Sri Sri Ayurveda Ltd.-suchitra Haridas-04109

Effectiveness of Costing Techniques

M.P.Birla Institute Of Management

EFFECTIVENESS OF COSTING TECHNIQUES

An In-house study at Sri Sri Ayurveda Ltd.�

A dissertation submitted in partial fulfillment of the requirement for

the award of M.B.A Degree of Bangalore University.

By

Suchitra Haridass

04 XQCM 6099

Under the guidance and supervision of

Prof. B.V. Rudramurthy Faculty, MPBIM

M P. Birla Institute of Management (Associate Bharatiya Vidya Bhavan)

Bangalore - 560001. 2006

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DECLARATION

I hereby declare that the dissertation entitled �Effectivenes of

Costing Techniques-An Inhouse study at Sri Sri Ayurveda Ltd.� is

the result of work undertaken by me, under the guidance and

supervision of Prof. Rudramurthy, Professor, M.P.Birla Institute of

Management, Bangalore.

I also declare that this dissertation has not been submitted

to any other University/Institution for the award of any Degree

or Diploma.

Place: Bangalore

Date: 13th June 2006 Suchitra Haridass



Principal Certificate.

I hereby certify that the r esea rch work embodied in

this dissertation entitled �Effectivenes of Costing Techniques-An

Inhouse study at Sri Sri Ayurveda Ltd.�, has been undertaken and

completed by Ms.Suchitra Haridass at under the guidance and

supervision of Prof. Rudramurthy,Professor, MPBIM,

Bangalore.

Place: Bangalore

Date:13/06/2006 (Dr. N. S. Malavalli)

Principal MPBIM, Bangalore



Guide Certificate.

I hereby declare that the research work embodied in th is

dissertation entitled �Effectivenes of Costing Techniques-An In house study

at Sri Sri Ayurveda Ltd.� has been undertaken and completed by

Ms.Suchitra Haridass under my guidance and supervision.

Place: Bangalore

Date: /06/2006 (Prof. Rudramurthy)

Faculty Member.



Acknowledgement

I take this opportunity to sincerely thank Prof. Rudramurthy who

guided me through out the project through his valuable suggestions,

without which the project would not have been successful.

I also thank Dr N.S. Malavalli (Principal) for giving me the

opportunity to explore my areas of interest by consistently lending support

in terms of his expertise and also supplying valuable inputs in terms of

resources every step of the way.

I extend my sincere thanks to all the staff members at Sri Sri

Ayurveda Ltd. For giving me an opportunity to carry out my project and also for

their valuable and timely inputs

My sincere thanks to my parents and friends who out of hard sweat

were able to help me at all time and given encouragement for successful

completion of this project.

Suchitra Haridass



CHAPTER-1

Introduction to the Costing System

Costing system helps in:

1. Proper classification, allocation and utilization of cost

2. Estimating selling price

3. Estimating profitability

It helps in control of cost.

Costing is defined as "the application of costing and cost accounting principles,

methods and techniques to the science art and practice of cost control and the

ascertainment of profitability. It includes the presentation of information derived there

from for the purpose of managerial decision making."

1. Cost accountancy is a special branch of accountancy dealing with the

ascertainment of cost of production and service.

2. Cost Accountancy is both science and an art.

3. It follows the same double entry system as in financial accounting.

4. It involves the process of accumulation, classification, analysis recording and

ascertainment of cost.

5. It determines the total and per unit cost of Product service.



6. It provides data for finding the selling price of product and service and for

determining the quotation price or tender price.

7. It provides data to the management for exercising effective control over costs.

8. It provides data to the management for use on forward planning and decision-

making process.

SCOPE OF COST ACCOUNTANCY:

Cost accountancy includes the following:

1. Costing :

Costing refers to the technique and process of ascertaining costs. It involves

system, Methods and techniques of accumulation, classification analysis and

appropriate allocation of expenditure incurred in respect of a product or service.

Thus costing consists of principles, rules and methods, which are used for

determining the cost of product and service.

2. Cost Accounting:

Cost accounting is the science, which records and determines scientifically the

accurate cost of manufacture or service per unit and controls and guides the persons

involved in the organization of production. Thus cost accounting is the formal

mechanism by which cost data are provided for ascertaining and controlling the cost

of products or services.

3. Cost Control:



Cost control is the guidelines and regulation by executive action of the cost of

operating an undertaking. It guides the organization to achieve the target of the

undertaking for a given period.

COST CENTRE AND COST UNIT:

Cost Center:

Cost Centre may be defined as any location, person or item of equipment or a

group of these for which costs are ascertained and used for the purpose of cost control.

Cost center refers to any place, person machine section part activity or function within

an organization or undertaking by which costs are collected or accumulated and to

which costs are allocated.

In an undertaking cost centre may be divided into 2 parts :

1. Production cost Centre

2. Service Cost Centre

Production cost centre refers to a cost centre, which is engaged or regular

production i.e in converting raw materials into finished goods.

Service cost centre is a centre, which is not engaged on regular production, but

which assist the production cost centre in carrying on their activities e.g. stores

department, personnel department, maintenance department, boiler room etc.,



It can further be classified as personal and impersonal cost centre. Personnel cost

centre is a cost centre, which consist of a person or group of persons e.g. departmental

foreman, salesman, supervisor, factory manager etc. An impersonal cost centre refers

to a cost centre, which consist of a location or items of equipment or a group of these

e.g. machines, department, etc.,

Cost Unit:

After cost has been ascertained, accumulated, classified and recorded these have

to be related to convenient measure of the quantity of the product or services.

A cost unit is defined as "a unit of quantity of product, service or time (or a

combination of these) in relation to which costs may be ascertained or expressed. In

other words a cost unit is a standard or unit of measurement of the goods manufactured

or services render.

The objectives of cost accounting are as follows:

a) To study, analyze and classify the cost of production.

b) To ascertain the total and per unit cost of the commodity produced, work performed and

service rendered.

c) To ascertain the profitability of different products, jobs or work orders.

d) To exercise effective control over wastage and loss of materials during production.

e) To provide means to measure the efficiency of labour.

e) To exercise effective control on the idle time of workers and machine.



f) To exercise effective control on the total cost of labour engaged in each department of

the business.

f) To enable the manufacturers to study comparative costs of different periods and

to throw light on the extent and cause of variation.

g) To provide statistical data for the purpose of submitting quotation or

tenders.

h) To provide reliable information and statistical data for framing the future policy

of the manufacturing concerns

i) To collect data for the preparations of cost accounts

j) To provide for cost control through budgetary control and standard costing

system.

Helps in planning and Decision-making:

CAS provides valuable information for the purpose of future planning and

for decision-making. The costing records assist the management in making the

following decisions

1. Manufacturing or buy decision.

2. Selection of profitable product mix

3. Operate or shut down decision

4. Selection of the profitable method of production

5. Fixation of selling price.

b. Advantage to Investors and Financial Institution : I



Investors and financial institution are always interested in making investment in

and granting loans to those industrial concerns, which have good profitability and sound

financial position.

COSTING DEFINITION: a. The technique and process of costing.

b. Ascertainment of cost.

The technique of cost involves collection and classification of cost according to various

elements and allocation and apportionment of the expenses.

Ascertainment of cost involves collection and analysis of expenses measurement of

Production at different stages and also linking up production with the expenses.

COSTING PROCESS:

The aggregate of all the activities involves in the ascertainment of total cost of a

Product / service is termed as costing process. It involves:

a. Material Cost

(i) Direct Material Cost

(ii) Indirect Material Cost

b. Labour Cost

c. Overhead Cost.

Collection of Data:



The actual exercise of transferring the relevant expenses from various sources to

the respective head of accounts is called as collection of cost.

Cost attribution:

The entire activity of identifying cost with the cost unit is called cost attribution.

This involves.

Cost allocation:

The process of identification of whole items of cost to a specific cost center is

called "cost allocation�.

Cost apportionment:

The process of identifying parts of expenses with the cost centers on appropriate

basis is called �apportionment of costs�.

Direct Materials:

Direct materials are those materials, which enter into and form part of the

product, the cost of which form part of the prime cost. Direct materials are also called

process materials and prime cost materials. Direct materials includes-

1. All materials specially purchased for a particular process, batch or production

order.

2. All materials procured or supplied and subsequently requisitioned from the stores

for particular production order.

3. All components either by purchase or by production similarly used.

4. All materials passing from one process or operation to the other.

5. All primary packing materials eg: cardboard boxes, wrapping cartons etc.,



Indirect materials:

Indirect materials are those materials, which cannot be traced as part of the

product. Indirect materials are also known as on cost materials or expenses materials eg:

are

1. Fuel, lubricating oil etc., required for operating and maintaining plant and machinery.

2. Small tools and equipments for general use.

3. Materials consumed for repairs and maintenance work.

4. Lubricating oil used in lubrication process

5. Brikates used in producing steam.

6. Water and other chemicals used indirectly in production.

The time and expenses involved in measuring a material for each product and its cost can

be treated as indirect materials. They are part of the product but of negligible Direct labour

can be categorized into two:

1. Those who are engaged on the actual production of product or in the carrying out

of an operation or process.

2. Those who are aiding the manufacture by way of supervision, maintenance, tool

setting, transportation of materials etc.,

value.

Direct Wage = No. of workers x No. of Hrs. x Rates per Hr.

Prime Cost:



Prime cost is the aggregate of direct materials cost; direct labour cost and direct

expenses. Prime cost is also known as flat cost, first cost, and direct cost

Direct Expenses:

These are the expenses other than direct materials ost and direct labour cost

which can be identified with and allocated to cost centers or cost units eg: royalties paid

on the basis of output hire charges of special plant or machinery.

Indirect Expenses:

Expenses which cannot be allotted but can be apportioned to or absorbed by cost

centers or cost unit eg rent, rates taxes and insurance of factory building, factory lighting

department of plant and machinery are known as indirect expenses.

Treatment of Stock

Stock of Raw Materials:

These are the basic unfabricated materials, usually purchased in bulk. Raw materials are

mostly used as direct materials. These are materials, which undergo change during the

manufacturing process so as to become finished goods.

SSA an ayurvedic factory where raw materials are basically original herbs, leaves barks

and other natural products.

Raw materials consumed is obtained from Raw material entry books which gives

information relating to treatment of stock, opening balance, closing balances, receipt of

materials, issue net balance and which finally helps in ascertaining Raw-materials

consumed.

Cost of raw materials consumed: -

Opening stock of raw materials XXX

(+) Purchase of materials XXX



XXX

(-) Closing stock XXX

Raw materials consumed. XXX

Stock of Work in Progress:

In manufacturing enterprises there may be a certain amount of goods in a partly

manufactured state, at the end of a particular period. Work in progress means units on

which some work has been done which are not yet complete. The work in progress is

valued according to the value of raw materials, labour and expenses, which have so far

been incurred to the date of closing of the financial period.

Work in progress has usually 3 components:

1. Materials cost to date.

2. Labour to date.

3. Manufacturing expenses incurred up to date

Treatment of work in progress in cost sheet:

Work in progress is valued at works cost then opening and closing stock

of work in progress is adjusted as follows:

Factory overheads xxx

(+) Opening stock of WIP xxx

-----



xxx

(-) Closing of WIP xxx

-----

Factory Cost xxx

-----

Opening and closing balances for each batch is recorded in WIP register or

product files.

Stock of Finished Goods:

If the opening and closing of finished goods are also given then they must

be adjusted before calculating cost of goods sold as under.

Cost of production xxx

(+) Opening stock of finished goods xxx

----

xxx

(-) Closing stock of finished goods xxx

-----

Cost of goods sold xxx

is defined as "the aggregate of indirect material cost, indirect wages and indirect

expenses". The term indirect denotes that which cannot be allocated but which

can be apportioned to cost center or absorbed by cost unit.



The overhead cost are analyzed for purpose of cost ascertainment and control by

function and for guidance in certain managerial decision by the extent of their

variability with production

Production overhead covers all indirect expenses incurred by the

undertaking from the receipt of the order for manufacture this is

completed and put ready for dispatch in the finished goods go down

All expenses incurred in this operation or process other than direct materials and

direct labour are classified as manufacturing overheads. Manufacturing Material

overhead are also referred to as works overheads. Factory overheads production overhead

works on cost etc.

a. Depreciation on plant machinery

b. Depreciation on works building

c. Depreciation electrical equipments

d. Insurance charges on fixed assets

e. Repair and maintenance

f. Power consumption i.e. electricity charges

g. Coal consumption

Administration Overheads are those indirect expenses that pertain to the

performance of management functions. The heading therefore covers all expenditure

incurred in formulating the policy directing the organization and controlling the

operations of an undertaking

1. Staff Salaries of Administration Office

Rent Rates and Electricity Charges



COST SHEET Period___________ Output_________ Particulars Total cost Cost Per Unit Direct materials xxx Direct wages xxx Direct expenses xxx

PRIME COST xxx Works overhead xxx WORKS COST xxx Office & Administrative OH xxx COST OF PRODUCTION xxx Selling & Distribution OH xxx TOTAL COST xxx

PROFIT xxx SALES xxx

ELEMENTS OF COST

Under batch costing, cost is collected and recorded based on each batch size and

units produced out of such batch.

The cost is recorded in cost sheet under the following elements of cost.

1. Material cost :

1.1 Raw material cost

1.2 Work-in-progress cost

1.3 Finished Goods Cost

1.3.1 Packing Cost



2. Labour Cost

3. Sundry Expenses, Direct & Indirect costs.

MATERIAL COST:

RAW MATERIAL COST:

Raw materials of Sri Sri Ayurveda includes all natural herbs, barks, leaves roots

and other natural products. Some of the raw materials are:

Amla, Daniya, Haritaki, Bibitaki, Dalchinai, Bramhi, Devavfi, Khus Grass,

Ashwaghanda, Arjuna, LIme fruit, neemleaves, Sugar candy, Tulsi, Vaacha,

Yashimadhu, Vamsalochana, Hingu, Honey, Amlaki, Pipply and so on.

Raw materials cost includes purchases cost, freight charges, ordering cost

transportation cost etc.

Internal memo contains all those materials required to be purchased and existing balance

and required quantity is mentioned and sent to purchase department

Placing tender with suppliers:

On receiving the internal memo from stores department, purchasing officer issues

tender to the prospective suppliers and against these tenders suppliers will quote prices

and the best quotation is accepted.

Different production procedures are followed for different products. Therefore

stages of WIP differ from product to product. For this purpose products may be

classified as follows.

Taila, Khasaya, Churna, tablets, lekya and so on. In the case of production of

tablets WIP starts when the powder form of medicines are sent from RM department to

production department for converting powder into tablets, in the case of taila and kashaya



WIP starts when the liquid form of medicine is boiled for hours in oil extraction Usually

WIP will be more in case of taila as it is a continuous process conducted for many days.

It is not always necessary that WIP starts at Production department in some cases WIP

begins at Raw materials department in the case of production of products which are to be

powdered.

COST OF WORK IN PROGRESS:

Material Cost:

Cost of materials issued to production includes cost of the raw material, overhead costs,

direct expenses, cost, processing cost etc. The materials issued to the production has

already been processed and sent to production department for further processing and

converted into ultimate product. Materials issued to production are issued at FIFO rates.

Cost of Extracts:

Cost of extracts is also a part of work in progress cost. Extracts are the materials

purchased from outside which becomes part of production. The market rate of such

extracts is included in the cost sheet. Cost of each unit in kg is calculated and added to

total cost of materials.

Cost of excipeonts and Lubricants:

Excipeonts are added to the medicine the cost of which is included in product

cost. Excipeonts requirement depends and varies from product to product. Chemicals

register is maintained for recording such details and costs, there cost are shown in batch



cost sheet when prepared for individual product. Lubricant oils are used while preparing

tablets and such cost should also be accounted in cost sheet.

Packing is one of the section in production Department. Once the product is

produced the next step is to pack the products in appropriate boxes or containers.

CHAPTER-2

COSTING METHODS

BATCH COSTING :

The costing method followed at Sri Sri Ayurveda is Batch Costing. It is mainly

designed to suit the work carried at Sri Sri Ayurveda. Batch cost is a varied form of job

costing. Batch costing is concerned with the ascertainment of the cost of a group of

identical products.

Manufacturer of medicines usually follows batch costing. The products

manufactured in a batch are to be used for a particular purpose. It should be consumed

within a specified period. In batch costing system all the materials required for

manufacturing a product, Quantity for each batch is identified and According to the

recording to the size of the batch production target is fixed.

Batch quantity or batch size can be explained as follows for a particular product:



INGREDIENTS QTY. FOR BATCH

Triphala powder 22.5 kg

Triphala Extract 15 kg

Exepionts :

Dicalcium Phosphate Ip 4.125 grms

starch IP 1.80 grms

Sodium Mathain IP 0.75 grms

Tale IP 37.50 grms

Sodium Glycolate IP 412.5 grms

Mg. state IP 150 grms

Total qty.for batch production 44.587 grms

COSTING PROCEDURES:

Each identified batch is allotted a serial number:

1. Batch costing includes labour cost, material cost and direct expenses, which are

identified and allocated, apportioned with a particular batch.

2. In this system the cost of the entire product can be determined by dividing total cost of

the batch by total units produced in a batch.

3. SSA prepare a batch cost sheet mentioning the batch size, unit to be produced or fixed

target, cost of all the materials, labour, other expenses. Total cost is ascertained and the

total cost is divided by achieved target unit to determine cost per unit.



Note: Cost of production is not shown in individual batch cost sheet as per firm's policy.

Ascertaining cost per unit under Batch costing :

Cost per unit = Total cost of the batch size

Total units for the batch

COST LEDGER :

Material cost ledger

Labour cost ledger/ salary and wages

Sundry expenses- overhead cost ledger

Purchases ledger

Marketing ledger

PROCEDURE FOLLOWED IN PREPARATION OF COST SHEET:

A cost sheet is prepared through entering details into computer and taking a

printout copy of it. An annual cost sheet is prepared where in all expenses are accounted

or recorded in order to find out cost of production and selling price.

In a general cost sheet cost of Raw materials consumed will be quotation price of

the direct materials, opening and closing balance as on the date. But at SSA Raw material

consumed cost not only includes direct material cost but all other expenses such as

cleaning charges, washing charges, powdering charges, labour cost and other expenses,

i.e it includes all those cost in the process of sending the raw material to production

department.

Direct material cost, cost of extracts, labour cost, direct expenses are added to get

prime cost. Factory OH's, administration OH's and other sundry expenses are added to



arrive at cost of production to this cost of production selling and distribution, insurance,

taxes are added and total cost is ascertained to find out profit in preparing individual cost

sheet for individual products cost of production is not shown, where as in annual cost

sheet prepared for over all production total cost of production is included.

PERIOD OF PREPARATION OF COST SHEET:

Periodic cost sheets are prepared for the purpose of finding out cost price of the

product. For this purpose, the firm prepares 2 kinds of cost sheets.

1. Individual cost sheet

2. Annual cost sheet

1. Individual cost sheet:

Individual cost sheet means cost sheet prepared for each and every product

produced. Individual cost sheet records the details about production cost, overhead cost

and miscellaneous expenses providing cost of each product. This cost sheet is prepared

for each month on the last day of the month.

2. Annual cost sheet:

An annual cost sheet is prepared by the firm where total cost incurred during the

year for the overall production of medicines are posted. Annual cost sheet is on revised

and complete record of costs.

POSTINGS IN ANNUAL COST SHEET

a) Labour cost: Labour cost as per labour hour calculation is posted to cost sheet.

b) Materials cost: Material cost is posted to cost sheet from materials cost ledger. Cost

of raw materials and other ready-made materials i.e. extracts bought from outside,



suppliers and other cost incurred in work in progress allocated and apportioned are

posted into cost sheet.

c) Sundry direct expenses: Direct expenses and other overhead cost are posted to cost

sheet. Excise duty, taxes, insurance are posted to cost sheet. All these costs are posted

to cost sheets through computer and print out copy of this cost sheet is taken and filed

into the file maintained for recording cost sheets.

d) Cost of cleaning: Cost of cleaning is a part of product cost. Cleaning process mainly

includes labour expenditure and these expenditures is ascertained or calculated with

the help of cleaning process sheet prepared by the firm.

This sheet contains information as description of the product, no of hrs for

cleaning, no of workers, task finished, task in complete and the work postponed for the

next day.

On this basis the labour cost is ascertained which is one of the main expenditure

for the firm. This expenditure is allocated on labour hour rate basis.

e) Cost of powdering: Powdering cost is also ascertained from powdering process

sheet. Expenditure is allocated on labour hour rate, machine hour rate and some on

actual basis. Same procedures are followed as per cleaning process in calculating

cost.

Both cost of cleaning and cost of powdering is a part of material cost and

included in cost of Raw materials consumed.



f) Overhead Costs: Overhead costs are ascertained from records are entered into

annual cost sheet. Factory overhead, Administration overhead, selling and

distribution OH's, Marketing, human resource expenditure, research and development

cost are entered into annual cost sheet to ascertain total cost.



CHAPTER-3

LITERATURE REVIEW

Research Article Costcontrol

Wiersema,

The paper on activity based costing will help me understand the concepts related to the

costing methods followed at the place where I have been carrying out the project since it

is related to the ascertainment of cots at various departments.

Activity-based management costing method that improves bidding accuracy, relates

expenses to specific tasks

Change is a continuous process impacting practically every industry today and one of the

industries most affected is printing.

Earlier companies could afford to fudge their costs because there was plenty of margin.

The traditional labor-based costing approaches, such as the Budgeted Hourly Rate (BHR)

method, worked fine. These one-size-fits-all methods allocate all costs related to a

printing press or other equipment, then divide the sum by the budgeted hours. The result

is a single rate for the press or equipment on which to base quotes or price completed

work.

In today�s era, Customers are demanding more. Technology is replacing skilled labor.

Competitors are becoming increasingly more aggressive. And, it goes without saying, not

everyone in the graphic arts industry today is going to survive.

To control or manage their costs, we first must understand them. However, when costs

are applied arbitrarily, in bulk, as traditional costing does, the true causes of the costs

remain a mystery.



Discussion and Analysis

For costing purposes, we would not have indirect labor because we don't have direct

labor. Since there is no labor, using labor time as a cost base amounts to giving the use of

equipment away.

Using the preceding scenario, I have looked at another example of the shortcomings of

using the direct-labor approach to cost a job. Overhead allocations (supervision,

inspection, supplies) also are driven off of labor. With the aforementioned, in reality we

won't need an allocation for overhead. However, using the labor-driven approach, we are

likely to add it in to their job costs anyway and quote artificially high.

Here are a few more factors to consider when examining the effectiveness of traditional

methods:

* A single-hour base is used. An hour of set-up, however, is not the same cost as an hour

of equipment operating time.

* The rules and rates on which their estimates are based frequently are not current.

* There is a risk of assigning too much cost for underutilized machinery.

Traditional cost systems can do more than just throw off estimates and pricing. The

misleading figures they generate often cause problems firms to go after the wrong

business and even to lose money on jobs they think are profitable but are not.

Not only are these traditional methods unable to supply tools for controlling costs, they

can't provide the information necessary to run a business profitably. The only way to

control costs is to identify the relationships between expenditures and the activities that

cause them. This information is not available from traditional cost systems.

The drawbacks of traditional costing methods have led to the development of Activity-

Based Management (ABM), a new costing concept.



ABM provides information that helps shops to better cost, plan, market and compete

because it relates costs to specific tasks. The following four steps are involved:

Determining the actual drivers for each product and extending them at budgeted rates to

verify the model

Creating model/budgeted rates to find the cost per driver.

Relating the consumption of a resource to specific activities through "activity drivers,"

which are quantitative factors representative of the model

Also, the goal of activity-based costing is to understand how costs are incurred.

Traditional methods attempt to legislate cost behavior through a predetermined budget.

Recognizing that each activity uses different resources and each resource is consumed

differently. Major resources for printers include direct labor, directly related labor burden

(payroll taxes, healthcare), equipment operating costs (make-ready, operation, cleanup),

overhead (maintenance, inspection, supervision) and administration and sales.

ABM acknowledges each printing job consumes different amounts of labor, materials,

equipment operating time, and supervisory, administrative and management time as well

as portions of other costs, historically lumped into overhead. ABM identifies the separate

costs so they can be charged back accurately to individual projects. Exhibit 1 shows some

typical costs and drivers.

ABM amounts to quantifiable measurement associating the cost of activity with

consumption of the cost. This approach differs from traditional systems because activity-

based costing considers the actual operations and then designs a cost model. Traditional

approaches start with the model and attempt to impose it on every operation.

Exhibit 1

Prepress and Printing Activity and Activity Drivers



Activity

At first glance, both orders look good. The firm will make a healthy 33 percent profit on

each. However, the traditional estimating form includes direct charges for material and

labor. Also, items such as supervision, inspection, special requirements or the possibility

of rerunning the job are ignored. In fact, any overhead that doesn't vary with time is

averaged over the budgeted hourly rates regardless of the cost. By averaging, traditional

systems ignore the real differences occurring between the two orders.

From an estimating standpoint, ABM's objective is to test the relationship between costs

and the peculiar characteristics estimators try to find. Characteristics taking the form of

activity drivers are documented in estimating costs and tested through a flexible budget.

This involves testing the ascertained rates by multiplying them by the actual number of

activity drivers during the period.

The flexible budget should be compared with actual cost data monthly to ensure costs are

in line.

To get an idea of the shortcomings of traditional costing methods, take a look at a

printing firm's estimating form for a pair of equally priced projects, one complex and one

routine.

Many printers incorrectly bid or estimate jobs because they don't understand the costs

involved in producing jobs. Implementing ABM, however, can improve bidding,

estimating and pricing

I have analyzed the same two jobs using the ABM approach The ABM approach tells a

totally different story. It shows the firm losing 10 percent on the complex order and

making a 40 percent margin on the routine job. Using the BHR or traditional system, the

firm would have assumed they were making the same profit on each job.



Conclusion

ABM is indeed is a very efficient tool in ascertainment of costs

With ABM, we can see what's going on within a company�s by looking at a piece of

paper. We see what's happening, who it's happening to and what equipment it's

happening on. It allows us to make decisions daily, weekly or whenever.

The ABM approach is based on an analysis of significant activities and the manner in

which they affect costs. It is a more realistic model, and substantially can alter a

company's perception of its profitability.

How far the companies wish to take their activity-based management cost system is up to

them when properly implemented; it provides data traditional systems miss, such as

profitability by job, job type and customer.

Armed with complete, realistic cost data provided by activity-based programs, printers

can estimate and bid with a much greater degree of accuracy. In addition, their business

outlook becomes clearer, allowing management to keep a firm grip on the profitability of

the entire operation

ASG Sherman Graphics (Chicago) implemented an activity-based management system

after the firm added new technology and shifted its focus to digital printing. Its new

techniques and equipment caused labor patterns to continually change. Therefore, figures

generated by conventional labor-driven costing would be of questionable accuracy. Plus,

the traditional system couldn't provide the company with the information needed to

remain a leading edge graphic resource.



The Relationship between Accounting and Taxation

Simon James

Introduction

This research article was selected to understand the implication of the Tax system has on

the accounting practices of a system

For a tax system to operate successfully within the law requires a degree of certainty that

may not always be appropriate for commercial accounting. Furthermore, there may be

alternative methods of preparing accounts that are equally acceptable in terms of

accounting standards but the choice of which might be influenced by the taxation

implications in a way that was not intended when tax legislation was drafted.

Nevertheless, as discussed in this paper, there are reasons why the tax system might be

designed to produce a different result from that obtained from conventional accounting

practice

Where the taxpayer's financial statements are correctly drawn in accordance with the

ordinary principles of commercial accounting and in conformity with the [Inland

Revenue] Ordinance, no further modifications are required or permitted.2

The Department's revised position in relation to prepaid revenue expenses is that the tax

treatment should follow the accounting treatment of such expenses, provided that the

treatment in the accounts is in accordance with the prevailing generally accepted

principles of commercial accounting and is not inconsistent with any provision

The calculation of variables such as revenue, expenditure and profits should be the same

for the purposes of both commercial accounting and taxation. Quite often, this is true, but

there are circumstances in which different figures are appropriate. The fundamental point,

of course, is that accounting and taxation exist for different reasons.

Analysis

Financial reporting rules and practices might not always be appropriate for determining

final tax liability for several reasons. These include the purposes of accounting and

taxation, difficulties in defining economic concepts and administrative effectiveness.



The purpose of accounting is to provide to interested parties, information relevant to

stewardship, control and decision-making. The interested parties maybe internal

(management) or external (such as shareholders, creditors, tax authorities).

The purpose of a tax system is different, of course, being primarily concerned with

raising funds for the public sector in an effective way. This has clear implications for the

nature of figures used in tax calculations as opposed to figures used in commercial

accounts.

On other matters, the government might decide that certain activities normally considered

to be perfectly acceptable for commercial purposes should not attract tax relief. One UK

example consists of the tax treatment of certain expenses. For business reasons, it is

desirable to take account of all the costs incurred in generating revenue. However, some

expenses may not be allowable for tax purposes. For instance, the cost of entertaining

customers and the cost of gifts, unless it is a modest amount and for the purposes of

advertising, are not allowed for tax purposes. The original reason seems to have been to

prevent such activities from being used to avoid taxation. However, the disparity between

accounting and taxation can be more fundamental than simple adjustments to figures in

the accounts. It might be worth briefly mentioning some of the problems there have been,

in establishing a workable definition of income.

The scope for divergence between accounting principles and taxation is considerable.

Much relates to the scope for allocating revenue or expenses to capital or current

accountthe balance sheet or the profit and loss account. What might be appropriate for the

needs of commercial accounting might not be so for taxation. Specific areas of concern

include current financial provisions for likely or expected future events - as illustrated . A

different manifestation of possible differences as to the correct approach can be seen in

terms of the `matching principle'

Taxation is also frequently modified and reformed. This process is described, for

example, by James (2002) where the status quo can be seen as subject to continuous and

changing pressure for and against reform and the result is a continually developing

compromise between such forces.



There are several possible ways of modelling phenomena such as the development of tax

systems and one helpful approach is the use of force field analysis. Some individuals

might view the development of tax systems as a process of rational reforms in changing

circumstances. The drawback with that optimistic approach is that it is not reflected in the

actual process of tax

The primary goal of financial accounting is to provide useful information to management,

shareholders, creditors, and others properly interested; the major responsibility of the

accountant is to protect these parties from being misled. The primary goal of the income

tax system, in contrast, is the equitable collection of revenue; the major responsibility of

the Internal Revenue Service is to protect the public interest. Consistently with its goals

and responsibilities, financial accounting has as its foundation the principle of

conservatism, with its corollary that `possible errors in measurement [should] be in the

direction of understatement rather than overstatement of net income and net assets'. In

view of the Treasury's markedly different goals and responsibilities, understatement of

income is not destined to be its guiding light. Given this diversity, even contrariety of

objectives,

There are also other reasons why taxation might deviate from accounting concepts of

income. While the most obvious purpose of taxation is to finance public expenditure (for

further discussion see, for instance, Brown and Jackson, 1990), the extent and magnitude

of taxation in modern economies also makes it a powerful instrument of government

economic and social policy in its own right. While it is true that some taxation measures

might be introduced to improve economic decision-making, others are implemented for

very different reasons. There may, therefore, be all manner of modifications to income as

it might be normally understood before arriving at the appropriate figure for tax purposes

concept of tax expenditures ably describes the situation that `those provisions of the

federal income tax containing special exemptions, exclusions, deductions and other tax

benefits were really methods of providing governmental financial assistance'.

Even when such tax provisions exist for purely economic reasons, it does not mean that

they will necessarily coincide with the purposes of accounting since the government may



also be considering wider public economic interests. The example of depreciation is

discussed below, where the amounts allowed for capital expenditure maybe adjusted for

the purposes of taxation in order to encourage commercial investment.

Reform and does not take account of the complex array of different interests and factors

involved in the way tax systems develop and the nature of the political process itself. It

also overlooks the considerable innocence of many contributors to fiscal discussions with

respect to the overall characteristics of an effective and equitable tax system

Conclusion

In practice, therefore, taxation is not always based on a set of consistent principles. The

tax systems in many countries do not meet even the basic criteria of efficiency and

equity. The Nation should have a tax system which looks like someone designed it on

purpose. Tax systems are most often changed on a piecemeal basis, in a continual process

of responding to particular pressures, as indicated above. The result, for example, in the

case of an income tax is that the tax base does not always match accounting or economic

definitions of income. In the UK, the demonstrated that the UK income tax had features

such as the treatment of much industrial investment and pension funds that made the

effects of tax in some cases similar to those of an expenditure tax.

The main implication for the present topic is that tax legislation should be reviewed on an

ongoing basis, to ensure that it continues to fulfill its intended purpose of compiling with

the company and corporate accounting practices which will aid for long term profitability



Balance of Accounting reforms and Management Reforms

in Local Authorities

A Tool for Evaluating the Outcomes Empirically�

Johan Christiaens*, Paul Windels** and Sandrijn Vanslembrouck***

Introduction

To measure the level of adoption of a reform, two compliance indices are constructed.

Furthermore, this research note reaches a method to explain the cross-sectional

differences in the level of compliance based on factors derived from previous research.

After the formulation and explanation of the research questions and the derived

hypotheses, this note introduces the concept of the compliance indices in local

governments and clarifies the purpose and construction of the accounting and

management between the public and private sector and shift the emphasis from process

accountability towards a greater element of accountability in terms of results.

The objective of this contribution is to prepare a method to evaluate the extent to which

reforms are implemented in local authorities and to determine important factors for

the cross-sectional differences in the level of adoption and implementation of the

reforms.

Previous research indicated that several factors (e.g., skills staff, experience, financial

means, size, etc.) are important within the accountings reform in

Municipalities. Problem is the lack of empirical research attempting to explain cross-

sectional differences in the adoption and implementation of new accounting and

management practices.

Furthermore, those studies focus mainly on the specific issue of disclosure within these

accounting reforms and do not pay attention to the broader concept of technical

implementation, e.g., valuation, mechanical accuracy, cut-off, completeness,

classification, ownership, disclosure and so on.



Discussion and Analysis

Based on previous research and taking as an example the factual situation of Flemish

local authorities, a number of related hypotheses can be formulated. These hypotheses are

just presented in the form of an enumeration without being exhaustive. The first research

question can be hypothesized as follows:

Local authorities experience structural implementation problems in complying with

the new accounting and management legislation and regulations. this hypothesis is

additionally supported by the following arguments, which are drawn on an explorative

study of the accounting reform

In managing change and implementing reforms, the importance of knowledge and

abilities of the executive and their staff is extensively documented in the NPM literature

Therefore; this research note includes the professionalism of the executive and their

management staff and assumes that their level of professionalism is positively associated

with the level of compliance. Furthermore, the study takes into account whether the local

authority has attracted additional staff or not.

The level of professionalism of the local government�s management staff positively

affects the level of compliance.

In this research note, the professionalism of the management staff is split up by the level

of education (general professionalism) and the gathered relevant experience (specific

professionalism).

Implementing reforms brings a lot of new and additional tasks along for administration

and especially management. Therefore, it is assumed that contracting additional

personnel that support administration and management in their tasks, will positively

affect the level of compliance.

Organizational Resources

The research note focuses upon the (in)formal contacts of the local government with

other organizations having experience with accrual accounting and/or business-like

management tools. Local authorities having formal or informal contacts with such

organizations are supposed to show a higher level of compliance. Next, it is assumed that

good project leadership positively affects the level of compliance. Therefore, the note

also takes into account whether the organization has assigned a project leader or not.



Indicated that there still remain some qualitative problems with the internal as well as

external audit

Implies that the external auditors will need to have the ability and understanding to assess

the impact of the change towards accrual accounting and management reporting Hence, it

is assumed that the quality of the financial audits (adequate feedback and guidance in

financial issues) positively influences the level of compliance.

Elements of the Accounting Index

Components Code Measure Source

1. Timeliness

Completeness

2. Stocks disclosed

3. Doubtful debtors recorded

4. Provisions disclosed

5. Non recorded rights and obligations

6. Vacation salary

Conclusion

The research study�s intention is to fill the void of evaluative activities in governmental

reforms and to create a new perspective on evaluation.

Furthermore, the research study will hopefully lead to a number of improvements and this

research study is devoted to the construction phase of compliance indices, it is likely that

certain elements of the indices as well as certain hypothesized explaining factors might

be adapted in further empirical studies

This study has helped me to understand the various implication the accounting principles

involved when it governments formulating reforms and policies. which in turn could be

related to the measures and practices followed at my organization



Article on �Organizations Who Have Excelled Through TQM�

Introduction

Objectives

Understand how other organizations have implemented TQM.

Gather the war stories that will seed their efforts.

Understand the obstacles to successful implementation.

Understand techniques for successful implementation.

Model TQM implementation plan after those implemented by others.

Digital Equipment and American Express have agreed to share the results of their

accounting and finance implementation of TQM for this book. This chapter presents two

distinctively different, but similar case studies that come from the leading companies in

the TQM field. The two cases presented come from those who have been entrusted with

managing the process within the accounting and financial organization. In this chapter,

we look at the war stories from each company and the approaches that each chose to use

in the implementation of its TQM plan.

Working in the TQM environment has its challenges. The cases are representative of

the kinds of obstacles confronted by each group. They illustrate how those obstacles

were overcome.

Quality or peer reviews are aimed at the needs of external customers (clients); they do not

incorporate the needs of internal customers (staff) into the overall quality control process.

Issues affecting the firm's professional staff usually are reviewed in annual employee

performance evaluations, but, again, these evaluations often come too late to prevent

problems. Failure to address professional personnel needs promptly can increase

employee turnover, lower morale and reduce the firm's overall productivity.

THE TQM APPROACH TO CONTINUOUS QUALITY IMPROVEMENT

TQM has its origins in manufacturing, where statistical quality control measures were

first used to reduce product defects. Today, TQM incorporates both a management



philosophy and a growing body of tools and techniques for continuously improving

products and services. TQM concepts have been applied in government, education and a

wide variety of service industries, including banking and insurance. TQM also is being

applied to auditing and accounting services.

TQM recognizes that quality cannot be added to a product or service after it's completed

but must be designed into the work process from the beginning. Its management

philosophy incorporates at least three major concerns.

TQM focuses on the work process, not the employee. If work quality is poor, say TQM

advocates, the most likely cause is a poorly planned or implemented work process. TQM

is based on the premise that most employees will do a good job if the work process

permits and supports it.

TQM focuses on customers. Every employee or functional group in a business

organization has its own customers, both internal and external. TQM gives customers the

opportunity to define work process quality in terms of their own requirements (that is,

what they want, need and expect from the supplier of a good or service). The goal is not

to meet customer expectations but to exceed them.

Conclusion

TQM focuses on teamwork rather than individual effort. It empowers all employees, from

clerical staff to managers, to contribute to the process of continuous quality improvement.

It seeks to remove barriers that divide employees into staff and management since staff-

level employees often are the first to recognize critical areas for quality improvement.

.



CHAPTER-5

Research Methodology

STATEMENT OF THE PROBLEM:

Costing and cost sheet is essential to ascertain cost of various projects in detail in

order to evaluate whether the project undertaken is profitable to the organization or it will

lead to loss in future.

This study is conducted therefore to create awareness in the organization for optimum

utilization of costs

Hence the study helps the management to closely examine the utilization of cost

and eliminate the wasteful expenditure, which is directly involved in the production and

also helps in proper control over the costs as expenditure incurred is identified against

each department and recorded in cost sheet.

SCOPE OF THE STUDY:

Scope of the Study into each and every Department in SSA which includes RM

Department, Production Department, Quality Control Department, Costing Department

and study of methods, techniques procedures and principles of costing followed in Sri Sri

Ayurveda.

This study helps in knowing, identifying, classifying and ascertaining cost for

each Department and how effectively and efficiently the management can control cost

and fix selling price.

This study also helps us to know the present status and cost accounting technique

methods, systems followed by the trust, which leads to better utilization of cost.



OBJECTIVE OF THE STUDY:

The project being on the costing system followed by Sri Sri Ayurveda in preparing a

cost sheet.

Objective:

1. To find out what type of costing method is being followed in SSA.

2. The study is done in order to identify requirement of cost for each Department for

Producing a Product.

3. To classify and ascertain the cost which are directly involved in production.

5. To closely examine the utilization of cost and elimination of wasteful expenditure,

which is directly involved in production.

6. To know the proper control over the costs as expenditure is identified against

department.

RESEARCH METHODOLOGY OF THE STUDY:

Research Methodology is the study of Research method and rules for doing

research work. To do a research it is necessary to anticipate all the steps, which must be

undertaken. If the project is to be completed successfully proper steps in research

process has to be followed. It consists of inter related activities such as identifying the

research problem description of research design sources of collecting data sampling etc.

The Research Design happens to be in respect of:

1. What is the study about?

2. Why is the study being made?

3. Where will the study carried out?

4. What type of data is required?



5. Where can the required data be found?

6. What periods of time will the study include?

7. What will be the sample design?

8. What technique of data collection will have to be used?

9. How will the data be analyzed?

10. In what style will the report be prepared?

SOURCES OF DATA:

The data which are used in the study, can be classified into two :

a) Primary data

b) Secondary Data

Primary Data

The data was being collected through:

1. Visiting concerned heads of various departments with prior appointments.

2. Oral Interview

3. Discussions.

Secondary data was collected and analyzed from :

1. Entry ledgers, Data Sheets

2. Summary of cost ledgers

3. Requisitions and various forms and invoices.

FIELD WORK

Personal visits were given taking permission with the concerned head of the

department for collecting data from various departments.

1. Raw Materials Department



2. Extraction Department

3. Production Department

4. Quality Control

5. Finance and Cost Accounts Department

DATA ANALYSIS TOOLS USED:

1. Receipts, vouchers another documents issued by finance and purchase department.

2. Cost records, registers issued by office.

3. Cost sheet, production estimations, stock report.

4. Cost accounting and costing test books for reference in the library..

LIMITATION OF THE STUDY:

The study being a research project of the descriptive and analytical type research was

confined only to deskwork.

Neither it was possible to collect primary data in the form of questionnaire nor was it

possible to formulate a hypothesis.

Time taken to carry out research work was not sufficient as the subject choose is very

vast and requires detail study and long period.

The study is confined only to research in Ayurvedic factory and not a study

conducted in general.



CHAPTER-6

TYPES OF COSTS INCURRED

1. Materials cost: cost of materials issued is included in WIP cost.

2. Labour cost: cost of laboures is calculated on the basis of number of hours worked

and number of labourers worked for such time is calculated and recorded and included

in WIP cost.

. No of worker X cost of hoursX rate per hour gives us labour

Cost per hour, which is a part of WIP cost. 3. Machine Hour Rate: As production department is one of the main departments which

uses heavy and bulk capacity machines for production the calculation of machine

hour rate is very important. Machine hour rate includes power unit consumed per

hour, deprecation charges, repairs and renewals, lubricant oil and other expenses

included in running a machine etc., are considered while calculating machine hour

rate.

All the expenses when included gives us the cost incurred in running a machine total

of all these expenses gives us machine hour rate.

4. Manufacturing Cost: Manufacturing cost includes all those costs incurred in

manufacturing a product. It includes all the above said cost.

5. Cost of chemicals and other extracts: As SSA is an pharmaceutical company, use of

chemicals is a must and cost of such chemicals cost of other extracts purchased form

outsiders is also included in WIP cost.

Cost included in finished goods:

1. Cost of the final product.

2. Cost of packing and materials used in packing.



3. Cost of store keeping i.e warehouse charges including electricity charges. 4. Salary of supervisor.

5. Labourers working in stores department.

Classification of overheads :

Overheads are classified under the following heads:

Factory overheads:

Expenditure of factory departments such as production control; maintenance,

inspection and other indirect costs such as power charges salaries and wages of factory

workers, lightening and oil cost, heating, water etc. apportioned to the each department.

Administration overhead�s :

Expenditure of administration departments such as personnel, finance, accounts

and audit and general administration such as salaries, audit fees, directors fees, telephone

charges, postage telegram, stationery etc. which we apportioned to concerned office.

Selling and distribution overheads:

Expenditure of selling and distribution departments such as marketing,

advertising, re-distribution, transportation, warehouse charges etc. apportioned for each

product.

LIST OF RESEARCH AND DEVELOPMENT COST:

1. Cost for improving the existing product.

2. Cost for research of new product

3. Cost of materials and services consumed

4. Salaries and wages of personnel i.e doctors involved in research and development

department.



5. Overhead cost.

6. Cost of equipment.

QUALITY CONTROL EXPENDITURE:

Cost of materials issued for inspection

Cost of various tests:

Cost of chemicals Cost of machineries Cost of Labour Packing cost:

Cost of Containers, Cost of label, Aluminium Foil, Cotton charges, Cost of

Cardboard Boxes

Cost of Cleaning:

Cleaning charges means expenditure incurred by the trust for the purpose of

cleaning the materials. Cleaning expenses includes labour hours and wages paid to

labourers, power expenditure and overhead expenses. Labour charges are calculated as

per time rate system of wage payment. This can be determined as follows:

Total Working Hours x Rate per Hours.

Time keeping is recording of time for the purpose of attendance and time booking is for

cost analysis and apportionment of labour cost.

Avoidable Idle time cost

Unavoidable Idle time cost

Records and Registers



All these records, Registers and files help the finance department to know balances of

materials as on that date quantity issued, units produced for an estimated batch and

overhead expenses details which leads to ascertainment and calculation of material and

overhead cost for each department. Therefore these records are helpful in ascertaining

cost and finally fixing cost price of the product



CHAPTER-7

Data Analysis

INDIVIDUAL BATCH COST SHEET SRI SRI AYURVEDA

Ved Vignan Maha Vidya Peeth 21st KM, Kanakapura, P.O Udayapura

Bangalore 62 Cost Sheet for Triphala Tablet

Batch Size : 1 Lakh Tablets Each Bottle � 60 tabs Weight of tablet � 600 mg MRP - Rs.40/- Yield - 98%

Each Tablet contains Sl.No Name Qty each

tab Price per

kg Total

qty.in kg/rs Total Amt.

1 Haritaki 7.5+5 kg Rs.26/- 7.64+5 Rs.311/-

198+1550 =1748

2 Bibitaki 7.5+5 kg Rs.14/- 7.9+5 Rs.312/-

111+1560 =1671

3 Amla 7.5+5 kg Rs.53/- 8.4+5 Rs.410/-

445+2050 =2495

4 Starch Rs.19/- 3.4 KG

64.50

5 DCCP Rs.30/- 2.25 KG

67.50

6 MCCP Rs.85/- 150 GMS

12.75

7 SSG Rs.81/- 150 GMS

12.15

8 Lactose Rs. 78 1.815 kg 146.25 9 Tale Rs. 14.60 300 grms 4.38 10 Water Rs.00.50 30 ltrs 15.00 11 Label Rs.00.20 1650 No.s 325.00 12 Containers Rs. 1.30 1625 Nos 2112.50 13 Carton Boxes Rs. 8.20 24 Nos 196.80 14 Aluminium

foil Rs.00.20 1625 Nos 325.00

15 Wastage 2% 184.00 16 Cost of

Production --

Total



Batch Cost Sheet showing quantity produced, cost of materials, extraction cost, overhead

cost and miscellaneous cost, in finding out total cost price as per the Company's policy

cost of production is not shown in this individual cost sheet.

EXTRACT STOCK REPORT WITH TOTAL COST

EXTRACT TOTAL RATE /KG TOTAL QNTY COST Amla 153 350 53550 Arjuna 195 350 68250 Ashwaghandha 107 500 53500 Bhringaraja 35.5 400 14200 Bramhi 50 550 27500 Chiryata 46 400 18400 Chiyaka 11.8 525 5310 Daniya 21.9 450 9855 Daruhaleli 0.800 400 320 Gokshura 19.5 300 5850 Gudduchi 46 350 16100 Guggula 18 350 6300 Haldi 22.5 400 9000 Harilaki 38 275 10450 Kantakari 20 400 8000 Katoju 17.4 500 8700 Kutuki 6 1000 6000 Neem 102.7 400 41000 Patherphod 2 300 600 Piperlongum 25 425 10625 Satwari 14 220 3080 Triphala 24 325 7800 Vibitaki 21.5 290 6235 Vidanga 47 500 23500 Vidarikanda 75 375 28125 Yastimadhu 61 450 27450 Total Cost 398895



EXTRACT STOCK REPORT : Stock report showing details regarding extraction cost, total quantity extracted and the cost incurred in such extraction. Extraction costs are higher as these are purchased goods. Cost of such goods includes cost price + overhead charges and profit. Cost is included in product cost prepared on monthly basis

CHEMICAL STOCK REPORT WITH TOTAL COST

Name Weight Rate/kg Total Cost

Loctose 62 68 4216

MPS 8 875 7000

PPS 18 525 7650

DCP 66 29 1914

Staren 126 18 2268

Mg. Stte 29 85 2465

Primogim 35 85 2975

Heep 24.5 1.4 343

Slaeeh IP 10 19.445 1944.5

SpliconDiOki 10 425 4250

Colladial 10 75 750

Total 36671.5

ANALYSIS :

These stock records prepared on monthly basis by cost accountant to find out the

total cost of such chemicals and excipieonts mixed into medicines and for testing the

medicines. Total cost of chemical is a part of product cost.

BHASMA STOCK REPORT WITH TOTAL COST

Weight Rate/kg



Rupya bhasma 3.3 130 429

Vanga bhasma 6.2 1100 6820

Shamba bhasma 43 90 3870

Loh bhasma 18 520 9360

Abraka bhasma 3.2 280 886

Mandurata bhasma 9 90 810

Tanlcan bhasma 1.4 300 420

Kasis bhasma 2.4 120 288

Swarana Matslia bhasma 21.5 360 7740

Nag bhasma 5 4000 20000

Silajit bhasma 40 1500 60000

Total : 1,10633

ANALYSIS : These are the stock report with total cost of production of Bhasma or powder form of medicines. This cost report is also prepared on monthly basis and total cost is clubbed for all the months during production and included in cost of production which is a part of product cost.

FINISHED GOODS STOCK REPORT WITH TOTAL COST

Production Item

Units Produced

Packing Stock MRP Total Cost

Amla 60 1 x 70 1907 60 114420 Amruth 60 1 x 70 1457 50 72850 Ashwagandha 60 1 x 70 3471 50 173550 Bramhi 60 1 x 70 3259 50 162950 Datri 60 1 x 70 178 75 13350 Devavati 60 1 x 70 1637 95 155515 Gokshuradi 60 1 x 70 176 60 10560 Haritaki 60 1 x 70 1484 40 59360



Kanchannar 60 1 x 70 752 50 37600

Guggula 60 1 x 70 366 50 355840 Mahyogolaj guggula

60 1 x 70 8896 40 355840

Neem 60 1 x 70 2032 50 101600 Sathavari 60 1 x 70 2345 50 117250 Triphal 60 1 x 70 6163 40 246520 Tulsi 60 1 x 70 408 35 14280 Vyagadhi 60 1 x 70 1971 100 197100 Chitrakadi 60 1 x 70 0 40 40 Chandraprabhavati 60 1 x 70 1214 30 36420 Rasudhi 60 1 x 70 111 125 13875 Arjuna 60 1 x 70 0 100 100 Ashwagandhi vathi 60 1 x 70 Spirulina 60 1 x 70 10 45 450 Trayodhashga guggula

60 1 x 70 584 50 29200

Nisanlati 60 1 x 70 486 50 24300 Total

Cost 2090895

Finished Goods Stock Report is a cost report total units produced in a month. This cost includes packing cost and all those cost incurred on Selling & Distribution of the product. The MRP value of the product is found out from this report.

PACKING COST

Item Cost

Amla 8000 Ashwaghanda 9000 Chitratadi 13000 Haritki 6000 Ambrosla 3200 Neem 5000 Spirulina 2800 Nishmlki 12800 Sitajith 2500 xlishumlaki 3000 Silajith 9500



Triphala 8500 Tulsi 9000 Yastimadhu 5000 Bramhi 5000 Ashwagandharisti 2000 Hingasticacherna 2000 Aipathika churna 2000 Ashwagandhi churna 2000 Siddhopala 2000 Ayuevedh 280 Arjuna tab 3800 Lipcare cream 8000 Amruth 3600 Chandraprabhavati 3600 Dhatri louha 3400 Goksuradi guggula 3800 Khaneanara 15000 Lavangadhi vati 9800 Mahayograja guggula 3800 Sidhavan vati 4800 Trayoghasang guggula 4000 Total 358500

Report showing total cost of packing for a month.



CHAPTER-8

CONCLUSION AND SUGGESTIONS

CONCLUSION :

In SSA the main activity is manufacturing ayurvedic medicines as it is a trust

established by Art of Living the main moto being producing effective medicines

providing service. Effective techniques and methods are followed to produce better

quality products.

In SSA Batch costing is adopted in finding cost price of the product. Quantity

issued for production is identified as batch quantity and batch size is determined. Total

cost of such batch size is divided by units produced in that batch to ascertain cost per

unit.

Therefore this system of costing is best suited to this firm. This costing system is

usually followed by Pharmaceutical manufacturing unit.

In ascertaining cost, cost records are maintained by each department. A

periodical cost sheet is prepared like monthly cost sheet for individual product and an

annual cost sheet for overall production.

In case of production every time a target is fixed and the achieved target is

compared in order to know the variance and reduce such difference if any. This also

helps the firm in knowing the production capacity, appreciation or decrease in production

and cost variance. This will act as a tool to have effective control over cost.

The firm also follows maximum effectiveness in quality of the product through

various stringent tests in laboratories. Only effective herbs are used which are rated high



on effective standard scale designed by R&D department. Also prominence is given for

welfare and recreational and refreshment benefits through Divya Aushadhi process.

The firm on the whole is sound and will continue to be in forefront with skilled

manpower and effective manufacturing techniques.

SUGGESTIONS:

Standard Costing:

Standard costing is a technique of cost control which makes use of pre

determined standards relating to various elements of cost.

The standards or target fixed is compared with achieved target. The standard

costs are compared with a actual costs and variances are ascertained to know the

efficiency of the firm.

Monthly target is compared with achieved target and the pending target is

determined by the firm and steps are taken to achieve the pending target and recover the

cost adopting standard costing technique is advantageous to the firm.

It helps in cost control provides a stable product cost per unit. Standardization of

production method and measuring efficiency of operation.

Avoidable and unavoidable idle time must be controlled in order to have an

effective time rate system of payment.

Job order costing system can also be followed find out the cost of each which is

similar to batch costing as batch costing is a part of job costing.

Piece rate system of wage payment can be suggested with additional bonus and

incentive payments to the workers.

Cost of work in progress must be controlled to have an effective cost control.



Wastage, scrap should be reduced as it is a part of cost of production which may

increase the price of the product.

Cost of production is not shown in the cost sheet. This does not help the firm in

knowing the exact expenditure incurred and difficult to calculate the profit on

sale.

It is better to extract the product within the factory rather than purchasing it from

outside which increases the cost of production leading to increase in price.

Maintenance of computerized ledger is advisable.

Regular maintenance of attendance records and leave records will help in proper

distribution of wages and better control in cost.

Costs are expenditures must be distributed among various departments

proportionately for the purpose of proper utilization of cost.



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