Cost Analysis On Cadbury India Ltd

CADBURY OVERVIEW
• Cadbury India is a fully owned subsidy of Kraft Foods Inc.

• The combination of Kraft Foods and Cadbury creates a global

powerhouse in snacks, confectionery and quick meals.
 INTRODUCTION
• In India, Cadbury began its operations in 1948 by importing
chocolates.
• Cadbury India operates in four categories viz. chocolate
confectionery, milk food drinks, candy and gum category.
• Cadbury enjoys a value market share of over 70% - the highest
Cadbury brand share in the world!
• Manufacturing facilities at:
1) Thane, 2) Induri (Pune), 3) Malanpur (Gwalior),
4) Bangalore 5) Baddi (Himachal Pradesh)
 Brand Portfolio

• 11 brands with more than $1 billion in revenue

• 70+ brands with more than $100 million in revenue

• 40+ brands over 100 years old

 BRANDS
• Chocolates

• Snacks

• Beverages

• Candy

• Gums
Some key Brand In INDIA
 Objectives
• Determine the fixed costs, variable costs and semi-
variable costs for the business.
• Identify the indirect costs (Overheads) for the
business.
• Is the profit volume ratio high or low for your
business? Examine the ratio critically.
• Prepare a standard cost sheet for your business using
imaginary numbers.
• Prepare an activity based costing statement for your
company using imaginary numbers.
 'Fixed Cost'
A cost that does not change with an increase or
decrease in the amount of goods or services
produced.
Fixed costs for Cadbury are:
• Depreciation of factory machinery
• Office supervisor’s salary
• Rent
• Delivery vehicle insurance
 Variable Cost

• Variable costs are those costs that vary depending on

a company's production volume; they rise as
production increases and fall as production
decreases.

Variable costs for Cadbury are:

• Wages of staff
• Commission paid
 Semi-Variable Cost
• A cost composed of a mixture of fixed and variable
components. Costs are fixed for a set level of
production or consumption, becoming variable after
the level is exceeded.

Semi-variable costs for Cadbury are:

• Electricity
• Maintenance cost
 Indirect cost
• Indirect costs represent the expenses of doing business that are not
readily identified with a particular grant, contract, project function
or activity, but are necessary for the general operation of the
organization and the conduct of activities it performs.
Indirect costs for Cadbury are:
• Salary of factory manager
• Insurance of factory premises
• Depreciation
• Maintenance costs
• Electricity
• Insurance
 Apportionment-
Overhead distribution summary

Production departments Service departments

Particulars Basis Total X Y Z A B

Material Direct 1920000000 940000000 980000000

Direct labour Direct 90000000 60000000 30000000

Depreciation of factory machinery Asset value 15000000 3000000 4000000 3000000 2700000 2300000

Rent Floor area(sqft) 4000000 1000000 1200000 800000 600000 400000

Electricity Light points 20000000 5500000 3500000 6500000 1800000 2700000

Salary No. of employees 10000000 3000000 1500000 2500000 1600000 1400000

Insurance Floor area(sqft) 25000000 8000000 5000000 4000000 4000000 4000000

Maintenance cost Maintenance hrs 10000000 2500000 1800000 2000000 1300000 2400000

102320000
Total 2094000000 23000000 17000000 18800000 1012000000 0
 Re-distribution of service depatment
expenses
Production departments Service departments

Particulars Total X Y Z A B

Total overheads 193200000 23000000 17000000 18800000 1012000000 1023200000

A 202400000 303600000 404800000 -1012000000 101200000

B 337320000 449760000 112440000 224880000 -1124400000

A 44976000 67464000 89952000 -224880000 22488000

B 6746400 8995200 2248800 4497600 -22488000

A 7.19616 10.79424 14.39232 -35.9808 3.59808

B 1.079424 1.439232 0.359808 0.719616 -3.59808

Total 615497959 848379591.6 630122448.7

 Calculation of total cost

Particulars X Y Z

Direct material 1500000000 1800000000 2000000000

Direct labour 50000000 40000000 20000000

Overheads 615497959 848379591.6 630122448.7

Total cost 2165497959 2688379592 2650122449

 Standard Cost sheet

• A standard cost is the expected or budgeted cost of

materials, labor, and manufacturing overhead required
to produce one unit of product.
• A standard cost sheet calculates the total standard cost
for one unit of product. It lists the standard costs for
one unit of product for the following:
• Materials (Price standard × Quantity standard)
• Labor (Price standard × Quantity standard)
• Variable manufacturing overhead (Price standard ×
Quantity standard)
• Fixed manufacturing overhead (Price standard ×
Quantity standard)
 Standard Cost sheet

Two reasons for adopting a standard cost system

are:
• To improve planning and control:
• To facilitate product costing
 Cost sheet
Particulars Amount (In crores)
Total Materials consumed: 722
Direct Labour 20
PRIME COST 742
Factory Overheads:
Salary of factory manager+Depriciation of factory machinery,
Electricity+OTHER 8
FACTORY COST/ WORKS COST 750
Office/administrative overheads
supervisor salary, rent, wages 1

COST OF PRODUCTION 751

Selling & distribution overheads
Delivery vehicle insurance,comission paid 3
COST OF SALES 754
PROFIT 228
SALES 982
 P/V Ratio
• P/V Ratio (Profit Volume Ratio) is the ratio of contribution to
sales which indicates the contribution earned with respect to
one rupee of sales. It also measures the rate of change of
profit due to change in volume of sales.
• A high P/V Ratio indicates that a slight increase in sales
without increase in fixed costs will result in higher profits.
• A low P/V ratio which indicates low profitability can be
improved by increasing selling price, reducing marginal costs
or selling products having high P/V ratio.
 P/V Ratio

Profit-volume ratio:
2011 2012

Sales 7840000000 9820000000

Profit 1820000000 2280000000

P/V ratio Change in profit*100/Change in sales

=23.23%
 Activity-Based Costing - ABC'
• An activity based costing (ABC) system recognizes the
relationship between costs, activities and products,
and through this relationship assigns indirect costs to
products less arbitrarily than traditional methods.
• Identify and eliminate those products and services
that are unprofitable and lower the prices of those
that are overpriced
• Or identify and eliminate production or service
processes that are ineffective and allocate processing
concepts that lead to the very same product at a
better yield
SURYA DEEPAK