Cost Analysis On Cadbury India Ltd

• Cadbury India is a fully owned subsidy of Kraft Foods Inc.

• The combination of Kraft Foods and Cadbury creates a global powerhouse in snacks, confectionery and quick meals.

CADBURY OVERVIEW

• In India, Cadbury began its operations in 1948 by importing chocolates.

• Cadbury India operates in four categories viz. chocolate confectionery, milk food drinks, candy and gum category.

• Cadbury enjoys a value market share of over 70% - the highest Cadbury brand share in the world!

• Manufacturing facilities at:

1) Thane, 2) Induri (Pune), 3) Malanpur (Gwalior),

4) Bangalore 5) Baddi (Himachal Pradesh)

INTRODUCTION

• 11 brands with more than $1 billion in revenue

• 70+ brands with more than $100 million in revenue

• 40+ brands over 100 years old

Brand Portfolio

• Chocolates

• Snacks

• Beverages

• Candy

• Gums

BRANDS

Some key Brand In INDIA

Objectives

• Determine the fixed costs, variable costs and semi-variable costs for the business.

• Identify the indirect costs (Overheads) for the business.

• Is the profit volume ratio high or low for your business? Examine the ratio critically.

• Prepare a standard cost sheet for your business using imaginary numbers.

• Prepare an activity based costing statement for your company using imaginary numbers.

'Fixed Cost'

A cost that does not change with an increase or decrease in the amount of goods or services produced.

Fixed costs for Cadbury are:

• Depreciation of factory machinery

• Office supervisor’s salary

• Rent

• Delivery vehicle insurance

Variable Cost

• Variable costs are those costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases.

Variable costs for Cadbury are:

• Wages of staff

• Commission paid

Semi-Variable Cost

• A cost composed of a mixture of fixed and variable components. Costs are fixed for a set level of production or consumption, becoming variable after the level is exceeded.

Semi-variable costs for Cadbury are:

• Electricity

• Maintenance cost

Indirect cost

• Indirect costs represent the expenses of doing business that are not readily identified with a particular grant, contract, project function or activity, but are necessary for the general operation of the organization and the conduct of activities it performs.

Indirect costs for Cadbury are:

• Salary of factory manager

• Insurance of factory premises

• Depreciation

• Maintenance costs

• Electricity

• Insurance

Apportionment- Overhead distribution summary

Production departments Service departments

Particulars Basis Total X Y Z A B

Material Direct 1920000000 940000000 980000000

Direct labour Direct 90000000 60000000 30000000

Depreciation of factory machinery Asset value 15000000 3000000 4000000 3000000 2700000 2300000

Rent Floor area(sqft) 4000000 1000000 1200000 800000 600000 400000

Electricity Light points 20000000 5500000 3500000 6500000 1800000 2700000

Salary No. of employees 10000000 3000000 1500000 2500000 1600000 1400000

Insurance Floor area(sqft) 25000000 8000000 5000000 4000000 4000000 4000000

Maintenance cost Maintenance hrs 10000000 2500000 1800000 2000000 1300000 2400000

Total 2094000000 23000000 17000000 18800000 1012000000 102320000

0

Re-distribution of service depatment expenses

Production departments Service departments

Particulars Total X Y Z A B

Total overheads 193200000 23000000 17000000 18800000 1012000000 1023200000

A 202400000 303600000 404800000 -1012000000 101200000

B 337320000 449760000 112440000 224880000 -1124400000

A 44976000 67464000 89952000 -224880000 22488000

B 6746400 8995200 2248800 4497600 -22488000

A 7.19616 10.79424 14.39232 -35.9808 3.59808

B 1.079424 1.439232 0.359808 0.719616 -3.59808

Total 615497959 848379591.6 630122448.7

Calculation of total cost

Particulars X Y Z

Direct material 1500000000 1800000000 2000000000

Direct labour 50000000 40000000 20000000

Overheads 615497959 848379591.6 630122448.7

Total cost 2165497959 2688379592 2650122449

Standard Cost sheet

• A standard cost is the expected or budgeted cost of materials, labor, and manufacturing overhead required to produce one unit of product.

• A standard cost sheet calculates the total standard cost for one unit of product. It lists the standard costs for one unit of product for the following:

• Materials (Price standard × Quantity standard) • Labor (Price standard × Quantity standard) • Variable manufacturing overhead (Price standard ×

Quantity standard) • Fixed manufacturing overhead (Price standard ×

Quantity standard)

Standard Cost sheet

Two reasons for adopting a standard cost system are:

• To improve planning and control:

• To facilitate product costing

Cost sheet Particulars Amount (In crores)

Total Materials consumed: 722

Direct Labour 20

PRIME COST 742

Factory Overheads: Salary of factory manager+Depriciation of factory machinery, Electricity+OTHER

8

FACTORY COST/ WORKS COST

750

Office/administrative overheads

supervisor salary, rent, wages

1

COST OF PRODUCTION 751

Selling & distribution overheads

Delivery vehicle insurance,comission paid 3

COST OF SALES 754

PROFIT 228 SALES 982

P/V Ratio

• P/V Ratio (Profit Volume Ratio) is the ratio of contribution to sales which indicates the contribution earned with respect to one rupee of sales. It also measures the rate of change of profit due to change in volume of sales.

• A high P/V Ratio indicates that a slight increase in sales without increase in fixed costs will result in higher profits.

• A low P/V ratio which indicates low profitability can be improved by increasing selling price, reducing marginal costs or selling products having high P/V ratio.

P/V Ratio

Profit-volume ratio:

2011 2012

Sales 7840000000 9820000000

Profit 1820000000 2280000000

P/V ratio Change in profit*100/Change in sales

=23.23%

Activity-Based Costing - ABC'

• An activity based costing (ABC) system recognizes the relationship between costs, activities and products, and through this relationship assigns indirect costs to products less arbitrarily than traditional methods.

• Identify and eliminate those products and services that are unprofitable and lower the prices of those that are overpriced

• Or identify and eliminate production or service processes that are ineffective and allocate processing concepts that lead to the very same product at a better yield

SURYA DEEPAK