Mini Project Report

On

Power Grid Corp

Submitted by
Submitted to

Dr. Preeti Sharma Tanushree singh

Assistant Professor 1000015918
FMS, DIT University

DEPARTMENT OF MANAGEMENT STUDIES

SCHOOL OF LIBERAL ARTS AND MANAGEMENT
DIT UNIVERSITY, DEHRADUN
March 2021
 Sr. No. Contents
1 Abstract
2 Introduction-Company Profile
3 Objective of the Project
4 Methodology
5 Data Analysis
6 Conclusion

Note
Headings- Times new Roman (14) (Bold)
Sub headings Times new Roman (12) (Bold)
Subject matter Times new Roman (12)
 Abstract

We Analysis the Costing Techniques of Power Grid Corp in which we analysis

the data of Power grid.
I used ABC (Activity Based Costing) as per cost sheet .
 Introduction-Company Profile

.Power Grid Corporation of India Ltd was incorporated on October 23 1989 with the name
National Power Transmission Corporation Ltd. The company was established with the
responsibility of planning executing owning operating and maintaining the high voltage
transmission systems in the country. In October 23 1992 the name of the company was changed
to Power Grid Corporation of India Ltd.Initially the company was engaged in the management of
the transmission assets owned by the central generating companies such as the NTPC NHPC Ltd
and North-Eastern Electric Power Corporation Ltd.

Objective of the Project

 To Analysis the Techniques of Costing in Power Grid

 To Analysis the costing method pursuing by Power Grid
 To Analysis the Cost of goods solds
 Methodology

Company can use this types of product costing methods-

 Job Costing
 Standard Costing
 ABC Costing
 Direct Costing
 Target Costing
 Process Costing

Company can uses Inventory costing Method-

  First-In, First-Out (FIFO)
 Last-In, First-Out (LIFO)
 Average or Weighted Average Cost
 Specific Identification

So here we will Analysis the Data of Power Grid in which we can Analysis the
data and then go for conclusions

BSE

Data Analysis

Power Grid Ltd Custom

Power grid Ltd Standard Product Product
Annual Sales (Units) 12093 11789
Sales Price (Per Unit) 70 USD 89 USD
Batch Size (units) 1000 50
Direct Labor Time / per unit 2 2.5
Direct Labour rate per hour 8 8
Direct Input cost per unit 22 32
Number of Custom Parts per unit 1 4
Number of Set-Ups per batch 1 3
Separate Material per batch 1 1
Number of Sales Invoices - issued per year 50 240

Overhead Cost Analysis USD Cost Drivers

Set Up Costs 72250 Number of Set Ups
Special part handling cost 60084 Number of Special Parts
 Overhead Cost Analysis USD Cost Drivers
Customer invoicing cost 29143 Number of Invoices
Material handling cost 62609 Number of Batches
Other overheads 106387 Labor Hours

Step 1 - Calculating Overhead Recovery Rate of Indirect Costs

Overhead Cost Analysis USD

Set Up Costs 72250
Special part handling cost 60084
Customer invoicing cost 29143
Material handling cost 62609
Other overheads 106387
Total Overheads (1+2+3+4+5) 330473

Overhead Recovery Rate Formula

Overhead Recovery Rate = Total Overheads / Number of Labor Hours
Overhead Recovery Rate = 6.16 Per Hour

Step 2 - Product / Service Costs - Adding Direct and Indirect Costs

Standard Product Custom Product

Direct Costs
Labor 16 20
Hrs * Labor/hr
Material 22 32
Indirect Costs
Overheads (recovery rate * hours) 12.32 15.4
Total Costs Per Unit (1+2+3) 50.32 67.4
Using the Overhead Recovery Rate Calculation we can assign the indirect cost to
individual products. We are just allocating the variable or indirect costs based on the
hours taken by labor to produce the standard and custom products.

Total cost per unit under the traditional method can be calculated by adding up -
Raw material costs, labor costs, and indirect cost allocation using Overhead Recovery
Rate formula.
Activity Based Costing System for Power grid Ltd

Activity Based Costing can improve the costing process at Tata Steel Ltd in three
prominent ways –

By increasing the number of cost pools – ABC help in identifying the activities that
are being performed by organization’s resources. Often too narrow allocation can
result in unclear understanding of both activities and how resources spent on them.

By assigning costs to various activities that are segmented based on the role they
perform in overall processes. Instead of treating all indirect costs as one organization
wide pool, ABC pools the costs based on each activity.

Finally assigning costs to respective products, service and customers activities in the

organization using activity cost drivers.

How to calculate Activity Based Costing & What is the formula for
Activity Based Costing?
After identifying all the support activities and associated costs & factors that drive
those cost, managers at Tata Steel Ltd can take following steps to conduct ABC
costing -

Step 1- Establishing Cost Pool for each activity based on the Iron & Steel dynamics.

Step 2 - Allocating total cost associated with each activity to the relevant pool.

Step 3- Calculating Per Unit Cost based on the relevant cost driver.

Step 4 Final Step - Dividing the amount in each pool by estimated total usage of the
cost driver. Then the unit cost is multiplied by the number of units of the cost driver
of that specific product.

You can easily follow the above four steps in the following table of ABC Calculations.
ABC Calculations
(c)
(b) Tot
(a) Cust al
Stan om Div (d)
dard Div er Cos (f) (g)
Over Dive er Vol ts (e) Driver Standard Custom Custom
head Driv Volu Vol ume US Rate Total Total Standard Unit
Cost er me ume a+b D (d/c) Cost a*e Cost b*e Unit Costs Costs
Set Set- 12 720 732 722 98.70218 1184.426 71065.57 0.09794312 6.028125
Up up 50 579235 2295082 3770492 6561498 69094
Costs per
Batc
h
Speci Spec 1209 471 592 600 1.014093 12263.42 47820.57 1.01409306 4.056372
al ial 3 56 49 84 0648619 7433374 2566626 48619 2594474
part Part
handl s
ing per
cost unit
Custo Invo 50 240 290 291 100.4931 5024.655 24118.34 0.41550113 2.045834
mer ices 43 0344828 1724138 4827586 060562 6617683
invoic per
ing year
cost
Mater Nu 12.09 235. 247. 626 252.5849 3054.510 59554.48 0.25258499 5.051699
ial mbe 3 78 873 09 9312148 321818 9678182 312148 8624296
handl r of
ing Batc
cost hes
Other Lab 2418 294 536 106 1.982668 47952.81 58434.18 3.96533634 4.956670
overh or 6 72.5 58.5 387 170001 2359645 7640355 00021 4250026
eads Hou
rs

Per Unit Overhead Cost using ABC

There are two steps to calculate per unit overhead costs using ABC method. First
calculate per unit cost based on cost driver usage by specific product and then add
those overhead costs for the product to arrive at Per Unit Overhead Cost of a
product
 Overhead Unit Cost Standard Custom
Set Up Costs 0.097943126561498 6.02812569094
Special part handling cost 1.0140930648619 4.0563722594474
Customer invoicing cost 0.42 2.05
Material handling cost 0.25258499312148 5.0516998624296
Other overheads 3.9653363400021 4.9566704250026
Total Overheads 5.75 22.14
The total overheads of standard unit using ABC costing is 5.75 and the overheads of custom unit
uning ABC costing method is 22.14

Total Cost Using ABC Technique

The total cost per unit of standard and custom product can be calculated by adding
up - direct cost, raw material cost, and ABC derived per unit indirect cost.

Standard Product Custom Product

Direct Costs
Labor 16 20
Hours * Cost of Labor per Hours
Material 22 32
Indirect Costs
ABC- Overhead 5.75 22.14
Total Costs Per Unit 43.75 74.14
(1+2+3)
The Total Cost per unit of Standard product is 43.75

The Total Cost per unit of Custom product is 74.14

If we compare the total costs using traditional method and ABC method, we can easily
observe that the difference between the total cost of custom product to that of standard
product is far higher under ABC method than it is under the tradtional method.

Return on Sales Using ABC Costing Analysis

Standard Product Custom Product
USD per Unit USD per Unit
 Standard Product Custom Product
Selling Price 70 89
Total Cost 43.75 74.14
Profit 26.25 14.86
Return on Sales 37.51 16.698
The profit per unit of standard product is higher than custom product under ABC
technique.By comparing the Return on Sales numbers under both traditional and
ABC technique - We can easily conclude that ABC is far more effective costing
technique for Tata Steel Ltd as it stops inefficient allocation of costs to Standard
product. Tata Steel Ltd should focus on standard product rather than custom product
as standard product is delivering much higher returns on sales.

Conclusion

Power Grid LTD. Using the ABC(Activity-Based Costing) Method in

which assigning overhead and indirect costs—such as salaries and utilities—to
products and services
So company has merit os this method is

1. Identify activities that are required to complete a product.

2. Trace costs to activities and objects and then assign them to different
pools.
3. Assign specific drivers to each pool, like an hour or unit.
4. Calculate cost driver's rates by dividing overhead costs by total cost
drivers.
5. Divide the total overhead of each pool by total cost drivers to get the cost
driver rate of each.
6. Multiply your cost driver rate by the number of cost drivers.