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Costing evaluation for better productivity control
1. Costing Evaluation for Better
Productivity Control
By:
D K Singhal
Sumit Agarwal
Chandpur Enterprises Ltd.
Chandpur
deveshksinghal@gmail.com
Shree Badri Kedar Papers Ltd.
Nazibabad
July, 16-17, 2009, IPPTA Zonal Seminar, Jaipur.
2. Costing…….…(Is it a way?)
Waste paper
Recovery (Yield)
Net Waste Paper Cost
Conversion
Total Cost
Selling Price
Margin
:Rs.9.00
:80%
:Rs.11.25
:Rs. 8.75
:Rs.20.00
:Rs.21.00
:Rs. 1.00
3. Fundamental Difference with Conventional
Accounting
Approach
In conventional accounting, approach is
methodological.
In the proposed system, the approach is more
flexible. The management decides whether to take
into account various aspects like excise, freight,
commission, depreciation etc.
4. Fundamental Difference with Conventional
Accounting
Capital Investment
As an asset in account books OR as money spent,
for which a return will be available for the time to
come.
Depreciation- Value of asset decreases with time,
but not as per the actual resale value.
Depre-ciat-ion! Sometimes, it may cause
Depre-ss-ion (?)
5. Fundamental Difference with Conventional
Accounting
Inputs
Considered as consumed in account books.
Considered as and when actually consumed in present case.
Partial consumption may be accepted.
Store virtually not considered as a part of mill operations.
Example: Wire life of 6 month.
– 31 March, 1 September, 1 April
– 1 April, 1 September, 31 March
One Wire
Three Wire
6. Fundamental Difference with Conventional
Accounting
Product
Considered sold when an invoice is raised.
Considered sold to finished stock godown as and
when produced.
Virtually, one may assume that finished stock
godown is an intermediate customer.
7. Fundamental Difference with Conventional
Accounting
Taxation
MODVAT is considered amount received.
If input taxes are more, this amount only adds up in
account books.
Cost of input is considered as landed cost.
8. Fundamental Difference with Conventional
Accounting
Inward Freight
Considered as a separate head.
Is clubbed with the item procured.
9. Fundamental Difference with Conventional
Accounting
Rounding Off
Account books must tally rupee by rupee and paisa
by paisa.
Remember your accounts department lost in books
for just a couple of rupees mismatch?
Minor rounding can be done. For an invoice value of
Rs.3,67,539.47, it may be taken as 3,70,000 or
something else. After all, this is just a tool to know
where do we stand.
10. Development of Benchmarks
Yield of Waste Paper
Depending on past experience, a yield figure is
accepted for every grade of waste paper and
product.
A separate account is maintained for different
grades of waste paper, considering daily
consumption and purchase.
In case the physical estimated stock varies
significantly from that in account, the yield figure is
modified.
11. Development of Benchmarks
Sample Calculation
Newsprint 40.956 T
ONP (@88% yield)
Cream Wove 18.749 T
ONP (33%, @82% yield)
Office Record (33%, @78% yield)
Old Books (34%, @82% yield)
40.956/0.88
46.541
0.33*18.749/0.88
0.33*18.749/0.78
0.34*18.749/0.82
7.031
7.932
7.774
12. Sample Account for Waste Paper
Sl.
Waste Paper
Opening
Balance
Received
Consumed
Closing
Balance
1
Newsprint
120786
18740
53572
85954
2
Office Record
80326
NIL
7932
72394
3
Old Books
61742
9050
7774
63018
4
White Cuttings
24320
8800
NIL
33120
5
….
287174
36590
69278
254486
TOTAL
13. Development of Benchmarks
Chemical Consumption
Fixed Dose Chemicals- Retention Aid, DSR etc.
Consumption is proportional to production.
Fixed Purpose Chemicals- Alum, Rosin
A specific consumption per ton of paper is considered, and the figure is
updated as and when required.
14. Development of Benchmarks
Boiler Fuel
A specific fuel consumption figure is accepted based upon previous
experience. Typical figures for bagasse may look asNormal weather
Rainy weather (wet bagasse)
Very cold weather
700 kg/T
850 kg/T
750 kg/T
Here again, the figures may be revised after a few months of operation,
if a significant difference is observed between the booked figures and
actual stock position.
15. Electricity Consumption
Daily consumption figures from energy meter (Grid
Power).
Actual consumption of Diesel (Electricity from DG)
Use diesel consumption X cost of diesel X DG maintenance
factor
Increased boiler fuel consumption figure (Own Turbine)
Cost of (total fuel – fuel required for process)
Cost of turbine maintenance
17. Fixed Expenses (Process)
Wire
Felt
Rolls Coating & Grinding
Screen Baskets etc.
Replacement of Equipments
Continuing Process Up-gradation
Fixed or Variable cost?
Wire (Rs.75 pmt or Rs.1,00,000 per month)………………...You Decide!
18. Fixed Expenses (General)
Salary & wages
Interest of financial institution
Licensing etc.
Car, Petrol, Travel, etc.
Telephone
These are generally fixed, often with a minor variation.
19. Fixed Expenses
Cost of process fixed expenses may be considered as
on per ton basis or per day basis.
Cost of general fixed expenses may be taken on per
day basis.
20. Effect of Price Fluctuation
An averaged base price is considered for the whole
month or so.
After that, the base price may be revised according to
actual conditions.
For seasonal items (like bagasse, old copy) this price
may be considered as fixed for the whole year.
Because the product prices are not going to change
frequently as per the prices of these items.
22. Product Cost
The cost of product is considered as if the product
packed is being sold to market.
In other words, we may consider the finished product
godown as a ghost customer.
23. Monitoring Period
For most of the cases, it has been found that daily
monitoring gives practically accurate results.
After a month or so, the profit statement can be cross
checked by collecting more realistic data as indicated in
next slide.
24. Sample Input Calculation
Sl.
1
2
3
4
5
A
1
2
3
4
5
6
Inputs
Newsprint
Office Record
Old Books
White Cuttings
….
Waste Paper
Weight
Rate
53572
7932
7774
NIL
9
15
13
17
69278
Value
482148
118980
101062
0
702190
B
Retention Aid
AKD
Rosin
Alum
UF Resin
…
Chemicals
14
400
100
245
185
175
29
29
4.5
18
2450
11600
2900
1102.5
3330
0
21383
C
Boiler Fuel
48495
1.5
72742
D
Electricity
34500
4.25
146625
E
Packing Material
15000
F
Consumables
25793
G
Fixed Expenses
120000
TOTAL Input
1077939
26. Cross Check
Product cost = sum of product costs for the whole period.
Product cost = Closing value of product in stock + Product
actually sold in rupees – Opening value of product in stock
!!! Base price same for the period
In case of substantial difference, check for the base price for its
correctness.
Similarly, the inputs are to be checked.
27. Outcome
In which grade of paper the profit is more?
For lighter basis weight, the product prices are on a little higher
side. Is the price difference proper?
Can a furnish change be considered to reduce input cost? What
would be the monetary gain?
In case the production is increased, the impact on profit increase
is slight, normal or very high?
In case machine had a poor run due to more joints, what
happens to profits?