Costing of Packaging Material

Asis Ghosh

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 Topics

• Overview Of Costing

• Basic Knowledge for Costing of Packaging Material

• Parameters of Costing on Different Materials

• Material Wise Costing Model

Corrugated Box
Rigid Plastics
Laminates
Cartons
Tubes

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 Overview of Costing
Costing is a System or process through which a selling price or Buying price
of any material gets determined and recorded.

Luca Pacioli ( Father of Accountant ) first explained about costing

The aim of Costing is to breakdown the structure of any material and check the
Individual items against the standard cost available in the market.

There are 2 methods of Costing Continuous Operation Costing & Specific Order
Costing.

Result of Costing comes in different way like it can help to get Higher Profit/
Saving/ Go No Go Decision of product launch/Supplier selection/
Value Engineering etc.
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 Basic Knowledge for costing Packaging Material
1. Measurement :
Accurate measurement of Packaging material is the first essential requirement costing.

Lamitube
Width

Film/ Laminate

Carton

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 Basic Knowledge for costing Packaging Material
2. Grammage (GSM):
Helps to achieve exact weight of Material

Kraft Paper 50 Mtr roll of 2 mtr width having the layer

with 150 gsm

50 mtr
Total weight of paper = area x gsm
2mtr =(50x2) Mtr Square x150 g
= 15000g
3.Thickness:
= 15 kg
Helps to achieve exact gsm of Material. In general thickness plays major role in film
/Foil/ laminate based Packaging material. To get the material gsm from thickness,
another essential parameter is density of the material.
Grammage = Thickness (Micron) x Density
Material Thickness UoM Density UoM gsm
Aluminum foil 40 micron 2.74 g/cm³ 109.6
PET Film 12 micron 1.38 g/cm³ 16.56
PE flim 50 micron 0.92 g/cm³ 46
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 Basic Knowledge for costing Packaging Material
4. Mould Cycle Time:
Helps to calculate the output of rigid Plastic based Packaging Material per Day. In
general for all Injection molded and Blow molded Packaging Materials
Cycle time is the total time required to complete all the stages of the injection molding cycle. The stages are Fill
time - Pack time – Cooling time- Mould opening time.

Therefore the below formula to be followed to calculate the material output per day

60x60x22 Second
Daily output = X Number of Cavity
Mould Cycle Time
As per industrial practice total working hours per day considered as 22 hours

5. Take up Factor:
It helps to calculate the paper weight of Fluting medium during costing of
Corrugated Box or Board.

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Parameters of Costing on Different Packaging Materials

A. Raw Material:
Every Packaging Material has one or multiple Raw Materials. Cost of the final
Packaging material is dependent on the Quantity and rate of the Raw material
used. Packaging Raw Materials
Carton Board/Ink/Varnish/Glue
Corrugated Box Kraft Paper/Starch/Staple pin
Plastic Bottle & Caps Resin / Masterbatch
Co-ex Tube Resin/EVOH/Masterbatch/Ink
Laminates PET Film/ Met PET/Alu Foil/Poly Ethylene / Ink/ Adhesive

B. Processing :
Processing is a major factor to execute any costing activity. More the processing
time , more the cost involved. Hence its always better to identify supplier where
the entire process gets completed in a single run.
This increases output and reduce manpower involvement.

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Parameters of Costing on Different Packaging Materials
C. Wastage
Wastage is also an important parameter in cost calculation of Packaging Material.
There are different type of waste generates during material processing.
1. Raw Material Preparation waste.
2. Machine Set up Waste.
3. In process correction waste
4. Process changeover waste.
5. Quarantine waste
To finalise the wastage percentage “Negotiation” plays an important role.

D. Packing
Cost of Packaging Material to pack the Finished good also changes the overall
Packing Material Cost.
Example: Packing the final Packaging Material is a Corrugated Box and Packing
the final Packaging Material in individual Poly bag, then in Corrugated box &
then Palletize the box makes huge difference in the cost of Packaging Material.
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Parameters of Costing on Different Packaging Materials
C. Conversion Cost.
In Packaging Industry Conversion Cost is the second most important and costly
parameter after Raw material cost.
The conversion cost includes the below points
i. Fixed Cost Machine Cost – Salvage Value
Useful life of Asset (Years)
• Asset cost =
Number of output per year
• Over Head Cost
• Land rent

ii. Variable Cost

• Electricity Cost
• Maintenance Cost
• Miscellaneous Cost

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Material Wise Costing Model
Corrugated Box with double staple pin in 40mm distance
L W H
Box Dimension Dimension (All size in mm) 200 100 150

Length with 4 crease of 5mm

200+5+100+5+200+5+100+5+40 660
Board Size and 40mm Joint flap
Width with 2 crease of 5mm 50+5+150+5+50 260
Board Area (in Sq. Mtr) 0.1716

Number of Ply GSM WT Rate per Kg Material Cost

Outer ply 150 150x0.1716 = 25.74g 24 25.74x(24/1000)=Rs.0.61
1st Corugation (B Flute ) 150 150x0.1716x1.32 =33.98g 24 33.98x(24/1000)=Rs. 0.81
1st liner 150 150x0.1716 = 25.74g 24 25.74x(24/1000)=Rs.0.61
2nd Corugation (B Flute ) 150 150x0.1716x1.32=33.98g 24 33.98x(24/1000)=Rs. 0.81
2nd liner 150 150x0.1716 = 25.74g 24 25.74x(24/1000)=Rs.0.61
Total 145.17g Rs. 3.48

Staple Pin cost @Rs.05 (2x2)xRs. 0.05 =0.20

Wastage 3%
Conversion @Rs.6 per Kg.
Profit Margin @ 10%
TOTAL COST
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(3.48+0.20) x 3% =Rs. 0.11
145.17x(7/1000) = Rs. 0.87
(Rs.3.48 +Rs.0.20+ Rs. 0.11+Rs.0.87)x10% =Rs.0.47
Rs.3.48+Rs.0.2+Rs.0.11+Rs.0.87+Rs.0.47 = Rs. 5.13
Material Wise Costing Model
Rigid Plastics: Let us do a costing of 8g cap from a 16 cavity mould with cycle-time18 Second and yearly
requirement is Rs. 1.5 Cr Nos. the mould cost is Rs.1 Cr.,which will be amortized for 5 years production.
The Cap is yellow in colour and Masterbatch percentage is 4%.
Assumption: Resin Cost Rs. 100 per Kg & Master Batch cost Rs. 600Per Kg, Conversion cost 7000per Shift.
Description Values UoM
Cap Output/Hr/Cavity 3600/18 = 200 Nos.
Cap Output/Hr/Mould 200x16=3200 Nos.
Description Values Uom
Cap Output/Day 3200x22=70400 Nos.
Cap Weight 8g
Cap Output/Month 70400x26=1830400 Nos.
Masterbatch Percentage 4%
Cap Output/Year 3200x312=21964800 Nos.
Cycle time 18 Sec
Mould Efficiency 85 %
Mould Cavity 16 Nos
21964800x85%=
No. of Mould 1 Nos
Hence Yearly Net output 18670080 Nos.
Mould Cost 10000000 Rs.
Mould Cost Amortisation Year 5 Year Description Value UoM
Working hour per Day 22 Hr Weight of Masterbatch 8gx4% = 0.32 g
Working Day per Month 26 Day Weight of Resin 8-0.32 = 7.68 g
Working day in a year 26x12=312 Day Cost of Masterbatch (A) (600/1000)x0.32=0.192 Rs.
Cost of Resin (B) (100/1000)x7.68=0.768 Rs.
(7000x4=28000)/per day
Points for Negotiation Output
Conversion Cost ( C) =28000/70400= 0.397 Rs.
• Inventory Carrying Cost of RM Packing Cost (D) Rs. 100/1000 Pcs =0.1 Rs.
Profit Margin @ 10% (A+B+C+D)x10% =0.146 Rs.
• Cost Calculation Period
Total Cost of Material 1.6027 Rs.
• Volume based Price Reduction
10000000/(5*15000000)=0
• Interest Charge on Mould Cost Mould Amortisation cost .13 Rs.

Therefore The final Cost of

03/05/2020 | Page 11 Material inclusive of Mould
cost 1.6027+0.13 =1.73 Rs.
 Material Wise Costing Model
Laminates: Let us do the costing of a 3 Ply Printed laminate with PET/MET PET/POLY .
Material contribution RATE /
STRUCTURE THICKNESS GSM (g/m2) PER KG
in per Kg KG
PET CC 12.00 µ 12x1.4=16.8 16.8/98.16=0.17 120 20.4 Material & Parameter details Format 1
Thickn Gram Rate per Contributi
MET PET 12.00 µ 12x1.4=16.8 16.8/98.16=0.17 150 25.5 Flexible ess mage Kg on
cMPET 10mic
PET 10 mic
POLY 63.00 µ (63x.92)=57.96 57.96/98.16=0.59 100 59 PET 12mic (CC)
PET 12mic
SOLVENT BASE 2.4 2.4/98.16=0.02 380 7.6 Met Pet 12mic
Holo Met Pet 12mic
SOLVENT LESS 1.7 1.7/98.16=0.02 340 6.8 Natural Poly
White Opaque Poly
Ink Regular
INK REGULAR 2.5 2.5/98.16=0.03 890 26.7 Ink White
Solvent base adhesive
98.16 1 146 Solvent less adhesive
Wastage 10% 14.6 45gsm Poster paper
Hot melt
PEG
Conversion 40
Alu. Foil 9mic
(imported Foil with offcut from Aug
Profit 10% 20.06 10)
Alu. Foil 7mic
Total Cost per Kg 220.66 (imported Foil with offcut from Aug
10)
Total
Wastage
Basic
Packing Charges
Freight
Variable Overheads
Contribution
Total

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Material Wise Costing Model
Cartons:
Details Unit Value Details Value
No of cartons Nos 150,000 Total Machine Printable sheets (150000/16)+150=9525
No of ups (per machine 10000000/(30.55x24.57x285x2.54x2.5
printable sheet) Nos 16 No of sheets per kg 4)=7.24
Board Size - Length inches 30.55 Rate per sheet 60/7.24
Wastage rate
Board Size - Width inches 24.57
Upto 3000 sheets 15%
GSM gsm 285 3000 to 5000 sheets 10%
Board Rate Rs/kg 68 Greater than 5000 sheets 5%
No of colors Nos 6
Machine printable sheet Nos 1 Details Value
Paper costs 9525x9.38x1=89392
Processing cost per color Rate/ color 250
Processing cost 250x6=1500
Plate making cost per color Rate/ color 250
Plate making costs 250x6=1500
Rate/color/1000
Printing cost per color sheets 150
Printing cost (150x6x9525)/1000=8572.5
Coin reactive printing 0
Coin reactive printing Cost/ 1000 cartons 0
Lamination cost 0
Lamination cost Rs/ 100 sq inch 0 Varnishing cost (30.55x24.57)x9525x0.2/100=14299
Varnishing cost Rs/ 100 sq inch 0.2 Embossing cost 0
Foil Stamping Rs/ 1000 sheets 0 Punching cost 9525x300/1000= 2857
Punching Rs/ 1000 sheets 300 Pasting cost 150000x260/1000=39000
Pasting Rs/ 1000 cartons 260 Sorting & Packing 150000x25/1000= 3750
Sorting & Packing Rate/ 1000 cartons 25
Interest rate Rate/ annum 0
Total 160871
Wastage 160871x5%= 8043
Credit period No of days 60
Interest charges 0
Margin % 10% Total+Interest 160871+8043+0=168915
Margin 168915x10%=16891.5
Lot Rate 185807
Cost per 1000 cartons (185807/150000)x1000=1238

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Material Wise Costing Model
Co-ex Tube Costing for 50 Dia Meter Tube 5 Layer where the Tube sleeve weight
is 10.01 g, Shoulder Weight is 3.5 g & Cap weight is 9.6g. The tube is having inner
and outer Masterbatch and also Masterbatch is present in Cap.

Raw Material % Nominal Weight Cost or RM/Kg Cost /Tube

Monolayer or LDPE 11% 1.053 89 0.09 Details Cost
Monolayer or LLDPE 25% 2.457 80 0.20 Sleeve 1.29
MB 2% 0.246 500 0.12 Shoulder 0.28
SLEEVE

Tie Layer 3% 0.343 204 0.07 Cap 0.89

EVOH 6% 0.571 397 0.23 Printing Cost 0.30
Tie Layer 3% 0.344 204 0.07 Packing 0.20
Layer2 LDPE 14% 1.427 89 0.13 Total 2.96
Layer2 LLDPE 33% 3.329 80 0.27 Contriution @60% 1.78
MB 2% 0.238 500 0.12 Total Cost of Tube 4.74
100% 10.01 1.29
SHOULDER

RM 1 100% 3.5 80 0.28

RM 2
MB 0% 0 0 0.00
100% 3.5 0.28
RM PP 97% 9.312 80 0.74
CAP

MB 3% 0.288 500 0.14

100% 9.6 0.89

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 THANK YOU

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