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DECLARATION

I hereby declare that the project entitled Activity Based Costing is submitted in partial fulfilment of my MMS Degree 2009 -2011 was carried out with sincere intention of benefiting the organization. The project duration was from 10 th May 2010 to 10 th July 2010. This report, to the best of my knowledge is an original piece of work done by me and it has neither been submitted to any other organization nor published at anywhere before.

Signature of the declarant: (Swaraj Dhanjal) Date: July 10, 2010


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Singh

Acknowledgement
Whatever we do and whatever we achieve during the course of our limited life is just not done only by our own efforts, but by efforts contributed by other people associated with us indirectly or directly. I sincerely thank Mr. Sanjiv Verma (Financial controller), person of amiable personality, for assigning such a challenging project work which has enriched my work experience and getting me acclimatized in a fit and final working ambience in the premises of TATA Steel Wire division-Borivali. I acknowledge my gratitude to my project guide Ms. Gillian Murzello (Sr. Manager, Cost) for her extended guidance, encouragement, support and reviews without which this project would not have been a success. I acknowledge my gratitude to Mr. Ashish Shah (Manager, Cost) whose constant guidance has helped me to complete this project in an efficient manner. I would like to extend my thanks to Mr. Sandeep Patil (line head - MTB), Mr. Nilesh Sankhe (line head - PCSR), Mr. D.O. Chauhan (Head SS Plant), Mr.D.H. Patil (Sr. Manager, Quality Control), Mr. Maini (Head - Pickling), Mr. Vasant Patil (Store incharge TWP1), Mr. Rozario (Sr. Manager Tarapur accounts) for their valuable co-operation and guidance. Last but not the least I would like to thank all the operators of the MTB, PCSR, SSP and Pickling lines for their valuable help without which understanding the machines and their operation would have been a tough task.

Tata Steel Wire Division | Activity based costing

Table of Contents
Title
Executive Summary Objectives TATA Group profile TATA Steel Global Wire Business History Wire Division Awards Sustainability Major Projects Product Portfolio Research methodology MTB process PCSR process Cost elements and Variability Aggregate cost sheet MTB MTB cost Fixed & Variable Line wise cost sheet MTB PCSR cost sheet Size wise cost for MTB Conclusion

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7 8 9 10 15 16 17 19 20 24 32 39 40 44 45 46 49 50 57

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List of Abbreviations

TSWD LDO LPG OPI MTB PCSR TWP RM Mt PM1 PM2

TATA Steel wire division Light Diesel Oil Liquefied Petroleum Gas Operational Performance Index Motor Tyre Bead Wire Pre stressed concrete stress relieved Tarapur wire plant Raw material Metric Ton Pace maker 1 Pace maker 2

Tata Steel Wire Division | Activity based costing

List of Tables
Sr. No.
1

Title
Specifications of Pre drawing machines Temperature zones of LPG furnace (patenting line) MTB aggregate cost sheet MTB Fixed and Variable cost sheet PCSR aggregate cost sheet Hourly rates of MTB lines STD. Hours for 0.93, 0.95, 0.965 mm MTB wires Actual Hours for 0.93, 0.95, 0.965 mm MTB wires Process cost for 0.93 mm MTB wire Process cost for 0.965, 0.78, 1.20 mm MTB wires Process cost for 1.6, 2.00 mm MTB wires Comparison of Process cost for 0.93 mm MTB wire produced on different machines

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2 3 4 5 6

35 44 45 49 51

7 8 9 10 11

52 53 52 53 54

12

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List of Figures
Sr. No.
1

Title
Milestones of TATA Steel Wire Division Flowchart of MTB process

Page No.
15

2 3 Flowchart of Centralized Pickling Line LPG Furnace Patenting Line

32 34

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Tata Steel Wire Division | Activity based costing

Executive Summary
In management accounting, cost accounting establishes budget and actual cost of operations, processes, departments or product and the analysis of variances, profitability or social use of funds. Managers use cost accounting to support decisionmaking to cut a company's costs and improve profitability. As a form of management accounting, cost accounting need not to follow standards such as GAAP, because its primary use is for internal managers, rather than outside users. The scope of this project is limited to the calculation of the costs of the MTB & PCSR lines at the TWP 1 plant. We use activity based costing for this purpose. Activitybased costing (ABC) is a system for assigning costs to products based on the activities they require. In this case, activities are those regular actions performed inside a company like the pre drawing, patenting, finish drawing etc. The cost for each activity is calculated and summed up to get the total process cost. Going further we drill down into the costs to understand their nature i.e. variability. We group the costs into Fixed, Variable and Semi Variable costs. Understanding the variability of the costs is important for the management. We have also derived the cost of each size of the wire e.g. 0.93mm, 0.965mm, 2mm etc. This knowledge gives the management an idea about which products are their star products and which are the question mark products. Further we also get the comparative costs of running the same wire on different machines, thus we come to know the profitability of different machines which helps the plant to manage their production lines well. This project goes a long way in helping us understand the profitability of the various products produced at the TWP 1 plant.

Tata Steel Wire Division | Activity based costing

Objectives
1) Analysing various cost elements of Tarapur Wire Plant 1 like a) Fuel b) Power c) Maintenance stores d) Production stores e) Labour Segregating these into fixed, semi-variable and variable costs.

2) Shop floor study studying the a) Lines b) Machines c) Processes d) Collecting consumption data

3) Preparing the aggregate and line wise cost sheets for the MTB & PCSR line. Calculating the size wise cost of MTB products based on hourly rates.

Tata Steel Wire Division | Activity based costing

Tata Group Profile


The Tata Group of Companies has emerged as one of the most respected and successful business conglomerates in the world today. With an illustrious history of over a hundred and thirty years behind it, the Tata group has traced a route of growth that spans through six continents and embraces diverse cultures. It has steered Indias ascent in the global map through its unwavering focus on sustainable development. Over 350,000 people worldwide are currently employed in the seven business sectors (114 companies and subsidiaries) in which the Tata Group Companies operate. It is the largest employer in India in the Private Sector and continues to lead with the same commitment towards social and community responsibilities that it has shown in the past.

Tata Steel Profile


Enriched with over a centurys heritage of trust and respect, Tata Steel today, is among the top ten steel producers in the world with an existing annual crude steel production capacity of around 30 million tonnes per annum. It has a balanced global presence across five continents in over 50 developed European and fast growing Asian markets, with manufacturing operations in 26 countries. It is the first integrated steel plant in Asia and is now the worlds second most geographically diversified steel producer and a Fortune 500 Company. Driven as much by its commitment to society as by its performance and profits the Tata Steel Vision today aspires to make the Group the global steel industry benchmark for both value creation and corporate citizenship.

Tata Steel Wire Division | Activity based costing

TATA STEEL GLOBAL WIRE BUSINESS


Tata Steel Wires Business is a major player in the wire industry servicing the discerning needs of its customers across the global markets. Tata Steel's Global Wires Business has manufacturing facilities spread across the geographies of India, China, Thailand and Sri Lanka. The Group manufactures a variety of wires catering for the Automobile, Construction, Power and General Engineering Industry sector needs. It manufactures wires in black and coated varieties in both single and stranded forms. Tata Steel's Global Wires Business:Has fully integrated manufacturing, from Iron Ore mining to Steel Wires. Is amongst the 'Top Wire Manufacturers in the World. Has a wealth of expertise and experience in Wire drawing, coupled with the latest manufacturing facilities Has the ability to meet the exacting specifications and varied needs of the customers. Has established its products across its domestic markets of India, Thailand, Sri Lanka and China and in markets of USA, Europe, Australia and Middle East Asia. Tata Steel's Global Wires Business spans the following companies: Tata Steel Wire Division, India The Siam Industrial Wire Co., Ltd, Thailand Wuxi Jinyang Metal Products Co. Ltd., China Indian Steel & Wire Products, India Lanka Special Steel Limited, Sri Lanka

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Tata Steel Wire Division


Tata Steel Wires Business is a major player in the wire industry servicing the discerning needs of its customers across global markets. It is the leading producer of steel wires, with a 30% market share of the organised wire market in India. A wealth of experience and expertise in the wire industry coupled with latest technology incorporations has enabled Tata Steel Wire Division to meet the most exacting specifications and requirements of customers time and again. It manufactures a wide range of wires catering to the needs of various industry segments such as automobile, infrastructure, power and general engineering. The products are well established across the markets of Europe, USA, Middle East Asia, Australasia, South Asia and Asia - Far East. To bring about a greater focus to the steel wires business, Tata Steel has brought all its wire manufacturing under the scope of the Global Wires Business with manufacturing facilities spread across the geographies of India, China, Thailand and Sri Lanka. The Company has fully integrated manufacturing cycles, from sourcing of raw materials to in-house steel making and wire rod rolling facilities. This has led to a comprehensive extension of technology support to all the wire units in the Companys fold. All the units of operation adhere to strict quality parameters and are ISO certified. In India, the division is setting up a world class manufacturing facility at Tarapur and also modernising the existing facilities at The Indian Steel & Wire Products in Jamshedpur. The Wire Division has been the sole supplier of pre-stressed concrete strands used in the construction of precast segments for the 4.7 kms, 8-lane- cablestayed Bandra-Worli Sea Link at Mumbai, India.

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Lanka Special Steels Limited

Lanka special steel limited is another group company of global wire business. Main production of this Company is Galvanized iron.

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NAT STEEL
A wholly-owned subsidiary of Tata Steel, NatSteel Holdings is one of the top steel providers in the Asia Pacific. We employ over 3,500 employees across Singapore, China, Thailand, Vietnam, Malaysia, the Philippines and Australia. Each year, we produce more than 2 million tonnes of premium steel products for the construction industry in the region. We lead the industry in efficiency and productivity, and constantly push the frontiers in manufacturing processes, service, as well as environment, safety and health measures.

In Singapore, our steel products are used for residential and commercial buildings, and infrastructural works like bridges and MRT lines. Our flagship plant in Singapore also serves as our Asia-Pacific hub, providing research and development, engineering consultancy, logistics, procurement and other support services

Today, NatSteel Holdings is well-placed to tap into Tata Steels extensive resources to further expand in the region and achieve our vision of becoming a world-class steel producer.

The Siam Industrial Wire Co. Ltd Thailand


Siam Industrial Wire is a member of NatSteel Holdings and is one of the largest manufacturers of pre stressed concrete products in the ASEAN region. SIW has an annual production capacity of 180,000 metric tons and its products include pre stressed concrete strands, pre stressed concrete wire, cold drawn wire, hard drawn wire and welded wire meshes. Its distribution spans Europe, Oceania, Middle East, America, Africa and Asia.

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SIW products are manufactured in accordance with major international standards. They are tested and accepted by worldwide accreditation institutes and laboratories.

WUXI

JINYANG

METAL

PRODUCTS

CO.

LTD

Wuxi Jinyang Metal Products CO.Ltd. (WJMP) was established in 1992.It has become a joint venture company after NatSteel joined on 1 June,1997.Since then the annual production and sales increased at a rate of over 50%, productivity reached 400 ton/person and annual capacity reached 80000 MT. After Natsteel Asia (wholly owned by TATA Steel) took over 95% share of WJMP in year 2005, WJMP had further expanded by investing a most advanced technology PC strand line and increased its annual capacity to 120000 MT. Steel for FI city of Dubai is supplied by WJMP.

WJMP has 12 modern production lines. The main products are low relaxation pre stressed concrete wire, bar and strand, which are used for high -rise buildings and infrastructure, such as bridge girder, expressway, railway and municipal projects. It also used for post tensioned products, such as floor plank, electrical pole, piling piping and spring applications.

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Hi o
Si it i ti i 1958 as Special Steels, t t e establishment of the Company as a ires Business - the journey of

subsi iary of Tata Steel, to the formation of the Global Tata Steel

ire Di ision has been replete with innovations, recognitions and break -

through achievements.

1958 1961 1976 1980 1984 1993 1995 2001 2003 2008

Speical steel was established in 1958 as a Pvt Li ited Co. Manufacturing U brella Rib ire. Co pany goes Public Another plant set up at Tarapur for production of tyre bead wires. Backward integration with the setting up of ire Rod Mill at Tarapur.

Take over of SSL by Tata Steel Li ited to ake Special Steels Ltd. (SSL) a subsidiary. Co issioning of cold rolling plant. Quality Policy and adoption of ISO 9002. Tata Metals a alga ated with SSL. Co pany beco es a subsidiary of Tata Steel Li ited. TSSL erges with Long Product Division of Tata Steel Li ited. For ation of Tata Steel Global ire Business & Tata Steel part of the sa e. ire Division beco es a

Fig.1. Milestones of TATA Steel Wire Division

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Awards
Various Awards received by Tata Steel Wire Division over the years have generated recognition and status for the Company within the industry and established 'Tata Wiron' as a respected name worldwide. It is amongst the top wire manufacturers in the world with the ability to meet the exacting specifications and varied needs of the customers. The list of Awards presented below is a pointer to the Company's achievements year on year.
y y y

Indian EEPC recognition for excellence in exports of steel wires for 1996-97. Indian EEPC recognition for exports of steel wires for 1997-98. Regional QCFAI recognition for best of sessions award for 3 of our Quality Circles in 1999-2000.

Awards for Best HR Policies & Community Development from Tarapur Management Association. Award for serious adoption of Tata Business Excellence Model in Financial Year 01-02.

Award for active promotion of Tata Business Excellence Model in Financial Year 02-03.

Quality circle "Abhinav" of Borivli Wire Plant won "Excellence Award" at National Convention of Quality Circles

y y

(NCQC) held at Madurai in December 2003. Quality Circle "Ujwal" of Wire Rod Mill (West) was declared as "Distinguished Quality Circle" at National Convention of Quality Circles (NCQC) held at Madurai in December 2003.

y y

Quality certificate from EMPA for cryogenic applications of strand wire. QS9000 and TS 16949: Borivli wire plant, Tarapur Wire Plant and Wire Rod Mill (west).

QS9000 and TS 16949: Tarapur Wire Plant's Spring Steel and Motor Type Bead Lines.

ISO 14001: Wire Rod Mill (West).


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Sustainability
Tata Steel Wire Division has always maintained a collective focus on the various areas of corporate sustainability that impact the people, the environment and the society at large. In keeping with the Groups philosophy of encouraging economic, social and educational development within the communities, Tata Steel Wire Division has made significant progress over the years in the direction of employee engagement, environment conservation and social sustainability while also giving active support to local initiatives. Adhering to Tata Steels core value of Good Corporate Citizenship, the Wire Division plays an active role in fulfilling its social responsibilities and invests in initiatives that will enhance the quality of life especially for the underprivileged. Some of the initiatives undertaken in recent times include:
y

Regular support to the disadvantaged students of the villages of Mundwali, Ambatpada and Salwad, by providing material support in the form of books, pencils, erasers, compass boxes & drawing papers.

Wire Division is also committed to increasing the green cover in and around our works at Tarapur. So on 3rd August 2009 a band of enthusiastic employee volunteers and social workers participated in a green endeavour by planting a number of saplings in Boisar, a tiny step towards lessening the effects of the Companys carbon footprints.

As a responsible corporate citizen, the Wire Division continuously encourages employee participation in various CSR initiatives, in the fields of education, health and environment.

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Environment Management System Certification for Wire Rod Mill West


Wire Rod Mill West (WRM-W) continuing its environment friendly efforts has once again got certified for ISO 14001: 2004 Standard by TUV in the month of May 2009. WRM-W was first certified in the year 2003 and since then has been maintaining the green trend and doing its part in environment conservation. The aim of this standard is to reduce the environmental footprint of a business and to decrease the pollution and waste a business produces. WRM W in its journey has made many improvements and contributed through many steps that include reducing furnace emission, reducing consumption of natural resources like power and fuel and lubricants like oil and grease, ensuring proper and safe disposal of waste, planting trees, ensuring PUC adherence of vehicles, choosing to go soft instead of paper, educating its employees on EMS standard from time to time and above all adhering to all Legal requirements.

Reducing the Carbon Footprint


To fulfil its obligation towards climate and to align itself with Tata Steel's GHG reduction targets, Tata Steel Global Wires Business undertook the exercise of calculating the carbon footprint of its operations across India, China and Thailand with the help of Greenway Eco development. The exercise was planned bearing in mind the variety of products manufactured and the types of processes employed. A plant specific approach was adopted wherein detailed process maps and energy use profiles were developed in consultation with the plant heads. The data collection and analysis were performed in accordance with internationally respected standards - the GHG Protocol and ISO 14064.

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Major Projects of Tata Steel Wire Division


Tata Steel Wire Division is the largest wire manufacturer in the Indian market, catering to pre-stressing strand requirements in the country and abroad. Some of the prestigious projects of the Company have been listed below

Projects in India
y y y y y y y y y

Atomic Power projects - Kota, Kaiga and Tarapur Flyovers in Mumbai - JJ Flyover Railway Bridge over Godavari Delhi Metro Rail Project LNG tank at Dahej Port LNG Tanks at Dabhol Power Project Bangalore Software Technology Park Subramany Arcade in Bangalore Cable Stay Bridge at Naini, UP

Overseas Projects
y y y y y y y

Westkon and Dockland Olympic Stadium - Melbourne South Eastern Motorway Access Bridge - Auckland Extension Piles - Auckland International Airport Bank of New Zealand Building - Hamilton New Zealand's Tallest Tower- Sky Tower, Auckland Vaiduct from Airport Road to Tampines- Singapore Bridge across Pandan River - Singapore

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TATA Steel Wire Division Product portfolio


Institutional Business
y y y y

Automotive Infrastructure Power Annealed

Retail
y y

Galvanized Welding

Institutional Business
1. Automotive

y Tyre Bead Wire


Tyre bead wire is a copper/ bronze coated wire which is used for the reinforcement of virtually all types of pneumatic tyres such as trucks, buses, cars, motorcycles, etc. The main function of the tyre bead wire is to act as reinforcement and it helps to get a proper grip of the tyre on the rim. The type of tyre and structure of bead rings used, determine the size of bead wire

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y Spring Wire
Tata Wiron Spring Wires find use as tension and compression springs in two wheelers, four wheelers and general engineering industry for applications ranging from Shock Absorbers to Clutch Brake Springs, to Mattress Spring etc. Tata Steel Wire Division is one of the first Steel Wire Companies in India to get ISO 9002:1984 certifications.

y Spoke Wire
Tata Steel Wire Division is one of the leading manufacturers of Spoke Wires in India catering to nearly 50% of market requirement. It is also exported to cycle wheel manufacturers around the world. The Product range includes Drawn Cycle Spoke, Bright Cycle Spoke and Galvanized Cycle Spoke. It is mostly used in two wheelers, automobiles and bicycles.

2. Infrastructure

y LRPC
Low Relaxation PC Stranded wires are used in Pre-stressed concrete girders for road, river & railway bridges and flyovers, pre-stressed atomic reactor domes, slabs, silos, hangars, aquaducts, high rise buildings, viaducts & railway sleepers.

y PC Wire
Pre-stressed concrete wires find applications in Electric Pole reinforcement, as reinforcement in pre-stressed Concrete and in Pipes Railway Sleepers.
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3. Power

y Cable Armour
Cable armouring wires are used in armouring of cables, which find application in the power segment. Tata Steel Limited (Wire Division) manufacturers two different types of cable armour wires with round and flat cross sections. The Company is also the leading supplier of Flat and Round Cable Armour wires in India. These wires are manufactured in modern galvanised furnace and flattening machines equipped with latest technology for superior quality

y ACSR
ACSR stands for 'Aluminium Conductors Steel Reinforced' and it consists of a solid or stranded steel core surrounded by strands of aluminium (E.C. GRADE). ACSR Conductor is available in a wide range of steel varying from as low as 6% to as high as 40%. The principal advantage of these conductors is high tensile strength so that they are used for longer spans with less supports. Cable & Conductor ACSR Core wire is used in reinforcement of aluminium conductors used in distribution and transmission of electricity.

4. Annealed
y Card Clothing Wire

Tata Steel Wire Division is one of the leading manufacturers of Card Clothing Wires in India. It has the capacity to manufacture 100 MT of Card Clothing wires per month. The products find application in Textile Industry machinery. It undergoes extensive profiling and selective heat treatment.

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Retail

1. Galvanized
Galvanised wire from Tata Steel Wire Division is used in a host of applications which include Vineyards, Welded mesh for Poultry farms, Gabions for soil protection, Chain Link, Barbed Wire & Concertina Wire for fencing, Stay Wire & Earth Wire in the Power Industry, Pail Handles, Wire Mesh, Stitching Wire, Bale Tie Wire, etc. 2. Welding Mig welding wire can be aluminium welding wire, stainless steel welding wire or other alloy wire especially for mig welding processes. Tata Steel Wire Division manufactures steel wire with thin and uniform coating for continuous welding on unalloyed and structural steels.

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Research Methodology
The project undertaken comprises of both primary and secondary research. Let us first have a look at the secondary research

Secondary research Literature review Cost accounting


In management accounting, cost accounting establishes budget and actual cost of operations, processes, departments or product and the analysis of variances, profitability or social use of funds. Managers use cost accounting to support decisionmaking to cut a company's costs and improve profitability. As a form of management accounting, cost accounting need not to follow standards such as GAAP, because its primary use is for internal managers, rather than outside users, and what to compute is instead decided pragmatically. Costs are measured in units of nominal currency by convention. Cost accounting can be viewed as translating the supply chain (the series of events in the production process that, in concert, result in a product) into financial values. There are various managerial accounting approaches:
y y y y y y

standardized or standard cost accounting lean accounting activity-based costing resource consumption accounting throughput accounting marginal costing/cost-volume-profit analysis

Classical cost elements are: 1. raw materials 2. labour


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indirect expenses/overhead

Origins
Cost accounting has long been used to help managers understand the costs of running a business. Modern cost accounting originated during the industrial revolution, when the complexities of running a large scale business led to the development of systems for recording and tracking costs to help business owners and managers make decisions. In the early industrial age, most of the costs incurred by a business were what modern accountants call "variable costs" because they varied directly with the amount of production. Money was spent on labour, raw materials, power to run a factory, etc. in direct proportion to production. Managers could simply total the variable costs for a product and use this as a rough guide for decision-making processes. Some costs tend to remain the same even during busy periods, unlike variable costs, which rise and fall with volume of work. Over time, the importance of these "fixed costs" has become more important to managers. Examples of fixed costs include the depreciation of plant and equipment, and the cost of departments such as maintenance, tooling, production control, purchasing, quality control, storage and handling, plant supervision and engineering. In the early twentieth century, these costs were of little importance to most businesses. However, in the twenty-first century, these costs are often more important than the variable cost of a product, and allocating them to a broad range of products can lead to bad decision making. Managers must understand fixed costs in order to make decisions about products and pricing. For example: A company produced railway coaches and had only one product. To make each coach, the company needed to purchase $60 of raw materials and components, and pay 6 labourers $40 each. Therefore, total variable cost for each coach was $300. Knowing that making a coach required spending $300, managers knew they couldn't sell below that price without losing money on each coach. Any
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price above $300 became a contribution to the fixed costs of the company. If the fixed costs were, say, $1000 per month for rent, insurance and owner's salary, the company could therefore sell 5 coaches per month for a total of $3000 (priced at $600 each), or 10 coaches for a total of $4500 (priced at $450 each), and make a profit of $500 in both cases.

Elements of cost
y

1. Material(Material is a very important part of business)


o o

A. Direct material B. Indirect material

2. Labour
o o

A. Direct labour B. Indirect labour

3. Overhead
o o

A. Indirect material B. Indirect labour

(In some companies, machine cost is segregated form overhead and reported as a separate element) They are grouped further based on their functions as,
y y y y

1. Production or works overheads 2. Administration overheads 3. Selling overheads 4. Distribution overheads

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Classification of costs
Classification of cost means, the grouping of costs according to their common characteristics. The important ways of classification of costs are:
y y

By nature or element: materials, labour, expenses By functions: production, selling, development, distribution, administration, R&D,

y y y y

As direct and indirect By variability: fixed, variable, semi-variable By controllability: controllable, uncontrollable By normality: normal, abnormal

Standard cost accounting


In modern cost accounting, the concept of recording historical costs was taken further, by allocating the company's fixed costs over a given period of time to the items produced during that period, and recording the result as the total cost of production. This allowed the full cost of products that were not sold in the period they were produced to be recorded in inventory using a variety of complex accounting methods, which was consistent with the principles of GAAP (Generally Accepted Accounting Principles). It also essentially enabled managers to ignore the fixed costs, and look at the results of each period in relation to the "standard cost" for any given product. For example: if the railway coach company normally produced 40 coaches per month, and the fixed costs were still $1000/month, then each coach could be said to incur an overhead of $25 ($1000 / 40). Adding this to the variable costs of $300 per coach produced a full cost of $325 per coach.

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This method tended to slightly distort the resulting unit cost, but in mass-production industries that made one product line, and where the fixed costs were relatively low, the distortion was very minor. For example: if the railway coach company made 100 coaches one month, then the unit cost would become $310 per coach ($300 + ($1000 / 100)). If the next month the company made 50 coaches, then the unit cost = $320 per coach ($300 + ($1000 / 50)), a relatively minor difference. An important part of standard cost accounting is a variance analysis, which breaks down the variation between actual cost and standard costs into various components (volume variation, material cost variation, labour cost variation, etc.) so managers can understand why costs were different from what was planned and take appropriate action to correct the situation.

The development of throughput accounting


As business became more complex and began producing a greater variety of products, the use of cost accounting to make decisions to maximize profitability came under question. Management circles became increasingly aware of the Theory of Constraints in the 1980s, and began to understand that "every production process has a limiting factor" somewhere in the chain of production. As business management learned to identify the constraints, they increasingly adopted throughput accounting to manage them and "maximize the throughput dollars" (or other currency) from each unit of constrained resource.

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Activity-based costing
Activity-based costing (ABC) is a system for assigning costs to products based on the activities they require. In this case, activities are those regular actions performed inside a company. "Talking with customer regarding invoice questions" is an example of an activity inside most companies. Accountants assign 100% of each employee's time to the different activities performed inside a company (many will use surveys to have the workers themselves assign their time to the different activities). The accountant then can determine the total cost spent on each activity by summing up the percentage of each worker's salary spent on that activity. A company can use the resulting activity cost data to determine where to focus their operational improvements. For example, a job-based manufacturer may find that a high percentage of its workers are spending their time trying to figure out a hastily written customer order. Via ABC, the accountants now have a currency amount pegged to the activity of "Researching Customer Work Order Specifications". Senior management can now decide how much focus or money to budget for resolving this process deficiency. Activity-based management includes (but is not restricted to) the use of activity-based costing to manage a business. While ABC may be able to pinpoint the cost of each activity and resources into the ultimate product, the process could be tedious, costly and subject to errors.

Lean accounting
Lean accounting has developed in recent years to provide the accounting, control, and measurement methods supporting lean manufacturing and other applications of lean thinking such as healthcare, construction, insurance, banking, education, government, and other industries. There are two main thrusts for Lean Accounting. The first is the application of lean methods to the company's accounting, control, and measurement processes. This is not
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different from applying lean methods to any other processes. The objective is to eliminate waste, free up capacity, speed up the process, eliminate errors & defects, and make the process clear and understandable. The second (and more important) thrust of Lean Accounting is to fundamentally change the accounting, control, and measurement processes so they motivate lean change & improvement, provide information that is suitable for control and decision-making, provide an understanding of customer value, correctly assess the financial impact of lean improvement, and are themselves simple, visual, and low-waste. Lean Accounting does not require the traditional management accounting methods like standard costing, activity-based costing, variance reporting, cost-plus pricing, complex transactional control systems, and untimely & confusing financial reports.

Marginal costing
This method is used particularly for short-term decision-making. Its principal tenets are:
y

Revenue (per product) variable costs (per product) = contribution (per product) Total contribution total fixed costs = (total profit or total loss)

Thus, it does not attempt to allocate fixed costs in an arbitrary manner to different products. The short-term objective is to maximize contribution per unit. If constraints exist on resources, then Managerial Accounting dictates that marginal cost analysis be employed to maximize contribution per unit of the constrained resource.

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Primary Research
Primary research is collecting fresh data by field work and surveys. The fieldwork for this project included going down to the TWP plant located at Tarapur and collecting the related data. This data was collected from various sources and then was put together to get the final picture. Sources from where the primary data was collected were, the respective officers handling the tasks, the officers in the Finance and accounts dept., the ERP system used to maintain records and also the machine operators in the plant In this project we have followed the following procedure
y y y

Understanding the MTB and PCSR process Analysing the various cost elements Collecting consumption data, from the shop floor and the ERP system

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Mo o Tyre Bea Wire (MTB The Pro ess


Understanding of the process of MTB manufacturing is the first and most important step in understanding the various cost elements involved in the manufacturing of the wire. Below Figure is a flow chart of the MTB process

Fig.2. Flowc art of MTB process

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Pickling
The wire rods used in the manufacturing of MTB wires are produced in the Wire Rod Mill (WRM west). After manufacturing these wire rods are shipped to the centralized pickling line at the TWP 2 plant for the pickling process. It is compulsory to pickle the rods before they are used in the drawing machines. That there are many ways to skin a cat is certainly true when it comes to removal of mill scale and surface oxide. The scale is the Fe3o4 blue oxide that forms on the wire as it cools following the rolling process. Fe2O3 is the red surface oxide or rust that forms during shipping and storage. Both oxides need to be removed prior to drawing. You can do this by 4 basically different methods.
y

Acid pickling Mechanical de-scaling Abrasive Blasting or Sanding Shaving.

Conventional chemical acid pickling

The iron ions will then go into solution as hydrogen gas is formed on the steel surface "blasting" off the iron oxide.

Tata Steel Wire Division | Activity based costing

33

Following the acid dip, the rod bundle is submerged in a rinse water tank followed by a lime or borax tank. The rod is then placed in a baker where the crystal water in the

iew of Li e Manually o erated rane hro h Tunnel i ling line Hood lime or borax is removed. The wire rod is then ready for processing in the wire mill. Co i o s Pi li Li e Some of the other ingredients used in Pickling process are Bonder, Borax and KMnO4. Each of these chemicals is used for coating different type of products. An MTB wire rod requires only Borax coating The following Fig. Gives you a snapshot of the centrali ed pickling line at the T P 2 plant

Fig.3. Flowc art of Centralize Pic ling Line Tata Steel Wire Division | Activity base costing 34

Pre Drawing
The pickled wire rods are brought to the Pre drawing line at the T P 1 plant. Two machines are used for this operation vi . 301 and 302. The RM i.e. pickled wire rod has a diameter of 5.5 mm. A wire of this thickness cannot be drawn directly to the required final si e of say 0.965 mm or .93 mm as it has very low draw ability and will result in a poor finished good, so we break the drawing process into two stages, the pre drawing and the finish drawing.

Machine no eed hift roduction

301 7.5 m/sec 10.5 MT

302 10.5 m/sec 12 MT

Table.1. Specifications of Pre drawing mac ines

Patenting
The patenting process is used for reducing the tensile stresses developed in the wire due to the Pre drawing process. It is basically a heat treatment process that is used to enhance some key properties of the wire like Torsion, Bend, and Elongation. Patenting process involves many steps 1 Heat treatment by assing through a furnace The furnace has 6 zones with the following temperatures Zone Zone 1 Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Temp C 1100 1070 1000 1000 605 605

Table.2. Temperature zones of LPG furnace (patenting line) Tata Steel Wire Division | Activity base costing 35

2. Quenching by passing through a led bath. This process is used to properly cool down the hot wires so that they dont become brittle as they cool down. These wires cannot be directly cooled by water and hence quenching is used. 3. Cooling by passing through water bath The wires are then passed through a water bath to cool them down to normal temperature so that they can be easily drawn on the drawing machines. 4. Acid treatment by passing through acid bath (HCl) After the water bath comes the acid treatment in an acid bath. The bath consists of Conc. HCl. The acid treatment is a way of cleaning the wire surface of any particles that may be present from the earlier processes. 5. Borax coating by passing through Borax bath This process involves passing the wires through a borax bath. Borax is primarily used to increase the drawing characteristics of the wires.

6. Drying Oven for drying the wires Finally the wires are passed through a drying oven. The fuel used in the oven is LPG and the wires are heated to a temperature of 250C. It is essential that the wires do not have moisture over them while they pass through the drawing machines.

Finish Wire Drawing


This is the process where the heat treated wire is drawn to its final size, hence the name Finish wire drawing. This line consists of an array of 11 machines numbered from 201 to 211. Different final sizes are drawn on different machines. This is the place where the final sizes are drawn and it is also the cost centre where the most cost is incurred in the entire process. This is due to the time it takes to draw a ton of wire
Tata Steel Wire Division | Activity based costing 36

on a machine. Further the variability aspect regarding the different sizes of wires further drives up the cost. Variability occurs due to the same size wire being produced on different machines possibly on a different machine in each shift. Thus the wires are not necessarily produced on the least cost machines. Thus the finish drawing cost is a variable cost.

Plating
The wires after being drawn to their final size are then taken to the plating line for Copper plating. The copper plating acts as a media to increase the bonding between the rubber of the tyre and the wire. The plating process begins by passing the wires through two lead baths. This is similar to the quenching process of Patenting line. Then the wires are then passed through a water bath to remove any traces of Lead from the wire surface. A sulphuric acid bath follows this, concentrated Sulphuric acid further cleans the wire surface and makes it ready for copper plating process; it helps in proper coating of copper on the wire. This is followed by the Copper sulphate bath which is the place where the copper coating takes place. After passing through the copper sulphate bath the wires get copper plating. After the plating has been done the wires are dried in a drying oven and then they are sent to the M+E/Rewinding section.

M+E/Rewinding
The copper plated wires arrive at the M+E section. The ambient atmosphere of this section has to be tightly controlled as even a small amount of moisture in the air can be the cause of corrosion on the wires. A chilling plant is used to maintain a suitable temperature in the section. For some wires this is the last step of the manufacturing process. These wires are wound on Spools and are sent directly to the packing section for the final packing. The remainder of wires move on the Rewinding section. At the rewinding section the straightness of these wires is checked on the rewinding
Tata Steel Wire Division | Activity based costing 37

machines and corrected. Straightness is an essential property for these wires. The wires after rewinding are also sent to the packing section.

Packing
This is the last step. There are two types of packing 1. Spools 2. Pallets Spools are smaller and cheaper than Pallets. Each Pallet actually consists of 2 spools

Tata Steel Wire Division | Activity based costing

38

PCSR Process
Pre stressed concrete Stress relieved wires undergo the following process,

Fig.4. PCSR process Flow c art

Drawing
The drawing process takes place in the two Pace maker machines PM1 and PM2. The pace maker machines are like the drawing machines of the MTB line but they draw thicker wire rods typically 7 to 10 mm wire rods. Few of the drawn wires are directly sent for packing and do not go through the SR line, these are known as PC drawn wires. The cost elements involved here are Power, abour, Production stores like Dies & pellets, Soaps & ubricants and Maintenance stores.

Stress Relevance
During the drawing process in the pace maker machines s ome stresses are developed on the PC wires. In order to reduce these stresses the wires are passed through a heated lead bath. The major cost elements are ead and DO.

Packing
For packing the wires are first put on the SR coiler machines to make the coils and then they are further transferred to the packing line. Not all PC products require packing, they are shipped bare.
Tata Steel Wire Division | Activity based costing 39

Cost Elements and Variability


The various costs incurred in the manufacturing of MTB are 1. Power 2. LPG 3. Furnace oil 4. Lead 5. Labour 6. Acid 7. Water 8. Packing material 9. Maintenance Stores 10. Soaps & lubricants 11. Dies & Pellets 12. Other production stores 13. Pickling cost 14. Contract costs Let us have a detailed look at these various costs along with their variability i.e. whether the cost element is a Fix cost, a variable or a semi variable; based on the following definitions

A. Fix Cost
In cases where expenditure does NOT increase or decrease with changes in the level of productive activity, then this is categorised as a fixed cost.

B. Variable Cost
A variable cost is any expenditure that varies in direct proportion to a change in the level of productive activity.

C. Semi Variable Cost


The term semi-variable cost refers to expenditure which remains fixed within a particular level of productive activity, which is referred to as the range. If the level exceeds this range, then additional costs will be incurred.
Tata Steel Wire Division | Activity based costing 40

Power Power as a cost is incurred in many activities of running the plant. Power is consumed in running all the lines be it the Pre drawing, Finish drawing, Patenting or Plating line. Then power is also used in running the various utilities in the plant, the lighting system. Power falls in the semi-variable category as it has both a Fix and a Variable component. The Fix component is the power that is used in the lines like Patenting, Plating, Rewinding, cause there is not much variation in the power consumed in these lines, whereas for the drawing lines i.e. the Pre drawing and the Finish drawing the power is a variable cost as the power consumed for different sizes of wires is quite different. Power is further recorded as Utility and all power consumed in the utilities is recorded here. LPG LPG cost is incurred in running the furnace and the drying owen on the Patenting line and the Plating line. LPG qualifies as a Semi variable cost. Even during a shutdown of the plant the furnaces need to be kept on at some min temperature and hence LPG cost is incurred; this is the Fix part of the LPG cost. Above this he LPG consumption varies according to the production, thus making LPG a semi variable cost. Furnace oil Furnace oil is used to heat the boilers to produce steam used on the lines. Furnace oil is a pure variable cost as it depends on the level of production. Lead Lead is a semi variable cost as some fixed amount of lead is consumed on the line for the annual shutdown; rest consumption varies according to the production levels Labour Labour cost is a variable cost. Labour cost is divided into two parts, Direct and indirect labour. Indirect labour cost is the cost of labour incurred in the various
Tata Steel Wire Division | Activity based costing 41

utilities that are required to run the whole plant, a part of this plant is loaded on to the MTB line. Acid Acid i.e. Fresh acid is used in the Patenting and Plating lines. This is a variable cost as the consumption of acid varies with the production. Water Water is a variable cost. Water is consumed in the drawing lines and also in the Patenting and plating lines. Packing material Packing material is a variable cost. Packing material is spools, plastic, wood etc. Maintenance Stores The various costs incurred in the maintenance operations are recorded in this cost centre. This is a variable cost. Soaps & lubricants Soaps & lubricants are used in the drawing machine in the die assembly to provide lubrication to the wire being drawn. Various soap powders like Vicafil 1164, Sumac 2x etc are used. This is a variable cost. Dies & Pellets Dies and pellets are used in the drawing machines. This is where the wires are drawn into thinner sizes. Dies wear after continuous operation and have to be replaced by new ones. This is a variable cost as it depends on the level of production. Other production stores This includes the miscellaneous costs incurred in the production; this too is a variable cost Pickling cost Since pickling has been a centralized affair since last December it qualifies as a fixed cost.
Tata Steel Wire Division | Activity based costing 42

Contract costs Contract costs are a Fixed cost. Various activities in the plant are outsourced like packing; such costs are recorded in the contract cost centre also called as Part B costs.

A Snapshot of Fix, Variable and Semi Variable costs


Fix Cost
y y

Pickling Cost Contract Costs

Variable
y y y y y y y

Maintenance Stores Dies and Pellets Water Acid Furnace oil Soaps & Lubricants Labour

Semi Variable
y y y

Power LPG Lead

Tata Steel Wire Division | Activity based costing

43

MTB Cost Sh t
elements
Power
 

unit measure

units

rate/unit Rs. Lac

LPG Fixe V ri le Lead P te ti g Pl ti g Water Acid - fresh Acid Regenerated Furnace oil Packing material S ools P llets mintainence stores soaps & lubricants 2056 1164 V6SN s c 2x Die & pellets Other prod stores Labour Labour common WP part A total Repairs contracts ontratcs ommon utility entralised pickling part total P rt reve e s ctio s P rt Ex s lloc te Grand
 " " $ &" 43 5 2 0 0 ) ( 1 1 1 ( % '& $ " " "  !

Kg Kg

kg kg tr tr ltr ltr
# #

Rs. Rs.

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Rs. Rs. Rs. Rs.

Tata Steel Wire Division | Activity based costing 44

76

Fixe V ri le Utilities tot l


   

K h K h K h

6,25,353.66 16,56,996.57 2,03,666.48

25,000.00 87,000.00

5,000.00 4,000.00 27,000.00 86,015.83 30,000.00

111.29 111.29 22.72 2.34 27.51

le.3. MTB ggreg te cost s eet



ost heet


2,400.00 Pro

Units/tn Rs./tn

5.32 5.32 5.32

33,28,757.53 88,20,192.76 10,84,116.69

260.56 690.42 84.86

1,386.98 3,675.08 451.72

41.28 41.28

10,32,000.00 35,91,360.00

10.42 36.25

430.00 1,496.40

5,56,450.00 4,45,160.00 6,13,440.00 1,78,211.75 8,25,300.00

2.08 1.67 11.25 35.84 12.50

231.85 185.48 255.60 74.25 343.88

39,67,200.00 11,93,000.00

1,653.00 497.08

1,12,397.71 96,204.14 81,185.77 2,21,159.95 20,000.91 11,42,995.19 35,05,269.14

46.83 40.09 33.83 92.15 8.33 476.25 1,460.53 1,500.00 14,339.33

1,10,112.00 32,68,890.57 30,82,552.60 26,40,109.20

45.88 1,362.04 1,284.40 1,100.05 3,792.36

3,99,16,065.91

18,131.69

MTB Cost Sh t Fix d


9 @9

V ri bl costs
@A

pow r
QP FI C H

Fix Utiliti s LPG Lead


RV RV G

K h K h K s K s K s Rs. Rs. Rs.


R R R

6, 2,

, .66 ,666.

25,000.00 5,000.00 4,000.00

t ti Pl ti ontra t osts
VU T S T W X

Utiliti s
b

Pi klin
X c

otal ix ost
f e d

Variable osts
g

Rs Rs Rs Rs Rs Rs Rs Ltr

Rs Rs Rs 35.05

otal Variable ost


f

Grand total

Tata Steel Wire Division | Activity based costing 45

yy

abl .4.
y

Water Power LPG urna e oil Dies & pellets oaps & lubri ants 2056 1164 V6SN s 2x Other produ tion stores Repairs aintanen e stores A id - resh Pa kin aterial S ls Pall ts Labour ir t Utiliti s
p U sU vvu sTrq U w X X X t b h X X X t h

Rs K h K s Ltr Rs

27,000.00 16,56,996.57 87,000.00 30,000.00

86,015.83

Fix d and Variabl

st sh

9 @

l m nts Fix costs


9 B 9 9

unit m sur

units

r t /unit Rs.

c Units/tn Rs./tn

FEF ED

5.32 5.32 41.28 111.29 111.29

33.27 10.84 10.32 5.56 4.45 32.69 30.83

260.56 84.86 10.42 2.08 1.67

1,386.20 451.46 430.00 231.85 185.48 1,362.04 1,284.40 1,100.05 6,431.48

a`Y

W c i

22.72 5.32 41.28 27.51

6.13 88.15 35.91 8.25 0.20 1.12 0.96 0.81 2.21 11.43 1.10 11.93 1.78

11.25 506.42 36.25 10.42

255.60 3,673.01 1,496.40 343.88 8.33 46.83 40.09 33.83 92.15 476.25 45.88 497.08 74.25

2.34

35.84

1,653.00 1,460.53 1,500.00 11,697.11 18,128.59

Line Wise cost sheet MTB

Tata Steel Wire Division | Activity based costing

46

Tata Steel Wire Division | Activity based costing

47

Tata Steel Wire Division | Activity based costing

48

PCS Cost Sh t
e

Cost sh

t unit

production

LDO

Ltr g

d at rial

Pac ing soaps


f d e

Rs. Rs. Rs. Rs. Rs. Rs.

aint nanc stor s lubricants

Oth r prod stor s Labour


Contract Costs C ntralis d pic ling costs

part B total
Part C revenue sanctions Part D GA ps allocated

Table.5. PCSR aggregate cost s eet

Tata Steel Wire Division | Activity based costing 49

rand

ln mli l

rj

o p

oth r saf t

aint,r pairs

Rs. Rs. Rs.

3.03 28.09

1,605.06 1,150.00

part A total

172.96

kj ji

Di

p ll ts

utilit

fix

Po

r V ri bl w 4,51,489.14 1,45,790.92 1,02,417.30 15.38 3.08 5.32 5.32 5.32 42.00 109.00 24.02 7.76 5.45 7.77 3.85 0.07 1.42 0.69 0.01 0.97 7.49 257.99 83.31 58.52 1,372.53 443.20 311.35 845.96 219.86 4.07 200.00 170.00 102.00 55.38 1,469.00

nts

sur

units

nits tn

s. tn

s. r t unit L c

Mt

Size wise Cost for MTB


To calculate the cost of each individual size of wire we need to find out two things, first we need to calculate the hourly rates for all the cost elements consumed line wise i.e. for each individual line; second we need to find out the processing time (std. Hours) i.e. the time it takes each wire to pass through a one process. Further we need the OPI of each machine. After dividing the std. Hours by the OPI we get the actual time, actual hours, it takes for a wire to pass through the process. Thus we get the cost of each and every process or activity that goes into wire manufacturing. Summing up these costs gives us the total process cost for that particular wire.

Hourly Rates
We need to calculate the hourly rates for all the 5 processes that each wire goes through. For this purpose we need to calculate the total consumption of the various cost elements consumed in each line. We get these costs from our earlier workings of the aggregate cost sheet. We need the average i.e. the monthly consumption of these costs. To calculate hourly rates we consider the plant to be working for 30 days a month. Therefore the total hors for which the plant works turns out to be 30*24 = 720 hours. Now dividing the average costs by the total operating hours we get the hourly rate for each cost element. Let us have a look at the hourly rate calculation for LPG consumption in the patenting line. LPG consumption in units (per month) = 76,000 kg Rate/unit = Rs. 41.28 Total Cost = 76000*41.28 = Rs. 445160 Now Hourly rate = Total cost/hours = 445160/720 = Rs. 618.27 In this way we calculate the hourly rates of all the cost elements in each line. Following table gives you the hourly rates of each cost element and the total hourly rate of each line.

Tata Steel Wire Division | Activity based costing

50

Table.6. Hourly rates of MTB lines Tata Steel Wire Division | Activity based costing 51

Processing time Standard and Actual hours


The second step in calculating the size wise costs is to find out the processing times, the std hours and the actual hours. e have to find out the actual hours for each and

every machine as fix programme of manufacturing a single size wire on a single machine, because of this reason one wire may be produced on different machines leading to different final costs. For this purpose we use data provided by the ab at the T P 1 plant, this data includes the std. measurements for coil weight, speed of the machines, and the std. Time taken for completing a metric ton of wire. This data will provide us with the standard hours of manufacturing a wire on any given machine but what we need is the actual hours as a machine does not operate the entire time. This factor needs to be considered while calculation of the costs. To calculate the actual hours we use a factor called OPI (Operational performance index), each machine has its own OPI. Dividing the Std. Hours by the OPI will give us the actual hours of that particular wire on that particular machine. calculations. Standard Finish block coil weight speed(Mt/sec) in kg 20 20 20 1840 1840 1840 Time required for standard coil weight in min 287.20 275.24 266.75 Handling time/standard coil weight in min 10 10 10 Total time required in hours for standard coil weight 297.20 285.24 276.75 et us have a look at these

M/C No.

RM size 3 3 3

Finish size 0.93 0.95 0.965

201203

Total Hrs Production OPI 100%Production for std Hrs/Mt Kg/hrs Mt/Hrs in per day(Mt) weight shift(Mt) Average 4.95 4.75 4.61 2.69 2.58 2.51 371.47 387.05 398.92 0.37 0.39 0.40 2.97 3.10 3.19 8.92 9.29 9.57 83 83 83

STD Prod MT /day 7.40 7.71 7.95

STD Hrs/Mt 3.24 3.11 3.02

Table.7. STD. Hours for 0.93, 0.95, 0.965 mm MTB wires Tata Steel Wire Division | Activity based costing 52

We have arrived at the Std. Hours for manufacturing the sizes 0.93, 0.95, and 0.965 on the machines 201,202 and 203. Now for calculating the actual hours we need to get the OPI of these machines. The actual hours for these machines is calculated as, Actual hours = Standard hours / OPI Si e 0.93 0.95 0.965 Std hours/Mt 3.24 3.11 3.02 OPI 0.88 0.88 0.88 Actual Hours 3.68 3.53 3.43

Table.8. Actual Hours for 0.93, 0.95, 0.965 mm MTB wires

Now using all of this data let us compile the size wise cost sheets for a few sizes of MTB wire

Table.9. process cost for .93 mm MTB wire

Tata Steel Wire Division | Activity based costing 53

zz |z|

z {

xy

4 5 6 7

Finish Drawing Plating winding Labour(utiliti s)

1 2 3

Pic ling Pr Drawing Pat nting

5.50 5.50 3.00 3.00 0.93 0.93

5.50 3.00 3.00 0.93 0.93 0.93

10.50 0.63 20.00 5.00 11.00

301 604 201203 605

0.61 0.83 0.29 0.97 3.32 0.88 0.55 0.95 0.50 0.83

0.73 0.30 3.77 0.58 0.60

1561.71 8164.66

2827.89 10668.86 5246.68 3054.12 1637.32 984.83 1334.00 .

ss

st

Proc ss
s

si sp inl t outl t
s

861.00 1147.76 2474.65

M C STD Actual d no. hrs. OPI hrs.

Si e 0 93 sr no.

hourl rat

proc ss cost

inl t outl t

1 2 3

Pic ling Pr Drawing Pat nting Finish Drawing Plating winding Part B Labour(uti.)

5.50 5.50 3.00

5.50 3.00 3.00 10.50 0.63 301 604 204-205206-208209 605 0.61 0.83 0.29 0.97 0.73 0.30 1561.71 8164.66

4 5 6 7 8

3.00 0.78 0.78

0.78 0.78 0.78

20.00 5.00 11.00

4.90 0.88 0.46 0.95 0.69 0.83

5.57 0.48 0.83

2827.89 15746.21 5246.68 2540.50 1637.32 1361.14 1334.00 .

Table.10. process cost for .965 & .78 mm MTB wires

Tata Steel Wire Division | Activity based costing 54

~~

~}

Proc ss
~ ~

si

sp

OPI

861.00 1147.76 2474.65

~}

Si . sr no.

std d M C no. hrs.

actual hrs.

hourl rat

proc ss cost

4 5 6 7 8

Finish Drawing Plating winding Part B Labour(uti.)

1 2 3

Pic ling Pr Drawing Pat nting

5.50 5.50 3.00 3.00 0.95 0.95

5.50 3.00 3.00 0.95 0.95 0.95

10.50 0.63 20.00 5.00 11.00

301 604 201203 605

0.61 0.29 3.09 0.51 0.65

0.83 0.97 0.88 0.95 0.83

0.73 0.30 3.51 0.54 0.78

1561.71 8164.66 2827.89 5246.68 1637.32

~~

~}

Proc ss
~

si sp inl t outl t
~

861.00 1147.76 2474.65 9929.75 2816.64 1282.56 1334.00 .

M C std d no. hrs.

~}

Si . sr no.

actual OPI hrs.

hourl rat

proc ss cost

Table.11. process cost for 1.2 & 1.6 mm MTB wires

Tata Steel Wire Division | Activity based costing 55

4 5 6 7 8

2 3

Pic ling Pr Drawing Pat nting Finish Drawing Plating winding Part B Labour(uti.)

5.50 5.50 3.00 3.00 1.60 1.60

5.50 3.00 3.00 1.60 1.60 1.60 10.50 0.63 7.30 3.30 9.00 301 604 204-205206-209 605 0.61 0.83 0.29 0.97 2.92 0.88 0.16 0.95 0.22 0.83 0.73 0.30 3.32 0.17 0.27 1561.71 8164.66 2827.89 5246.68 1637.32

Proc ss

si sp inl t outl t

861.00 1147.76 2474.65 9383.45 883.65 433.99 1334.00 .

M C no.

Si . sr no.

std actual hrs. OPI hrs.

hourl rat

proc ss cost

4 5 6 7 8

Finish Drawing Plating winding Part B Labour(uti.)

1 2 3

Pic ling Pr Drawing Pat nting

5.50 5.50 3.00

5.50 3.00 3.00

10.50 0.63

3.00 1.20 1.20

1.20 1.20 1.20

12.60 4.60 11.00

301 604 204205206-208 605

0.61 0.83 0.29 0.97

0.73 0.30

1561.71 8164.66

3.01 0.88 0.21 0.95 0.31 0.83

3.42 0.22 0.37

2827.89 5246.68 1637.32

Proc ss

si sp inl t outl t

861.00 1147.76 2474.65

9672.67 1159.79 611.53 1334.00 .

M C no.

Si . sr no.

std hrs. OPI

actual hrs.

hourl rat

proc ss cost

Table.11. process cost for 0.89 & 2.00 mm MTB wires

Tata Steel Wire Division | Activity based costing 56

4 5 6 7 8

2 3

Pic ling Pr Drawing Pat nting Finish Drawing Plating winding Part B Labour(uti.)

5.50 5.50 3.00 3.00 0.89 0.89

5.50 3.00 3.00 0.89 0.89 0.89 10.50 0.63 15.00 5.00 11.00 301 604 210211 605 0.61 0.29 4.90 0.35 0.54 0.83 0.97 0.88 0.95 0.83 0.73 0.30 5.57 0.37 0.65 1561.71 8164.66 2827.89 5246.68 1637.32

OPI

861.00 1147.76 2474.65 15746.21 1932.99 1065.24 1334.00 .

M C no.

Si F.Drawing - 210211 . sr no. Proc ss si sp inl t outl t


std hrs.

actual hrs.

hourl rat

proc ss cost

4 5 6 7 8

Finish Drawing Plating winding Part B Labour(uti.)

2 3

Pic ling Pr Drawing Pat nting

5.50 5.50 3.00

5.50 3.00 3.00 10.50 0.63 301 604 204205206-209 605 0.61 0.83 0.29 0.97 0.73 0.30 1561.71 8164.66

3.00 2.00

2.00 2.00

6.00 2.90

2.30 0.88 0.12 0.95

2.61 0.13

2827.89 5246.68

Proc ss

si sp inl t outl t

861.00 1147.76 2474.65

7391.08 662.74

1334.00 .

M C no.

Si . sr no.

std hrs. OPI

actual hrs.

hourl rat

proc ss cost

Results
Let us compare the cost of same size wire produced on different machines. Here we have the wire of size 0.93mm. The first process involves Pre drawing on 301, Finish drawing on 210/211, and rewinding. The second process involves Pre drawing on 302, Finish drawing on 210/211 and finishing on the M+E machine.
Size .93 F.Drawing - 210-211 sr M C no. Process size speed no. inlet outlet 1 Pickling 5.50 5.50 2 Pre rawing 5.50 3.00 10.50 301 3 Patenting 3.00 3.00 0.63 604 2104 Finish rawing 3.00 0.93 21.00 211 5 Plating 0.93 0.93 5.00 605 6 Rewinding 0.93 0.93 11.00 7 Part B 8 Labour(utilities

0.61 0.83 0.29 0.97 3.25 0.88 0.55 0.95 0.49 0.83

As we see the two costs are different, this is because of the difference in time it takes to run the wire on the different machines, hence their costs end up being different.
Tata Steel Wire Division | Activity based costing 57

4 5 6 7 8

Finish rawing Plating Rew.(M+E Part B Labour(uti.

1 2 3

Pickling Pre rawing Patenting

7.50 0.63 21.00 5.00 5.80

3.00 1.60 1.60

1.60 1.60 1.60

302 604 210211 605

0.77 0.83 0.29 0.97 3.25 0.88 0.55 0.95 0.69 0.83

Process

size inlet outlet 5.50 5.50 5.50 3.00 3.00 3.00

Size .93 sr no.

M C std speed no. hrs.

std hrs.

PI

actual hrs.

hourly rate

process cost
861.00 1147.76 2474.65

0.73 0.30 3.69 0.58 0.59

1561.71 8164.66

2827.89 10443.91 5246.68 3037.55 1637.32 966.61 1334.00 20265.48

PI

actual hrs.

hourly rate

process cost
861.00 1448.82 2474.65

0.93 0.30 3.69 0.58 0.83

1561.71 8164.66

2827.89 10443.91 5246.68 3037.55 1637.32 1361.14 1334.00 20961.07

Here we see that cost of 1st process is Rs. 20,265; while cost of 2nd process is Rs. 20,961 a very huge difference. Let us have a look at another example. Size of the wire is 1.6 mm. The process difference is that one wire is being drawn on the Finish drawing machine 207 and the other is being drawn on the 204,205,206,208,209 machines. The cost difference comes out to be Rs. 514.
Size F.Drawing 1.6 207 Sr no. Process
1 2 3 4 5 6 7 8 Pickling Pre rawing Patenting Finish rawing Plating Rewinding Part B Labour(uti

5.50 3.00 3.00 1.60 1.60

3.00 3.00 1.60 1.60 1.60

10.50 0.63 8.04 3.30 9.00

1 2 3 4 5 6 7 8

Pickling Pre rawing Patenting Finish rawing Plating Rewinding Part B Labour(uti.

5.50 3.00 3.00 1.60 1.60

3.00 3.00 1.60 1.60 1.60

10.50 0.63 7.30 3.30 9.00

301 604 204-205206-209 605

0.61 0.83 0.29 0.97 2.92 0.88 0.16 0.95 0.22 0.83

Tata Steel Wire Division | Activity based costing

Process

size speed inlet outlet 5.50 5.50

M C no.

Size 1.6 sr no.

size speed inlet outlet 5.50 5.50

M C no.

301 604 207 605

0.61 0.83 0.29 0.97 2.76 0.88 0.16 0.95 0.22 0.83

std hrs.

std hrs.

PI

actual hrs.

hourly rate

process cost
861.00

0.73 0.30 3.14 0.17 0.27

1561.71 8164.66 2827.89 5246.68 1637.32

1147.76 2474.65 8869.29 883.65 433.99 1334.00 16004.34

PI

actual hrs.

hourly rate

process cost
861.00

0.73 0.30 3.32 0.17 0.27

1561.71 8164.66 2827.89 5246.68 1637.32

1147.76 2474.65 9383.45 883.65 433.99 1334.00 16518.50

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Recommendations
As we have seen that the aggregate cost per ton of MTB wires is Rs. 18,131, but when we go on to calculate the size wise per ton cost we see that the costs vary from 13,000 to 25,000. Thus proper scheduling of the production becomes very important for the company. As we have shown in this report that the same size wires vary significantly in costs when manufactured on different machines. This further puts impetus on proper scheduling of manufacturing. The most important outcome of this report is the fact that each size of wire produced in the Tarapur wire plant has a different process cost. This is due to the different amount of time each wire spends in the process. This report has shown how different machines can result in different costs of the same wire. Thus providing a platform for better scheduling activities at the plant. If we are able to run the wires on only those machines which offer the most optimum cost for that wire then our costs will significantly fall down. Better scheduling in turn will make use of these cost advantages and thus wires will be produced at the optimum costs and the company will be able to bring down the process costs and thus directly add to its profitability. Implementing such a technique will give the company a competitive advantage over its competitors.

Tata Steel Wire Division | Activity based costing

59

Conclusion
This research gives an insight into the cost structure of the TWP1 plant, specifically of the MTB and the PCSR lines. MTB is the most important product produced in the TWP1 plant; hence it is essential to understand what costs go into it. The steel wire market in India is a fiercely competitive market and the TSWD is no new comer to this market. It has established itself as the leader of steel wires in India. The size of the steel wire market was about 18,28,000 Mt in 2009-10. It is expected to grow to 19,50,000 Mt in 2010-11. The wire division has seen its market share slip from a high of 22% in 2004-05 to 13% in 2009-10. Thus the division is facing fierce competition and needs to gear up to sustain its leadership position in steel wires. Cost, thus becomes a very important factor for the TSWD. As the steel wire market increases in size and brings along new competitors it becomes important for the company to take a careful look at its cost structure. According to the companys ABP for FY11 the outlook for the two products that we have studied i.e. MTB and PCSR look bright. MTB market share is to be around 39% with the top Tyre companies of the country continuing to be the customers. The market share for PCSR is around 47% which is an increase of about 11% from FY10. With both the Indian economy and the infrastructure sector on their way up, the TSWD too seems poised to be headed in that direction.

Tata Steel Wire Division | Activity based costing

60

Bibliography

Tata Steel Wire Division | Activity based costing

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