1. 1
Cost Accounting
Topic:
Production Process of Honda Motorcycle
Submitted to:
Sir Hussain Ahmed
Submitted by:
Muhammad Farhan Javed
MBA 3rd
Federal Urdu University Islamabad

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ACKNOWLEDGEMENT
First and for most, millions of thank to Almighty ALLAH.
The most merciful and gracious who gives us all the
strength, patience, courage, forbearance, spirit and
integrity needed to finish this report. This report is
part of our course. This has to be great experience
. I would like to thanks our gratitude teacher Sir
Hussain Ahmad who has great knowledge and experience
of Accounting.
Thank you teacher. We are the flowers and you are our
guardian.
Especially for you.
“Some flowers grow best in the sun; others do well in shade…! God
always knows what the best is for us. So He puts us where we grow
the best”

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Table of Contents
Introduction and
History…………………………………………………………………………04
Honda in
Pakistan………………………………………………………………………………..06
Plants in
Pakistan………………………………………………………………………………...08
The Manufacturing
Process……………………………………………………………………...09
Cost of Production
report………………………………………………………………………...14
Cost of Goods
sold………………………………………………………………………………17
Income
Statement………………………………………………………………………………...19

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Honda Motor Company Limited is perhaps best known as an automaker. It is the third largest
automaker in Japan but the company has its roots in motorcycles, and is the world's top
motorcycle manufacturer.
History:
The 'Honda Motor Company' was founded on in 1948, by Soichiro Honda (1906—1991), a
mechanic and engineer/inventor who began as a blacksmith, working at his father, Gihei
Honda's bicycle repair shop. In 1938, at the age of 32, Soichiro Honda was working at an
auto repair-shop in Tokyo, called Art Shokai, where he began using his self-taught
mechanical and engineering skills. Honda briefly studied mechanical engineering and design
at Hamamatsu Technical High School, where Honda perfected his new design for the piston
ring.
During the Japanese reconstruction period of the early 1940s, Soichiro Honda began
designing motor-driven bicycles. Honda built his first motor-scooter, known simply as the
"A-Type," in 1947.
Honda started to make an international name for itself with the introduction of the CB
models. Started by a CB72 (250cc) and the CB77 (305cc). The first series used the old press
steel frames and the better road handling came with the introduction of the steel tubular
frames in the CB92. The CB77 (super hawk) was excellent, reliable motorcycle which
outperformed many similar English models
One year later he started the 'Honda Motor Company' and began building small-displacement
'tiddler' style motor-scooters. Honda introduced his first motorcycle in 1949; the 'Dream D-
Type' with a 3 horsepower, 98cc engine. Hondas were also sold under the "Benly" name, with
"Honda" appearing on the engine case
Honda started building bigger engine bikes with the first model CB450 in 1965. The black
bomber / black hawk were an attack to the dominating English bikes in this area. Although
the CB450 didn't match the British motorcycles (yet) the competition had begun.
.Starting in the 1980s Honda developed a series of V-four engines which setup the model line
of Honda VFs ranging between 400cc and 1000cc. But due to mechanical problems the VF
line never really got going.

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The Fire blade (also a CBR model) was a new chapter for Honda and motorcycle fans
worldwide. The introduction of the CBR900RR (893cc) in 1992 was a huge improvement
from what was then out on the market. This came largely because of the engine capacity in a
smaller light frame. The bike was redesigned a few times but only regained its original
success with the 2000 model fire blade CBR929RR (929cc). Two years later the power was
increased once again to 954cc
Honda in Pakistan
Atlas Honda Limited (AHL) is a joint venture between the Atlas Group and Honda Motor Co.
Ltd., Japan. The company was created by the merger of Panjdarya Limited and Atlas Autos
Ltd. in 1988. Both these motorcycle manufacturing concerns were established by the Atlas
Group. In addition, a third concern, Atlas Epak Ltd. was taken over by the Government of
Bangladesh in 1971 after the fall of Dhaka. AHL manufactures and markets Honda
motorcycles in collaboration with Honda Motor Company. The Company also manufactures
various hi-tech components in-house in collaboration with leading parts manufacturers like
Showa Atsumitech, Nippon Denso and Toyo Denso. Honda motorcycles are by far the largest
selling motorcycles in the country with an unmatched reputation for high quality, reliability
and after-sales-service.
AHL has undertaken to develop local manufacturing capabilities to the highest, economically
feasible level. While a major role in localization has been assigned to vendor industries, Atlas
has the country’s largest in-house manufacturing capability at its Karachi and Sheikhupura
plants. To support the production facilities, the company has established an R&D wing and
tool making facilities through CAD/CAM which are growing rapidly in size and function as

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the company expands. Atlas has managed to execute 12 Joint Venture/Technical Assistance
Agreements between local vendors and foreign manufacturers for transfer of technology.
Besides, Atlas has directly executed 9 Joint Venture/Technical Assistance Agreements other
than Honda.
AHL management is striving to modernize company operations by adapting applicable
aspects of research and theory and more specifically, Honda’s unique philosophy of hard/soft
technologies to the realities of Pakistani conditions. Company management structure, systems
and processes are changed according to the demands of the customer, growth and new
technology. Efforts are being made to develop participation at all levels of personnel in
decision-making and a substantial and effective delegation has been established at levels
where applicable. Various participation programs such as ‘Ala Mayar’ Quality Circles
movement, launched in 1985, are strongly encouraged to allow constructive self-expression
and teamwork. The Company training and development programs encourage all members to
develop themselves and contribute to their full potential.
AHL is playing a pioneering role in creating conditions for easy and confident use of
motorcycles all over the country. A vast and growing network of over 1600 sales service and
spare parts dealers has been established. In order to back up this system, Atlas has set up
Warranty & Training Centers (WTC) in Karachi and Lahore which provide several courses of
varying duration and complexity for motorcycle mechanics and users each year. Mobile
training facilities take the latest know-how, technology and maintenance of motorcycles to
major rural and urban centers around the country.
Annual Production Capacity
750,000
Authorized Capital
1 Billion (Rupees)
Paid Up Capital
625.52 Million

7. 7
Honda Plants in Pakistan
Karachi Plant
Company mother plant is based in the city of lights and provincial capital of Sindh, The
Karachi city. It is located at F-36, Estate Avenue, S.I.T.E. Karachi. Atlas Group signed
technical agreement with Honda in 1963 and plant started commercial production
subsequently. Plant spread over an area of 5 acres. In 1964, production began with 7
motorcycles per day. Now plant production has reached to 300 units in a day. Plant
manufactures CD 70 only.
Sheikhupura Plant
Another plant is situated in Sheikhupura city, Punjab. It is located at 26-27 KM Lahore-
Sheikhupura Road Sheikhupura. The plant was built in 1981 and spread over an area of 27
acres with the establishment of modern and synchronized 500K plant in 2006. The plant
manufactures all four models i.e. CD 70, CD 100, CG 125 and CG 125 Deluxe.
Export
● Bangladesh
● Afghanistan
Regional Offices
● Lahore: 1 Mecloed Road Lahore-54000 [ (042) 111-111-245, 37225015-17,
37233515-17 ]
● Rawalpindi: 60-Bank Road, Saddar [ (051) 5120494-6, 5120497 ]
● Multan: Azmat Wasti Road Multan-60000 [ (061) 4540054, 4540028, 4571989 ]
● Rahim Yar Khan: Atlas Honda Limited, 4-B Zamindara Colony [(068) 5888809 ]
Products:
1. CD 70
2. CD 100
3. CG 125
4. CG 125 DELUXE

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The Manufacturing Process:
According to the need of the company for manufacturing of motorcycles the material is
requisitioned and a purchase order is sent to the suppliers by the purchase department and the
Honda industry purchases the material from outside the country as well as within country
through local costing. Raw materials which consist of parts and components arrive at the
manufacturing plant by truck or rail and the transportation charges are paid by the Honda
industry. The material is being received by the receiving department and the slips are made
by that department after matching the purchase order with the material list provided by the
supplier. Then there is the work of inspection department that works on when it receives the
order from receiving department to inspect the material. The defected materials and parts are
returned to the places from where they come after inspection. Different materials are sent to
the different departments for the further procedure.
The manufacturing process is completed in three major steps which are
● Paint Shop.
● Engine Assembling.
● Frame Assembling.
Frame Assembling:
This is the last step in the manufacturing process of motorcycle. In this
process the framing of the motorcycle takes place and all the parts of the motorcycle are
combined by labor energy. The framing consists of 12 steps.
The motorcycle frame is composed almost completely of metal, as are the wheels. The frame may
be overlaid with plastic. The tires are composed of rubber. The seat is made from a synthetic
substance, such as polyurethane. The power system consists of a four-stroke engine, a
carburetor to transform incoming fuel into vapor, a choke to control the air-fuel ratio,
transmission, and drum brakes. The transmission system contains a clutch, consisting of steel
ball flyweights and metal plates, a crankshaft, gears, pulleys, rubber belts or metal chains,
and a sprocket. The electrical system contains a battery, ignition wires and coils, diodes,
spark plugs, head-lamps and taillights, turn signals and a horn. Wheels, brakes, wiring cables,
foot pegs, exhaust pipes, seats, saddlebags, lights, radios, and hundreds of other parts are
installed on the motorcycle frame.

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Labor Force:
There are 60 labors which are working in this department and we are giving hour wise
wages to our labors. We are offering Rs.25/- per hour to our each labor.
Direct Labor:
There are 45 people who are working in this department in the production process.
Labor Cost:
One labor cost = Rs25/-per hour
For 45 Labors = Rs1125/-per hour
If the labors will work for one month and 8 hours in a day then the cost will be Rs270000/-.
Indirect Labor:
The remaining 15 are working as indirect labors. These 5 people includes
● 6 Supervisors.
● 4 Sweepers.
● 5 The people who are working on the rolling machine for shifting of material.
Labor Cost:
One labor cost = Rs25/-per hour
For 5 Labors = Rs125/-per hour
If the labors will work for one month and 8 hours in a day then the cost will be Rs30000/-.
Material:
There materials for this department are
■ Tires Rs850/-
■ Four-stroke engine Rs10000/-
■ Carburetor Rs30/-
■ Choke Rs150/-
■ Air-fuel ratio Rs75/-

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■ Drum Brakes. Rs650/-
■ Clutch. Rs150/-
■ Crankshaft. Rs400/-
■ Gears. Rs350/-
■ Pulleys. Rs250/-
■ Sprocket. Rs125/-
■ Rubber belts. Rs100
■ Metal chains. Rs800/-
■ Battery Rs320/-
■ Ignition wires. Rs80/-
■ Coils. Rs225/-
■ Diodes. Rs175/-
■ Spark plugs. Rs40/-
■ Head-lamps. Rs60/-
■ Taillights. Rs320/-
■ Turn signals. Rs80/-
■ Horn. Rs120/-
■ Brakes. Rs125/-
■ Wiring cables. Rs425/-
■ Foot pegs. Rs200/-
■ Exhaust pipes. Rs150/-
■ Seats. Rs600/-
Total Cost of the direct material= Rs16850/-
If we are going to produce 150 units then the cost will be Rs2527500/-
Indirect Material:
The indirect material and cost for this are
■ Seat and Paper Cover Rs50/-
If we are going to produce 150 units then the cost will be Rs7500/-
Factory Over Head:
■ Factory Supplies. Rs12000/-

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■ Repairs and Maintenance. Rs2500/-
■ Electric Power. Rs8000/-
■ Fuel. Rs4500/-
■ Depreciation Machinery. Rs2000/-
■ Insurance. (Fire) Rs9000/-
■ Water Rs1000/-
Factory Over Head = Rs39000/-
Cost for this department:
If we are going to produce 150 units and our labors work 8 hours in a day and they are
able to produce 150 units in one month then the cost for this department will be
Direct Material Rs2527500/-
Direct Labor Rs270000/-
Factory Over Head
Indirect Material Rs7500/-
Indirect Labor Rs30000/-
Factory Supplies Rs12000/-
Repairs and Maintenance Rs2500/-
Electric Power Rs8000/-
Fuel Rs4500/-
Depreciation Machinery Rs2000/-
Insurance (Fire) Rs9000/-
Water Rs1000/-
Factory over head Rs76500
Total Cost for this department Rs2874000/- (for 150 units)

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Cost of Production Report:
HONDA
Assembling department
Cost of production report
Quantity schedule:
Units received from previous dept. 90
Units completed and transferred out 45
Units still in process (all material, 2/3 of conversion cost) 35
Units lost in process (1/2 of material and conversion cost) 10 90
Cost charged to the department:
Total cost Unit cost
Transferred to the next department 1722112.501 19134.58334
Cost added by department:

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Material 2527500 29735.29412
Labor 270000 3681.985545
FOH 76500 1043.229238
Total cost to be accounted for: 4596112.501 53595.09224
Cost accounted for as follows:
Transferred to the next department (45*53595.09224) =2411779.151
Loss adjustment = 363632.3779
Work in process-ending inventory:
Adjusted cost from preceding dept. (35*19134.58334) =669710.4169
Material (35*100%*29735.29412) =1040735.294
Labor (35*2/3*3681.985545) =85912.99605
FOH (35*2/3*1043.229238) =24342.01555
Total cost accounting for =1150990.306 4596112.501
Additional computations:
Equivalent production:
Materials=45+ (35*100%) + (10*1/2)=85
Labor=45+ (35*2/3) + (10*1/2)=73.33
Factory over heads=45+ (35*2/3) +(10*1/2)=73.33
Loss adjustment:
Loss from previous dept. (10*19134.58334) =191345.8334
Material (10*1/2*29735.29412) =148676.4706
Labor (10*1/2*3681.985545) =18409.92773

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FOH (10*1/2*1043.229238) =5216.14619
Total Loss adjustment =363632.3779
Pre-Delivery Inspection (PDI):
At the end of the assembly line, the pre-delivery inspection takes place in which
inspectors undertake a visual inspection of the motorcycle's painted finish and fit of parts.
The inspectors also feel the motorcycles with gloved hands to detect any bumps or defects in
the finish. Each motorcycle is tested on a dynamometer. Inspectors accelerate the motorcycle
from 0-60 mph. During the acceleration, the "dyno" tests for acceleration and braking,
shifting, wheel alignment, headlight and taillight alignment and function, horn function, and
exhaust emissions. After the dyno test, a final inspection is made of the completed
motorcycle.
Store Room:
After inspection the finished goods are sent to the store room and then from there
these are shipped to the customers from where these are demanded.

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Cost of Good Sold Statement:
Number of unit = 150
Honda
Cost of Good Sold Statement
Direct material 1525000/-
Purchases 225000/-
Local purchases 450000/-
Transportation in 150000/-
Net purchases 825000/-
Material available for use 2350000/
Closing balance of raw material 714000/-
Direct Material Consumed 1636000/-
Direct Labor 270000/-
Factory Over Head 76500/-
Indirect Material (Paint) 10000/-
Indirect Labor 75044.50/-
Light and Power 69938/-
Machinery Deep 60017.5/-
Total Material Cost =2197500/-

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Opening work in process =590000/-
Material available for manufacturing 2787500
Work in process ending 945000/-
Material used 1842500/-
Opening balance of finished goods 6589100/-
Cost of goods available for sale 8431600/-
Closing balance of finished goods 640000/-
COGs 7791600/-
Per unit Cost:
Total number of unit produced = 150
COGs =7791600
Per Unit Cost =7791600/150 = 51944/-

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Honda
Income statement
Sales =
12000000/-
LESS COST OF GOODS SOLD =7791600/-
GROSS PROFIT =4208400/-
MARKTING EXP 1800000
GERNAL EXP 37500
OTHER EXP 1762500
TOTAL EXP 3600000
NET PROFIT 608400/-