Cost Analysis Sheet Dabur

COST SHEET  ANALYSIS : DABUR INDIA, LTD.

AJAY ABRAHAM F12004 NEHA SARA KURIAN F12043

Acknowledgement

We are thankful to Prof. Victor Louis Anthuvan for giving us an opportunity to  prepare a cost sheet and analyze it. This has been very helpful for us in understanding concepts like break even analysis, marginal costing and its practical implications in business. This project would not have been successful without his continuous guidance and theoretical inputs.

Objective of the Report

The objective of the report is to study the balance sheet of a manufacturing company and carry out the following:



Prepare Cost Sheet



Analyze the cost sheet



Apply the concepts of marginal costing and CVP analysis

To achieve this purpose we have chosen Dabur India Ltd. and studied its annual report 2012-13.

Dabur At-a-Glance

Dabur India Limited has marked its presence with significant achievements and today commands a market leadership status. The story of success is based on dedication to nature, corporate and process hygiene, dynamic leadership and commitment to the partners and stakeholders. Dabur India Ltd is considered as the leading consumer goods company in India with a turnover of Rs. 2834.11 Crore (FY09). The three major strategic business units (SBU) - Consumer Care Division (CCD), Consumer Health Division (CHD) and International Business Division (IBD). It has 17 ultra-modern manufacturing units spread around the globe. Products marketed in over 60 countries. Wide and deep market penetration with 50 C&F agents, more than 5000 distributors and over 2.8 million retail outlets all over  India. The master brands are : Dabur-Ayurvedic healthcare products),Vatika -

Premium hair care, Hajmola - Tasty digestives, Réal - Fruit juices & beverages, Fem - Fairness bleaches & skin care products.

COSTING

Costing is the technique of ascertaining cost. A cost sheet is a statement of cost prepared at given interval of time showing various elements of cost of a product produced, or service rendered during a  particular period. This statement gives details about total cost and cost per unit at different stages of production. Important components of cost are: a) Prime Cost = Direct material cost + Direct labour cost  b) Works Cost = Prime cost + Factory overheads. c) Cost of production = Works cost + Office & Administrative overheads. d) Total Cost (Cost of sales) = Cost of production + Selling & Distribution overheads.

From the balance sheet of Dabur India Ltd. as on 2011 and with the help of  schedules to accounts and notes to schedules we have prepared the cost sheet.

We have assumed the following for the preparation of cost sheet 

Rent has been assumed to be factory rent



Insurance has been taken on building



We assume that the land is used only for factory purpose.



As the company has variant products, the selling price per unit cannot be estimated.So all the calculation of sales has been limites to sales in rupees.

ANALYSIS OF COST SHEET



Freight and forwarding charges form about 12.018% of selling and distribution overhead.



Advertisement expense constitutes about 74.589% i.e the company focuses more on advertisements.



General expenses account to major portion of Administrative overhead which is 52.1%.



Direct material constitutes 5.91% of the prime cost while Direct labour  constitutes only 12.12 %



The factory overhead consists mainly of power and fuel which is 36.08%. and followed by processing charges which is 17.86% . Depreciation forms the major part of the factory overhead which is 24.87%



Rent paid for the building constitutes 12.07%.



Profit margin is 32.049 % of net sales.

Factory OH as a % of Direct labour

65.25

Administrative OH as a % of works cost

11.14

Selling OH as a % of Cost of production

29.71



The total depreciation expense incurred during the year is Rs. 3496 crores out of which Rs. 2118 crore is towards plant and machinery and Rs.170 crore is only for office furniture and fixtures.



Depreciation on Plant and machinery is 71.18% of depreciation on factory assets



Overall deprecation constitute of 1.98 % of total cost of production.

MARGINAL COSTING

Marginal costing is the ascertainment ,by differentiating between fixed cost and variable cost of marginal costs and of the effect on profit of changes in volume or  type of output. It is not a system of ascertaining cost but a special technique which is co ncerned with the changes in costs resulting from the changes in volume or range of output.

The technique of marginal costing involves: 

Differentiation between fixed cost and variable cost



Ascertainment of marginal costs



Ascertaining the effect on profit due to changes in volume i.e cost volume  profit analysis.

Tools of marginal costing: 

Contribution



P/V Ratio



Break even point



Margin of safety

FIXED COSTS

Rs.in crore

Depreciation on Building

727

Depreciation Plant & Machinery

2118

Depreciation lease on land

10

Rates And Taxes

348

Depreciation Vehicle

196

Depreciation furniture & fixtures

170

Depreciation computer

275

R&D

368

Auditor's Remuneration

76

General Expenses

9201

Security

446

Insurance

286

Director's Fee

2192

Telephone and Fax

355

Legal and Professional

2159

Repair and Maintenance Building

281

Processing charges

2098

Other Repairs

678

Rent

2132

Advertisement

39019

Total Fixed costs

63135

VARIABLE COST Repairs To Machinery

423

Direct Labour

18000

Raw Material

77335

Primary Packing Material

50071

Power and Fuel

4239

Stores and Spares

1172

Excise Duty

3099

Sales tax

289

Freight and forwarding

6287

Travel and Conveyance

3007

Commission and Discount

3166

Total Variable costs

167088

Total Cost

230223

All the expenses have been classified under two categories of cost: 

Fixed cost



Variable cost



Fixed cost as a % of Total Cost

27.423

Variable cost as a % of Total Cost

72.575

Major part of the expense is variable cost accounting to 27.423% while only 27.423% is fixed cost. That means if variable cost per unit is controlled to some extent then cost can be controlled. Though fixed cost seems to be low when compared to variable cost it is also an indication that company has invested well in fixed assets as 27.423% is a comparably high value.



The company has invested a considerable amount in advertisement and  publicity which accounts to around 63.13% of fixed cost



Expense on raw materials and primary packing material together constitutes 76.25% of variable cost. This depends mainly on the market demands as well the capacity of production.

Particulars Break Even Sales(in Rs.Crores)

Formula

Calculation

Result

Margin of safety

Fixed cost/(P/V ratio) (Contribution / Sales )*100 Actual Sales BEP(Rs)

16910.06-3032.036

197100.76

Margin of safety Ratio

(Margin of Safety /Actual Sales)*100

13878.02/16910.06

60.38

P/V ratio

129336.24 3737.91/16910.06

Calculation of Marginal Costing Tools

Working Notes

Sales Fixed Cost

326437 63135

Variable Cost

167088

Contribution

159349

P/V Ratio

0.488146258

0.48815

Suppose the company expects a profit of Rs. 150000 crores for the next financial year  Column1

Column2

Desired Profit P/V Ratio

150000 0.488146258

Fixed Cost Desired sales

63135 436621.1899

ANALYSIS OF MARGINAL COSTING



Margin of safety is an advantage to the company. It indicted the extra profit

the company earns over the breakeven point.Dabur’s MOS is 60.38% which is high. This means that the firm will earn profits even if there is a slight fall in  production or sales.This also contributes to a high angle of incidence 

BEP sales is Rs. 129336.24 crores which is extremely low in comparison to

current sales (Rs.326437 crores). 

BEP analysis will help the banker in appraisal of actual/projected

 performance of the borrower.It also acts a sensitivity analysis tool to judge the  projected performance. 

For the company to reach a profit value of Rs.150000

it has to impove its sales by Rs.110184 crores.