costing evaluation for better productivity control
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Waste paper based paper mill costing and profitability evaluation fundamentalsTRANSCRIPT
Costing Evaluation for Better Productivity Control
Costing Evaluation for Better Productivity Control
Sumit AgarwalShree Badri Kedar Papers Ltd.
Nazibabad
D K SinghalChandpur Enterprises Ltd.
By:
July, 16-17, 2009, IPPTA Zonal Seminar, Jaipur.
Costing…….…(Is it a way?)Costing…….…(Is it a way?)
Waste paper :Rs.9.00 Recovery (Yield) :80% Net Waste Paper Cost :Rs.11.25 Conversion :Rs. 8.75 Total Cost :Rs.20.00 Selling Price :Rs.21.00 Margin :Rs. 1.00
Fundamental Difference with Conventional AccountingFundamental Difference with Conventional Accounting
ApproachIn conventional accounting, approach is methodological. In the proposed system, the approach is more flexible. The management decides whether to take into account various aspects like excise, freight, commission, depreciation etc.
Fundamental Difference with Conventional AccountingFundamental Difference with Conventional Accounting
Capital InvestmentAs an asset in account books OR as money spent, for which a return will be available for the time to come. Depreciation- Value of asset decreases with time, but not as per the actual resale value.
Depre-ciat-ion! Sometimes, it may cause Depre-ss-ion (?)
Fundamental Difference with Conventional AccountingFundamental Difference with Conventional Accounting
InputsConsidered as consumed in account books.Considered as and when actually consumed in present case. Partial consumption may be accepted. Store virtually not considered as a part of mill operations.
Example: Wire life of 6 month.– 31 March, 1 September, 1 April One Wire– 1 April, 1 September, 31 March Three Wire
Fundamental Difference with Conventional AccountingFundamental Difference with Conventional Accounting
ProductConsidered sold when an invoice is raised.Considered sold to finished stock godown as and when produced.Virtually, one may assume that finished stock godown is an intermediate customer.
Fundamental Difference with Conventional AccountingFundamental Difference with Conventional Accounting
TaxationMODVAT is considered amount received.If input taxes are more, this amount only adds up in account books. Cost of input is considered as landed cost.
Fundamental Difference with Conventional AccountingFundamental Difference with Conventional Accounting
Inward FreightConsidered as a separate head.Is clubbed with the item procured.
Fundamental Difference with Conventional AccountingFundamental Difference with Conventional Accounting
Rounding OffAccount books must tally rupee by rupee and paisa by paisa.Remember your accounts department lost in books for just a couple of rupees mismatch?Minor rounding can be done. For an invoice value of Rs.3,67,539.47, it may be taken as 3,70,000 or something else. After all, this is just a tool to know where do we stand.
Development of Benchmarks Development of Benchmarks Yield of Waste Paper
Depending on past experience, a yield figure is accepted for every grade of waste paper and product.
A separate account is maintained for different grades of waste paper, considering daily consumption and purchase.
In case the physical estimated stock varies significantly from that in account, the yield figure is modified.
Development of Benchmarks Development of Benchmarks
Sample Calculation
Newsprint 40.956 T
ONP (@88% yield) 40.956/0.88 46.541 Cream Wove 18.749 T
ONP (33%, @82% yield) 0.33*18.749/0.88 7.031
Office Record (33%, @78% yield) 0.33*18.749/0.78 7.932
Old Books (34%, @82% yield) 0.34*18.749/0.82 7.774
Sample Account for Waste PaperSample Account for Waste Paper
Sl. Waste Paper Opening Balance
Received Consumed Closing Balance
1 Newsprint 120786 18740 53572 85954
2 Office Record 80326 NIL 7932 72394
3 Old Books 61742 9050 7774 63018
4 White Cuttings 24320 8800 NIL 33120
5 ….
287174 36590 69278 254486
TOTAL
Development of Benchmarks Development of Benchmarks
Chemical Consumption Fixed Dose Chemicals- Retention Aid, DSR etc.
Consumption is proportional to production.
Fixed Purpose Chemicals- Alum, Rosin
A specific consumption per ton of paper is considered, and the figure is updated as and when required.
Development of Benchmarks Development of Benchmarks
Boiler Fuel A specific fuel consumption figure is accepted based upon previous
experience. Typical figures for bagasse may look as-
Normal weather 700 kg/T
Rainy weather (wet bagasse) 850 kg/T
Very cold weather 750 kg/T
Here again, the figures may be revised after a few months of operation, if a significant difference is observed between the booked figures and actual stock position.
Electricity ConsumptionElectricity Consumption
Daily consumption figures from energy meter (Grid Power).
Actual consumption of Diesel (Electricity from DG)Use diesel consumption X cost of diesel X DG maintenance factor
Increased boiler fuel consumption figure (Own Turbine)Cost of (total fuel – fuel required for process)Cost of turbine maintenance
Daily ConsumablesDaily Consumables
Electrical: Fuses, Relays, contactors etc. Mechanical: Bearings, Nut, Bolt, Grease, Lubricants,
LPG, Oxygen, welding rods etc. Packing: Hessian, Core Plug, Labels etc. Misc.: ….
Fixed Expenses (Process)Fixed Expenses (Process)
Wire Felt Rolls Coating & Grinding Screen Baskets etc. Replacement of Equipments Continuing Process Up-gradation
Fixed or Variable cost? Wire (Rs.75 pmt or Rs.1,00,000 per month)………………...You Decide!
Fixed Expenses (General)Fixed Expenses (General)
Salary & wages Interest of financial institution Licensing etc. Car, Petrol, Travel, etc. Telephone
These are generally fixed, often with a minor variation.
Fixed ExpensesFixed Expenses
Cost of process fixed expenses may be considered as on per ton basis or per day basis.
Cost of general fixed expenses may be taken on per day basis.
Effect of Price FluctuationEffect of Price Fluctuation
An averaged base price is considered for the whole month or so.
After that, the base price may be revised according to actual conditions.
For seasonal items (like bagasse, old copy) this price may be considered as fixed for the whole year.
Because the product prices are not going to change frequently as per the prices of these items.
Input CostInput Cost
The sum of all input costs is taken as input cost.
Product CostProduct Cost
The cost of product is considered as if the product packed is being sold to market.
In other words, we may consider the finished product godown as a ghost customer.
Monitoring PeriodMonitoring Period
For most of the cases, it has been found that daily monitoring gives practically accurate results.
After a month or so, the profit statement can be cross checked by collecting more realistic data as indicated in next slide.
Sample Input CalculationSample Input CalculationSl. Inputs Weight Rate Value
1 Newsprint 53572 9 4821482 Office Record 7932 15 1189803 Old Books 7774 13 1010624 White Cuttings NIL 17 05 ….
A Waste Paper 69278 702190
1 Retention Aid 14 175 24502 AKD 400 29 116003 Rosin 100 29 29004 Alum 245 4.5 1102.55 UF Resin 185 18 33306 … 0
B Chemicals 21383
C Boiler Fuel 48495 1.5 72742
D Electricity 34500 4.25 146625
E Packing Material 15000
F Consumables 25793
G Fixed Expenses 120000
TOTAL Input 1077939
Sample Output & Profit CalculationSample Output & Profit Calculation
TOTAL Input 1077939
ProductionNewsprint 40956 17 696252Cream Wove 18749 24 449976……TOTAL Output 59705 1146228
Profit/Loss (Rs.) 68289Profit/Ton (Rs./Ton) 1.14
Cross CheckCross Check
Product cost = sum of product costs for the whole period. Product cost = Closing value of product in stock + Product
actually sold in rupees – Opening value of product in stock !!! Base price same for the period In case of substantial difference, check for the base price for its
correctness. Similarly, the inputs are to be checked.
OutcomeOutcome
In which grade of paper the profit is more? For lighter basis weight, the product prices are on a little higher
side. Is the price difference proper? Can a furnish change be considered to reduce input cost? What
would be the monetary gain? In case the production is increased, the impact on profit increase
is slight, normal or very high? In case machine had a poor run due to more joints, what
happens to profits?
Thank You.Thank You.