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This is to certify that Mr. PRASHANT R. TAMBEKAR , a MBA student of Vishwakarma Institute of Management Pune, was working with us as a summer trainee during the period of 1 st JUNE 2006 to 30th JULY 2006. He is sincere and hardworking. He was successfully completed his project entitled Costing and Cost reduction of Rotary Air Lock Valve. We wish him success in his future career.

Thank you.

For Sneha Industries

Authorized signatory


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This is to certify that Mr. PRASHANT R. TAMBEKAR is a Bonafied student of our Institute. He has successfully carried out his Summer Project Titled COSTING AND COST REDUTCTION OF ROTARY AIR LOCK VALVE.

This is the Original study of Prashant R. Tambekar and the important sources used by him, have been acknowledged in his report.

The report is submitted in the Partial Fulfillment of Two years Full time Course MASTER OF BUSINESS ADMINISTRATION (M.B.A.) as per rule of PUNE UNIVERSITY .

Dr. Sharad. Joshi (Director)

Prof. Smita Sovani (Project Guide)


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ACKNOWLEDGEMENT: I am very grateful to Mr. S.M. Tambekar the Proprietor and Managing Director of Sneha Industries for providing me an opportunity to complete my summer training in the Sneha Industries.

I avail this opportunity to give my thanks to Mr. D. D. kulkarni; Manager, Sachin Phasale; production supervisor, Sachin and Rajat; Accountant for guiding me at every stage in my project. In spite of their busy schedule they took out the time to answer my queries patiently and helped me throughout the project.

My sincere thanks to all staff of Sneha Industries for all the cooperation and assistance to me at any time without which the project would have been incomplete.

I am proudly indebted to my Project Guide Prof. Smita Sovani for all her support and guidance towards the completion of my project.

Last but not least I am thankful to The Director, All Departmental Staff of Vishwakarma Institute of Management and my friends for providing me the moral support towards the completion of this project.

Prashant R. Tambekar


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1 2 3 4 5 6 7 8 9 9.1 9.2 9.3 9.4 10 11 12 13 14 15 Executive Summary Objective and Scope Company Profile Product information Conceptual background Cost Sheet Allocation and Absorption of indirect expenses Product wise breakeven quantity Cost reduction Programme Purchase management Production planning and control Marketing function Quality assurance function Trading and profit and loss account Balance sheet Ratio analysis Business policy Conclusion & Recommendations Bibliography 1 2 3 5 7 16 24 26 27 28 30 32 33 34 36 37 42 48 49




first I gathered all the details related to various parts of 6 RAV.co.troubleshoot4free. Location of company is plot no X. I was also working on capital budgeting (purchasing of one lathe machine) decision but I excluded that from project as it was giving negative profits. In second year of MBA I am taking Finance as specialization and after MBA I want to join ICWAI that s why I have chosen project on product costing and cost reduction. Mr.cc | www. non availability of data. break even quantity of different product mix for Rotary Air lock Valve in current situation. Tambekar who is my uncle and therefore there was no problem in handling various types of financial data. After that I started preparing cost sheet.I. After getting total cost of various RAV s I found out break even quantity of various product mix using marginal costing which gives no profit no loss situation in current situation i. outsourcing the parts. Duration of the project was 1 June to 30 July. M.D. For project purpose uncle told me to change some figures. Procedure of carrying out the project: .M. Limitation of the project is respondent was busy. -6- . Pune st th 411026. Bhosary.C. time constraint. In doing so.final-yearprojects. In costing part. financial statement includes ratio analysis. Proprietor of Sneha Industries.com/fyp/ EXECUTIVE SUMMARY:This project includes costing and analysis of financial statement.e. cost sheet of Rotary Air lock Valve.11. After completing cost sheet of 6 I went for other sizes. Then from dimensions I found out prices of various parts from purchase order. S. Then I worked on cost reduction in different areas and lastly I have done ratio analysis for planning and control purpose.www. challan. I have taken book knowledge of these two functions and so as to get practical experience I have chosen manufacturing industry instead of any bank.In first week I was observing various works carried out in the factory and become familiar with all the functions carried out in the business. I think Production and Finance are core functions in any manufacturing industry. Ratio analysis is one of the best possible techniques available to the management to impart the basic functions like planning and control.

final-yearprojects. their importance and finding inefficiency of that particular area. -7- . Mr.www. 3) Ratio analysis helps to appraise the firm in terms of their profitability and efficiency of performance. To study different areas of cost reduction:So as to study the firm from various points of view. Ratio analysis may be able to locate and point out the various areas which need management attention in order to improve the situation. as due to wrong quoted price. 1. S. It was necessary to find out actual cost of the product. To extract information Cost sheet and Ratio analysis. I have done ratio analysis.com/fyp/ OBJECTIVE OF THE PROJECT:- 1. Proprietor Mr.Tambekar can decide profit margin and thereby decide the selling price. Tambekar has quoted price of RAV according to market price. SCOPE OF THE PROJECT:1) Cost sheet will be useful for price restructuring. and other way this ratio analysis can be useful for controlling operational inefficiency of the industry.co.cc | www. It is observed that manufacturing price is more than market price.M. studying different areas.troubleshoot4free. in this regard I have advised to adopt business policies like competitive advantage using Product Differentiation. Sneha Industry started producing Rotary air lock valve in 2001. S. 2) I added some techniques of cost reduction in some functional areas which will reduce the manufacturing cost of the Rotary Air lock Valve and thereby increase the profits.M. So as to become familiar with balance sheet and profit and loss account. company had suffered huge losses in the financial year 05-06.

cc | www. S. Initially company was supplying RAV to Thermax and later started supplying to the customers all over India. Company was remained vendor for Telco. land and connection of 40 HP power. Since establishment up to 2000 company was engaged in job work and ancillary works for automobile industry in Pune. Every year company is participating in Exhibitions. It acquires 6000 sq. 2) Sneha Industries.group of companies consists of1) Shree trading corporation. Company was using special purpose machines for machining automobile parts. Dampers. Spring hanger assembly for boiler. Cummins India Ltd. Screw conveyor. But proprietor Mr.www. Now company is focusing on own products like1. 1) Shree Trading Corporation:This is an organization mainly deals in marketing of materials handling equipments. Double flap valve 3. Slide gate.final-yearprojects.Tambekar was thinking to develop their own products. KOEL and DGP Hinoday. 3) Sneha Bearing Pvt Ltd. 2.troubleshoot4free. 2.M. Following products are under development1. so in 2001 company started producing Rotary Air Lock Valves. From 1990 to 2004 company was producing magnets for Honda motorcycles at the rate of 6 lakh units per month.com/fyp/ COMPANY PROFILE:Sneha group of Companies had started its operations in 1984. -8- . 2) Sneha Industries:The plant is situated in MIDC Bhosari and main activity is selling of Rotary Air Lock Valves. Company has good marketing network to make ease in distribution.co.

So whenever the machines are idle. Indonesia.plate girder. and New Zealand.building.com/fyp/ 3. milling machine. Structural: . 3) Sneha Bearings:The company is located in Ganesh nagar. company is outsourcing the parts and assemble in own production shop. suspension.cc | www.heat exchangers. sports complex. movable.final-yearprojects. truss. Talawade. behind Bajaj Auto Ltd.platforms. Application:i. valves. Where horizontal movement is restricted. Bridges: . ducts. vessel supports. Oil and chemical refinery equipments: . -9- . v. auditoriums. gantry supports. drilling machine. arch. iii. iv. Company acquired load testing machine for testing strength of bearings.co. cable stayed. bag houses. This company is manufacturing various structural bearings from last 10 years. the horizontal forces will be transferred through bearing to the lower structure. Pollution control: . Currently as the rate of production is lower. otherwise there are many workshops nearby Bhosari MIDC for processing the parts.www. Bearings are manufactured in house on sophisticated and special purpose machines. RAV s parts are processed on these machines. Mission statement for Sneha Industries is Customer delight at cost paid . pipe lines. Company s bearings are also installed in some of the countries like Egypt. turn tables. Off shore: .precipitators.troubleshoot4free. Sneha bearings have some machines like lathe machines. They are also required to restrict or permit linear or rotational movement. Mission statement for Sneha Bearings is We build bridges and not walls . crane pivot. pipe supports. ii. Expansion joints (vibration joints). Bearings are needed to transfer the vertical forces from one structural member to another. hanger bearings.

Cereals. Rotor with EN8 shaft with fixed or adjustable blades. They are also used as Volumetric Feeders to maintain an even flow of material through processing systems. Grains 5. Minerals 4. Typical material handled with Sneha units include1. Gypsum 10. crystals or pallets are used. Sugar 3.I. Removable side plate for easy access to replace seals. Flour 9.com/fyp/ PRODUCT INFORMATION: Rotary Air Lock Valves are used for discharging the dust from Bagfilter/ Cyclomax hopper. Plastic 6. . Maintains vacuum or pressure up to 20 W. Lime 11.troubleshoot4free. Dust 7.www. Sneha Rotary Air Lock Feeders have wide application in industry wherever dry free flowing powders. Cement 2.co. Coffee 12. Heavy duty Cast Iron body.final-yearprojects. Air purge to prevent leakage and protect packing.G.cc | www.10 - . Chain drive with TEFC motor. They seal against loss of air/ gas and thus maintain the operating pressure in the system. Features: Sturdy eight blades C. granules. Fly ash 8. Simplified drive assembly.

Zero speed sensor package.1 5.7 5.troubleshoot4free.0 26. . 2. 3. 6.0 25RPM 1. 7.5 .G.www.co.05 2.2 21.final-yearprojects.75 20 RPM 1.25 30 RPM 2.75 4.75 1. 5. Maintain pressure/ vacuum up to 20 W. Heavy gauge all welded construction.11 - .8 31. Chain/ Coupling Drive with TEFC motor. Removable side plates for easy access to replace seals.0 15 RPM 1.4 15.4 3.P.5 . Fabricated Rotor with EN8 shaft with Spring Steel Adjustable Blades. 4.com/fyp/ Capacities in Cubic Feet per Minute (Based on 8 vane rotor and 100% fill factor) Size 6 8 10 12 H.4 10.5 9. . Optional: .6 7.5 Features of Rotary Air Lock Valves (fabricated): 1.cc | www. Inspection doors are provided on the body.

A service such as Transport. etc.final-yearprojects. Variable.co. It is measured in terms of money. repairs. Money cost therefore related to the expenditure by the firm on the factors of production which enables the firm to produce and sell the product. The meaning of cost depends upon the purpose and the use for which it is incurred.cc | www. semi variable. Cost does not carry any meaning unless some explanatory word attached to it. THE GIVEN THING MAY BE:A tangible product such as job component or product obtained form a process.troubleshoot4free. etc. Selling. Example: Production cost. A function such as Production.www. . Distribution. The cost may be fixed. DEFINITION OF COST:Cost is defined as THE AMOUNT OF EXPENDITURE INCURRED ON OR ATTRIBUTABLE TO A GIVEN THING. Total cost. etc. In other words cost means expenses to be incurred or likely to be incurred for a specific objective. etc. research.12 - .com/fyp/ CONCEPTUAL BACKGROUND:- OVERVIEW:Cost is a general term.

In practice. Methods or process. procedures organizations and methods and personnel are continually scrutinizing in order to improve efficiency and reduced costs. Cost reduction may extend to design stage. It is thus a process of continuous self-analysis and self-criticism. In order that Cost Reduction works well. Cost Reduction brings real and preventive savings by continuous and planned research.final-yearprojects. Cost reduction exercises are planned campaigns to cut the expenditure. Products.troubleshoot4free. a Cost Reduction forms all level to determine priority of actions. for further economy in the application of the factors of production. It is based on the philosophy that every person can be improved by continuous efforts. Cost Control is thus a preventive function and acts within the frame work of some targets or standards.13 - . functions etc. Cost reduction should not confuse with Cost Control. Cost Control is a routine exercise. Factory organization. It is a continuous process with the object of getting a more or less permanent benefit. methods to be employed in carrying out the investigation and finally to take steps for .co.www. which almost concurrently carried out for attainment of operational efficiency. In the Cost Reduction standards are set earlier are constantly challenged for further improvements.cc | www. Cost Reduction is a real and more or less permanent reduction in unit cost of goods and services without impairing with the stability or goodwill of the concern. The major assumption in cost Control is that unless costs exceed the budget or standard by an excessive amount the control of cost is satisfactory. processes. Marketing and Finance.com/fyp/ COST REDUCTION:Definition:COST REDUCTION IS A PLANNED POSITIVE APPROACH TO REDUCE EXPENDITURE INCURRED. Cost Reduction is a corrosive function by continuous process of analysis of costs. Cost Control is the regulation of costs of operating a business is concerned with keeping expenditure within acceptable limits.

www. b) There should be well defined channels of communication between various management levels.cc | www. By continuous follow-up the Cost Reduction plan will be successful.Production planning and control function is a very large area for cost reduction scrutiny. In fact.the design function offers management the greatest potential for cost reduction as the impact of any economies or cost reduction effected at this stage shall be felt throughout the manufacturing life of a product. ORGANIZATION: . it should include critical analysis for all products within the product range of the organization. It should be ensured that there is no overlapping of duties and responsibilities. But this does not mean that the design cost reduction should be restricted solely to new products only. individual objective must be in line with organizational objectives. ie.14 - . f) Encouragement in the form of incentive etc. AREAS COVERED BY COST REDUCTION: Following are the critical areas of application of various cost reduction techniques: 1. c) Delegation of responsibility should be encouraged to ensure quick and effective decision making.final-yearprojects. 3.troubleshoot4free. e) Cooperation and close relationship between the various executives should be encouraged.A considerable amount of cost reduction can be affected by improvement in organization. DESIGN: . 2. d) Efforts should be made to implement management by objective.co.com/fyp/ implementing the recommendations. should be offered to the employees for coming up with suggestions leading to cost reduction. It covers . In other words application of value analysis method at the designing stage itself would go a long way in maximizing the profits. The organization can be improved by taking following steps: a) Defining each stage of responsibility. PRODUCTION PLANNING AND CONTROL: .

cc | www.an effective arrangement of plant and machinery is a fundamental requirement. d) Whether the incidence of stock losses due to pilferage. b) Effective built in flexibility.final-yearprojects. overheads and capital. h) Whether there is any scope for reduction in overhead costs. The four principal components of cost are material. FACTORY LAYOUT AND EQUIPMENT: . labour. 4. g) Whether there is any scope for reduction in indirect materials and labour costs.troubleshoot4free. . An efficient cost reduction plan should aim at reducing the per unit costs on these counts by examining the following pointsa) Whether wastage of manpower and material is kept to the minimum. b) Whether any scope is there for reducing idle capacity and increase in productivity.co. and production offering considerable scope of savings. inspection and stock taking is there. d) Minimum material handling. obsolescence and other causes are at minimum. c) Efficient control of work flows with least disturbances.com/fyp/ planning. f) Whether production schedule can be improved to match delivery schedule. A successful plant layout shall contain following featuresa) Optimum use of space. inventory control. c) Whether efficient system of inventory.15 - . e) Minimum waste.www. f) Work satisfaction and enhanced productivity. deterioration. material handling and usage. location and other associated costs are kept to minimum and best method of production has been adopted. e) Whether the storage.

c) Whether channels of distribution are efficient and economical. f) Whether any alternative media of advertisement can lead to cost reduction. UTILITY SERVICES: . marketing research. i. This function includes selling function and distribution function. c) Whether wastage and other losses in distribution have been kept to minimum. wholesale. the method and location of warehousing. repair and maintenance and transport etc. d) Whether there is an effective systems of sales promotion. The marketing function covers salesman salaries and their sales offence expenses and administration.co. b) Whether the proper system for preventive and curative maintenance is there.the marketing function may not lead itself so easily to cost reduction as other business functions.final-yearprojects. advertising and after sales service. . (retail of direct). Following points may attract attention in his connection.com/fyp/ 5.utility services include power. the packing and transport.e. water. b) Whether rearrangement of territories can bring about cost reduction. 6. MARKETING: .. and g) Whether the method of distribution chosen is most efficient in terms of factory and warehouse locations.cc | www. distribution and customer locations so on. e) Whether market research is adequate. d) Whether work flow and loading factor has received due attention. the following points of consideration can lead to effective cost reductiona) Whether the utilities are supplied at economic costs or whether there is scope for any further increase in utilization. steam. There can be considerable scope for comprehensive reorganization of existing methods and substantial reductions in costs.troubleshoot4free. But a number of techniques do exist for reducing such costs and these can result in substantial savings for business. The distribution function includes the method of disposition of products.www. a) Whether there is optimum utilization of salesmen s working time.16 - .

and c) Whether the capital is economically employed so as to give the maximum return. For example. b) Whether capital is secured at economical cost.co. FINANCE: . Following points are relevant in this connection: a) Whether the methods of funding capital expenditure are cost effective.com/fyp/ 7. the investment in the right machinery at the right time can yield significant cost advantages.the effective employment of capital in a business is of paramount importance.final-yearprojects.www.17 - .cc | www. .troubleshoot4free.

desperate measure instead of a carefully organized exercise. purchases. It decides the areas of potential savings and determines the priorities and allocates assignments to appropriate staff. Cost Reduction is possible with the help of unit cost reduction by curtailing expenditure and by increasing the productivity. Efforts to cut material and Labor cost may erode confidence in established system for estimating material usage and labor productivity standards. A cost Reduction committee may be formed with representative of major departments or divisions like marketing. The committee studies principle phases programmed for Cost Reduction. Cost Reduction Programme may demand attention of a number of experts from different fields.18 - . Cost reductions are campaigns are often introduced as a rushed. to one department} with the result that costs are reduced in one cost center only to reappear as an extra cost in another cost center.cc | www.final-yearprojects.troubleshoot4free.com/fyp/ MAJOR DIFFICULTIES IN COST REDUCTION:- Resistance by the employees of the organization to pressure to reduce costs usually because the nature and the purpose of the campaign has not been properly explained to them and they feel threatened by the change.www. A cost or management accountants acts in the capacity of an interpretation and advisor. .g. etc. They may be confirmed to small area of the business {e.co. production planning.

also called manufacturing overhead or factory burden may be defined as the cost of indirect materials. Fixed cost: . job. service or any other activity.troubleshoot4free. Such special necessary expenses can be identified with product or job and are charged directly to the product as part of the prime cost.final-yearprojects.Selling and distribution overheads usually begin with when factory costs end. Factory overhead: . Selling.direct materials refer to the cost of the materials which are conveniently and economically traceable to the specific units of output. actual (incurred) or notional (attributable).co. The specific thing or activity may be a product. indirect labour and indirect expenses. Direct material: . 5. These costs are also known as standby costs. NATURAL CLASSIFICATION OR COSTS:The term natural classification refers to the basic physical characteristics of the cost in a manufacturing concern. relating to a specific thing or activity.these include any expenditure other than direct materials and direct labour directly incurred on a specific product or job. generally. It covers they cost of making the sales and delivering/ dispatching the products.Fixed cost is a cost which does not change in total for a given time period despite wide fluctuations in output or volume of activity. Examples of .direct labour is defined as the labour of those workers who are engaged in the production process.factory overhead. 3. They are production supplies and other materials that cannot conveniently or economically be charged to a specific unit of output.cc | www. distribution and administrative overheads: . Such expenses are incurred when the product is in saleable condition.www. capacity costs or period costs. COST BEHAVIOR (IN RELATION TO CHANGES IN OUTPUT OR ACTIVITY OR VOLUME) 1. It is the labour expended directly upon the materials comprising the finished product. the following costs are incurred: 1. Direct labour: . 2.19 - . 4.com/fyp/ COSTING OF RAV:CONCEPT OF COST:Cost is the amount of expenditure. Direct expenses (chargeable expenses):.

insurance.cc | www. property taxes. supervising salaries depreciation on office facilities.final-yearprojects. . such as per day. But it can be said that supervisor s salary is so much per month. advertising. This is the reason why fixed costs are expressed in terms of time. per month or per year and not in terms of unit.co. etc.20 - . It is totally illogical t say that a supervisor s salary is not so much per unit.com/fyp/ fixed costs are rent.troubleshoot4free.www. They accrue or are incurred with the passage of time and not with the production of the product or the job.

1000 844 720 5289 = prime cost (add) factory overheads Indirect wages ( security) Indirect material Rent and rate Lighting and heating Power and fuel Repair and maintenance Water Drawing office expenses Depreciation of plant Welfare service expenses Works manager s salary 800 200 60 200 95 50 40 500 50 20 830 2845 Works cost (add) office and administration overheads Office stationary Financial expenses Salary (office) Telephone Postage 50 50 600 200 80 5289 8134 .co.final-yearprojects.com/fyp/ COST SHEET FOR 6 RAV. 2725 Rs.troubleshoot4free. Particulars Direct material consumed Direct wages:From plant From outside Direct expenses Rs.www.21 - .cc | www.

079 .final-yearprojects.troubleshoot4free.co.cc | www.com/fyp/ Printing Depreciation of office and furniture Legal expenses Audit fees and consulting charges 50 50 135 380 1595 = cost of production (add) selling and distribution Advertising Transport 50 300 350 = cost of sales 9729 10.www.22 - .

cc | www. . Particulars Direct material consumed Direct wages:From plant From outside Direct expenses 1000 1000 1050 8065 = prime cost (add) factory overheads Indirect wages ( security) Indirect material Rent and rate Lighting and heating Power and fuel Repair and maintenance Water Drawing office expenses Depreciation of plant Welfare service expenses Works manager s salary 800 200 60 200 95 50 40 500 50 20 830 2845 Works cost (add) office and administration overheads Office stationary Financial expenses Salary (office) Telephone Postage Printing 50 50 600 200 80 50 10.troubleshoot4free.com/fyp/ COST SHEET FOR 8 RAV.23 - .910 8065 Rs.www.final-yearprojects. 5015 Rs.co.

24 - .co.505 12855 .troubleshoot4free.com/fyp/ Depreciation of office and furniture Legal expenses Audit fees and consulting charges 50 135 380 1595 = cost of production (add) selling and distribution Advertising Transport 50 300 350 = cost of sales 12.final-yearprojects.www.cc | www.

Particulars Direct material consumed Direct wages:From plant From outside Direct expenses( jig. fix.150 = prime cost (add) factory overheads Indirect wages ( security) Indirect material Rent and rate Lighting and heating Power and fuel Repair and maintenance Water Drawing office expenses Depreciation of plant Welfare service expenses Works manager s salary 800 200 60 200 95 50 40 500 50 20 830 2845 Works cost (add) office and administration overheads Office stationary Financial expenses Salary (office) Telephone Postage 50 50 600 200 80 11. 1000 1335 1800 11.co. pattern) Rs.final-yearprojects.995 .cc | www.com/fyp/ COST SHEET FOR 10 RAV. 7016 Rs.150 13.troubleshoot4free.www.25 - .

26 - .com/fyp/ Printing Depreciation of office and furniture Legal expenses Audit fees and consulting charges 50 50 135 380 1595 = cost of production (add) selling and distribution Advertising Transport 50 300 350 = cost of sales 15.cc | www.940 .troubleshoot4free.co.final-yearprojects.590 15.www.

27 - .165 = prime cost (add) factory overheads Indirect wages ( security) Indirect material Rent and rate Lighting and heating Power and fuel Repair and maintenance Water Drawing office expenses Depreciation of plant Welfare service expenses Works manager s salary 800 200 60 200 95 50 40 500 50 20 830 2845 Works cost (add) office and administration overheads Office stationary Financial expenses Salary (office) Telephone Postage Printing 50 50 600 200 80 50 16.co. Particulars Direct material consumed Direct wages:From plant From outside Direct expenses 1000 1540 3000 13.www.165 Rs. 7625 Rs.cc | www. .com/fyp/ COST SHEET FOR 12 RAV.troubleshoot4free.010 13.final-yearprojects.

www. They are debited to Profit and Loss account.troubleshoot4free.955 Other expenditures are not considered for cost sheet purpose.28 - .605 17.co.final-yearprojects. .cc | www.com/fyp/ Depreciation of office and furniture Legal expenses Audit fees and consulting charges 50 135 380 1595 = cost of production (add) selling and distribution Advertising Transport 50 300 350 = cost of sales 17.

Rent and rate = 11. Expenditure for office is Rs. 800/ unit.some factory overheads can be directly identified with a particular department or cost centre as having been incurred for that cost centre. 1000. The unit of production basis is simplest and most direct method of charging factory overheads. As production of RAV over previous year were 120. Therefore cost per unit = 11000/ (1.co. Expenses such as power. I have done absorption using unit of production basis. 2 parts are for RAV and 1 part is for Eagle Poonawala s outsourced parts. rent depreciation of factory building.cc | www. Allocation of rent and rate is 2:1.final-yearprojects.troubleshoot4free. the computation is as followsFactory overhead --------------------------Units of production. therefore they are allocated and apportioned. 3. Examples of such factory overheads are repairs and maintenance for specific departments. = Rs.com/fyp/ ALLOCATION AND ABSORPTION OF INDIRECT EXPENSES: Concept:Allocation: . = Rs. Expenditure for factory is 3000. Indirect wages= 96000/ year. Lighting and heating = 4000 / month.5 X 120). 2. expenses shared by all the departments can not be charged directly to a specific department. 60.29 - . Therefore cost per unit = 2000/ 10. So for absorption numbers of units produced are taken into consideration. next step is to spread factory overhead to different products or jobs produced. . Absorption: . Allocation of overheads:1.after allocation. 200/ unit. Therefore indirect cost per unit = 96000/ 120. 000/ year. = Rs. As a formula. indirect materials etc. within that 2000 is for outsourced parts and 1000 is for RAV.www.

as there is more work in Sneha Bearings. Therefore allocation for RAV and other jobs is 2:1. 2000/ month.troubleshoot4free.1000/ unit. the allocation will be 2:1. Salary (factory) = Average salary of 3 workers for a month is Rs.co. Expenditure for water is apportioned in the same way like lighting and heating.www. 1100.com/fyp/ 4. 1:1 allocation for RAV and other jobs. 7. 600/ unit.final-yearprojects. 10. Telephone charges are Rs. Telephone = Rs.cc | www. .000 Currently manager is working for Sneha Bearings and Sneha Industries. So. Yearly expenditure for water = Rs. 8.100/ unit. 6. Salary (office) = Rs.30 - . Therefore.000. 5. Allocation for RAV = 6000/ 10 = Rs. 25. direct wages are Rs. works manager s salary= Rs. 9000/ month for two accountant.

www.836 1814 45% 12 16.co.16.troubleshoot4free.890 1908 =271 24 87 122 38 271 .890 8.cc | www. At this point.650 10. It is a point of no loss no profit. contribution is equal to fixed cost.100 12.31 - .350 3750 14% overall 100% 155 412 816 525 1908 8.16. Break even point Total fixed expenses = ----------------------------------------------------------------Selling price per unit marginal cost per unit Particular Selling price Variable cost Contribution Quantity wise proportion Weighted contribution margin Total fixed cost Overall break even quantity Product wise break even quantity 6 6900 5174 1726 9% 8 9200 7712 1288 32% 10 12. A concern which attains break even point at lesser number of units will definitely be better from another concern where break even point is achieved at more number of productions.final-yearprojects.com/fyp/ PRODUCT WISE BREAK-EVEN QUANTITY:A business is said to be break even when its total sales are equal to its total costs.

co. Stores management 5. human resource function but due to time constraint these functions are excluded from the cost reduction Programme.com/fyp/ COST REDUCTION PROGRAMME:Cost reduction Programme carried out in Sneha Industries consists of following functions. Purchase function 2.32 - .troubleshoot4free. 1.final-yearprojects.www. . Quality assurance function There are other functions which the firm is performing like finance function. Production planning and control 3. The procedure of cost reduction Programme I carried out is as follows:For few days try to recognize the operations carried out in the particular function then see the various documents handled in the particular function and lastly point out the weak areas of the particular function. Marketing function 4.cc | www.

so that it is difficult to procure required materials at the right time and at right quality. . The new vendor is selected on the basis of following three criteria:1. sundries required for the production. Quality 3. AREAS OF COST REDUCTION IN PURCHASING: On the basis of the observations and discussion with the proprietor.cc | www.final-yearprojects. Finding out the status of the Vendor (Whether the vendor is ISO certified or not) Sneha industry procures castings of cast iron and alloy steel from Mahalakshmi foundry situated in Belgaon. But some problems associated in adopting just in time are as follows1. Vendor s customer base 3. Following are the supplementary criteria for selection:1.www. Suppliers are spread over a long distance. 2. 2. Inspection facilities available at the Vendor s end.com/fyp/ PURCHASE MANAGEMENT:FUNCTIONS:The main function of purchase department is purchasing the necessary Raw Material.33 - . Especially since the automobile business affected badly in last few years. Cost 2. tools and accessories. Vendor reduction is the new trend in the industry. Service as per the schedule. purchase found following alternatives for bringing further reduction in the cost incurred in purchasing. USE OF JUST IN TIME CONCEPT: The organization should follow the just in time concept. Receipt of good may be of inferior quality due to lesser time taken to manufacture the required material. The objective of this function is to find out new vendor who will supply the required raw material as per the requirement at reasonable cost.co.troubleshoot4free. the companies like Telco and Bajaj are adopted this trend.

inventory levels.co. improvements in forecasting procedures. or a careful analysis of the order quantity and timing decisions for A items will provide a larger improvement in inventory cost performance than will similar efforts on the C items. Rapid response times are a result of technological advances. . ABC analysis is often a useful first step in improving inventory performance. Increased usage of real time information. improved delivery reliability. Managers concentrate on the vital few (the A items) and spend less time on the trivial many (the C items).cc | www. and capital spending plans. A perpetual inventory system. such as computerized order tracking.final-yearprojects. The contract should include the assurance to the supplier that the company will not purchase the contracted material from the competitors of the supplier. and reductions in operating costs involving both purchasing staff cost and inventory. MAKING CONTRACT WITH THE SUPPLIER: This is the main area where Sneha Industries should concentrate. ABC ANALYSIS: ABC analysis provides a tool for identifying those items that will make the largest impact on the firm s overall inventory cost performance when improved inventory control procedures are implemented.34 - . For manufacturing companies the use of information technology can provide improvements such as quicker delivery response to customers. work shifts. ABC analysis helps focus management attention on what is really important. In this way quick reflexes can be a key factor for organization s success. These improvements have also had an important effect on the national economy. THE INTERNET AND VENDOR SCHEDULING: The internet provides several ways in which manufacturing companies and their vendors can share information for the purpose of improving the timing and reliability of supplier deliveries.com/fyp/ 3. There may be shortage of raw material due to time taken to manufacture and transportation.www. enables business to know when demand is shifting and to instantly change output schedules.troubleshoot4free. A type items should have one or two supplier who can supply quality products at optimum cost and at minimum time. Therefore.

35 - . AREAS OF COST REDUCTION IN PRODUCTION PLANNING AND CONTROL: As much of the production work is outsourced there is little scope in cost reduction. This production plan is based on the schedules provided by the customers. It is the preparation of monthly plan of production. Raw material includes study of raw material in hand and expected material from supplier on this basis job is selected for production. but due to change in the diameter of rotor or little burr on bearing. SAVE TIME FOR REWORK: Some jobs needed rework due to change in the clearance between rotor and body.co. GANTT CHART: It is a principle tool for both loading and scheduling. So my suggestion is before doing assembly use polish paper to remove any burr present on inner side of body or on bearing. and based on minimum inventory of finished goods stock. Vertical lines divide the chart in days and horizontal lines divide the chart in to number of operations. Lot of time is wasted in removing this problem.3 mm.www. rotor is jammed. in this . This also concerned with planning the job priorities.final-yearprojects. Customer requirement planning is concerned with marketing function for determining the production plans as per requirement of the customers. In this how many parts to be manufactured are found out.com/fyp/ PRODUCTION PLANNING AND CONTROL: - Function of production planning and control are as follows- The function of production planning and control is beginning with this function.troubleshoot4free. Permissible clearance is 0.cc | www.

36 - . Week 1 Mon Tue 8 RAV body 8 shaft rotor assembly Wed Fri Sat Sun Week 2 Mon Tue Wed Fri Sat Sun .troubleshoot4free.co.final-yearprojects.cc | www.www.com/fyp/ case as the parts are outsourced the total part should be considered as shown in the figure.

average credit period is 70 days and average debtor s period is 45 days. Emphasis on recovery: . To find new customers and recovery of payments after credit sales are some of the functions of marketing.cc | www.co. AREAS OF COST REDUCTION IN MARKETING ARE AS FOLLOWS: 1. . reliable customer s base. Try to use email facility to the larger extent as it is cheaper and faster medium to communicate.troubleshoot4free. 2.www.37 - . Try to save expenditure on communication: . so give emphasis of recovery from debtors and try to reduce debtor s period ultimately it will reduce the annual interest paid in the bank against cash credit. and recovery in time and feasible orders in time.try to make contract with the supplier and if he can store some of the inventories in his plant then it will reduce procurement time.final-yearprojects.com/fyp/ MARKETING FUNCTION:Functions of Marketing are as follows: Procure maximum profitable orders.

quality and quantity.troubleshoot4free. . Every time after the receipt of the customer s complaints the company has to send Sachin Phasale to check the intensity and correct the error. AREAS OF COST REDUCTION: 1.38 - .final-yearprojects. The receipt of any complaint received from any customer is affecting the reputation of the company. Functions are as follows: Inspection of incoming material and comparing it with specified size. 2. therefore company sometimes has to deal with complaints received by the customers. As company is giving after sales service. Avoiding customer complaints: The receipt of any complaint from any customer affects name and reputation of the company.cc | www. But during the course of business the company needs to give priority to solve the customer s complaints.com/fyp/ QUALITY ASSURANCE FUNCTION: Quality assurance function is playing vital role in purchasing raw material and selling finished goods.www.co. Arrangement of chemical facility in house will reduce the expenditure incurred on testing the parts.

165 To office rent and 22.165 37.940 taxes To computer 8.755 contractor To labour charges To repair 2.06 Particulars To opening stock To purchases To octroi To fuel and power To gas and water To factory rent To payment freight Amount 1.113 and 32.680 27.232 To office salaries 2.680 88.970 and 1.638 to 2238 15.700 ex-gratia To G/P 1.232 37.www.851 .990 11.358 maintenance To commission To insurance To audit fees To printing 82.co.552 - .cc | www.211 and 170.373 Particulars By sales By closing stock Amount 36.688 maintenance To bonus and 16.troubleshoot4free.com/fyp/ Sneha industries Trading and profit and loss account for the year ended at 31.110 By G/P b/d 1.16.

final-yearprojects.235 10.www.35.235 financial 40.635 conveyance To advertisement To gardening 67.742 To depreciation on 94.29.308 telephone To books and 1735 periodicals To traveling and 63.troubleshoot4free.802 8.205 5713 3402 sales 3742 .46.783 13.407 assets To ESIC paid To labour welfare To testing To promotion To charges To expenses To charges 10.973 By net loss 9.co.35.651 security 77.40 - .cc | www.070 sundry 1.com/fyp/ stationary To postage and 72.

cc | www.66.29.www.troubleshoot4free.242 7.02.41 - .147 Closing stock 1.035 Loss of the year as 9.454 1.736 and bank Director s remuneration Tambekar Opening balance Amount (Rs.014 18.80.) Assets Fixed assets Amount (Rs.439 31.2006 Liabilities Capital account of S.72.com/fyp/ Balance sheet as on 31.co.000 Sundry debtors 6.43.439 .) 6.M.718 Income tax refund 2997 Cash in hand 4. Previous year s (-) Trade advances 11.708 4.68.680 income tax & TDS Drawings Net capital Sundry creditors Loans Provisions 1.070 per P&L account.

proper comparison of ratios may reveal where a firm is placed as compared with earlier periods or in comparison with other forms in the same industry. trade creditors and lenders of short term credit are basically interested in the liquidity position of the organization and such as the ratios like current ratios.g.troubleshoot4free.42 - .co. On the basis of inventory turnover ration or debtors turnover ratio in the past. Current Ratio which shows a constant declining trend may indicate the need for the further introduction of long term finance in order to improve the liquidity position. either individually or in relation to those of other firms in the same industry. the ratio analyses may be able to locate and point out the various areas which need the management attention in the order to improve the situation. At the same time. the level of inventory and debtors can easily be ascertained for any given amount of sales.www. E.g.final-yearprojects. the importance of various ratios may vary from different category of persons as well.g. as the ratios all buy themselves do not mean anything. . Similarly. E. or comparison with standard ratios. E. the commercial binders. ratios calculated on the basis of historical financial statements may be of good assistance to predict the future. Ratio Analysis helps to appraise the firms in terms of their probability and efficiency of performance. As the future is closely related to the immediate past. This comparison may be in the form of intra-firm comparison.cc | www. It should be remembered that a few specific ratios indicate certain specific aspects of the conduct of business. The process of this appraisal is not complete until the ratios so computed can be compared with something. As such. Ratio Analysis is one of the best possible techniques available to the management to impart the basic functions like planning and control. it is also true that what can be achieved by the technique of Ratio Analysis cannot be achieved by the mere presentation to financial statements. Thus.com/fyp/ RATIO ANALYSIS:ROLE OF RATIO ANALYSIS: It is true that the technique of Ratio analysis is not a creative technique in the sense that it uses the same figures and information which is already appearing in the financial statements.

690 = 2.co.com/fyp/ acid test ratio. 44. 44.stock.69 Remark: .higher liquid ratio indicates that there are sufficient quick assets available with the organization which can be immediately converted into cash. Liquidity group: 1) Current ratio= Current assets ---------------------Current liability 25.www. On the other hand.final-yearprojects. Industry norm is 2:1 2) Liquid ratio / acid test ratio Current assets.bank overdraft = 11. 36. the financial institutions and lenders of long term finance are basically interested in solvency and profitability position of the organization and as such the ratios are like debt equity ratio. inventory test ratio and average collection period are more important.43 - . Turnover ratio: - .cc | www.troubleshoot4free.690 = 1.proper backing is available to current liabilities in the form of current assets and current assets can be converted into cash in shorter period of time. I. Industry norm is 1:1 II. debt service coverage ratio. 76.703 = ---------------9.24 Remark: .305 -------------9. interest coverage ratio and return on investments are more important.prepaid expenses = -----------------------------------------------------Current liability.

co.this ratio indicated that how efficiently company is using current assets over the period of year 3) Working capital turnover ratio = Net sales --------------------Working capital = 36. 16.this ratio indicated that how efficiently company is using working capital over the period of year.552 = ---------------9.44 - . 16.42 Remark: .cc | www.552 --------------15. 013 = 2. 29.troubleshoot4free. 27 Remark: .www.736 = 5. 36. 74 Remark: . 16.552 ---------------25.this ratio indicated that how efficiently company is using fixed assets over the period of year.703 = = 1. 92. 4) Stock turnover ratio .final-yearprojects. 2) Current assets turnover ratio = Net sales ------------------Current assets 36.com/fyp/ 1) Fixed assets turnover ratio = Net sales ------------------Fixed assets 36.

6) Capital turnover ratio = Sales ----------------------Capital employed 36. 16.552 = ----------------6. 5) Debtor s turnover ratio Net credit sales = ---------------------Sundry debtors 36. 16.www.com/fyp/ = Net sales --------------------Average stock = 36. 7) Creditor s turnover ratio . 749 = = 1.2 = 365/ 5.552 --------------173.2 = 70 days Remark: .some investment in stock may be beneficial at least from getting customer patronage point of view. 21.63 Remark: .final-yearprojects. 552 ----------------------22.cc | www. 651 = 5. 94.higher ratio indicates the capability to use capital in efficient manner.co.troubleshoot4free. 16.it is within given limit of 60 to 90 days.45 - . 680 = 20 Remark: .

Operating ratio = operating cost ---------------------Net sales Operating cost= cost of goods sold + administrative. selling and financial expenses. 552 = ----------------4. 895 =78% .if possible revised plans related to increasing credit period can reduce the interest paid in the bank.co. 552 -----------------46.46 - . 16. 16.final-yearprojects. = 36. 72.242 = 47 days Remark: .com/fyp/ Credit purchases = -----------------------Average creditors 36. 19. III.troubleshoot4free.cc | www.www.

. the crucial problems that affect success in the total enterprise. bargaining power. buying behavior and satisfaction of customers.www.1 Customer or client factors. The purpose of Business policy: . it is of crucial importance to understand it.troubleshoot4free. attitudes. A course in business policy helps in understanding a business as a system consisting of number of sub-systems. For instance a marketing problem is not viewed purely as a problem of marketing but as an organizational problem. and the decisions that determine the direction of the organization and shape its future.since environment influences an organization in multitudinous ways.com/fyp/ BUSINESS POLICY:- Business policy is the study of the function and responsibilities of senior management.47 - . Environmental appraisal: .the viewpoint adopted in business policy is different from that adopted in the functional area courses.co.The market environment consists of the factors related to the groups and other organizations that compete with and have and impact on an organizations markets and business.1. It is of vital importance for the top management in any organization to adopt such a systems approach to decision making. perceptions. and on the system as whole. 2.1 market environment: . Any action taken on any sub-system has an impact on other sub-systems. Some of the important factors are:2.cc | www. the needs. preferences.final-yearprojects. 2. Business policy helps management to become a generalist by avoiding the narrow perspective generally adopted by the specialists. such as. values. and to deal with business problems from the viewpoint of the senior management. 1.

2. and availability of the factors of production or service that have an impact on the business of an organization. and the availability of substitutes of products or services. and research and development.1 Sources of technology. and financial intermediaries.2 Technological development. cost of technology acquisition. utility. entry and exit of major competitors. . the man-machine system.2. 2. delivery systems.2.3 Impact of technology on human beings. collaboration in and transfer of technology. Some of the important factors are:2.1. 2. such as. such as.co. image. stages of development. design. function.3. Some of the important factors are:2. 2. external sources.2 Product factors.48 - . life cycle.2. 2. distribution. reliability. price. levels and quality of customer s service. the different types of competitors.2. costs. middlemen.3 supplier environment: The supplier environment consists of factors related to the cost. and the environmental effects of technology. nature of competition. and the relative strategic position of major competitors.troubleshoot4free.1.1 Cost. and foreign sources.2 Cost and availability of finance for implementing plans and projects. availability and continuity of supply of raw materials. logistics.2 Technological Environment: Technological Environment consists of those factors that are related to the knowledge applied and the material and the machine used in the production of goods in services which have an impact on business of organization. like.cc | www. differentiation.4 Competitor-related factors.www.final-yearprojects.4 Communication and infrastructural technology in management.com/fyp/ 2.3 Marketing intermediary factors such as. 2. the demand.1. features.3. change and rate of change of technology. promotion. distribution channels. subassemblies. parts and components. 2. 2. company sources.

3.final-yearprojects.3 Economic policies.troubleshoot4free.com/fyp/ 2.4 Economic planning.3.1 Cost efficiency.4.4 Economic environment:The economic environment consists of macro-level factors related to the means of production and distribution of wealth which have an impact on the business of an organization. .www. spare parts and after sales service. industrial. 2.year plans annual budgets.1 The economic stage at which a country exists at a given point of time. 2.cc | www. 2. 2. such as.2 The economic structure adopted. five.5 Cost and availability and existence of sources and means for the supply of plants and machinery. monetary and fiscal policies. Critical success factors sometimes referred to as strategic factors for success.3. are those which are crucial for organizational success. Some of the important factors are:2.4.4 Creation of a market niche by supplying highly.3 Cost. 2. When strategists consciously look for such factors and take them into consideration for strategic management. 3.6 Infrastructural support and ease of availability of the different factors of production. a capitalist.specialized products to a particular market segment when the price of the product is high as compared to the competitor s products. such as. 2. 2. Some of the Critical Success Factors related to Rotary Airlock Valve are:3. and the existence of substitutes. socialist or mixed economy. Critical Success Factors:Critical success factors are those critical factors which will lead to success for their organizations. and availability of energy used in production. 3. 3.4.4 Cost and availability and dependability of human resource. they are likely to be more successful.co. such as.49 - .3. the bargaining power of suppliers.4. while putting in relatively lesser effort. reliability.3 Superior product quality.2 Product mix 3.

Sneha Industries can use brand image of Sneha Bearings. which are demanded by the customers who are willing to pay for those. A differentiated product or service stands apart in the market and is distinguishable by the customers for its special features and attributes.2 special features 4.final-yearprojects.1 product quality 4. then the strategy adopted is the differentiation business strategy. Customers prefer a differentiated product/ service when it offers them a utility that they value. and are willing to pay more for getting such a utility. Other type positioning approach could be marketing relatively high priced products of limited variety but intensely focused on identified customer groups who are willing to pay the higher price.5 low cost financial sources. .50 - .6 Regular availability of vital raw material in sufficient quantities.www.troubleshoot4free. These are produced through batch production and marketed through special distribution channels.cc | www. The firm outperforms its competitors who are not able or willing to offer the special features that it can and does.3 After sales service These are some of the characters of product differentiation. 4. What the firm should do is to differentiate its products on some tangible basis from what its rivals have offered so that the customers purchase the products even at premium.com/fyp/ 3.co. Differentiation business strategy:When the competitive advantage of a firm lies in special features incorporated into the product/ service. one of the positioning approach may be to offer mass production and distributed through mass marketing there by resulting in low cost per unit. Competitive advantage:If the firm has to compete in a market with other rival firms. 4. 3.

cc | www. 5. Growing demand and multiple uses of product. .final-yearprojects. it succeeds. An opportunity is a favourable condition in organization s environment which enables it to consolidate and strengthen its position.3 A firm can incorporate features that raise the performance of the product. But it may fail if the customers are no longer interested in the differentiated features.troubleshoot4free.2 A firm can incorporate features that lower the cost of running for the buyer in using the product/ service.www. and command customer loyalty. To the extent the firm is able to offer differentiation by maintaining a balance between its price and costs. good quality products and R&D skills.5 A firm can incorporate features that can offer the promise of a high quality of product/ service. eg. An illustrative list of measures that a differentiator firm can adopt is as below:4. 3.co. 4. Strength is an inherent capacity which an organization can use to gain strategic advantage. SWOT analysis:The environment in which an organization exists can. 4. gain additional customers who value differentiation.com/fyp/ A differentiation firm can change a premium price for its products or services. Weakness is an inherent limitation or constraint which creates strategic disadvantage. be in terms of opportunity and threats operating in the external environment apart from the strengths and weaknesses existing in the internal environment. 2.51 - .tangible ways.4 A firm can incorporate features that increase the buyer satisfaction in tangible or non. eg. 4. or are not willing to pay extra for such features. The four environmental influences could be as follows:1. Profits for the differentiator firm come from the difference in the premium price charged and the additional cost incurred in providing the differentiation. eg. low capacity production. 4.1 A firm can incorporate features that offer utility for the customers and match their preferences. therefore.

or causes damage to the organization.52 - .final-yearprojects.troubleshoot4free. outsourcing. . high prices of products.com/fyp/ 4.co. eg. Threat is an unfavourable condition in organization s environment which creates a risk for.cc | www.www.

6) Proportion of sundry debtors are high as compared to sales. 5) As seen in balance sheet. 4) In production planning and control.com/fyp/ CONCLUSION & RECOMMENDATIONS: There is good scope for cost reduction of RAV which will ultimately increase the profits.troubleshoot4free. contract with supplier. there are high trade advances which is affecting in terms of high interest on trade advances.co.www. techniques such as Just in time. so try to reduce debtors and for customers other than regular customers. saving time in rework. Gantt chart should be used. try for immediate payments or reduce the debtors period. demand for RAV has been decreased in this financial year. cost of production can be known and selling price can be decided after adding fixed percentage of profit. From cost sheet.final-yearprojects. . Generally payment policy should be delay the payment terms as far as possible .cc | www.53 - . 3) In materials function. Recommendations have been given at that particular point. product differentiation strategy should be adopted. but in brief recommendations are as follows: 1) Price restructuring should be carried out. Mentioned techniques can be used for other manufacturing firm producing similar kind of products. Due to increase in selling price. ABC analysis. 2) So as to achieve competitive advantage. vendor scheduling using internet medium.

M.www. jain Narang.final-yearprojects. . 3) Manufacturing planning and control 4) Financial Management S.54 - . Inamdar. 5) CWA module (Cost and management accounting).com/fyp/ BIBLIOGRAPHY: 1) Cost accounting 2) Cost accounting jawahar Lal.co. Vollmen Berry.cc | www.troubleshoot4free.

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