Assignment of:

Cost Accounting

Submitted to:

Sir. Aamir Shaheen

Submitted by:

Zaid Ali (29)

Masab Frooq (10)

FAHAD SATTAR (06)

Class:

BBA(HONS) 4th R1

Date:

17-12-2012

1

Table of Contents

Sr.No Details Page

1 Summery 3

2 Introduction To Company 4

3 Organizational chart 6

4 Contribution Income Statement 7

5 Contribution Income Ratio 8

6 Breakeven Point 8

7 Margin of safety 9

8 Annexures 10

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Summary

This report is on FAUJI FERTILIZER CARPORATION and consists of contribution

income statement. In this report we have calculated the total fixed cost and total variable cost of

this company, contribution margin, contribution margin ratio, breakeven point sales, margin of

safety.

First of all in this report we have included the introduction of FAUJI FERTILIZER

COMPAN. Which consists of the history, its products its business projects and its mission and

vision? This company is earning a large profit and running successfully. Company is producing

DAP and Urea fertilizer. It is also working in new plants of steel billets and electric Arc

Furnace. It is also working on the wind power project in its Bin Qasim project. FFC's vision is to

play a leading role in the industrial and agricultural advancement of the country pursuing new

growth opportunities offering the convenience of multiple products, brands and channels within

and beyond the territorial limits of Pakistan, to the benefit of our customers and our shareholders,

elevating our image as a socially responsible and ethical company that is watched and emulated

as a model of success.

FFC's vision is to play a leading role in the industrial and agricultural advancement

of the country pursuing new growth opportunities offering the convenience of multiple products,

brands and channels within and beyond the territorial limits of Pakistan, to the benefit of our

customers and our shareholders, elevating our image as a socially responsible and ethical

company that is watched and emulated as a model of success.

We have made its contribution income statement and computed its net operating

profit which shows that company is performing very well and is earning profit this is it growth

period and it is very much success full to cover its fixed cost and is going in right direction.

Its margin of safety is high which shows that company has no chance of loss yet

and is performing its operations in a right direction.

3

Introduction:

With a vision to acquire self - sufficiency in fertilizer production in the country, FFC was

incorporated in 1978 as a private limited company. This was a joint venture between Fauji Foundation

and Haldor Topsoe A/S of Denmark.The initial share capital of the company was 813.9 Million Rupees.

The present share capital of the company stands above Rs. 8.48 Billion. Additionally, FFC has more than

Rs. 8.3 Billion as long term investments which include stakes in the subsidiaries FFBL, FFCEL and

associate FCCL.FFC commenced commercial production of urea in 1982.

Products:

FFC participated as a major shareholder in a new DAP/Urea manufacturing complex with

participation of major international/national institutions. The new company Fauji Fertilizer Bin Qasim

Limited (formerly FFC-Jordan Fertilizer Company Limited) commenced commercial production with

effect from January 01, 2000. The facility is designed with an annual capacity of 551,000 metric tons of

urea and 445,500 metric tons of DAP, revamped to 670,000 metric tons of DAP.

Business Development:

FFC on Course to develop 50 MW Wind Power Project & Evaluating

Other Diversification Options:

The feasibility study to set up steel billets plant of 1.2 million billets per year in progress.

The billets are primarily used for production of re-bars and structural steel. In Pakistani market quality

steel billets are short and generally available at high premium.For producing steel billets the Electric Arc

Furnace (EAF) route has been selected over the conventional route (blast furnace) considering the

economy of scale. The flow diagram illustrates of the EFA process. Pakistan is a country which seriously

lacks in steel production compared to other developing countries. This project, facility of our country

after Pakistan Steel Mills which was set up 40 years ago.The decision to invest in this venture will be

taken up by the board after the study is completed and financial aspects are factored in.FFC Wind Power

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Project development activities continued to progress at full pace. The highlight are in succeeding pares. A

new Company “FFC Energy Limited” has been incorporated for the Wind Power Projects.

FFCEL Project Team along with legal & Financial consultant negotiated the Energy Purchase Agreement

(IA) with NTDC & AEDB respectively. Upon agreement by Lenders of these contracts, same were

finalized and initialed by FFCEL.FFCEL presented the Grid Studies to the CEO NTDC and NTDC Power

Planning Division which have been approved.FFCEL participated in Grid Code Review Panel meeting

arranged by NTDC. The grid Code amendments to address specific requirement of Renewable Energy

Power Plants have been approved by NEPRA.

Vision:

In a nation of increasing population, we believe there is substantial opportunity of growth for FFC

in the years to come.

FFC's vision is to play a leading role in the industrial and agricultural advancement of the country

pursuing new growth opportunities offering the convenience of multiple products, brands and channels

within and beyond the territorial limits of Pakistan, to the benefit of our customers and our shareholders,

elevating our image as a socially responsible and ethical company that is watched and emulated as a

model of success.

Mission:

FFC is a market-focused, process-centered organization delivering successful performance through

a strong focus on quality.

Our mission is to stand above the competition and provide our customers with premium quality fertilizer

products in a safe, reliable, efficient and environmentally sound manner, deliver exceptional services and

unparalleled customer support, produce predictable earnings for our shareholders, and provide a dynamic

and challenging environment for our employees.

5

Organizational Chart

6

Contribution income statement:

Fauji Fertilizer Company

Contribution income statement

for the year ended December 31, 2010

Details Rs.

Sales 88,154,698

Less: Variable Cost (35,240,997)

Contribution Margin 52,913,701

Less: Fixed Cost (31,237,198)

Net Operating Profit 21,676,503

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Contribution margin ratio:

Contribution margin ratio = contribution margin / total sales

= 52913701 / 88154698

= 0.60

This contribution margin ratio shows that each successive unit which we

produce will participate 0.60 or 60% to cover the fixed cost and will lead the

company towards the profit by decreasing its fixed cost.

Break even sales:

Break even sales = total fixed cost / contribution margin ratio

= 31237198 / 0.6

= 52061997

Breakeven sales are the sale at which company gains no profit. At this point sales

of FAUJI FERTILIZER COMPANY are 52061997 and company is not gaining

no profit and it is only covering its total fixed and variable cost. If sales increase

from this point then company will earn profit and if the sales decreases from this

point company will move towards the loss.

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Margin of safety:

Margin of safety = Actual sales – Breakeven sales

= 88154698 – 52061996.67

= 36092701.33

Difference between actual sales and breakeven sales is margin of safety if the

sales are in the range of margin of safety then then company will not be in loss. If

the sales of FAUJI FERTILIZER COMPANY decreases 36092701 rupees then the

company will not be in loss. This is secure range of the company. But if the sales

decreases more than the margin of safety of the company then it will be in loss.

Degree of leverage:

Degree of leverage = Contribution Margin / Operating Profit

= 52913701 / 21676503

= 0.244

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Annexures

FIXED COST:

Product transportation 4,548,162 Salaries, wages and benefits 1,368,001 Rent, rates and taxes 103,276 Insurance 8,214 Technical services 13,540 Travel and conveyance 134,267 Sale promotion and advertising 61,039 Communication and other expenses 187,736 Warehousing expenses 82,456 Depreciation 47,394 Administrative expenses 732,244

Mark – up on long term financing and murabaha 827,558 Mark – up on short term borrowings 1,134,890 Exchange loss – net 21,558

Bank charges 16,102

Research and development 286,586 Workers’ Profit Participation Fund 1,384,969 Adjustment in WPPF relating to prior year charge (199,097) Workers’ Welfare Fund 517,865 Loss on disposal of property, plant and equipment 86,866 Auditors’ remunerationAudit fee 2,184 Fee for half yearly review, audit of consolidated accounts and certifications for Government and related agencies 7,040Out of pocket expenses 150

Raw materials consumed 31,655,000Fuel and power 8,478,880 Chemicals and supplies 441,999Salaries, wages and benefits 4,359,503

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Training and employees welfare 467,625 Rent, rates and taxes 48,474 Insurance 230,677 Travel and conveyance 312,285 Repairs and maintenance 1,854,773 Depreciation 2,469,561Communication and other expenses 1,200,

VARIABLE COST:

Interest on wppf 1247

Raw material 31655000

Less : Difference in WIP opening and ending inventory (15242)

Difference in opening and ending of finished goods inventory (109925)

Purchases for resale 3709917

Total 35240997

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