You are on page 1of 17


Scope of the Study: Eastern Cables Ltd. is the holding Cables organization carrying operation in Bangladesh. This Study is limited to only Eastern Cables Ltd. This Study could not cover other private business operating in Bangladesh mainly because of difference in objectives and management structure. The empirical analysis of the Study covered years ranging from !""" to !"" #ethodology of the Study: The $ey areas of performance evaluation can be identified as financial performance% managerial performance% operational performance% mar$eting performance or the overall performance. & proper evaluation of the financial performance of any company can be done through the techni'ues of financial analysis of the accounting data presented in the financial statements (hich includes mainly ) *. Balance Sheet **. +rofit , Loss &*C and ***. Cash - .und flo( statement */. /alue &ddition , &pplication /. +roduction0Sales0+rofit Such analysis (ould offer the management a better scope for detailed investigation into the financial operations of the enterprise and to assess the position of li'uidity% solvency% activity - efficiency and profitability of the concern. Limitations of the Study: The study has been conducted subject to certain limitations. Time constraint is one of the major...

Chapter: 2 Literature

Decision making is central to the management of an enterprise. The manager of a profit making business has to eci e on the manner of implementation of the ob!ecti"es of the business# at least one of $hich ma% $ell relate to allocating resources so as to ma&imi'e profit. (ll organi'ations# $hether in the pri"ate or the public sector# take ecisions# $hich ha"e financial implications. Decisions $ill be about resources# $hich ma% be people# pro ucts# ser"ices# or long term an short term in"estment. Decisions $ill also be about acti"ities# inclu ing $hether an ho$ to un ertake them. )here the o$ners are ifferent persons from the manager *for e&ample# sharehol ers of a compan% as separate persons from the irectors+# the managers ma% face a ecision $here there is a potential conflict bet$een their o$n interests an those of the o$ners. ,n such a situation cost consi erations ma% be e"aluate in the $i er conte&t of the responsibilit% of the managers to act in the best interests of the o$ners. The name of m% pro!ect is - The role of "arious cost concepts in ecision.making process - ,n this assignment , am tr%ing to efine the cost first then sho$ ho$ the% are pla%ing role in ifferent situation. The costs that , iscuss about are as follo$s: /anufacturing costs 0on-manufacturing costs 1i&e costs 2ariable cost (bsorption costing 2ariable costing 3pportunit% costs 4unk costs 5ro uct costs 5erio costs Differential costs 4tan ar costs Direct cost 6 ,n irect cost /i&e cost.
Manufacturing costs: Most manufacturing companies divide manufacturing cost into three broad categories. Direct material, Direct labor and Manufacturing overhead. Direct material: Direct materials are those materials that become an integral part of the finished product and that can be physically and conveniently traced to it. For example: Panasonic use electric motor in its CD Players to ma e the CD spin.

Direct labor: !he term direct labor is reserved for those labor costs that can be easily traced to individual product. Direct labor is sometime called touch labor, since direct labor "or ers typically touch the product "hile it is being made. For example the labor cost of machine operator. Manufacturing overhead: Manufacturing overhead the third element of manufacturing cost, includes all cost of manufacturing except direct material and direct labor. #o, "e can say that all costs associated "ith operating the factory are included in the manufacturing overhead category. #uch as indirect material, indirect labor, maintenance and repairs on production e$uipment etc. Non-manufacturing costs: %enerally non&manufacturing costs are sub&classified into t"o categories, '() #elling costs, '*) +dministrative costs Selling costs: #elling cost include all costs necessary to secure customer orders and get the finished product on service into the hand of the customer. !his cost is also no"n as mar eting cost. ,xample: +dvertising, #hipping, #ales travel etc. Administrative costs: -t includes all executive, organi.ational and clerical costs associated "ith the general management of an organi.ation rather than "ith manufacturing and selling. ,xample: #ecretarial, compensation, public relation and other this types of costs Role in decision-making /on&manufacturing cost is playing a great role in decision&ma ing. -n income statement "e deduct non&manufacturing cost or operating cost from gross margin to get net profit. #uppose "e expect 012 amount of money as net profit. 3ut if the net income falls belo" than our expectation, then "e must reduce operating cost to gain more profit. 4e can give one example to clear this idea. #uppose our net income is less than our expectation. /o" "e have to reduce price. 4e can ta e advertising cost as a sample. -n case of advertising our first motive is to identify our target consumer then "e have to select the advertising media. #uppose "e ma e one types of product and our target consumers are fishermen. -n this case "e must use radio as an advertising media rather than television and it "ill cost less. 3y this "ay "e can save non&manufacturing cost. -n this purpose "e can also reduce the cost of shipping, sales travel, compensation, public relation cost, sales salary etc. to increase net profit. Fixed costs: + fixed cost is a cost that remains constant in total, regardless of changes in the level of activity. +s the activity level rises and falls, the fixed cost remains constant in total amount unless influenced by some outside force, #uch as price changes. !here are t"o types of fixed cost. ( ! "ommitted fixed cost: Committed fixed costs relate to the investment in facilities, e$uipment and the basic organi.ational structure of a firm. ,xample: 5ent. (#! Discretionar$ fixed cost: Discretionary fixed cost usually arise from annual decisions by management to spend in certain fixed cost areas. ,xample: +dvertising. %ariable cost: + variable cost is a cost that varies in total, in direct proportion to changes in the level of activity. !he activity can be expressed in many "ays, such as units produced, units sold, miles driven, lines of print and so forth. + good example of variable cost is direct material. -t is important to note that

"hen "e spea of a cost as being variable, "e mean the total cost rises and falls as the activity level rises and falls. !here are t"o types of variable cost. ( ! &rue variable cost: Direct material is a true variable cost because the amount used during a period "ill vary in direct proportion to the level of production activity. (#! Ste'-variable cost: + cost that is obtained only in large chun s and that increases or decreases only in response to fairly "ide changes in the activity level is no"n as step&variable cost. Maintenance cost is an example of step&variable cost. Role in decision-making 6ariable cost plays a great role in decision&ma ing "e no" that if "e increase our production then our variable cost "ill also increase. #o "e have to concentrate on reduction of total cost and in this case "e must consider fixed cost also. -f "e increase our production "ithin our capacity, our unit cost of production "ill decrease. 3ecause as production increase variable cost "ill also increase but fixed cost per unit "ill decrease. (roduct costs: Product costs include all the costs that are involved in ac$uiring or ma ing a product. -n the case of manufacturing goods these costs consist of direct material, direct labor and manufacturing overhead. Product costs are initially assigned to inventories. #o, they are no"n as inventoriable costs. Role in decision-making -f an organi.ation "ant to minimi.e their inventory cost they can fallo" 7ust in time process. -n this process the cost of inventory is less than the normal process. #o, the product cost is minimi.ed and it "ill help to generate more profit. -f an organi.ation follo"s normal process for manufacturing goods, then they must reserve material for future and it "ill cost a lot. #uch as rent for place, guard salary, maintenance cost. +nd it "ill reduce net income. #o, they must follo" 7ust in time process to increase the net income. (eriod costs: Period costs are all the costs that are not incurred in product costs. !hese costs are expensed on the income statement in the period in "hich they are incurred, using the usual rules of accrual accounting. Period costs are not included as part of the cost of either purchase or manufactured goods. ,xample: #ales commission, 8ffice rent. Role in decision-making Depending on period cost "e can also ta e some corrective action. /ormally sales commission, office rent and other these types of cost are included in period cost. #uppose our net income is lo"er than our expectation then "e can increase our net income by reducing period cost. 9ets ta e office rent. -f our office rent is high then "e can reduce the rent by shifting office place. :o"ever for many decision&ma ing purposes the period costs are seen as being non&controllable in the short& term, so that attention may focus on product cost. Direct cost:

+ direct cost is a cost that cannot be easily and conveniently traced to the particular cost ob7ect under consideration. !he concept of direct cost extends beyond 7ust direct material and direct labor. ,xample: #uppose "oodland company is assigning costs to its various regional and national sales offices. !hen the salary of the sales manager in its 3ombay office "ould be a direct cost of that office. )ndirect cost: +n indirect cost is a cost that cannot be easily and conveniently traced to the particular cost ob7ect under consideration. For example: -gloo company ma es varieties ice&cream. !he factory managers salary "ould be an indirect cost of a particular variety such as igloo chocbar. Role in decision-making Direct cost includes direct material, direct labor; on the other hand indirect cost includes indirect material and indirect labor. !hey are playing a great role in decision&ma ing, but not individually. !hey have a significant impact on manufacturing cost, because these costs are included in manufacturing cost. #o ultimately they are playing role in setting selling price. Mixed cost: + mixed cost is one that contains both variable and fixed cost elements. Mixed costs are also no"n as semi&variable cost. Mixed cost is calculated by follo"ing e$uation. bx+< = a :ere < = !otal cost a = fixed cost b = 6ariable cost x = !otal unit. !he fixed portion of a mixed cost represents the basic, minimum cost of 7ust having a service ready and available for use. !he variable portion represents the cost incurred for actual consumption of the service. !he account analysis and the engineering approach is used to estimate the fixed and variable portion of a mixed cost. For example: !he cost of providing 1&ray services to the to patients at the P>% hospital is a mixed cost. !here are substantial fixed costs for e$uipment depreciation and for salaries for radiologists and technicians but there are also variable costs for 1&ray film, po"er and supplies. Role in decision-making Mixed costs also have some role in decision&ma ing because this cost is a combined form of fixed and variable cost. +s "e no" fixed costs are constant but variable cost differs "ith the production level. #o, by reducing the variable cost "e can decrease total unit cost and it "ill help to increase net income.

Eastern Cables Ltd. (ith it1s office and factory at +atenga% Chittagong (as established in 2345 and started its commercial production on 2 st #arch 2352 for manufacturing of cables and conductors. Eastern Cables Limited% a subsidiary Company of Bangladesh Steel , Engineering Corporation 6BSEC7 is the biggest cables and conductor manufacturer in Bangladesh. The range of its products not only includes +/C insulated and +/C sheated single core and multi core lo( tension domestic cable but also control% fle8ible and po(er cables (ith copper conductor having continuous permissible voltage grade up to 2! 9/. *t also enjoys the honour of being the pioneer in this country in the production of armoured and screened cables. The different sizes of bare and insulated &ll &luminium Conductor 6&&C7 and &luminium Conductor Steel :einforced 6&CS:7 are also being manufactured here.

The complete #:+ *nventory &ccounting +ac$age

pc-#:+ allo(s companies to implement a major MRP system at a reasonable price *S; 3""" /endor and Customer +erformance :eporting <undreds of users can enter% edit% display and print out data simultaneously #illions of records per database file (ithout any significant loss in speed #anages multi0level indented B;#s 6up to 2"" levels deep7 Supports do(nload of *nternet orders into pc-#:+1s Sales #odule Stoc$room #odule allo(s accurate issuing and trac$ing of inventory *nfinite Buc$et #:+ #odule provides +ush +ull% /isual Time Lines% etc. =igital *mages% Serial-Lot >umbers% Bar Coding% *S; 3"""% :o<S% ?here @sed Supports Standard% &verage and .*.; Costs% =rill =o(n Transaction :eporting Supports @nlimited &ctive &ccounting +eriods% Loc$out =ates% Credit , =ebit memos Compatible (ith E8cel% &ccess% Auic$Boo$s% @+S% .edE8% and ShopSite *ne8pensive 6less than BC%"""."" (ith Auic$Boo$s *nterface D *nfinite Buc$et #:+7

pc/MRP Standard Modules Overview

pc-#:+ is a fully integrated #:+-&ccounting program for ?indo(s. pc-#:+ comes complete (ith the follo(ing eleven integrated modules: Companies can use pc-#:+1s &ccounting #odule or Auic$Boo$s for their accounting needs.

pc/MRP Optional Modules Overview

pc-#:+ has eighteen optional modules that can be activated to enhance the efficiency of your company. The optional modules include: &lternate Currency

&udit Trail Corporate :eporting Customer Bul$ Emailer Engineering Change >otice Employee Time Trac$ing E=* *mport , E8port *nfinite Buc$et #:+ *nspections +ass(ord +urchase :e'uest-Auote Auic$Boo$s E8port :outing Sales &nalysis Sales Auote Serial-Lot Trac$ing Tas$ #anager and Tic$ler ?eb ;rders &ddress boo$ *nventory +urchasing :eceiving Sales ;rder ?or$ ;rder *nvoicing Shipments Bills of #aterials Stoc$ :oom &ccounting 6EL% &+% &:7

pc/MRP Optional QuickBooks Interface Module

*nitially% pc-#:+ imports customers% vendors and part numbers from Auic$Boo$s into pc-#:+. .rom then on all ne( customers% vendors% part numbers% bills of materials% stoc$room transactions% +;s% receivers% sales orders% (or$ orders and invoices are entered into pc-#:+. pc-#:+ invoices and

receivers are e8ported to Auic$Boo$s. *f Auic$Boo$s does not contain the part number% customer% or vendor listed on the invoice or receiver it is also e8ported into Auic$Boo$s. ?hen e8porting invoices% pc-#:+ debits and credits the follo(ing Auic$Boo$s accounts &:% Cost of Eoods Sold% Business *ncome% *nventory% Sales Ta8 Liability% .reight *ncome% Sales =iscount% Eross ?age E8pense and ;verhead 6if labor is included in the B;#7. ?hen e8porting receivers% pc-#:+ debits and credits the follo(ing Auic$Boo$s accounts &+% *nventory-E8pense% and .reight E8pense. &n accountant must edit a receiver and add the vendor invoice number to it before it can be e8ported. pc-#:+ is the base program% used to control inventory% generate purchase orders% receivers% (or$ orders% stoc$room transactions% sales orders and invoices. Auic$Boo$s is used as the accounting module to ma$e deposits% pay bills% print financial statements% generate credit and debit memos. pc-#:+ is compatible (ith the @.S. versions of Auic$Boo$s +ro !""C and above% +remiere !""C and above% and Enterprise !""C and above. pc-#:+ supports and is compatible (ith the follo(ing Auic$Boo$s features Classes and Sub0Classes% &ccounts and Sub0&ccounts% Credit Limits% Loc$out =ates% *tems and Sub0items% Single and #ultiple Ta8 /endors.

pc/MRP Inventory Module

pc-#:+1s *nventory #odule contains the costs% price 'ty brea$s% on hand 'tys% ?*+ 'tys and other vital information for each part number. &dvanced features include:

pc/MRP Address Book Module

pc-#:+1s &ddress Boo$ #odule contains vital customer-vendor information. &dvanced features include: Large 4 Line &ddresses Billing-Shipping-:emittance +op up messages ;ptional Tic$ler =isplay #ap Email

&utom. Credit Card proc. @nlimited Comments Customer balance &verage days to pay /ie(-+rint any =ocument Lin$ =;Cs and +=.s Auic$Boo$s *= C:# *nformation o Source o Salesman o Territory-:egion o Credit Limit =igital images-=ocuments &verage% Std% .*.; costing /endor price 'ty brea$s Customer price 'ty brea$s +rice 'ty brea$s from ?EB Cycle counts +hysical inventories *nventory value for any date #ean Time Bet(een .ailure ?here used Serial Lot >umbers *nspection Criteria ?EB Store Synchronization &lternate Currency :o<S 6lead free7 ;utside and *nside Labor Auic$Boo$s +>% &ccounts Lin$ =ra(ings and +=.s

pc/MRP Purc asin! Module

pc-#:+1s +urchasing #odule allo(s users to enter% edit% duplicate and print out purchase orders and reports. pc-#:+1s +urchasing #odule supports the follo(ing advanced features: =isplay-+rint-.a8-Email Blan$et +urchase ;rders Large 4 Line &ddresses :emittance &ddress Selectable Terms-Conditions @nlimited Comments-Line *tem

Custom Boiler +late =uplicate +; ;ption &udit ;n0order 'uantities &uto select price-'ty brea$ =isplay #ap ;ptional Tic$ler% &lt Currency ;ver 2"" :eports including: o *S; 3""" /endor o ++/ o ;ptional +ush +ull

pc/MRP Sales Order Module

pc-#:+1s Sales ;rder #odule allo(s users to enter% edit% duplicate and print out sales orders and reports. pc-#:+1s Sales ;rder #odule supports the follo(ing advanced features: =isplay-+rint-.a8-Email Blan$et Sales ;rders Large 4 Line &ddresses Bill to% Ship to &ddresses @nlimited Comments-Line *tem Custom Boiler +late =uplicate Sales ;rder ;ption &udit ;n0demand 'uantities &uto select price-'ty brea$ =isplay #ap Supports do(nload of *nternet orders ;ver 2"" :eports including: o *S; 3""" Customer o ;pen Bac$ ;rder o Sales Commissions o Cost of Sales

pc/MRP Stockroom Module

pc-#:+1s Stoc$room #odule is used to issue parts-sub0assys to sales and (or$ orders and receive bac$ the completed assemblies from manufacturing. pc-#:+1s Stoc$room #odule supports the follo(ing advanced features: *ssue &ssys-+arts to mfg :eceive bac$ completed &ssys :eceive bac$ partial 'uantities

Trac$ shortages *ssue ma$eup shortages Transfer bet(een areas Chec$ &vailability ;ption Convert +arts to &ssys ;ption #a8 +otential Build ;ption &djust Bin Atys during *ssue :eceive bac$ unused parts &djust on hand 'uantities <andles brea$age <andles parts not on B;# &udit ?*+ ;ption

pc/MRP Accountin! Module

Companies can use pc-#:+1s &ccounting #odule or Auic$Boo$s for their &ccounting #odule. pc-#:+1s &ccounting #odule supports the follo(ing advanced features: #ultilevel Chart of &ccounts Loc$out =ate #onth-FT= Budget ( /ariance :e0close-:eprint +rior +eriods =ivisions-=epartment Credit , =ebit #emos Electronic .unds Transfers =rill =o(n ;ption Chec$ :econciliation Cash +rojections Cost of Sales &verage-Std-.*.; Costing &utomatic =ebiting-Crediting +eriodic-+erpetual *nventory

pc/MRP Invoice Module

pc-#:+1s *nvoice #odule allo(s users to enter% edit% and print out invoices% shippers% labels and invoice reports. pc-#:+1s *nvoice #odule supports the follo(ing advanced features: =isplay-+rint-.a8-Email *nvoices *nvoice partial Sales ;rder Atys Large Bill to Ship to &ddresses @nlimited Comments-Line *tem Custom Boiler +late

=isplay #ap ;ptional Tic$ler% &lt Currency +rint Labels Each line item can contain uni'ue: o Ta8 :ate o =iscount o =ue =ate o Salesman o Sales Commission

pc/MRP Receivin! Module

pc-#:+1s :eceiving #odule allo(s users to enter% edit% and print out receivers% labels and receiver reports. pc-#:+1s :eceiver #odule supports the follo(ing advanced features: =isplay-+rint-.a8-Email :eceivers :eceive partial +; Auantities Large 4 line &ddresses @nlimited Comments-Line *tem =isplay #ap ;ptional Tic$ler% &lt Currency Each line item can contain uni'ue: o Ta8 :ate o =iscount o =ue =ate

pc/MRP Optional Routin! Module

pc-#:+1s :outing #odule allo(s users to trac$ the location of sales-(or$ orders on the manufacturing floor. pc-#:+1s :outing #odule supports the follo(ing advanced features:

pc/MRP Optional "mployee/#ime S eet Module

pc-#:+1s Employee-Time Sheet #odule allo(s companies to trac$ the actual labor cost of sales and (or$ orders. pc-#:+1s Employee-Time Sheet #odule supports the follo(ing advanced features:

@p to !

user definable (or$

*ssuing parts to manufacturing for

a sales-(or$ order automatically creates a routing record.

#oving product into the finished

goods area automatically increments the onhand 'uantity of finished goods and decrements ?*+ 'uantities.

Enter ?S /alue +ercentages +rint :eports &ccounting can create and

manage employee records for pay rates% date hired% vacation hours% sic$ hours% state and federal (ithholding B amounts.

&ccounting and-or individuals can

create and manage employee time sheets.

&ccounting can print out actual

labor hours and costs for a sales-(or$ order from the time sheet report module.

pc/MRP Optional Infinite Bucket MRP Module

pc-#:+1s *nfinite Buc$et #:+ #odule allo(s users to generate #:+ &ction *tems 6+;% Buy% *ssue% #a$e% Sale7 and generate #:+ :eports. &dvanced features include: +ush +ull :eports Sales Auotes ( probabilities /isual Time Line :eports Consumable ?or$ ;rders =edicated ?or$ ;rders &uto +; Creation ;ption +;-Buy reports by Buyer #achine-Labor hours /isual +urchasing Eraphs :ecommends best vendor Consolidated reports o =aily o ?ee$ly o #onthly o Auarterly

pc/MRP Optional Inspection Module

pc-#:+Gs *nspection #odule allo(s users to create global inspection re'uirement by: Editing a part or assembly Clic$ing on the *nspection Criteria button Specifying (hen an inspection record (ill be created and displayed 6received% manufactured% invoiced and-or shipped7 Specifying (hat criteria (ill be used to inspect it. /ie(-edit-print inspection records +rint-display inspection reports Lin$ the Certificate of Compliance 6.+=.7

pc/MRP Bills of Materials Module

pc-#:+1s Bills of #aterials #odule allo(s users to enter and edit bills of materials up to 2"" levels deep. @sers can print out ?here @sed :eports% Costed% @ncosted% E8ploded% and Single Level B;#s. pc-#:+1s Bills of #aterial #odule supports the follo(ing advanced features:

Minimum Re$uirements%
?indo(s 3H or higher ! 4 #B :&# C= :;# or *nternet Connection

pc/MRP QuickBooks Advisor/&lient #rainin!

=ave Iich% =#SC; H""0!550""C3 +at Carson% Carson , Cre( J"H0JJ 042""

Reseller Pro!ram Availa'le pc/MRP Sales Software Arts Inc(

4HC" /ia =el ;ro% Suite 2"3 San Kose C& 3 22302C C +hone: J"H0!!405C!2 .a8: J"H0!!40HJC ?ebsite: ((( e0mail: =igital images =rill do(n-up thru B;#s

?here used reports &lternate +art >umbers Costed-@ncosted B;#s E8ploded-Single Level B;#s E8ploded-Single Level +*C List Staging Bins &verage-Std-Last +; Costs +hantom B;#s *nside Labor *tems ;utside Labor *tems Cost :oll @p 6&ve% Std% Last7 @nlimited :eference designators #ean Time Bet(een .ailure

* Managerial +ccounting 5ay :. %arrison ,ric 4. /oreen #* -ntroduction to Management +ccounting Professor Pauline 4eetman Paul %ordon