Cost Sheet Project Tata and HPCL

 

Cost sheet Project - Hindustan Petroleum Corporation Ltd Posted Date:

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Posted By: By:  shashi Pandey  Member

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MEANING OF COST  ‘COST’ represents represents a sacrifice of values, a foregoing foregoing or a release of something something of value. It is the price of economic resources used as a result of producing or doing the thing costed. It is i s the amount of  expenditure incurred on a given thing. Cost has been defined as the amount measured in money or cash expended or other property transferred, capital stock issued, services performed or a liability li ability incurred in consideration of goods or services received or to be received. By cost, we mean the actual cost i.e. historical cost. ICWA (UK) defines cost as the amount of expenditure (actual or notional) incurred on, or attributable to a specified thing or activity. The object for which the cost is to be determined can be a product or service

CLASSIFICATION CLASSIFICATIO N OF COST Cost classification is the process of grouping costs according to their common features. Costs are to be classified in such a manner that they are identified with cost center or cost unit.

On the basis of behaviour of cost Behaviour means change in cost due to change in output. On the basis of behaviour cost is classified into the following categories:

Fixed Cost • It is that portion of the total cost, which remains constant irrespective of output output up to the capacity limit. • It is called as a period cost cos t as it is concerned with period • It depends upon the passage of time.  time.  • It is also referred to as nonnon-variable cost or stand by cost or capacity cost or ‘’period’ cost.  cost.  • It tends to be unaffected by variations in output  output  • These costs provide consitions consitions for production rather than costs of production. • They are created by contractual obligations and managerial decisions. Rent of premises, taxes and insurance, staff salaries constitute fixed cost.

Variable Cost • This cost varies according to the output output • In other workds, it is a cost which changes according to the changes in output.  output.  • It tends of vary in direct proportion to output.  output.  • If the output is decreased, variable cost also will decrease  decrease  

 

• It is concerned with output or product. Therefore, it is called as a ‘product’ cost.  cost.  • If the output is doubled, variable cost will also be doubled. For example, direct material; direct labour, direct expenses and variable overheads.

Semi-variable Cost • This is also referred to as semi-fixed semi-fixed or partly variable cost • It remains constant upto a certain level and registers change afterwards.  afterwards.  • These costs vary in some degree with volume but not in direct or same proportion.  proportion.  • Such costs are fixed only in relation to specified constant conditions,. For example, e xample, repairs and maintenance of machinery, telephone charges, maintenance of building, supervision, professional tax etc.

On the basis of elements of cost Elements means nature of items. A cost is composed of three elements: material, labour and expenses, Each of these three elements cab be direct and indirect.

Direct Cost It is the cost, which is directly chargeable to the product manufactured, it is easily identifiable. Direct cost consists of three elements, which are as follows:

Direct Material • It is the cost of basic raw material used for manufacturing a product.  product.  • It becomes a part of the product  product  • No finished product can be manufactured without basic raw materials  materials   • It is easily identifiable and chargeable to the product  product  • For example, leather in leather wares, pulp in paper, steel in steel furniture, sugarcane for sugar etc • What is raw material for one manufacturer might be finished product for another.  another.  • Direct material includes the following: fol lowing:  

1. All materials specially purchased for production or the process. 2. All components purchased for production or the process. 3. Material transferred from one cost center to another or one process to another. 4. Primary packing materials, wrappings, cardboard boxes etc., necessary for preservation or protection of product. 5. Some of the items like nails or thread in the store are part of finished product. They are not treated as direct materials in view of negligible cost.

Direct Labour or Direct Wages • It is the amount of wages paid to those t hose workers who are engaged on the manufacturing line of  conversion of raw materials into finished goods.

 

• The amount of wages can be easily identified and directly charged to the product These workers directly handle raw material, wip and finished goods on the production line • Wages paid to workers operating operating lathers, drilling, cutting machines etc. are direct wages  wages  • Direct wages are also known as productive labour, process labour or prime cost labour.  labour.   • Direct wages include the payment made to the following group of workers: 1. Labour engaged on the actual production of the product. 2. labour engaged in aiding the operations viz. supervisor, Foreman, Shop clerks and worker worker on internal transport. 3. Inspectors, Analysts needed for such production

Direct Expenses or chargeable Expenses • It is the amount of expenses which is directly chargeable to the product manufactured or which may be allocated to product directly • It can be easily identified with the product. For example, hire charges of a special special machine used for manufacturing a product, cost of designing the product, cost of patterns, architects fees/surveyors fees, or job cost of experimental work carried out especially for a job etc. • Cost of special drawings, cost of special layout designs, designs, patents, patterns, cost of models, surveyors fees, Excise duty, Royalty on production cost of ractifying defective work. Utility of such expenses is exhausted on completion of the job.

Indirect Cost It is that portion of the total cost, which cannot be identified and charged direct to the product It has to be allocated, apportioned and absorbed over the units manufactured on a suitable basis.

Indirect Material • It is the cost of material other than direct material which cannot be charged to the product prod uct directly • It can not be treated as part of the product,  product,   • It is also known as expenses materials  materials  • It is the material which cannot be allocated to the product but which can be apportioned to the cost units. Examples are as follows:

1. Lubricants, cotton waste, Grease, Oil, stationery etc. 2. Small tools for general use. 3. Some minor items which as thread t hread in dressmaking, cost of nails in i n shoe making etc.

Indirect Labour. • It is the amount of wages paid to those workers who are not engaged on the manufacturing line, for example, wages of workers in administration department, watch and ward department, watch and

 

ward department, sales department, general supervision.

Indirect Expenses • It is the amount of expenses which is not chargeable to the product pr oduct directly • It is the cost of giving service to the production department  department  • It includes factory expenses, administrative expenses, selling and distribution expenses etc.  etc. 

OVERHEADS OR ON COST OR BURDEN OR SUPPLEMENTARY COST

Aggregate of indirect cost is referred to as overheads. It arises as a result of overall operation of a business. According to Weldon over-head over- head means ‘the cost of indirect i ndirect material, indirect labour and such other expenses, including services as cannot conveniently be charged direct to specific cost units. It includes all manufacturing and non-manufacturing supplies and services.

This cost cannot be associated with a particular product. The principal feature of overheads is the lack of direct tractability to individual product. It remains relatively constant from period to period. The amount of overheads is not directly chargeable i.e. it i t had to be properly allocated, apportioned apportioned and absorbed on some equitable basis.

Classification of Overheads 1.Factory Overheads: • It is the aggregate of all the t he factory expenses incurred in connection with manufacture of a product  product   • These are incurred in connection with running of factory  factory  • It includes the items of expenses viz., factory salary, work manager’s salary, f actory actory repairs, rent of  factory premises, factory lighting, lubricants, factory power, drawing office salary, haulage (cost of  internal transport) depreciation of plant and machinery unproductive wages, estimation expenses, royalties loose tools w/off, material handling charges, time office salaries, counting house salaries etc.

2. Administrative Overheads or Office Overheads: • It is the aggregate of all the t he expenses as regards administration  administration  • It is the cost of office service or decision making  making  • It consists consists of the following expenses: Staff salaries, office premises, office conveyance, printing and stationery and repairs and depreciation of office premises and furniture etc.

3. Selling and Distribution Overheads: • It is the aggregate of all the expenses expe nses incurred in connection with sales and distribution of finished product and services • It is the cost of sales and distribution services.  services.  • Selling expenses are such expenses, which are incurred in acquiring and retaining customers. It

 

includes the following expenses: a) Advertisement b) Show room expenses c) Traveling expenses d) Commission to agents) Salaries of Sales office f) Cost of catalogues g) Discounts allowed h) Bad debts written off i) Commission on sales  j) Rent of Sales Room

4.Distribution expenses • It includes all those expenses, which are incurred in connection with making the t he goods available to customers. These expenses include the following: foll owing: a) Packing charges b) Loading charges c) Carriage on sales d) Rent of warehouse e) Insurance and lighting of warehouse f) Insurance of delivery van g) Expenses on delivery van h) Salaries of  Godownkeeper, Godownkeepe r, drivers and packing staff.

DETERMINATION OF TOTAL COST Cost of product is determined as per cost attach att ach concept. Total cost of a product consists of various elements of cost, which have the quality of coherence. All the elements el ements of cost can be grouped and regrouped. Grouping and re-grouping of the various elements of costs leads to significant divisions of  cost.

NON-COST ITEMS Non-cost items are those items, which do not form part of cost of a product. Such items should not be considered while ascertaining cost of a product. These are items included i ncluded in profit and loss A/c as per principles of Financial Accountancy but not related to t o product. For example, Income-tax paid, provision for Income-tax, interest on capital, interest on loan, profit on sale of fixed assets, loss on sale of fixed assets, transfer fees received, transfer to reserves, any other appropriation of profit, commission to Managing Director or Partners, capital loss, donations, capital expenditure, discount on shares and debentures, Goodwill written off, Preliminary expenses written off, brokerage, pure financial expenses or losses and expenses not related to th business, wealth tax, bonus to directors and employees, if it is i s based on profit, expenses of raising capital, penalties and fines.

COST SHEET For determination of total cost of production a statement showing the various elements of cost is prepared. This statement is called called as a ‘statement of cost’ or ‘cost sheet.’ Cost sheet is a statement, which provides for the assembly of the detailed cost of the total cost of job operation or order. It brings out the composition of total cost in a logical order, under proper classifications and subdivisions. The period covered by the cost sheet may be a week, a month or so. Separate columns are provided to show the total cost and cost per unit. In case of multiple products a separate cost sheet may be prepared for each product. Alternatively, separate columns of total cost and unit uni t cost may be provided for each product in the same cost sheet. A cost sheet is prepared under output or unit costing method.

 

  Purposes of cost sheet Cost sheet serves the following purposes: 1. It gives the break up of total cost under different elements. 2. It shows total cost as well as cost per unit 3. It helps comparison with previous years. 4. It facilitates preparation of tenders or quotations 5. It enables the management to fix up selling price 6. It controls cost.

DIVISIONS OF COST

Prime Cost:It comprises of all direct materials, direct labour and direct expenses. It is also known as flat cost. Prime Cost = Direct Materials + Direct Labour + Direct Expenses.

Works Cost:It is also known as factory cost or cost of manufacture. It is the cost of manufacturing an article. It includes prime cast and factory expenses. Works Cost = Prime Cost + Factory Overheads

Cost of Production:It represents factory cost plus administrative expenses Cost of Production = Factory Cost + Administrative expenses

Total Cost:It represents cost of production plus selling & distribution expenses Total Cost = Cost of production + Selling & distribution - expenses

Selling Price: It is the price, which includes total cost plus margin of profit or minus loss, if any. Selling Price = Total Cost + Profit (-Loss)

TREATMENT OF CERTAIN ITEMS

i) Raw Materials For calculation of raw material consumed, following formula may be used: Rs. Stock of Raw Materials XX Add Purchases XX XX Less Closing Stock of Raw Materials XX Cost of Material Consumed XX

 

  ii) Work in Progress

It represents incomplete units at the end of a given period. The work in progress is valued at prime cost or at factory cost. At Prime Cost In such a case opening and closing work in progress is taken into consideration in cost sheet while calculating prime cost. Rs.

Direct Materials XX Add Direct Wages XX Add Other Direct Expenses XX Add Opening Work in Progress XX XX Less Closing work in Progress XX Prime Cost XX

At Factory Cost

Direct Materials XX Direct Labour XX Other Direct Expenses XX Prime Cost XX Add Factory Overheads XX Add Opening Work in Progress XX XX Less Closing Work in Progress XX Factory Cost XX

iii) Carriage Inward It is the carriage on purchase of materials, which should be added to the cost of materials purchased.

iv) Carriage Outward It is the carriage on sales, which should be treated as selling and distribution overhead.

v) Defective Materials

If defective material is returned to supplier, the cost of material consumed should be reduced by the

 

value of such material. If it is sold, it should be reduced.

vi) Scrap

If wastage or residual of material scrap or defective product is sold as scrap, the value realized should be deducted from factory overheads.

vii) By-Product

Realisable value of by-product is deducted from factory overheads.

viii) Defective Product

If defective product is rectified by incurring extra expenditure, it should be included in factory cost if it is caused by normal reasons. If it is caused by abnormal reasons, the rectifying cost is transferred to costing P & L A/c.

COST ACCOUNTING STANDARDS (CAS-4) Name of the Manufacturer: Address of the Manufacturer: Registration No. Of Manufacturer: Description of product captivity consumed: Excise Tariff Heading: Statement of Cost of Production of ____________ manufactured manufactured / to be manufactured during the period _____________.

Qty. Q1 Quantity Produced (Unit of Measure) Q2 Quantity Despatched (Unit of Measure) Particulars Total Cost (Rs) Cost/Unit (Rs) 1. Material Consumed 2. Direct Wages and Salaries 3. Direct Expenses 4. Works Overheads 5. Quality Control Cost 6. Research & Development Cost

 

7. Administrative Overheads (relating to production activity) 8. Total (1 to 7) 9. Add: Opening stock of Work-in-progress 10. Less: Closing stock of Work-in-progress 11. Total (8+9-10) 12. Less: Credit for Recoveries / Scrap / By-products / Misc.income 13. Packing cost 14. Cost of production (11 – 12 + 13) 15. Add: Inputs received free of cost 16. Add: Amortised cost of Moulds, Tools, Dies & Patterns etc., received free of cost 17. Cost of Production fro goods produced for captive consumption (14 + 15 + 16) 18. Add: Opening stock of finished goods 19. Less: Closing stock of finished goods 20. Cost of production for goods despatched (17 + 18 + 19) Seal & Signature of Company’s Authorised Representative  Representative  I / We, have verified above data on test check basis with reference to the books of account., cost accounting records and other records. Based on the information and explanations given to me / us., and on the basis of generally accepted cost accounting principles and practices followed by the Industry. I / We certify that the above cost data reflect true and fair view of the cost of production Date:------------------- Seal & Signature of Cost Accountant

Place:------------------ Membership No.

 

COSTING FOR TATA MOTORS The Passenger Car division was born out of a vision to offer the Indian customer all the comfort of a big car, at the price of a small car. The Indica was formally launched in 1998 & has rewritten the rules of the Indian car industry ever since then. The latest addition to the Tata Motors family after the launch of Indigo which is designed to deliver never-before levels in luxury, safety, power and comfort on Indian roads is the New Indica V2. Refreshingly different, with a sporty new look, stylish interiors, and more. The Indigo Marina story started two years back with the launch of the t he luxury sedan from Tata Motors, the Tata Indigo. There were however, a select group of people who wanted everything that came with the Indigo plus a little lit tle more space. So, we developed the Indigo Indigo Marina. A car that has the luxury of a sedan and the utility and convenience of a multi-utility multi-uti lity vehicle. A car that does not compromise on power, safety and luxury. A car that has enough space to carry everyone and everything you've ever loved, right by your side, on every drive.

Established in Established in COST SHEET

Cost Sheet for Tata Motors for the year 2003-2004

Rs./ Crores Direct Materials (a) Spare parts & accessories for sale 253.55 (b) Bodies & trailers for mounting on chassis 214.43 467.98 Direct Labour 323.00 Direct Expense 2270.30 Prime Cost 3061.28 Factory Overheads Consumption of Raw Materials 7873.41 Processing Charges 388.59 Stores, spare parts & tools consumed 236.73 Freight, transportation, port charges 185.47 Repairs to plant, machinery 25.62 Power & Fuel 214.52 Insurance 21.44 Lease Rentals in respect of Plant & Machinery 8.84 Depreciation 382.60 Work Cost(Gross) 9337.22 Opening WIP 793.91 Less: Closing WIP 651.93 141.98 Works Cost(Net) 9479.20 12540.48 Administrative Overheads

 

Salaries 323.99 Repairs to building 20.37 Rent 9.37 Rates & Taxes 22.16 Total Cost 375.89 12916.37 12916.37 Add: Opening Finished Goods Add: Purchase of Finished Goods Less: Finished Goods Cost of production of Saleable units 12916.37 Selling and Distribution Expenses Publicity 123.60 Incentive/Commission to dealers 120.57 Commission & Brokerage on sales 25.92 Cost of Sales 270.09 13186.46 13186.46 Profit 2022.28 Sales 15208.74

Assumptions: 1. The salaries & wages are divided in the ratio of 1:1 such that 323 crores is allocated to the factory direct labour & 323.99 crores is allocated to the office administration. 2. Freight & stores consumed are factory expenses 3. Repairs to building are an administrative expense as the building is used for the office. 4. Rent, Rates & Taxes are administration expenses.

Following items are excluded from the cost sheet • Product development cost is a capital expenditure hence not considered.  considered.  • Interest being a financial financial expense is not considered. • Extraordinary items like write back of provision for contingencies, provision for diminution in vale of  investment & employee separation cost not considered. • Provision for tax, investment allowance & the other appropriations appropriations in profits are not considered in arriving at cost. • Superannuation, gratuity & contribution to provident fund.  fund.   • Workmen & staff welfare expenses, which includes provisions for employee benefit schemes, is not considered. • Provision for Wealth Tax.  Tax.   • Excess debits/ short credits in respect of previous years.  years.  • Loss on assets sold/scrapped/written off.  off. 

 

• Provision for doubtful sundry debts, bad debts written off, warranty expenses & securitisation expenses for hire purchase contracts.

COSTING OF HINDUSTAN PETROLEUM (HPCL)

Hindustan Petroleum Corporation Limited (HPCL) is the result of a successful convergence of four established companies. Today the second largest integrated oil refining and marketing company in India, HPCL was born of the merger of ESSO, Lube India Ltd, Caltex Oil Refining India Ltd and Kosan Gas Company Ltd.

The Company was first incorporated as Standard Vacuum Refining Company of India Limited, on July 5, 1952, and later named ESSO India Limited, on March 31, 1962. On July 12, 1974, when Esso and Lube India were nationalised, the Company was renamed Hindustan Petroleum Corporation Limited with effect from July 15, 1974. The undertakings after nationalisation were then vested in HPCL. The T he Government of India also nationalised the Caltex undertakings in the year 1976, which were subsequently merged with HPCL in 1978. In the following year, the undertakings of Kosan Gas Company Ltd, the concessionaires of HPCL in the domestic LPG market, were merged with HPCL. Thus, the various amalgamations, at different points in time, have given rise to HPCL that has ever since been growing from strength to strength.

HPCL had a humble beginning in 1974 with one refinery at Mumbai that had a refining capacity of 3.5 million metric tonnes per annum (MMTPA). The Lube oil refinery at Mumbai stood around 165000 Tonnes per annum. The sales turnover in that year was only Rs. 3.67 billion, and the net profit Rs. 58 million. But over the years, the Corporation has made judicious use of its assets to achieve tremendous growth. Dedicated and well - experienced manpower, strategically located refineries at Mumbai and Visakh and a widespread marketing network have enabled the company to carve a niche in the Indian oil industry today.

Vision

"To be a leading world class company in hydrocarbons and energy related sectors sectors with a global presence.

Mission HPCL, along with its joint joi nt ventures, will be a fully integrated company in the hydrocarbons sector of  exploration and production, refining and marketing; focussing on enhancement of productivity, quality and profitability; caring for customers and

 

employees; caring for environment protection and cultural heritage. It will also attain scale dimensions by diversifying into other energy related fields and by taki ng up transnational operations."

COST SHEET

Cost Sheet for Hindustan Petroleum Corporation Ltd for the year 2003-2004

Rs./ Crores R.M Consumed 15,017.04 Direct Labour (See Assumption 1) 280.055 Direct Expense -Excise Duties 5993.47 Prime Cost 21290.56 21290.565 5

Factory Overheads Packages Consumed 79.15 Transshipping Expenses 1228.97 Duties Applicable to Products 317.61 Repairs and maintenance to Plant 165.68 Rent (See Assumption 3) 28.65 Repair and maintenance to other assets (See Assumption 2) 1.633 Electricity and Water 94.93 Power and Fuel 9.17 Rates and Taxes 21.20 Equipment Hire Charges 0.30 Consumption of stores, spares and chemicals 71.08 Depreciation: -Transport Equipment (See Assumption 4) 2.335 -Roads and Culverts 7.16 -Leasehold Property 2.45 -Railway siding and Rolling stock 12.42 -Plant and Machinery 536.24 560.605 2578.978 2578.978 Work Cost (Gross) 23869.543

 

Opening WIP 212.67 Less: Closing WIP 197.68 14.99 Works Cost (Net) 23884.533

Administrative Overheads Security Charges 16.67 Depreciation - Building 17.25 -Furniture, fixtures and equipments 26.39 43.68 Office appliances--- Printing & Stationary 7.69 Rent (See Assumption 3) 28.65 Repair and maintenance to building 11.7 Repair and maintenance to other assets (See Assumption 2) 1.634 Insurance 40.08 Consultancy and Technical charges 37.26 Sundry Expenses and Charges 163.04 Office Salaries (See Assumption 1) 280.055 630.459 Total Cost 24514.9 24514.989 89 Add: Opening Finished Goods 3777.2 Add: Purchase of Finished Goods 30583.9 34361.1

Less: Finished Goods -4149.69 Cost of production of Saleable units 54726.399

Selling and Distribution Expenses Traveling and Conveyance 55.97 Repair and maintenance to other assets (See Assumption 2) 1.633 Depreciation on transport equipment (See Assumption 4) 2.335 Advertising & Publicity 81.45 141.388

Cost of Sales 54867.787 Profit 2643.343 Sales 57511.13

 

 

Assumptions

1 A bifurcation between factory wages and office salaries has not been given. However the annual report says that HPCL has 11088 employees of which 3594 are management employees and 7494 are non-management employees. employees. Let us assume this to be the distribution of office and factory f actory staff. However, the management employees have higher salaries. Thus, I have divided Wages, Salaries and Bonus equally between Direct Labour and Administrative overheads. 2 Repairs and Maintenance to other assets has been equally divided between Factory overheads, Administrative overheads and Selling and Distribution overheads since the assets have not been mentioned. 3 Rent is equally distributed as Factory rent and Office rent. 4 We assume that Transport equipment is used for both Factory and Selling and Distribution purposes. Thus depreciation on transport equipment is equally divided between Factory overheads and Selling and Distribution overheads.