part of the finished product andwhose costs can be easily traced to the finished product.

Direct labor:

Direct labor consists of labor costs that can be easily traced to individual units of product. It

can also be called as touch labor since the direct labor workers typically touch the product

while it is being made.

Manufacturing overhead:

It consists of all the manufacturing costs in the factory except direct labor and directmaterials. So manufacturing overhead consists of the followings:

- Indirect materials- Indirect labor- Maintenance and repair of production equipment- Heat and light- Property taxes, depreciation and insurance on manufacturing facilities.

Nonmanufacturing costs:

Selling costs:

Selling costs consist of the followings:

- Advertising- Shipping-

Sales travel- Sales commissions

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- -Sales salaries- Cost of finished goods warehouse

Administrative costs:

Administrative costs consist of the followings:

- Executive compensation- General accounting- Public relations

Product costs versus period costs:

Product costs are the costs that are recognized as expenses on the income statement in the

period that benefits from the cost.

Product costs= Direct materials+ Direct labor + Manufacturing overhead

Period costs are the costs that are reported in the income statement as expenses in the period

when they are occurred.

Period costs= Selling expenses + Administrative expenses

Prime cost and conversion cost:

Prime cost= Direct materials+ Direct labor

Conversion cost= Direct labor + Manufacturing overhead

Variable cost versus fixed cost:

A variable cost is a cost that varies in direct proportion to change in the level of activity. Per

unit variable cost is constant and total costs change in proportion to the number of units

produced.

Fixed cost is a cost that remains constant within the relevant range regardless of the change in

the activity or output units.

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Cost accumulation procedures

Job order costing:

Costs are accumulated by job or specific order. This method assumes the possibility of

physically identifying the jobs produced and of charging each job with its own cost. Job order

costing provides opportunities for controlling costs as the jobs are specific.

Process costing:

Process costing accumulates the costs by production process or by departments. This method

is used when units are not separately distinguishable from one another during one or more

manufacturing processes. The following conditions may exist in case of process costing:

- The product of one process becomes the material f the next process.- Different products or even by-products are produced by the same process.

By-products and joint products

By-products are the product of relatively small value produced simultaneously with a product

of relatively greater total value. Normal products are produced in greater quantities than the

by-products. The manufacturer has only a limited control over the quantity of by- productthat comes into existence.

Joint products are produced simultaneously by a common process or series of processes, with

each product possessing as more than nominal value in the form in which they are produced.

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King BrandCement

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About Meghna Cement Mills Ltd.

Meghna Cement Mills Ltd. (MCML), the first manufacturing enterprise of

Bashundhara Group, is one of the largest Cement manufacturing industries in

Bangladesh. This organization was established in 1992 on the bank of Pashur River

and in the industrial zone of Mongla Port on 9.83 acres of land to produce Portland

cement. MCML has an excellent communication facility connecting all parts of the

country through river and roads.

MCML has started its commercial operation on 15th January 1996. Following a

successful public offerings, the company was listed with Dhaka Stock Exchange and

Chittagong Stock Exchange, the two bourses of the country in 1995 and 1996

respectively. The Company markets its products under the registered trade markKING BRAND. The manpower of Meghna Cement Mills Ltd. is 420 persons out of

which there are 80 Officers and 340 staff/workers.

The industry enjoys a unique facility in cargo handling both in receiving raw materials

and in dispatching finished product through its own 02 nos. of jetties suitable for

berthing sea going vessels.

At present the production capacity of MCML is approx. 1.0 million MT/annum.

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Plant, Factory & Other Infrastructure

Production Technology:

There are 4 nos. of grinding mill in MCML having production capacity of 3000 MT/day and these mills are equipped with high efficiency separator to segregate fine

particle from the coarse one. The dimension of each of the 02 (two) mills is 3m

diameter x 9m length (production capacity 30 TPH) while the each of the rest 02 is 3m

diameter x 11m length (production capacity 40 TPH).

Quality Assurance (Q.A.):

To ensure the product quality, the Quality Assurance (Q.A.) department collects

samples from different areas of mill house every after 1hrs. To evaluate quality of the

crushed product and thus feed back to the production department. Based on the quality

report determined by Q.A department, Production department acts accordingly.

Production and Packaging:

There are 4 nos. of cement silo for cement storing purpose in MCML, where the

capacity of each of the first 02 silo is 3500 MT while the capacity of each of the rest

02 is 5000 MT. Cement is extracted from the cement silo through extraction systemwhich consists of roots blower, inlet box, pneumatic shut off valve, flow control valve

etc. which are controlled from the control room of the pack house. There are 2 nos. of

roto packer having packing capacity of 100 MT / Hr. and 110 MT / Hr. respectively.

These packers are the equipments of modern technology where weighing system of

the delivered cement sack is fully electronic based to ensure proper weight of every

sack of cement.

Mainly paper made cement sacks are preferred for filling purpose although small

percentage of poly sack are also used based on the consumers demand. It may bementioned here that, the paper sacks are manufactured by the Sack plant of BG.

Environment Protection:

To assist the production process i.e. to enhance the mill output as well as for securing

dust free working environment there are several nos. of dust collectors with modern

deducting system in the mill house area. Moreover there are several nos. of dust

collector having larger capacity of modern deducting system to secure almost dust free

working environment.

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Delivery Control System:

There exists 02 modes of cement delivery system i.e. road delivery and vessel delivery

available in this plant. To prevent bag bursting while loading in vessel one spiral chute

has been designed with the barge loader.To ensure smooth delivery of cement sacks 19 nos. ten wheeler and 16 nos. six

wheeler company delivery trucks are being used.

Raw material unloading & Storing:

There exists a modern equipped jetty facility in this organization where the sea going

vessel can berth easily. There exists 02 nos. of hydraulic crane of modern technology

of German origin having unloading capacity of 250 MT/Hr each of which contribute a

lot to faster unloading.

Here it needs to mention that there exists a clinker shed having storing capacity of

35000 MT and for easy and faster conveying there exists a substantial numbers of

belt conveyors which has been designed technically and which lengths about 02

kilometers. Besides the two nos. of hydraulic crane there also exists 02 nos. of

mechanically driven crane namely Fransiab Crane which are mainly engaged for

limestone unloading.

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Raw Materials

& Other Inputs

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Cement is typically made from limestone and clay or shale. These raw materials are

extracted from the quarry crushed to a very fine powder and then blended in the

correct proportions.

This blended raw material is called the 'raw feed' or 'kiln feed' and is heated in a rotarykiln where it reaches a temperature of about 1400 C to 1500 C. In its simplest form,

the rotary kiln is a tube up to 200 meters long and perhaps 6 meters in diameter, with a

long flame at one end. The raw feed enters the kiln at the cool end and gradually

passes down to the hot end, then falls out of the kiln and cools down.

The material formed in the kiln is described as 'clinker' and is typically composed of

rounded nodules between 1mm and 25mm across.

After cooling, the clinker may be stored temporarily in a clinker store, or it may pass

directly to the cement mill.

The cement mill grinds the clinker to a fine powder. A small amount of gypsum - a

form of calcium sulfate - is normally ground up with the clinker. The gypsum controls

the setting properties of the cement when water is added.

Table showing the materials used for the Raw Mix for cement production and the

constituents of each raw material is provided on the next page:

Figure 1: The basic components of the cement production process

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Production

Process

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Portland cement is a fine, typically gray powder comprised of dicalcium silicate,

tricalcium silicate, tricalcium aluminate, and tetracalcium aluminoferrite, with the

addition of forms of calcium sulfate. Different types of Portland cements are created

based on the use and chemical and physical properties desired.

Portland cement types I - V are the most common. Portland cement plants can operatecontinuously for long time periods (i.e., 6 months) with minimal shut down time for

maintenance.

The stages of cement production at a Portland cement plant:

1. Procurement of raw materials2. Raw Milling - preparation of raw materials for the pyroprocessing system3. Pyroprocessing - pyroprocessing raw materials to form Portland cement clinker4. Cooling of Portland cement clinker5. Storage of Portland cement clinker6. Finish Milling7. Packing and loading

1. Raw Material AcquisitionMost of the raw materials used are extracted from the earth through mining and

quarrying and can be divided into the following groups: lime (calcareous), silica

(siliceous), alumina (argillaceous) and iron (ferriferous). Since a form of calciumcarbonate, usually limestone, is the predominant raw material, most plants are situated

near a limestone quarry or receive this material from a source via inexpensive

transportation. The plant must minimize the transportation cost since one third of the

limestone is converted to CO2 during the pyroprocessing and is subsequently lost.

Quarry operations consist of drilling, blasting, excavating, handling, loading, hauling,

crushing, screening, stockpiling, and storing.

2. Raw MillingRaw milling involves mixing the extracted raw materials to obtain the correct

chemical configuration, and grinding them to achieve the proper particle-size to

ensure optimal fuel efficiency in the cement kiln and strength in the final concrete

product. Three types of processes may be used: the dry process, the wet process, or the

semidry process. If the dry process is used, the raw materials are dried using impact

dryers, drum dryers, paddle-equipped rapid dryers, air separators, or autogenous mills,

before grinding, or in the grinding process itself. In the wet process, water is added

during grinding. In the semidry process the materials are formed into pellets with the

addition of water in a pelletizing device.

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3. PyroprocessingIn pyroprocessing, the raw mix is heated to produce Portland cement clinkers.

Clinkers are hard, gray, spherical nodules with diameters ranging from 0.32 - 5.0 cm

(1/8 - 2") created from the chemical reactions between the raw materials. Thepyroprocessing system involves three steps: drying or preheating, calcining (a heating

process in which calcium oxide is formed), and burning (sintering). The

pyroprocessing takes place in the burning/kiln department. The raw mix is supplied to

the system as a slurry (wet process), a powder (dry process), or as moist pellets

(semidry process). All systems use a rotary kiln and contain the burning stage and all

or part of the calcining stage. For the wet and dry processes, all pyroprocessing

operations take place in the rotary kiln, while drying and preheating and some of the

calcination is performed outside the kiln on moving grates supplied with hot kiln

gases.

4. Clinker CoolingThe clinker cooling operation recovers up to 30% of kiln system heat, preserves the

ideal product qualities, and enables the cooled clinker to be maneuvered by conveyors.

The most common types of clinker coolers are reciprocating grate, planetary, and

rotary. Air sent through the clinker to cool it is directed to the rotary kiln where it

nourishes fuel combustion. The fairly coarse dust collected from clinker coolers iscomprised of cement minerals and is restored to the operation. Based on the cooling

efficiency and desired cooled temperature, the amount of air used in this cooling

process is approximately 1-2 kg/kg of clinker. The amount of gas to be cleaned

following the cooling process is decreased when a portion of the gas is used for other

processes such as coal drying.

5. Clinker StorageAlthough clinker storage capacity is based on the state of the market, a plant cannormally store 5 - 25% of its annual clinker production capacity. Equipment such as

conveyors and bucket elevators is used to transfer the clinkers from coolers to storage

areas and to the finish mill. Gravity drops and transfer points typically are vented to

dust collectors.

6. Finish MillingDuring the final stage of Portland cement production known as finish milling, the

clinker is ground with other materials (which impart special characteristics to the

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finished product) into a fine powder. Up to 5% gypsum and/or natural anhydrite are

added to regulate the setting time of the cement. Other chemicals, such as those which

regulate flowability or air entrainment, may also be added. Many plants use a roll

crusher to achieve a preliminary size reduction of the clinker and gypsum. These

materials are then sent through ball or tube mills (rotating, horizontal steel cylinderscontaining steel alloy balls) which perform the remaining grinding. The grinding

process occurs in a closed system with an air separator that divides the cement

particles according to size. Material that has not been completely ground is sent

through the system again.

7. Packing and LoadingOnce the production of Portland cement is complete, the finished product is

transferred using bucket elevators and conveyors to large, storage silos in the shipping

department. Most of the Portland cement is transported in bulk by railway, truck, or

barge, or in 43 kg (94 pound) multiwall paper bags. Bags are used primarily to

package masonry cement. Once the cement leaves the plant, distribution terminals are

sometimes used as an intermediary holding location prior to customer distribution.

The same types of conveyor systems used at the plant are used to load cement at

distribution terminals.

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The following quantitative and cost data has been collected from King Brand cement

office:

Production Data Grinding Pyro-

processing

Cooling Finish

Milling

Packaging

Started in to process 50000 45000 40000 38000 37000

Transferred to the next

department45000 40000 38000 37000 37000

Units still in process 4000 3000 1000 500 -------

Units lost in process 1000 2000 1000 500 -------

Cost from preceding department ------- 6192000 9312000 9617800 10733700

Cost added by department 6547200 3608800 558250 1263750 1139600

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King Brand Cement

Grinding Department

Cost of Production Report

For April, 2012

Quantity Schedule

Units started in process 50000

Units transferred to the next department 45000

Units still in process 4000

Units lost in process 1000

Total 50000

Cost Charged to the Department Total Cost Unit Cost

Cost added by the department:Materials 3960000 77.55

Labor 331200 12

Factory overhead 2256000 48.05

Total cost to be accounted for 6547200 137.6

Cost Accounted for as Follows

Transferred to next department 6192000

Work in processEnding Inventory:

Materials 160000

Labor 99200

Factory overhead 96000

Total 355200

Total cost accounted for 6547200

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King Brand Cement

Pyroprocessing Department


For April, 2012

Quantity Schedule

Units received from preceding department 45000




Total 45000


Cost from preceding department:Transferred in during the month 6192000 137.6

Cost added by the department:

Labor 984800 24.8

Factory overhead 2624000 64

Total cost added 3608800 88.8

Adjustment for lost units 6.4





Adjusted cost from preceding department 432000

Labor 26000


Total 488800


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King Brand Cement

Cooling Department


For April, 2012

Quantity Schedule





Total 40000




Factory overhead 558250 14.5








Total 252450


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King Brand Cement

Finish Milling Department


For April, 2012

Quantity Schedule





Total 38000




Labor 513750 13.7









Labor 7650


Total 147850


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King Brand Cement

Final Processing Department


For April, 2012

Quantity Schedule


Units transferred to finished goods 37000


Cost from preceding department:

Transferred in during the month 10733700 290.1


Materials 370000 10Labor 288600 7.8





Transferred to finished goods 11873300


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Entries for material purchase and requisition

Stage 1

Material Purchase

Stage 2

Material UsedJournal Entry:

Materials.6128700

Cash.6128700

Journal entries:

Work in process;

Grinding Department3960000

Final Processing Department..370000

Materials4330000

Factory Overhead control

(indirect Materials) 1798700

Materials.1799980

General Ledger:

Material

General Ledger:Material

Dr. Cr.

6128700 4330000

1798700

Work in Process:

Dr. Cr.

3960000

370000

Factory Overhead Control

Dr. Cr.

1798700

Dr.

6128700

Cr.

Subsidiary record

Material Ledger Card

Received Issued Balance

6128700 6128700

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Stage 2

Payroll Distribution

Journal Entries

Work in Process3922050

Factory Overhead control(Indirect Labor)........1803700

Payroll.5725750

General Ledger:

Work in Process

Dr. Cr.3922050

Factory Overhead Control

Dr. Cr.1803700

Subsidiary Record

Job order cost Sheets

Direct Labor Section

Date Hours Amount

31/05/2012 5000 3922050

Factory overhead Analysis Sheet

Date Payroll Taxes Indirect

Labor

Indirect

Material31/05/2012 0 1803700 1798700

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Flow of Factory Overhead

Stage 1

Actual factory overhead incurred

Stage 2

Estimated Factoryoverhead applied

General ledger

Material

DR. CR.

IndirectMaterials.1798700

Payroll

DR. CR.

IndirectLabor1803700

Others

DR. CR.Other costs related to

production..901850

Factory Overhead Analysis Sheet

Date Indirect

Labor

Indirect

Materials

Other

Factory

overheads31/05/12 1803700 1798700 901850

General Ledger:

Work in process

DR. CR.

4504250

Applied Factory Overhead

DR. CR.

4504250 4504250

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