zMoney doesn't create man but it is the man who created money. -Warren Buffet
WELCOME TO ALL OF YOU RAHUL JAIN (Striving for excellence) BCOM (H), MBA, ACS
Cost zAny expense incurred during the operations for providing the good or service to get the output into the hands of the customer zThe customer could be the public (the final consumer) or another business zControlling costs is essential to business success
Costing and Management Accounting A field of accounting that provides economic and financial information for managers and other internal users.
Computing the cost of providing a service or manufacturing a product Determining the behavior of costs and expenses as activity levels change Analyzing cost-volume profit relationships within a company Assisting management in profit planning and budgeting Providing a basis for controlling costs and expenses by comparing actual results with planned objectives and standard cost Accumulating and presenting relevant data for management decision making Need of Costing
Apparel Products Value Chain By Lyn Fernando Product Development Selling & Distribution (Agents) Outbound logistics Manufacturing (cut, sew & finishing)FOB 10-25% of Retail Buyer (Retailer) Raw materials /Accessories –40-70% of FOB Design Non availability of advanced product development facilities Lack of Advanced Manufacturing Technology Lack of Specialty fabrics & Accessories -Lack of Direct contacts/ Access to Retailer. -Long lead time - Cost of Agents Proximity to market, regular sailings -sea & Air. Electronic Data Interchange for documentation High Cost Structure ( Labour, Utility) Wastage use of CAD/CAM Labor Laws, Invest in Human Resources Lack of Skilled Management Low productivity, Proximity to Suppliers High energy cost Need to develop strong networks & lobby groups. Free Trade Agreements, concessionary tariffs Dependency on imported raw material, long lead times,delays at customs, documentation, EDI Lack of design capabilities Sourcing 100%
Basic elements of Cost zMaterial zLabor zExpense
Key terms zTangible costs or benefits are those costs or benefits that an organization can easily measure in dollars. zIntangible costs or benefits are costs or benefits that are difficult to measure in monetary terms. zDirect costs are costs that can be directly related to producing the products and services. zIndirect costs are costs that are not directly related to the products or services, but are indirectly related to them.
Key terms zOpportunity cost What you give up for certain in exchange for a chance at something better. zInterest The cost of borrowed money
Costs zFixed – are not influenced by the amount produced but can change in the long run e.g., insurance costs, administration, rent, some types of labour costs (salaries), some types of energy costs, equipment and machinery, buildings, advertising and promotion costs zVariable– vary directly with the amount produced, e.g., raw material costs, some direct labour costs, some direct energy costs zSemi-fixed – where costs not directly attributable to either of the above, for example, some types of energy and labour costs
COST SHEET COST SHEET
Prime Cost zDirect Material Consumed + Direct Labor + Direct Expense
MANUFACTURING COSTS DIRECT MATERIALS Materials Raw materials The basic materials and parts that are used in the manufacturing process Raw materials physically and directly associated with the finished product are called direct materials
INDIRECT MATERIALS Indirect Materials are raw materials which cannot be easily associated with the finished product. Not physically part of the finished product Cannot be traced because their physical association with the finished product is too small in terms of cost Accounted for as part of Manufacturing Overhead
LABOR and Expenses Factory Labor Direct Labor: The work of factory employees which is physically and directly associated with converting raw materials into finished goods. Indirect Labor: Efforts which have no physical association with the finished product or it’s impractical to trace the costs. Direct Expenses: directly associated with cost center Indirect Expenses Classified as Manufacturing Overhead
Prime cost -Example CONTENTAVG. CONSUMPTION/ SHIRTAVG.PRICE/UNIT (Rs.) TOTAL COST(Rs.) Fabric2.10mts Thread200mts.9/spool4.5 Button11pcs Label3pcs Polybag1pcs2.10 Collar band card board1pcs0.10 Card board1pcs0.80 Clips4 pcs Pin8 pcs Butterfly1 pcs.0.35 collarbone2 pcs fusing25 cm30/mt7.50 Direct Labor cost Direct expenses11 Prime cost219.21
MANAGERIAL COST CONCEPTS Manufacturing: Activities and processes that convert raw materials into finished goods. Manufacturing Costs include: –Direct materials –Direct labor –Direct Expense –Manufacturing overhead
MANUFACTURING OVERHEAD Consists of costs that are indirectly associated with manufacturing the finished product. Includes: Indirect materials z Indirect labor z Indirect expenses such as z Depreciation on factory buildings and machines z Insurance, taxes, maintenance on factory facilities Manufacturing Overhead
FACTORY OVERHEADS- Examples zSalary paid to merchandiser zSalary paid to production manager zFloor incharge salary zQ.A. + Q.C. zPlotting boy zCAD operator zSalary paid to fabric head zSalary paid for line supervisor zSalary paid to machinery maintenance zHouse keeping zGuard zMedical care taker zFuel zElectricity zWater consumption zOil and Consumables zNeedles zRent/Depreciation on Factory Assets
OFFICE AND ADMINISTRATION OVERHEADS: Examples Salary paid to: zchairman zMD zGM zReceptionists zHR persons zAccountants zPurchases Dept. Persons zOffice Boys Telephone Expenses Stationary Expenses Electricity Expenses of office Rent/Depreciation on Office Assets
SELLING AND DISTRIBUTION OVERHEADS- Examples zSalary paid to selling and marketing staff zAdvertisement cost zSample distribution zExport documentation zTesting expense zBuying agent commission zConveyance zTrade Fair and other Promotional expenses zWebsite and ecommerce expenses