This article throws light upon the twenty-five special points to be considered before preparing cost statements. Some of the special points are: 1. Electrical Cables and Conductors 2. Engineering Industries 3. Mini-Steel Plant 4. Motor Vehicles 5. Caustic Soda 6. Paper 7. Rayon 8. Aluminum 9. Bulk Drugs 10. Industrial Alcohol 11. Infant Milk Food 12. Rubber Tyres and Tubes 13. Cycle and a few others.
Preparing Cost Statements: Consideration # 1. Electrical Cables and Conductors:
(i) Installed capacity, if common for all metals, proper weightage to be given for different metals rolled requiring different rolling time,
(ii) Melting loss to be shown separately.
Cost of ‘Rods’ to be shown separately for own manufacture and processing by outside parties.
Preparing Cost Statements: Consideration # 2. Engineering Industries:
Annexure IV —
(a) Operating data such as total metal charged, good castings, yield percentage, operating days available and total number of charges, and
(b) Cost data for each cost centre (e.g. melting shop, moulding shop, core-making shop, grinding and smithy shops) to be exhibited by each element of cost together with inputs.
Preparing Cost Statements: Consideration # 3. Mini-Steel Plant:
Operating data like licensed and installed capacities, major inputs and major outputs and yield percentage, and the details of:
(a) No. of furnaces,
(b) Heat size (Liquid metal/heat),
(c) No. of Heats per annum,
(d) Burning loss,
(e) Total liquid metal production [(a x b x c) – d],
(f) LM supplied to Billet caster/Ingot Mould,
(g) Balance (e – f): LM supplied to Foundry/other departments, (2) LM loss and total (g1 + g2) = g,
(h) No. of shifts,
(i) No. of hours available, and
(j) No. of hours worked are to be given in respect of each type/grade of steel produced.
In case the internally manufactured material is sold, profit on such sales should be indicated taking into the cost of sales and sales realisation of the product.
Preparing Cost Statements: Consideration # 4. Motor Vehicles:
(a) Cost of components of major aggregates like engine, transmission, frame, body, etc. to be shown cost element-wise, and
(b) Cost of sub- assembly/main assembly to be indicated under labour and overheads.
Cost of ‘service after sales’ and ‘free servicing charges’ to be shown separately.
Preparing Cost Statements: Consideration # 5. Caustic Soda:
Cell liquor, chlorine gas and hydrogen gas—quantitative data to be shown and the recoveries for the gases sold or otherwise used to be adjusted from the total works cost. Also refer to the case illustrated in Appendix 6.
Costs are common to caustic lye, chlorine and hydrogen gases and therefore, the information to be indicated in total up to SI. No. 11 of part B and unit cost of caustic soda lye to be derived later.
Preparing Cost Statements: Consideration # 6. Paper:
Para 1 of Schedule I and Proforma A-(a):
As green bamboo or wood contains some moisture, records of receipt should be maintained both in green weight and air dry weight which may be obtained after deducting standard or average or actual moisture content of such bamboo or wood.
Monthly reconciliation of the green weight and air dry weight or bone dry weight of bamboo or wood should be made. Records regarding their issue and balance should be maintained in air dry or bone dry weight only. For Bagasse, grasses and straws, quantity records should be maintained taking into account the moisture content at the receipt point.
For assessing the cost of ‘steam’ produced (even if insignificant quantity) in the chemical recovery process for which credit is to be given, the ‘rate per unit of steam’ generated in the Boiler House should be adopted in absence of any other suitable method.
Proformae ‘E’ and ‘G’:
These categorically indicate that adjustments for self-consumption of Paper, etc. exercise note books and other paper products, in the Mill Offices have to be shown under a separate item. Even if self-consumption quantities are not very significant, such adjustments are necessary in view of the provisions and the rates for such transfers should be disclosed.
The cost of different types of paper manufactured (in proforma E) requires and depends on the cost of different kinds of pulp (in Proformae C, C-1, D) which again depends on the cost of chips (in Proforma B) manufactured from bamboo or wood.
Proformae ‘C’ and ‘D’:
Treatment of Bleached/Unbleached Chemical Pulp Sales—’Unbleached Pulp’ together with the costs (Proforma ‘C’) are transferred to: (i) Bleached Pulp Process (Proforma ‘D’) and (ii) Paper Mill Machine House. Similarly, ‘Bleached Pulp’ together with its costs (Proforma ‘D’) are transferred to Paper Mill Machine House.
Such transfers are done at cost that has been arrived at the respective process— Proformae ‘C’ and ‘D’ and these proformae do not specifically provide for credits in case Bleached for Unbleached Chemical Pulp is sold outside.
To credit these Process accounts by the sales values of the pulp sold is an error in principle; as such Process accounts are unnecessarily added with an element of profit or loss. According to the ‘foot-notes’, when pulp is sold as such the proportionate share of administrative and selling and distribution and head office overheads should be levied on an equitable basis and applied consistently.
Direct and allocable expenses relating to packing should also be added to arrive at the cost of the sale of pulp.
Thus, for the quantities of ‘pulp’ sold the costs comprising:
(i) Process costs as per Proforma ‘C’ or ‘D’ as applicable,
(ii) Proportionate share of administration/selling and distribution, head office overheads,
(iii) Allocable share of packing should be considered as valuation for credit.
Preparing Cost Statements: Consideration # 7. Rayon:
The data regarding installed capacity and average operating load (of air conditioning) should be expressed in thermal units per operation hour and costs apportionment basis should be developed technically.
Credit for ‘Glauber salt’ should be based on the realisable value of sodium sulphate.
The distribution of common cost should be done on length basis (viscose filament yarn and acetate yarn).
Work-in-progress and finished stocks both in quantity and cost should be stated separately in respect of all products and all other items like carbon di-sulphide, sulphuric acid, caustic soda, glauber salt, etc.
Preparing Cost Statements: Consideration # 8. Aluminium:
(a) Quantity of Alumina Hydrate is to be expressed in terms of Alumina content, and
(b) the costs separately for Alumina hydrate, Calcining and Bagging are to be worked out.
(a) For ‘Aluminium in ‘pig form’ made out of hot metal in the smelter, pig making charges including depreciation and cost of cold metal should be indicated and
(b) Cost of relining of pots other than relining mix is also to be shown.
Proformae F and G:
Summary cost statements in respect of each cost class or group of products covered should be kept.
Element-wise costs are to be shown for: Bauxite (own/purchased), Alumina (all categories), pre-baked anodes, soderberg paste, pot lining/hot metal, ingot/billet/alloy.
In respect of rolled products and extensions, records showing the quantity produced, net material cost, total conversion cost, furnace hours/machine hours utilised, packing cost, selling and distribution expenses per tonne shall also be maintained for each cost class or group of products.
The total cost of all the classes or groups of rolled products and extensions shall be reconciled with the total cost given in Proformae F and G respectively. The classification or grouping of products shall be made in accordance with the gange, weight for unit length, shape or any other scientific basis so that the cost of individual items belonging to the class or group is more or less identical.
Preparing Cost Statements: Consideration # 9. Bulk Drugs:
Proforma F — Sales realisation is to be indicated separately for quantities sold at (a) prices notified by/to the Government under Drugs (Price Control) Order 1987 and (b) prices fixed by the company.
Preparing Cost Statements: Consideration # 10. Industrial Alcohol:
(a) Extra costs incurred for further processing are to be considered,
(b) Stores consumption is to be included in repairs and maintenance, and
(c) Operating data to be indicated are licensed/installed capacity, capacity utilisation, sugar % in molasses, alcohol recovery% and efficiency percentages of fermentation and distillation.
Preparing Cost Statements: Consideration # 11. Infant Milk Food:
Annexure I Operating data like kms covered, weight of wet milk, tonne-km are to be indicated while working out the operating .cost of milk tankers.
(a) Cost rate of wet milk consumed in the products should be arrived at on the basis of actual fat content and,
(b) Product costs are to be determined after adjustment of sales to canteen/employees and abnormal losses.
Operating data to be distinctly indicated are licensed/installed capacities, production under:
(i) Cream extraction process and
(ii) Skimmed milk addition process, average fat content/average solid non-fat content and their weights separately in inputs/outputs, and (b) realisable value of by-product e.g. cream, is to be adjusted.
The operational costs including labour costs in relation to the production plant (Proforma B) and packing plant (Proforma C) should be charged equitably between the products covered and other activities in case the plants are used as such.
Preparing Cost Statements: Consideration # 12. Rubber Tyres and Tubes:
‘Cost of making’ and ‘cost of curing and finishing’ are to be separately prepared.
Preparing Cost Statements: Consideration # 13. Cycle:
Proforma B — Separate cost statements for computation of the cost of sub-assemblies e.g. pedals, frames, forks, etc. are necessary.
Preparing Cost Statements: Consideration # 14. Steel Tubes and Pipes:
(i) Statement should show all components of cost separately for each of the cost centres, viz. raw material preparation (strips/billets), conversion of Hot-rolled coil/strip to cold-rolled coil/strip, Billet piercing (seamless), Elongator (seamless), Pipe/tube forming, Welding, Sizing, Cold-drawing, Finishing etc. and
(ii) Cost per hour and conversion cost per MT should be shown under fixed and variable elements for each of the cost centres.
(i) Total conversion costs should agree with those of proforma A,
(ii) allocation basis of conversion to finished production should be either quantity in MT or hours worked as appropriate; and (iii) finished production is to be traced are as to /type/specification/qualities.
Preparing Cost Statements: Consideration # 15. Cotton Textile:
‘Waste Multiplier’ is a method by means of which the quantum of output required to be obtained at a particular process or stage to get one unit of output at the ultimate finishing process is determined.
In any industry where a chain of processes associated with processing loss or wastage is involved before the raw material is converted into a finished product, the concept of ‘waste multiplier’ has an application. In a Cotton Textile industry it is much relevant because the Raw Cotton passes through at least 7 or 8 processes before it produces the Yarn.
The extent of loss at each process depends upon: the quality of raw cotton, the process technique and the quantity of the final product desired. This concept is related to continuous processing, and loss in each process has a direct application only at the ‘Spinning’ process of a textile unit.
The procedures for absorption of conversion costs into output units are as follows:
(i) Total of process centre-wise expenses divided by total machine/spindle shift gives the average conversion cost per machine/spindle shift (8 hours),
(ii) This average cost is taken to Annexure VIII and divided by the average production per machine/spindle shift gives conversion cost per Kg. of output,
(iii) This conversion cost per Kg is taken to Annexure IX and thereafter, inflated by the ‘waste multiplier’ relevant to the concerned cost centre, and
(iv) The total obtained by adding up the conversion costs of all cost centres represents the ‘total conversion cost per kg of Yarn’, and the same is incorporated in Proforma B and added to the material cost to arrive at the production cost.
The absorption stages at Spinning Cost Centre are like:
(i) Total of process centre-wise expenses divided by total outputs (kg/ metre) gives the conversion cost per kg/metre, and
(ii) This conversion cost per kg/metre is taken to Proforma E where the total cost/unit cost of Grey cloth (sort-wise) is arrived at after deducting realisable value of wastage at the Weaving Centre.
The computation of conversion cost per machine shift in proforma D provides a means of exercising cost control.
The expenses are classified as to (i) those chargeable on weight basis (i.e. kg), (ii) those chargeable on measurement basis (i.e. metre) and (iii) those chargeable on machine-shift-hour basis (Bleaching Centre). The total conversion cost under each process centre divided by total production in kg. metres and machine shift hours gives respectively the conversion cost per. kg/per metre/per machine shift hour—which are transferred to Proforma J.
Similar procedures are adopted for expenses in Proforma H (Dyeing centre), Proforma I (Printing centre) and Proforma J (Cloth finishing centre).
It should, therefore, be observed that all conversion costs that are incurred regarding cloth after the WEAVING CENTRE, viz. bleaching, dyeing, printing and finishing are ultimately incorporated in proforma J and this proforma is completed for each sort of cloth separately. Diagrammatically, it looks like—
Preparing Cost Statements: Consideration # 16. Sugar:
Annexure III — Valuation of Bagasse—Bagasse is a by-product obtained in the Sugar Mill after the juice is extracted from the sugarcane at the Milling Plant. It is about 10% of the total cane crushed. This cost statement stipulates that the rate and amount of ‘bagasse’ used as one of the fuels in the generation of ‘Steam’ should be indicated.
The foot-note below this Annexure specifically indicates that in the absence of any other suitable method for valuation of Bagasse, it may be valued on the basis of average ‘pit-head price’ of Coal after converting the weight of Bagasse into equivalent Coal by adopting a factor of 0.33. However, the Mill can also value this Bagasse at its opportunity cost (that means the cost of fuel saved by the use of Bagasse).
(i) If any sugarcane is purchased at other than the controlled rate, the total difference in amount between the actual and at controlled rate should be shown as a ‘Footnote’;
(ii) Cane from own farm should be charged at the controlled rate and the profit or loss on farm should be taken directly to the Profit and Loss Account;
(iii) Share of operating cost of transport relating to sugarcane as per Annexure II should be considered; and
(iv) All expenses relating to own farm should not be included in this proforma.
(i) Operating data such as crushing capacity, sugarcane quantity crushed, duration of crushing season in no-of days, average sugar content % in cane, average recovery % of sugar, etc. and
(ii) Repairs and maintenance for the season and off-season should be shown separately.
Preparing Cost Statements: Consideration # 17. Formulations:
Proforma I & J:
These cost statements should be prepared for each type and size of packing (1mg, 2mg./10s, 100s, etc./1ml, 2ml, 10ml. etc./5gm, 10 gm. etc. plain coated tablet soft/hard/printed capsules, sterile/non-sterile, liquid/powder, ointment/cream, etc. in different packing of aluminium/paper/blister/strip/vial/ampoule, bottle/tin/jar, etc. of formulations separately.
Item-wise details of ‘post manufacturing expenses’ under the cost heads (a) Distribution cost, (b) Outward freight, (c) Sales promotion, and (d) Trade commission against each of the types of formulation should be clearly shown in this proforma and the total of (a) to (d) also to be indicated in the Proforma K.
Preparing Cost Statements: Consideration # 18. Soda Ash:
Annexure V — Cost per tonne in regard to the ‘related expenses of limestone raised’ from the quarry of the company should be worked out on the basis of quantity raised, and that of ‘transport charges to works’ in respect of limestone should be worked out on the basis of quantity transported to works.
Preparing Cost Statements: Consideration # 19. Sulphuric Acid:
The credit for ‘waste heat’ from Sulphuric Acid Plant should be technically evaluated and the same should be shown as deduction from the total cost of production under the heading ‘credit for recoveries’, if any, including waste heat.
Preparing Cost Statements: Consideration # 20. Footwear:
(i) Actual direct labour hours/machine hours utilised for each type and size of footwear should be recorded batch wise and
(ii) Where special machines, such as high speed, automatic, etc. are used for a particular process of manufacture, separate cost centre should be opened for such machine or group of such machines.
Preparing Cost Statements: Consideration # 21. Shaving Systems:
(i) Quantity and cost of chromium and platinum, if any, sprayed on the blades should be shown under ‘Direct materials cost’ and
(ii) Cost of seat, handle, cap, empty cartridges, etc. as worked out in proforma B-I should be shown against ‘Direct material cost’.
Preparing Cost Statements: Consideration # 22. Industrial Gases:
(i) Repairs and maintenance and depreciation should be separately shown in respect of cylinders, tankers, vehicles and pipelines, etc. under the sub-head ‘packing cost’,
(ii) This proforma should be maintained in respect of intermediates also, if sold.
Preparing Cost Statements: Consideration # 23. Fertilizers:
(i) Supplementary cost sheets should be attached showing the actual rates of cost of inputs in case they are different for such quantity which are for non-fertilizer/non-agricultural use; and
(ii) The quantities transferred and costs thereof in respect of each process material/chemical/intermediate should be specifically shown in item H under the classifications such as
(a) Urea plant,
(b) Weak Nitric Acid,
(c) Concentrated Nitric Acid,
(d) Calcium ammonium nitrate/ammonium chloride/ammonium sulphate,
(e) Complex Fertilizer plant (each grade), (f) Sales for agricultural use as fertilizers,
(g) Sales for industrial/non-agricultural use, etc.
(i) This should be prepared separately for each grade/type of fertilizers sold for non-agricultural purpose which attract higher input prices and non-concessional duties,
(ii) Sales realisation for quantities sold at prices (a) notified/fixed by the government and (b) fixed by the company should be indicated separately.
This proforma should show;
(i) Total sales realisation including and excluding excise duty,
(ii) Net sales realisation from customers as ; Sale price less dealers’ margin,
(iii) Retention price fixed by the government,
(iv) Product subsidy from the government, and
(v) Freight/any other reimbursement.
Preparing Cost Statements: Consideration # 24. Bearings:
(i) Production in terms of standard units and per hour worked, and conversion cost per standard unit (operation wise) should be shown; and
(ii) Conversion costs apportionment to different sizes/varieties to be done based on operation hours worked.
This spells out the basis of conversion of actual units in terms of standard units and the conversion cost per actual unit produced. It also provides the following note; ‘In case the number of types and sizes of components is large, production can be expressed in terms of standard types and sizes of the component.
The Weightage factor is the ratio which the component of different sizes manufactured bears to the standard component manufactured in an hour’.
Preparing Cost Statements: Consideration # 25. Soaps and Detergents/Cosmetics and Toiletries:
Rebate received from the Government for use of minor oils or rice bean oils (for soaps, etc.) and/or other materials (for cosmetics, etc.) is to be indicated and adjusted. Basis of such rebate should be given in a separate statement.