C

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COST AND MANAGEMENT ACCOUNTING
ASSIGNMENT-1
Submitting by: Vishal sharma
151202072
Submitting to: Dr. Savitha

THE EGG FACTORY
Introduction:
This restaurant was started in the year 2008. Its first start up was in St. Mark’s road which is
located in Bangalore. There are 5 outlets in total, 4 in Bangalore and 1 in Manipal. There is
another outlet which will open shortly in Bangalore. The main purpose of this restaurant is to
serve to those people who don’t eat Non Veg and who are only fond of eating eggs. They provide
large varieties of dishes made out of egg, the names of which are unheard.
The only outlet located outside Bangalore is the outlet in Manipal. Their main target are the
students who are studying in Manipal University and also other college students around Manipal.
It was started in the month of April this year and is one of the most happening places to the
Manipal students. Large crowd gather in the evening. In Bangalore the timing is from morning 8
to evening 8, but in Manipal because it’s a student dominated area it is open at 11 in the morning
and closes at 11 in the night.

Costing methods used:
This is a new start up located in the heart of manipal and it is a service based industry. So the
type of costing method they use is:

Service costing
Process costing

In a food industry, the food is prepared on a continuous basis so the costs are based on the raw
materials bought, produced and served. It takes into consideration only the major costs that are
incurred by the restaurant. Using this method of costing, the industry can control the spending on
the inventory and leads to uniform productivity.
In the case of raw materials to be bought, the company uses FIRST IN FIRST OUT (FIFO)
method. Most of the raw materials used in the manufacturing process are single use producer
goods. So the stock has to be purchased every now and then. Some of the materials that has to be
purchased frequently are:
1.
2.
3.
4.
5.
6.

Eggs
Cheese
Chicken
Vegetables
Spices
Wheat flour etc.

Service costing method is commonly used in all service industries. The Egg Factory uses this
method for determining the fixed costs, variable costs and the maintenance cost. This also helps
them to price their products adequately and plan for the future to face any contingencies.

Cost technique used:

The egg factory uses “absorption costing” technique as it covers both the variable and fixed costs
that are incurred. In most of the service industry we find absorption costing, the egg factory is
one among them. Some of the fixed and variable and fixed costs are:

Variable costs:
1. Eggs
2. chicken
3. Veggies etc.

Fixed costs:
1. rent for using the land
2. salary to employees
3. Manager’s salary etc.
This technique of costing lets you know where the cost is high and where the cost is low. So it is
useful to reduce the costs and use the materials optimally.

Classification of costs:
The cost in any industry can be classified into 4 categories:
Prime cost
Work cost
Cost of production
Cost of sales
In the egg factory the costs can be categorized as follows:

Prime cost






Eggs (direct raw materials)
Chicken (direct raw materials)
Cheese (direct raw materials)
Vegetables (direct raw materials)
Butter (direct raw materials)
The expense incurred in procuring the materials into the restaurant (carriage inwards)
Wages paid to the kitchen staff (direct wages)

Works cost




Salary to the waiters
Salary to the cleaning staff
Generator expense
Fuel and power
Tables and furniture

Cost of production




Salary to the manager
Computer
Rent of the place acquired
stationery and printer expense
Electricity expense in restaurant

Cost of sales


Pamphlets
Advertising
Decorating the restaurant premises

Controllable and uncontrollable costs:
Controllable cost for The Egg Factory


Food cost
Beverage cost
Part time or casual labors
Electricity

 Telephone charges
 Maintenance expenses
 Rent etc.
These are some of the costs that the egg factory can control and other factors cannot influence
over such costs.

Uncontrollable costs:



Cost of Eggs
Cost of Chicken
Vegetables cost
Cheese and butter

These are some of the costs which keeps fluctuating depending on various factors like season,
weather, demand, supply etc. Taking into consideration the costs that are controllable the egg
factory tries to reduce the cost.

Controlling the wastage and losses:
The Egg Factory just like any other restaurants are more in demand on the weekends. From
Monday to Thursday they prepare less food because there is less demand. On the weekends they
prepare more as most of the people turn in on weekends. Even if there is any wastage of food it
will be converted to other byproduct with indirectly helps in reducing the cost. Also it has trained
the employees to make variety of dishes out of reusable waste that has been generated.
For Ex: If an egg is broken, it can be used to prepare Omelet instead of making it a boiled egg.
In the idle time of the employees they are given cross training so that if any of the employee is
on leave the other could cover the work pending.

Ascertaining the total cost and cost per unit:
The company is using absorption costing technique and is a service industry. The core
importance is given on procuring good quality raw materials and good labor. Therefore, the
overheads are apportioned as under:
First priority is given to the Materials, followed by labor and production costs. Other overheads
are also given importance, as all issues have to equally given importance for the smooth running
of the business.
The cost is ascertained by taking into consideration all the factors such as cost of raw materials,
transportation, taxes, salaries to employees, other variable and fixed costs. It becomes difficult to
ascertain per unit cost as the variable cost keep changing on a daily basis.

Ascertaining the profitability:
The profits are ascertained by using cost plus profit pricing method. The costs of both fixed and
variable are calculated for per unit. On that a portion of profits are added which depends upon
the demand and a price is fixed. So the profits will not get affected and the business runs
smoothly. In the initial stages the firm had to incur loss but over a period of time it attained BEP
and slowly catching up with the profits.