In Fulfillment of the Requirements for

Advanced Managerial Accounting

King Trade & Importing Co. Ltd

DONE BY:

REHAB ALSAGHEER

ID No.61930016

SUPERVISED BY:

DR. MOHAMMED ALAWLAQI

Executive Summary ……………………………………………3

 Background ……………………………………………5
 Scope of the company ……………………………………………5
 Vision ……………………………………………6
 Mission …………………………………………....6
 Strategy of the company ……………………………………………6
 Products& Medical Instruments ……………………………………………7
 Medical Companies Cost Accounting Information ……………………………………………8

 Manufacturing process …………………………………………....15

 First stage: sterile chemical mixing, …………………………………………....15
treatment and heating
 Second stage: the blowing process. ……………………………………………16
 Third stage: the packing process …………………………………………….17

 Conclusion ……………………………………………19
 Recommendation ……………………………………………20
 References ……………………………………………21

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Executive Summary:

Cost accounting is an accounting process that measures all of the costs associated with production,
including both fixed and variable costs. The purpose of cost accounting is to assist management
in decision-making processes that optimize operations based on efficient cost management. The
costs included in cost accounting are as follows:

The project is based on Cost Accounting Practices: A Study on King Trade & Importing CO
Ltd.The purpose of it is to understand how the cost elements are being determined and to identify
the factors which affect the costing procedure. KTCO is part of the Universal Group of
Companies. The history of pharmaceutical business of the company dates to the early 2001, when
it started to import market and distribute medicines from world renowned companies In this report,
I tried to analyze the Cost Accounting and Elements of cost of KTCO Ltd. Behind the success of
the company they efficiently analyze the cost accounting related processes and the risk and
opportunities related to it and handle the process in such a way that brings them the success. In the
background I discuss about the organization overview, mission and vision of the company. Then
I have analyze the topic as a hole about the cost accounting process, different types of activities
and the cost accounting process.
Costing procedure of a Pharmaceuticals/ medical company is very important and vast thing. It
needs to update in a regular basis. Moreover, all Pharmaceuticals firms try to keep this information
secret in this competitive market. So, the study was basically tried to identify the costing procedure.
This project is limited to the cost accounting department of the KTCO including cost accounting
systems procedure and techniques. Since KTCO want to achieve top quality along with cost control
it uses its cost accounting information very strongly.
This paper is divided into 3 parts: the first part discuss the KTCO Activity based costing ABC,
the second is a practical of trying to estimate the costs according to proper cost rates for one of
KTCO products. Finally, the third part is included the conclusion and recommendation for
KTCO.

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Background:
King Trade & importing Ltd. established in 2001, KTCO Ltd., specialized in production and
management of medical devices and health products. It is located in Sana’a having three main
branches in Aden, Taiz and Hodaida.

Being one of the Universal Group Companies, KTCO Ltd. depends on the long reliable reputation
of the Group to introduce its trustworthy products and services .on other side , being agent for
respectful companies ,KTCo has a strong team of technical personnel and adsorb advanced
techniques to improve the quality and function performance of its products. In the recent years,
KTCo has built a connection with a vast network at Germany and France that provides the
employees with training in the last innovations in the medical field. In 2019, KTCo was nominated
as the one of the best in its field in Yemen during a festival.
KTCo strictly works according to modern enterprise system standard management, quality first,
customers supreme, and maintenance of prestige, apparent mass for enterprise life. In accordance
with GBGB/T19001-2008 idt ISO9001:2008 “Quality Management System”, YY/T0287-2003 idt
ISO13485:2003 “Quality Management System for medical Device Regulatory Requirements”, all
the products are conducted thought-out each steps of the processes, and each link has to be strictly
controlled to ensure the products quality and effective.

As UGC, KTCO commits themselves to be responsible and active corporate citizen. By

continuously improving and operating, they are able to provide its clients with more advanced and
high-quality medical equipment and products and then to promote the development of the world’s
medical industry.

Scope of the company

With a dedicated workforce of around 120 people, the simple principle on which it was founded
remains the same “producing high-quality drugs and making them affordable to all people.”
Since the very beginning, the company was highly successful in generating increased demand for
its products which eventually justified local production. The journey continued and barrier after
barrier were crossed, challenges were faced and overcome to transform KTCO into what it is at

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present. Now it has grown to become one of the ten top of the leading pharmaceutical
companies, supplying around 5% of the country's total medicine need.
As KTCO also builds its strategies in responses to the environmental changes, and as
this project has been written in an unusual circumstance that is the impacts of the
coronavirus (COVID-19) pandemic continue to grow, I introduce sterile & medical
masks to be the main products of KTCO.

Vision

KTCO is committed to enhance human health and well-being by providing contemporary and
affordable medicines, manufactured in full compliance with global quality standards. It continually
strive to improve its core capabilities to address the unmet medical needs of the patients and to
deliver outstanding results for its shareholders.

Mission

“Each of our activities must benefit and add value to the common wealth of our society. We firmly
believe that, in the final analysis we are accountable to each of the constituents with whom we
interact, namely: our employees, our customers, our business associates, our fellow citizens and
our shareholders.”
KTCO will be one of the most trusted, admired and successful pharmaceutical companies in the
region with a focus on strengthening research and development capabilities, creating partnerships
and building presence across the globe.

Strategy of the Organization

From its inception till date, BPL’s research & development (R&D) capabilities continue to be one
of the essential core strengths for leading the industry in both formulation R&D.In formulation
R&D, the company focuses principally on developing new formulations, predominantly through
reverse engineering techniques and on simplifying manufacturing processes and improving cost

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efficiency. Over the years, the R&D team has successfully formulated different high-tech
formulations like multi-layer tablets, long acting formulations, dispersible tablets etc

Products& Medical Instruments:-

Trying overcome the challenges of producing medical products in such developing country, KTCO
diverse product portfolio encompasses a wide variety of therapeutic categories, including
antibiotics, analgesics, sterile KTCO currently also an agency for more than 7 leading brands are
consistently occupying leading positions in their respective fields, such as Horiba Medical,
Eurospital ,YHLO, Aloboor ,IDA and others. Beside the products, KTCO also imports medical
devices and instruments such as;

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List of the medical products:

Name of Medicine Selling Percentage %

Afeel tablets & syrup 22%
Biogra tablets 20%
Clarimycin tablets 17%
Diaririmide tablets 15%
Emeral tablets 13%
Loverdin tablets 8%
Tamonic MR capsule 5%

As we mentioned earlier, KTCO was regarded one of those companies which finds the chances
out of the darkness. Therefore, Covid19 has been a fertile market to produce 2 products which are:
different sterile & products medical masks.

Medical Companies Cost Accounting Information:

In a broad aspect, cost accounting refers to the measurement, analysis, and reporting financial and
nonfinancial information relating to the cost of acquiring or using resources in an organization. So
cost accounting can be defined as the information obtained from cost accounting activities. For
example, calculating the cost of product is a cost accounting function that answers manager’s
decision making needs (such as choosing products to offer). Modern cost accounting takes the
perspective that collecting cost information is a function of the management decision being made.
Cost accounting information helps the manager in short-run and long-run planning and control
decisions that increase value for the customers and lower the costs of products and services. For
example, managers make decisions regarding the amounts and kinds of material being used,
changes in plant processes, and changes in product designs.
The activity-based management system links resources consumption to the activities a company
performs and cost the activities to product or customers. Activity-based management uses activity
based costing systems to measure and control this relationship. In KTCO there is such use for the
activity cost driver to measure the cost of a product.

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Report and analyze the product or the service processes.

KTCO sterile is an example of a chemical substance, which is its raw material and a feedstock
used in the production of industrial a pharmaceutical goods; A successful materials management
requires the development of a highly integrated and coordinated system involves
•Sales Forecasting,
•Purchasing,
•Receiving,
•Storage,
•Production,
•Shipping,
•And Actual Sales.
The stages of material management may be enumerated as follows:
1.Procedures of materials acquisition
2.Cost of materials acquisition
3.Product costing and cost allocations

KTCO sterile costs include all costs involved in acquiring or making the final product. In the
case of manufactured goods, these costs consist of direct materials, direct labor, and
manufacturing overhead. Product costs attach to units of product as the goods are purchased or
manufactured, and they remain attached as the goods go into inventory awaiting sale. Product costs

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are to an inventory account on the balance sheet. When the goods are sold, the costs are released
from inventory as expenses (typically called cost of goods sold) and matched against sales revenue.
Product cost is also called Manufacturing costs.

Some Relevant Activities

Direct Materials:

In KTCO, materials is divided into two parts. These materials are the direct material for the
product. The classification of materials is as follows:

•Raw material.(for example in KTCO sterile are:

Material Container Rap ID analysis time

Phenol, benzyl alcohol, m-cresol Brown glass bottle 5-7 seconds
Citric acid, MgCl2.H2O, CaCl2.2H2O Plastic/paper sacks 10-15 seconds
Propane-ols, ethanol Plastic barrel 10-15 seconds
Sodium acetate trihydrate HDPE bottle 10-15 seconds
Acetic acid Plastic bottle 10 seconds

•Packing material.
•Materials Acquisition Cost
The procedure begins with need recognition. The respective department identifies its need, gets
approval of the departmental head and with the approval an authorized person sends purchase
requisition to purchase department to initiate purchase. In case of raw or packing materials, the
planning department determines the quantity and timing of raw materials. This department informs
the purchase department when to buy materials. When the purchase department got the requisition,
it calls for quotation or tender. After receiving the quotation or tender, supplier has been selected.

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The supplier may be local or international. If the terms and conditions are in favor of KTCO and
the selected supplier, the purchase order is issued by financial department.

Then we come to the cost of inventories which comprises of expenditure incurred in the normal
course of business in bringing the inventories to their present location and condition. As a result,
the costs of purchase of inventories comprise the purchase price, import duties and other taxes
(other than those subsequently recoverable by the company from the taxing authorities), and
transport, handling and other costs directly attributable to the acquisition of finished goods,
materials and services. Trade discounts, rebates and other similar items are deducted in
determining the costs of purchase.

The Cost Sheet:

This is the most important report prepared on the import procurement process of raw materials.
Cost sheets are prepared for individual raw and packing material items, as well as spares and
capital machinery. Cost sheet is generated by the MAPICS software ( which is replaced by a local
system in KTCO company). It is the summary of entries debited through the journal voucher. It is
used for costing and pricing decisions. The cost sheets include the following:
Through this cost sheet KTCO determines per unit landed cost of imported Raw material and
Packing material.
Direct Labor:

Direct labor consists of labor costs that can be easily traced to individual units o f product.
Direct labor is sometimes called touch labor, since direct labor workers typically touch the
product while it is being made.

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Manufacturing Overhead:
Manufacturing costs that cannot be traced directly to specific units produced is manufacturing
overhead. Manufacturing overhead includes indirect materials, indirect labor and costs
related to the manufacturing.
Graphical presentation of manufacturing overhead which is used in BPL is as follows:

Non-Manufacturing Costs:
Non-manufacturing costs are often divided in BPL into two categories:
•Selling expenses.
•Administrative expenses.

Create a proper cost driver for each activity

KTCO is an Activity‐based costing which assumes that the steps or activities that must be
followed to manufacture a product - service are what determine the overhead costs incurred.
Each overhead cost, whether variable or fixed, is assigned to a category of costs. These cost
categories are called activity cost pools. Cost drivers are the actual activities that cause the total
cost in an activity cost pool to increase.

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,

Activity categories
 Unit‐level activities occur every time a service is performed or a product is made. The
costs of direct materials, direct labor, and machine maintenance are examples of unit‐
level activities.
 Batch‐level activities are costs incurred every time a group (batch) of units is produced
or a series of steps is performed. Purchase orders, machine setup, and quality tests are
examples of batch‐level activities.
 Product‐line activities are those activities that support an entire product line but not
necessarily each individual unit. Examples of product‐line activities are engineering
changes made in the assembly line, product design changes, and warehousing and
storage costs for each product line.

The costs of unit‐level, batch‐level, and Product- line activities are easily allocated to a specific
product, either directly as a unit‐level activity or through allocation of a pooled cost for batch‐
level and product‐line activities.

Cost Driver
A cost driver is the direct cause of a cost and its effect is on the total cost incurred. KTCO cost
drivers could be :

 Technology development: technology development is most frequently cited as the

most significant contributor to the level of and growth in medical industry spending.
 Handing and storages.

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Manufacturing process
In the process of manufacturing there are three stages and each stage includes direct material, direct
labor and manufacture overhead in KTCO Ltd there are five stages of manufacturing it will be
mentioned, This will be for one product which is KTCO sterile

First stage : sterile chemical mixing, treatment and heating

In first stage of Manufacturing they start to mix the chemical components to big tanks then the mixtures
go through pipes to treatment and heating.

they add the chemicals to the mixtures and the mixture goes through the devices and then saved in big
tanks for the second stage and in each stage they lose Diesel for the generators and the lose
maintenance for each machine and depreciation and in this stage they need 4 labor they calculate their
wages and then divided by the output.

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 Item Cost Per Liter
Direct Material 7$
Direct Labor 5$
Manufacturing overhead 8$
Total 20$

Second stage: the blowing process

In this stage they Start by taking the mixtures to a very vast machine and the machine start to inject and
blowing the components to bottles then they are ready to the next stage and in each stage they lose
Diesel for the generators and the lose maintenance for each machine and the calculate the depreciation
and in this stage they need 1 labor they calculate their wages and then divide by the output.

Item Cost Per Liter

Direct Material 2$
Direct Labor 2$
Manufacturing overhead 5$
Total 9$

Third stage: the packing process

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 In this stage they Start by packing the mixtures carefully to a bottles and put the KTCO label on it . The
former by a machine , the later by hands. They lose Diesel for the generators and the lose maintenance
for each machine and the calculate the depreciation and in this stage they need 1 labor they calculate
their wages and then divide by the output.

Item Cost Per Liter

Direct Material 1$
Direct Labor 5$
Manufacturing overhead 5$
Total 11$

Total cost

Approximately

Item Cost Per pice

First stage : sterile chemical mixing, treatment and heating 20 $

Second stage: the blowing process 9$

Third stage: the packing process 11 $

Total 40$

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Conclusion:

KITCO Ltd. is a leading edge pharmaceutical company and is a member of Universal Group, the
largest private sector industrial in Yemen.KITCO is also one of the 10 Top largest pharmaceutical
production companies, spreading its presence in many cities . Recently, KITCO has successfully
made its footmark in the social responsibility when it made Covid 19 anti- sterilizing instrument.
This event has widened the responsibility, accountability and transparency of the company.This
was an added challenge to all the accounting staffs as the listing the accountability of the
organization has gained a widely reach. From raw material import to the bringing of smile for the
society, on every level, professionalism and dedication is the key to this success. In this report, we
have tried our level best to identify Cost Accounting techniques and procedures used by KTCO.
What and how KTCO use cost accounting information for decision making and external financial
reporting along with describing the procedure and systems of using cost accounting information.
In this report, we imply our acquired knowledge from cost accounting course and try to comply
with the techniques procedure and systems followed by the company. In today's complex yet
highly competitive business environment management needs quality information for decision
making purpose. KTCO believes that quality and control should been assured and these can be
ensured by using proper cost accounting information. Relevant and reliable cost information can
be ensured by implementing by using effective cost accounting methods. And they do the best one
fit in the context of COVID 19 response and got revenues.

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Recommendations:
KTCO tries to ensure better quality and better management. The staffs demonstrate their
knowledge and experience with sheer professionalism. Despite these efforts some short
comings may remain and there is always an opportunity to overcome those. Trough out my
study I have found that they have some opportunity that they can take being taking proper
steps. On the basis of my understanding and observation I am proposing the following
recommendation to the KTCO:
Cost of Goods Sold:
KTCO may improve their Cost of Goods sold reporting for better understanding. Though
it is not contradictory with the more efficient systems . To make end user friendly and
organized with the outputs, KTCO may change the current system.
Factory Overhead, Selling and Administrative overhead:
Factory overhead, selling and administrative overhead is increasing year to year. The
increasing trend is totally straight. Company should control the overhead properly. We
know that company has no direct control over raw material prices. In the increasing raw
material every company will be sufferer but company can properly control the overhead.
Petty Cash Expenses:
KTCO distributes their goods through I & I services. I &I services gets commission for
their activities. I&I service takes their expenses from daily cash collection for expenses of
distribution. With the working with the petty cash section I have shown that depot of the
I&I services over state their expenses. For these activities the overhead cost is increasing
day by day. Proposed Policy: KTCO should make budget for the daily expenses. Through
proper budgetary control and research on that will minimize the expenses.
Negotiation with the Insurance Company:
In KTCO,the management should negotiate with insurance to reduce their insurance
premium charges. One or two company will be allowed to do all kinds of insurance.
Through this negotiation KTCO will be able to reduce the expense

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3- http://universalyemen.com
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urul_Islam.
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_Management_Accounting_Practice_at_BEXIMCO_Pharma.
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