Cost & Management Accounting: Process Manual, West Bokaro

PROCESS MANUAL, WEST BOKARO
Cost & Management Accounting
(COST & MANAGEMENT ACCOUNTING) Page 1

Sl. No. Subject Page No.

1 About West Bokaro 3
2 Overview of Costing System 5
3 Formulation of Annual Business Plan (ABP) 7
4 Cost Computation 8
5 Management Information System (MIS) 15
6 General Administration Budget (GAB) 17

About West Bokaro
West Bokaro is an opencast coal mine. The medium grade coal deposited here
contains high % of ash. The mining activity starts with removal of overburden followed
by Raw coal extraction from various quarries. The extracted raw coal is beneficiated in
Coal Washeries and segregated into different value added products. For simple
understanding, coal contains certain % of carbon and balance is ash content.
Characteristics of raw coal and products after beneficiation are as under.
Range of Ash % End use
Raw Coal 25 to 40 Fed to 3 Washeries
Clean Coal 11 to 15 Steel making
Middling 35 to 40 Thermal power houses
Tailings 50 to 65 Brick kilns
Washery rejects 65 + FBC power house etc.
All the above products, except raw coal, are valued based on their ash % or carbon
content (15 % ash means 85 % carbon).
Operations
OB removal – Removal of overlying rock, so as to expose any mineral. In our case it is coal.
For this, first action is drilling of vertical hole in the rock strata which is then filled with
explosives and blasted to fragment the rock . With the help of Heavy Earth Moving
Machineries (HEMM) these rock is removed from the mine and dumped to dumpyard.
Coal Extraction – Following above, the exposed coal is cleaned and drilling and blasting
operation is once again done to fragment the coal. With the help of Heavy Earth Moving
Machineries (HEMM) coal is removed from the mine and send to crushing plant to further
reduce the coal size.

Primary Crushing Plant 1: Raw coal mined is dumped into 2 hoppers by 50 T capacity
Bottom Dump Coal Haulers. From the hoppers, coal is carried by Apron Feeders to the 2
Primary Crushers. The Primary crusher is a single roll type crusher. Each crusher is driven
by a 180 KW slipring motor. The raw coal is crushed to a size of –125 mm. Crushed coal is
fed to 2 conveyor circuits (600 TPH) known as C1A and C1B. Each belt feeds the coal to 3
bunkers. Thus, there are a total of 6 raw coal bunkers. The capacity of each bunker is 600 T.
The bunkers are fitted with vibratory feeders of 400 TPH capacity each. These feeders feed
coal to conveyor C2.
Primary Crushing Plant 2: The crushing plant for coal fed to Washery 3 consists of primary,
secondary and tertiary crushers. Raw coal is unloaded into 2 nos. 100 T capacity dump
hoppers. Apron feeders draw the coal from the dump hoppers and feed it to single roll
crushers (2 nos. of 600 TPH capacity each). Fixed grizzly has been provided to separate –
100 mm size in the feed. The output (-125 mm) of the crushers and undersize of fixed grizzly
are sent to bunkers (10 nos. of 600 T capacity each) through conveyors. Each bunker has 1
outlet at the bottom from which raw coal is drawn with the help of weigh feeders (200 TPH
max.) These weigh feeders are used to draw coal from separate bunkers in a fixed
proportion to mix coals from different seams in pre-determined quantities. The proportioned
coal is then fed to secondary crushers by conveyor. Vibropulse screens have been provided
to separate –13 mm size coal, whereas, –100 mm coal is crushed to –13 mm in the
secondary crusher. Oversize in the output from the Secondary Crusher is fed to the Tertiary
Crusher, where it is crushed to –13 mm. The –13 mm coal is conveyed to the raw coal
stockpile at Washery 3 through a set of belt conveyors.
Coal Handling Plant: The coal is required to be reduced to less than 13mm size for
beneficiation process for proper liberation of high carbon content coal from raw coal. Raw
coal fed from quarries are of size as high as 1000mm and thus is required to be crushed
further before treatment at Washeries. Through various crushing and screening stages at
these crushing plants adequate size coal is send for beneficiation process.
Washing / Beneficiation of Coal - Raw coal is beneficiated, at the Washeries, to produce

clean coal, middlings, tailings and rejects. Raw coal received from crushing plant is screened
into two products viz. less than 5mm size coal and 5mm to 13mm size coal. Two processes
are involved. First is the Dense Media(DM) Cyclone process which treats 5mm to 13 mm
size coal and the second is the froth flotation process which treats 0.5 mm coal.
The principle of separation by specific gravity is employed in the DM Cyclone process, where
the medium of washing constitutes of water and finely ground magnetite powder. In this
process, coal and magnetite slurry are fed at a constant head of not less than 9 times the
diameter of the cyclone. The large centrifugal force developed, due to the configuration of the
machine, causes separation of lower gravity material to overflow as clean coal. Due to hydro-
dynamics of medium, 2 vortices are formed. The 1st is downward, while the second is
upward, originating from the underflow nozzle to the overflow. Upwards moving vortex
carries lighter fraction to overflow, downward moving vortex carries heavier fraction of coal to
underflow. The advantage of the cyclone is that it has no moving parts and a clear separation
can be obtained and misplacements can be minimized.

Coal, less than 0.5 mm size is processed in the froth flotation cells. The coal slurry is first
conditioned with collector (diesel), which makes coal particles hydrophobic. Frother is used
to reduce surface tension of water so that the air bubbles formed by blowing air into coal
slurry do not break when rising to the surface. The hydrophobic coal particles attach
themselves to rising air bubbles and are removed as froth with low ash clean coal. The non-
coal portion (gang material) of high ash settles down to the bottom of the cells from where it
is removed as tailings.
Despatching: Ground stockpiles have been provided, at both the Washeries, for clean coal,
middlings and rejects. From the product stockpiles of the Washeries, clean coal and middlings are
transported, 4 KMs away, to the railhead, at Chainpur, through the BC and Monocable Ropeways.
The Monocable Ropeway transports only Middlings. The BC Ropeway transports both Clean Coal
and Middlings. Chainpur has 2 modern moving loaders of 1000 TPH capacity each, which load clean
coal & middlings into railway wagons, at the Quick Loading Complex for despatches to various
destination

Overview of Costing System
 Clean Coal (CC) and Middling are considered as joint product. Total expenditure
(such as Wages, Stores etc.) is allocated to both products based on carbon produced
(equivalent production*)
 On production of Tailings, credit is given to CC and Middling cost at administered

price of tailings. Amount of credit is distributed to CC and Middling based on carbon
production, Hence, stock of Tailings is maintained at administered price.
 On actual sale of Middling, difference between sale price and moving weighted
average price is credited to CC cost.
 On sale of tailings, difference between sale price and administered price is credited to
CC cost and Middling cost in the ratio of carbon production.
 Credit for sale of Rejects is given at the time of actual sale to CC and Middling at ratio
of carbon production.
 Stock of rejects is not valued.
*Computation of carbon produced or equivalent production (Example).
Production
UOM Qty
A Clean Coal LT 1.22

B Middling LT 2.44
Carbon%
C Clean Coal % 0.87
D Middling % 0.63
Carbon Content
E=AXC CC Carbon LT 1.06
F=BXD Midd Carbon LT 1.54
G LT 2.60
Equivalent Ratio
Gross expenditure, credit of
H CC Eq Ratio % 41% tailing production, credit on
sale of tailings, rejects,
I Midd Eq Ratio % 59% auction sale etc is
distributed among Clean
100%
Coal and Middling.

Formulation of Annual Business Plan (ABP)
The process for formulation of divisional ABP starts in November. F & A plays key role in the
entire process by compiling data from various departments, computation of departmental and
product cost. Feedback for decision making is provide to management based on KPIs . The
process flow is as under.
Prepare cost code wise ABP for Send formats for KPI to
Wages by applying % increase on departments
actual wages of previous year.
Prepare cost code wise ABP for
Collect production figures from Depreciation considering additions
office of Chief Planning. being planned.
Update excel file with all inputs

and current cost of Diesel,
Explosives and Magnetite.
Compare KPS and its impact with Compare gross and net cost so
ABP of previous year. computed with actual of previous
year and prepare graph in
waterfall style.
Presentation to management.
Yes
Any advice / suggestions / Change
in KPIs?
No
Send the respective sheets to

Cost Computation
departments and complete file to
Cost Section.

1. Objective : Like any other costing system, it provides in depth information to
management for decision making. It provides in-depth information and analysis of
different product cost with the budgets, standards and history data.
2. ERP : SAP was implemented in West Boakro for Costing system in Feb’05. Presently
following modules of SAP are in use.
a. MM -Material Management
b. PP -Product Planning
c. CO -Controlling
d. PM -Plant Maintenance
e. FI -Financial Accounting
3. Basic terms used in Costing Systems :
a. Controlling Area: Every module of SAP requires an organizational structure to be

defined. Following from this, an organization structure has been defined in the
Controlling (Costing) module, the top-most node in the hierarchy being the
Controlling Area.The value of controlling area defined is 1000.
b. Cost Element: This is the means for classifying cost. Depending on the nature of
expenditure, a cost may be classified under different cost elements such as,
Wages, Stores expenses, spares etc.In SAP, Cost elements are uniquely identified
by 7-digit numeric codes. For example,6010001 WAGES DEBITABLE TO
REVENUE ,5144001AIR/RAIL TKT EMPS TRAVELLING etc.
c. Primary cost elements are those where the costs are directly booked to a cost
object such as cost center/internal order. Some examples of primary cost elements
are wages, stores expenses, travel, spares etc.
d. Secondary cost elements are for overheads or allocated or transferred costs

from other cost centers or activity postings (covered later) from cost centers.
e. Cost Center: This is the lowest cost object in the organization structure. Cost
centers used in WB are given in Annex – I at the end.
f. Internal Order: An Internal Order is a cost object, which is used for collecting and
monitoring costs for specific tasks or jobs. This may be temporary in nature, i.e.,
created to collect costs for a specific job and is settled and closed after the job is
over. Alternatively, an internal order may be a longstanding one created to track
costs of a specific nature of expenditure.
Basic information.
 Profit center WB01

 Business area (BA) 5010
 Company code 1000
 Branch allocation WBKO
 Plant 5200
 Cost centers are of 5 digit
 G/L codes are of 7 digits

o G/L codes starting with ‘1’ are for Asset
o ‘2’ for liability
o ‘3’ for income
o ‘5’ & ‘6’ for expenditure
o ‘8’ for current account
 Material codes
o Cost center groups ( groups made for convenience of user)

Group SAP Group name
Quarry AB QAB
Quarry E QE
Quarry SE QSE
Coal Beneficiation CBGRP
Power PWR
Central Organisation CORG
Support Services WBMISC
Total West Bokaro RWBK01
Cost Centre Group WBK
Department wise Cost Centre RWBK01
Maintenance Cost Centre WBMNTPM
Cost Element Group WBALL

Cost Run, process & control
(Steps of final cost run and control of documents and checks by ‘Cost Section’)
(Control and checks are in italics font and are underlined)
 Annual business data (ABP) for the month is entered into the system.
 Release standard cost (ABP). It is used for standard price of materials, activities and
comparison.
 Survey report (details of opening balance, production, consumption, dispatch & sales
and closing stock of different material are given in the report) is received from Chief
(Planning). The report should be in hard copy duly signed by the Chief (Planning).Report
should be filed properly after cost run.
 Reconciliation of data as per SAP with that of Survey Report. Control – Data as per
SAP should be matching with Survey report figures. In case of difference, contact the
authorized production personnel and sr. Manager (Q AB) from departments for correction.
Cost run should not start before data as per SAP is exactly matching with survey report.
 Based on the report /data received from Sr. manager (Power Distribution Sys.),
following activities are carried out,
o Entry of department wise power consumption data in system,
o Booking of expenditure on power (provisionally).
 Entry of deployment data of casual employees based on the payroll reports.
 There are specific activities for each production and maintenance departments in SAP
which enables system to compute standard cost. Do checking for all activities. In activity
hours or days are abnormally high or low, matter is to be taken up with the concerned
department for correction.

 Obtain confirmation from all officers concerned if all activities as per following check
list is over.
Responsibility
in case of
leave of
person
Date Time Activity Responsibility responsible.
Head Clerk (Payroll Manager Acs.

29 Wages interface entry Section) (Payroll)
Adequacy of provision for

Wages Contingencies and Head Clerk (Payroll Manager Acs.
30 resultant entry Section) (Payroll)

30 LCS provision entry Section) (Payroll)
Head Clerk (Main Manager Acs.

29 Provision for picnic exp. Acs.) (Main Acs.)
Manager Acs.
1 Road Sales entery Bills Section (Bills Systeml)
Manager Acs.
1 Tailing evacuation entry Bills Section (Bills Systeml)

1 Provision for Royalty / SD Acs.) (Main Acs.)

1 Wages entry OPR - SAP HR Section) (Payroll)

1 Expenditure provision Acs.) (Main Acs.)
Manager Acs.
1 Provision for Transportation Bills Section (Bills Systeml)
Misc. Provision (demmurages Head Clerk (Main Manager Acs.

1 etc.) Acs.) (Main Acs.)

1 Entry for dead stock Acs.) (Main Acs.)

1 Scrap Sales journalisation Acs.) (Main Acs.)
Manager Acs.
1 Clean coal sales Bills Section (Bills Systeml)
Manager Acs.
1 Verification of depn. Entry Bills Section (Bills Systeml)

1 Transfer entry for repairing Acs.) (Main Acs.)
9:00 Head Clerk (Cost Sr. Manager

2 AM Cost run starts Section) Acs.
 Once all activities as listed above are over, send mail to IBM for locking of user IDs.
 Prepare Cost Finance Reconciliation report and take action on over / under
absorption.
 Cost Run
Steps Transaction codes Activity / Checks

1. KO88 Internal order fo middling is settled.Act on message
2. s_alr_87012993 Check if middlings cost has been settled. Balance will
be Zero
3. KSV5 Transfer of SEB maint. Exp. To operation exp. Act on
message
4. KSU5 Internal transfer of support services and CO cost to
departments except SEB.
5. KS ii Unit price calculation. Check whether activity and
expenditure are not zero.
6. s_alr_87013612 See if all maint cost has been absorbed. If balance is
more than Rs.500, repeat the process from KSV5 till it
reduces to below Rs.500.
7. CO8A Co-product cost distribution (CC and Middlings).
8. CO88 Production order settlement.
9. CKMLCP Selection, determination od sequence, single level and
multilevel price determination.

10. YC07 Verify actual cost.
 Pass entry for profit on sale of middlings. System computes profit as difference
between standard price of middling and price realization. The following entry is passed for
difference between profit computed by the system and the actual profit.
o Form transaction code ckm3n, find out standard cost of i. middling by road and, ii.
Middling by rail and quantity sold of both items.
o Form transaction code ckm3n, find out actual cost of i. middling by road and, ii.
Middling by rail.
o Find out difference in total (illustration given below)
Quantity Rate Amount
STANDARD
BY RAIL 203072.50 1208.61 245,435,454.23
BY ROAD 120846.52 1128.85 136,417,594.10
Total 381,853,048.33
Quantity Rate Amount
ACTUAL
BY RAIL 203072.50 877.26 178,147,381.35
BY ROAD 120846.52 1005.23 121,478,547.30
Total 299,625,928.65
DIFFERENCE (82,227,119.68)
o Based on the above following entry is passed through FI route.
Debit 6033007 Price difference
Debit 6032014 Cost of Sales Middling

 Re-run the full cost run starting from t code KO88.
 Send costing cockpit to Jsr. (Cost Section) It is print screen of executed
 Send mail to SAP CC and IBM to unlock the user ids.
Process of preparation of Cost Finance Reconciliation :-
o Take dump of s_alr_87013637 for data absorbed in cost.

o Take dump of s_alr_87012277 for finance data.
o From s_alr_87013141 take the figures of explosives for QAB and E (not for SEB).
o Do stores reconciliation separately.
o Compare data of finance and cost. In case of difference analyse the reason.

Management Information System (MIS)
Post cost-run, following MIS are prepared and sent to concerned.
Sl. No. Name of the Brief introduction Last Send to Annex. No.
report Date ( Format)
CFC’s
Production, Cost, office, GM,
Dispatches , EA to GM,
EIS ( Sales and Stock CMAG Jsr.,
Executive Summary for the Head (Acs.),
1 5th II
Information month, cumulative Chief of
Summary) compared with accounts to
ABP and previous whom RM
year. Accounts is
reporting.
Financial
Cost sheet for the Analyst and
month and it’s group at
Cost Sheet
2 cumulative as 7th VP (RM)’s III
& Variation
compared with office, Head
ABP. (Acs.), EA to
GM.
Heads
Details of
(Opns.) /
Details of expenditure to
3 5th (Maint.) of IV
expenditure major
major
departments
departments
Power point Financial
presentation Power point Analyst and
for variation presentation for it’s group at
3 with variation with 8th VP (RM)’s V
Reasons for Reasons for data office, Head
data as per as per report no. 2 (Acs.), EA to
report no. 2 GM.
Analysis of Financial
Sundry Debtors Analyst and
Debtors as compared with it’s group at
4 9th VI
report balance as on last VP (RM)’s
date of previous office, Head
year. (Acs.
5 Cost As per previous 9th Presented -

Meeting meetings during cost
presentation presentation and meeting
discussion during
previous meeting.
Projected cost
(compared with
Financial
ABP) data
Analyst and
collected from
Projected it’s group at
6 Office of Chief 18th -
cost VP (RM)’s
Planning and
office, Head
Head (SP Sales)
(Acs
is entered into
cost sheet.
Data collected
from Office of
Chief Planning,
Head (SP Sales)
Head
Projected and Head (P & S)
7 18th (CMAG), VII
Inventory is entered into
Jsr.
excel file. Cost is
taken as
computed in sl.
No.7.
Credit
Statement Credit Statement
8 for NR & for NR & Margin 7th Head (Acs) VIII
Margin of of by-products
by-products

General Administration Budget (GAB)
At beginning of each financial year, VP (RM)’s office asks for element wise actual
expenditure on GAB. Based on the actual expenditure, management approves budget for the
year for GAB. The approved budget is broadly categorized in
1. Budget for salary and Wages and

2. Others.
The approved budget is further distributed among following heads at WB : -
 Salary & Wages

 Travelling
 Telephone
 Supplies
 Services
 IBM allocated cost
 Rep. & Maint
 Others
After monthly cost run, actual expenditure is taken from SAP (by using transaction code
s_alr_87013637 with Cost Center Group “CORG” and Cost Element Group “WBALL”).
Amount of actual expenditure is tabulated against monthly budget against abovementioned
heads. The resultant variation is analysed with the help of dump taken from transaction code
s_alr_87013637. Expenditure against power and depreciation is not considered while
preparing the report.

Cost & Management Accounting: Process Manual, West Bokaro

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PROCESS MANUAL, WEST BOKARO

Cost & Management Accounting

(COST & MANAGEMENT ACCOUNTING) Page 1

Sl. No. Subject Page No.

(COST & MANAGEMENT ACCOUNTING) Page 2

About West Bokaro

Range of Ash % End use

Raw Coal 25 to 40 Fed to 3 Washeries

Clean Coal 11 to 15 Steel making

Middling 35 to 40 Thermal power houses

Tailings 50 to 65 Brick kilns

Washery rejects 65 + FBC power house etc.

(COST & MANAGEMENT ACCOUNTING) Page 3

Washing / Beneficiation of Coal - Raw coal is beneficiated, at the Washeries, to produce

(COST & MANAGEMENT ACCOUNTING) Page 4

(COST & MANAGEMENT ACCOUNTING) Page 5

Overview of Costing System

 On production of Tailings, credit is given to CC and Middling cost at administered

 Stock of rejects is not valued.

*Computation of carbon produced or equivalent production (Example).

A Clean Coal LT 1.22

(COST & MANAGEMENT ACCOUNTING) Page 6

C Clean Coal % 0.87

E=AXC CC Carbon LT 1.06

F=BXD Midd Carbon LT 1.54

(COST & MANAGEMENT ACCOUNTING) Page 7

Update excel file with all inputs

Send the respective sheets to

(COST & MANAGEMENT ACCOUNTING) Page 8

3. Basic terms used in Costing Systems :

a. Controlling Area: Every module of SAP requires an organizational structure to be

d. Secondary cost elements are for overheads or allocated or transferred costs

 Profit center WB01

o Cost center groups ( groups made for convenience of user)

Coal Beneficiation CBGRP

Central Organisation CORG

Support Services WBMISC

Total West Bokaro RWBK01

Cost Centre Group WBK

Department wise Cost Centre RWBK01

Maintenance Cost Centre WBMNTPM

Cost Element Group WBALL

(COST & MANAGEMENT ACCOUNTING) Page 10

Cost Run, process & control

(Control and checks are in italics font and are underlined)

 Entry of deployment data of casual employees based on the payroll reports.

(COST & MANAGEMENT ACCOUNTING) Page 11

Head Clerk (Payroll Manager Acs.

Adequacy of provision for

Head Clerk (Payroll Manager Acs.

Head Clerk (Main Manager Acs.

Head Clerk (Main Manager Acs.

Head Clerk (Payroll Manager Acs.

Head Clerk (Main Manager Acs.

Misc. Provision (demmurages Head Clerk (Main Manager Acs.

(COST & MANAGEMENT ACCOUNTING) Page 12

Head Clerk (Main Manager Acs.

Head Clerk (Main Manager Acs.

9:00 Head Clerk (Cost Sr. Manager

Steps Transaction codes Activity / Checks

(COST & MANAGEMENT ACCOUNTING) Page 13

Quantity Rate Amount

BY RAIL 203072.50 1208.61 245,435,454.23