INSTITUTE OF PROFESSIONAL EDUCATION AND RESEARCH
PGDM- 2009-11
COSTING TECHNIQUES AND OPERATING PART OF ANANT SPINNING MILLS.
Submitted to: Submitted by:
Prof Manipuram dutta Shubham mohabe
Gagan singh
Rohan shrivastava
Mamta bhojwani
Nidhi singh
Varsha nathani
Shishir jain
Shrikant somani
INDEX
PARTICULARS PAGE NO.
Introduction 3
Method of Costing 4
Techniques of Costing 4-12
Costing Softwares 12-22
INTRODUCTION
Anant spinning mill is a group owned by Vardhman Textiles Ltd., formerly
Mahavir Spinning Mills Limited, is a textile producer in India. The
Company operates in five segments: yarn, sewing thread, steel, fibre and
fabric. The yarn segment comprises production of various types of yarns
(from cotton, manmade fibers and blends thereof) and yarn processing
activities. The Company’s subsidiaries include VMT Spinning Company
Limited, VTL Investments Limited, Vardhman Acrylics Limited and
Vardhman Yarn and Threads Limited. In April 2008, pursuant to the scheme
of arrangement, reorganization and de-merger, the sewing thread business of
the Company along with its spinning unit at Hoshiarpur has got vested in
Vardhman Yarns & Threads Limited by way of a slump sale. The group is
one of the largest spinning group of the country with a spindlier of over 5,
50,000. The group has 12 production plants located in the states of Punjab,
Himachal Pradesh and Madhya Pradesh. In many of the yarn market
segments, Vardhman holds
the position of market leader besides being a large and reliable supplier in
the country. Vardhman is also the largest exporter of yarn from India. The
group yarn exports amount to over US$ 100 million covering the most
quality conscious markets in theworld. The total export of Cotton yarn of the
group is about 6% of total export of cotton yarn from the country.
Mission-
Anant aims to be a world class textile organization producing diverge range
of products for the global textile market. Anant seeks to achieve customer
delight to excellence in manufacturing and customer service based on
creative combination of state of the art technology and human resources.
Anant is committed to be a responsible corporate citizen.
ANANT SPINNING MILL
METHOD OF COSTING Company initiate :
Method of costing refers to the techniques and processes employed in the
ascertainment of costs. The method of costing to be applied in a particular
concern depends upon the type and nature of manufacturing activity.
Basically there are two methods of costing
Process costing: This is used in mass production industries manufacturing
standardized products in continuous processes of manufacturing. Costs are
accumulated for each process or department. For this spinning mills this
process costing is employed.
TECHNIQUES OF COSTING:
These techniques may be used for special purpose of control and policy in
any business irrespective of the method of costing being used there.
Marginal costing: In this technique, cost is divided into fixed and variable
and the variable is of special interest and importance. This is because,
marginal costing regards only variable costs as the costs of products. Fixed
cost is treated as period cost and no attempt is made to allocate or apportion
this cost to individual cost centers or cost units. The Company used this
type of Costing technique.
Following information is required to work out a costing for a new plant:
The average count of the plant
Capacity of the plant - No of spindles to be installed and the number of back
process and winding machines required
Investment on machineries
Investment on land
Investment on building
working capital required
product lay out, the count pattern
Selling price of individual counts
raw material cost(including freight, duty etc)
packing cost per kg of yarn
freight per kg of yarn
direct labour cost
indirect labour cost
fixed power cost
variable power cost
spares consumption
administration costs
selling overheads
STEP NO.1: Contribution to be calculated. In general for a spinning mill,
contribution per kg oaf particular count is calculated to work out the
economics for a new project as well as for a running mill.
Contribution = selling price - direct cost
Direct cost for a spinning mill includes raw material price, packing
cost, and freight. All other costs are either fixed costs or semi
variable costs. The other costs can not conveniently allocate to per kg
of a particular count.
The basic idea of a new project or a running plant is to maximize this
contribution. Because once the plant is designed, spares cost, power
cost, administration cost,labour cost etc almost remain constant. There
will not be significant changes in these costs for different count
patterns if the plant is utilization is same.
STEP NO. 2: To work out the Total Investment cost (machineries,
accessories, land and building, humidification and electrical instruments)
The following table gives the requirement of production machines. To
calculate the number of back proess and winding drums required, a detailed
spin plan should be worked out with speeds and efficiencies to be achieved
in each machine.
While calculating the no of machines required, m/c utilization, m/c
efficiency, waste percentage, twist multipliers, delivery speeds etc should be
considered properly. These factors should be decided based on yarn quality
required, end breakage rates and the capacity of machine.
MACHINERY
Trutzschler Blowrrom line for
cotton
Trutschler Blowrrom line for
Polyester
Trutshcler DK-903 cards
Rieter RSB-D30 draw frames
(with autoleveller)
Rieter double delivery drawframe
Rieter unilap
Rieter E62 combers
Howa speed frames with
overhead blower
Ring frames with autodoffer
winding machines ( 26 drums per
mc)
Roving transport ( manual)
Argus fire system
Some of the following points can be considered while deciding the
machines.
From the above table it is clear that, 23 ring frames with 1120 spindles are
working with auto doffing and with link to autocue. The major advantage of
this automation is to reduce labour and to reduce the problems related to
material handling. One has to really work out the benefits achieved because
of this and the pay back for the extra investment.
Draw frame contributes a lot to the yarn quality and the ring frame and
winding machine working. It is always better to go in for the best draw
frames like RSB-D30 draw frames with autoleveller. It is not wise to buy a
cheaper draw frame and save money.
It is always better to keep excess carding and autoleveller drawframes, so
that flexibility of the project is also maintained. If the coarser counts
contributes more and the market is good, overall production can be
increased. If the market is for finer count, both the machines (carding and
drawframes)can be run at slower speeds, which will surely contribute to yarn
quality.
Speeds of speedframe , combers and ringframes do not affect the yarn
quality as it is affected by card and drawframe speeds.
Blow room capacity should be utilised to the maximum, as it consumes a lot
of power ,space and money.
Ringframe specification should be perfect, because the working performance
and power consumption of the ringframe depends on the specifications like,
lift, ring dia, no of spindles etc. Ring frame specification should be decided
to get the maximum production per spindle and to reduce the power
consumed per kg of yarn produced by that spindle. Because the investment
cost and the power consumption for the ringframe is the highest in a
spinning mill.
INVESTMENT ON ACCESSORIES:
The following table gives the details of the accessories like cans for carding,
rawframe, bobbins, trollies etc
ACCESSORIES
Carding cans 36" x 48"
comber cans 24" x 48"
Drawframe cans 20" x 48"
Identification bands 20"
Identification bands 24"
Roving and spinning bobbins
Plastic crates
Trolleys
Cone trolly
Fork lift
hand truck
SERVICE AND MAINTENANCE EQUIPMENTS:
The following table gives the details about the investments required on
service and maintenance equipments
SERVICE AND MAINTENANCE
EQUIPEMENTS
Cots buffing machine and accessories
Card room accessories
Spindle oil lubricator
Clearer roller cleaning machine
Vacuum cleaner
pneumatic cleaners
Weighing balance
Strapping machine
Premier autosorter
Premier uster tester
Premier strength tester
premier fiber testing
Premier Classidata
Erection charges
Card service machines like Flat tops clipping machine and flats grinding
machine are very important for yarn quality. One should not look for
cheaper machine. It is always better to go for reputed manufacturers like
GRAF, HOLLINGSWORTH etc.
Rubber cots contributes a lot to yarn quality. Bad buffing in ring frame can
increase the imperfections by 15%. Poor quality of buffing in draw frame
and speed frames can affect both production and quality. It is better to go for
the best cots mounting machine and cots buffing machine.
HUMIDIFICATION AND ELECTRICAL EQUIPMENTS:
The following table gives the details about the investments required
on modification and electrical instruments
Electrical installation including transformer,
incoming and outgoing panels, bus duct, capacitor,
etc for 3800 KVA
Cables
Compressor, Dryer and pipe lines
humidifaction system
Chillers
Ducting and installation for humidification system
workshops, hydrant and other equipments
STEP NO.3: To calculate the expenses ( labour, power, stores,working
capital, insurance etc)
Woodworking capital
LABOUR:The following table gives the details about labour requirement
DEPARTMENT
Production
Packing
Maintenance
Utility
administration and personal dept
Total no of people required per
day
wages at 50 rs/month including
bonus and insurance
other facilities at 35 %
salaries for managerial staff
Other facilities at 35 %
POWER: The following table gives the details about the power
Total units(KWH) produced
(consumed)per day
Unit cost (cost / KWH)
Total production in Kgs
KWH/ Kg of yarn
TOTAL POWER COST /DAY
SPARES:The following table shows the spares cost, repair , and insurance
spares cost at 8/1000 spindle
shift
repairs and other overheads
Insurance at 0.175% on
investment and working
capital
TOTAL cost per year
STEP NO.4: PAY BACK CALCULATION
DETAILS
INVESTMENT:
Land and building
Machinery, accessories & service equipments
Electrical and Humidification ducts
TOTAL INVESTMENT
WORKING CAPITAL
GRAND TOTAL
RECURRING EXPENDITURES PER DAY
Salaries and Wages
Power cost
Stores , repairs and insurance
TOTAL
INTEREST CALCULATION (per day)
On capital 8%
on working capital 9%
TOTAL EXPENSES INCLUDING
INTEREST
TOTAL CONTRIBUTION PER DAY
NET PROFIT( before depreciation &
taxation)
PAY BACK PERIOD
COSTING STRUCTURE OF THE COMPANY:
INPUT
COST STANDARDS
MEASURES TAKEN
COST PERFORMANCE
ANALYSIS DIFFERENCES
BETWEEN STANDARD AND ACTUAL
CASUAL ANALYSIS
COSTING SOFWARES
INTRODUCTION TO SAP SOFTWARE:
The SAP CO (Controlling) Module provides supporting information to
Management for the purpose of planning, reporting, as well as monitoring
the operations of their business. Management decision-making can be
achieved with the level of information provided by this module.
Some of the components of the CO(Controlling) Module are as follows:
· Cost Element Accounting
· Cost Center Accounting
· Internal Orders
· Activity-Based Costing ( ABC)
· Product Cost Controlling
· Profitability Analysis
· Profit Center Accounting
The Cost Element Accounting component provides information which
includes the costs and revenue for an organization. At Annant Spinning
Mills these postings are automatically updated from FI (Financial
Accounting) to CO (Controlling). The cost elements are the basis for cost
accounting and enables the User the ability to display costs for each of the
accounts that have been assigned to the cost element. Examples of accounts
that can be assigned are Cost Centers, Internal Orders, WBS(work
breakdown structures).
Cost Center Accounting provides information on the costs incurred by your
business. Within SAP, at ANANT mills they have the ability to assign Cost
Centers to departments and /or Managers responsible for certain areas of the
business as well as functional areas within your organization. Cost Centers
can be created for such functional areas as Marketing, Purchasing, Human
Resources, Finance, Facilities, Information Systems, Administrative
Support, Legal, Shipping/Receiving, or even Quality.
Some of the benefits of Cost Center Accounting : (1) Managers can set
Budget /Cost Center targets; (2) Cost Center visibility of functional
departments/areas of your business; (3) Planning ; (4) Availability of Cost
allocation methods; and (5) Assessments/Distribution of costs to other cost
objects.
Internal Orders provide a means of tracking costs of a specific job , service,
or task. Internal Orders are used as a method to collect those costs and
business transactions related to the task. This level of monitoring can be
very detailed but it is used at ANANT MILLS as it allows management the
ability to review Internal Order activity for better-decision making purposes.
Activity-Based Costing allows a better definition of the source of costs to
the process driving the cost. Activity-Based Costing enhances Cost Center
Accounting in that it allows for a process-oriented and cross-functional view
of your cost centers. It can also be used with Product Costing and
Profitability Analysis.
Product Cost Controlling allows management the ability to analyze their
product costs and to make decisions on the optimal price(s) to market their
products. It is within this module of CO (Controlling) that planned, actual
and target values are analyzed. Sub-components of the module are:
· Product Cost Planning which includes Material
Costing( Cost estimates with Quantity structure, Cost
estimates without quantity structure, Master data for Mixed
Cost Estimates, Production lot Cost Estimates) , Price
Updates, and Reference and Simulation Costing.
· Cost Object Controlling includes Product Cost by Period,
Product Cost by Order, Product Costs by Sales Orders,
Intangible Goods and Services, and CRM Service
Processes.
· Actual Costing/Material Ledger includes Periodic
Material valuation, Actual Costing, and Price Changes.
Profitability Analysis allows Management the ability to review information
with respect to the company’s profit or contribution margin by business
segment. Profitability Analysis can be obtained by the following methods:
· Account-Based Analysis which uses an account-based
valuation approach. In this analysis, cost and revenue
element accounts are used. These accounts can be reconciled
with FI(Financial Accounting).
· Cost-Based Analysis uses a costing based valuation
approach as defined by the User.
INVENTORY TRIGGER
The company is also having a facility of sap software in which there is a
function which gives an indication to the company about the raw material
availability as soon as it reaches to the 20 percent mark and also by the help
of this inventory trigger system the information is reached directly to the
vendors who are integrated with the system and to the company also.
ERP SOFTWARE:
Enterprise Resource Planning (ERP) is the latest high end software solution,
Information Technology has lent to the world of business application. An
ERP software solution seeks to streamline and integrate operations,
processes and information flows in an enterprise, to synergize the resources
of an organization namely men, material, money and machine. In other
words, ERP systems integrate all data and processes of an organization into
a unified system. A typical ERP will use multiple components of computer
software and hardware to achieve the integration. A key ingredient of most
ERP systems is the use of a unified database to store data for the various
system modules.
BENEFITS TO ANNANT MILLS BY USING ERP:
COMBINES A LARGE NUMBER OF DIFFERENT AREAS INTO A
SINGLE UNIT:
Three of the most important ERP tools available today are manufacturing,
human resources, and finance.
The finance tools allows ANANT MILL to successfully maintain their
financial information like that of the assets, accounts, budgets and cash. ERP
can also assist ANANT in managing internal as well as external factors
affecting it. A company that uses ERP financial products can save a great
deal of money over the long term, the reason being, the productivity of the
organization will be improved. Enterprise Resource Planning is instrumental
in getting rid of time consuming activities as paper management. They are
even able to study their processes, earnings, and performance by merging
their operational information with their financial information. Once this
information is connected together, a company can become more competitive
and productive. Synergy is an important part of ERP solutions. The concept
of combining multiple processes into a single whole will allow the company
to become successful in the long term.
In addition to finance and business processes, it is also important to look at
materials maintenance.
Enterprise Resource Planning has successfully automated the companies
process of buying materials and maintaining them. There are modules that
track the supplies that are purchased and can also make calculations about
how these materials should be distributed. It also becomes possible for a
company to predict the demand of the market based on history, economic
statistics, and data from their employees. They can even decide when a
product should be produced, and they can do this based on the raw material
that is available.
COSTING METHOD-
1-PROCESS COSTING-
It refers to the costing or process involved in converting materials into
finished goods. Under this method the cost of operation of each process or
operation and the cost of transfer are ascertained .It is also known as
continuous operating costing. This is the method of costing which is used in
Anant spinning mill ,where cost of each process is ascertained.
2-OPERATION COSTING
this method of costing is also used .it basically comes in the process costing
method.under this method ,each operation in each stage of production or
process is separately costed.Therefore,the cost of finished goods is
determined.
COST CONTROL METHODS
1- Inventory control method-
budgetary technique-
for the purchase of raw material and stock what the company require is to
a purchase budget in terms of quantities and value involved. the sales is
stipulated of the corresponding period generally works out to be a key
factor.
2- Control ratios
Inventory turnover ratios
Material turn over =value of material used in the period / value of
average material held during the period
Finished stock turnover=value of finished stock sold in the
period/value of average stock held during the period
Input out put ratio =
The input output is a ratio of a raw material put into, manufacture and
standard raw material content of the actual output. Since annant
spinning mill is a textile company this ratio is useful because the unit
of input of material is the same as the unit of output. This method has
the advantage of ascertaining raw material cost of finished output by
multiplying the raw material cost per unit by this ratio.
Input units /output unit *100
Labors cost control
Time recording is done
Daily time sheets and weekly time sheets
Ratios is calculated like
Cost ratios =direct labour cost /cost of production
Direct labour cost/cost of production
Absenteeism ratios are also calculated
J u s t i n t i m e p r o d u c t i o n ( J I T )
Just in time is a ‘pull’ system of production, so actual orders provide a signal
for when a product should be manufactured. Demand-pull enables a firm to
produce only what is required, in the correct quantity and at the correct time.
This means that stock levels of raw materials, components, work in progress
and finished goods can be kept to a minimum. This requires a carefully
planned scheduling and flow of resources through the production process.
Modern manufacturing firms use sophisticated production scheduling
software to plan production for each period of time, which includes ordering
the correct stock. Information is exchanged with suppliers and customers
through EDI (Electronic Data Interchange) to help ensure that every detail is
correct.
Supplies are delivered right to the production line only when they are
needed.
Advantages of JIT
Lower stock holding means a reduction in storage space which saves
rent and insurance costs
As stock is only obtained when it is needed, less working capital is
tied up in stock
There is less likelihood of stock perishing, becoming obsolete or out
of date
Avoids the build-up of unsold finished product that can occur with
sudden changes in demand
Less time is spent on checking and re-working the product of others as
the emphasis is on getting the work right first time
