COST CLASSIFICATION OF

BY:THAWBAN ANWAR BAIG

PRODUCTION PROCESS

• FAUJI CEMENT IS MANUFACTURED FROM BEST QUALITY RAW MATERIALS USING DRY PROCESS

• MAJOR INGREDIENTS

– LIMESTONE

– CLAY

PRODUCTION PROCESS

• FIRST RAW MATERIALS ARE QUARRIED, CRUSHED AND CORRECTED

• AFTER WHICH THEY ARE MIXED IN THE CORRECT PROPORTIONS TO FORM THE BEST RAW MIX

• THE RAW MIX IS THEN GROUND IN A RAW MILL

PRODUCTION PROCESS

• SUBSEQUENTLY BURNT IN A ROTARY KILN AT A TEMPERATURE AROUND 1450 °C

• THE RAW MATERIALS UNDER GO A NUMBER OF COMPLEX CHEMICAL REACTIONS IN THE BURNING PHASE AND LEAVE THE KILN AS CEMENT CLINKER, CONSISTING OF AGGLOMERATE OF CLINKER MINERALS

PRODUCTION PROCESS

• FINALLY THE CLINKER IS GROUND TO A FINE POWDER CALLED CEMENT, IN A CEMENT MILL TOGETHER WITH 4-6% GYPSUM

• THE GYPSUM SERVES TO RETARD THE SETTING TIME OF THE CEMENT, WHICH WOULD OTHERWISE HARDEN, IMMEDIATELY WITH THE ADDITION OF WATER

MANUFACTURING COST

DIRECT MATERIAL• LIME STONE• CLAY• LATERITE• GYPSUM

DIRECT LABOR • SKILLED LABOR• CONTRACT LABOR

SALARIES

MANUFACTURING COST

DIRECT DEPARTMENTAL COSTS• EMPLOYEES OTHER BENEFITS• REPAIR AND MAINTENANCE• STORES AND SPARES• LINING PLATE• GRINDING MEDIA COSTS• INSURANCE

COST BEHAVIOR

VARIABLE COSTS (DIRECT) • PURCHASE OF RAW AND PACKING MATERIAL • FUEL AND POWER COST • STORE AND SPARES (INCLUDING REPAIR AND MAINTENANCE) • PURCHASED EQUIPMENT COST • PURCHASES EQUIPMENT INSTALLED • INSTRUMENTATION INSTALLED • CONVEYER BELT INSTALLED • ELECTRICAL INSTALLED • BUILDING (INCLUDING SERVICES) • LAND • YARD IMPROVEMENT • SERVICES FACILITIES

COST BEHAVIOR

VARIABLE COSTS (INDIRECT) • ENGINEERING AND SUPERVISION • CONSTRUCTION EXPENSE • LEGAL EXPENSE • CONTRACTOR FEE

FIXED COSTS• SALARIES AND WAGES • DEPRECIATION • SELLING AND ADMINISTRATIVE EXPENSE • FINANCIAL EXPENSE • MISCELLANEOUS EXPENSE

MANUFACTURING OVERHEAD

i. FACTORY

ii. ADMINISTRATION

iii.FINANCIAL

MANUFACTURING OVERHEAD

Factory Overhead• Repair and maintenance • Insurance • Furnace oil/diesel/coal/Rdf • Stores and spares consumed • Power/gas• Depreciation• Technical fee and assistance

MANUFACTURING OVERHEAD

Administration overhead• Rent, rates and taxes• Travelling and entertainment• Legal and professional• Printing and stationary• Employees insurance• Communication and establishment• Donation• Administration vehicles Expense

MANUFACTURING OVERHEAD

Financial Overhead• Fee and charges on loans• Interest/markup on long term finances• Bank charges and commission• Markup on short term borrowings• Markup on WPPF• Guarantee commission

BASIS OF ALLOCATION OF OVERHEADS TO DEPARTMENTS

Departments RATIOS

Crusher 7%Stockhall staker 3%Raw mill 17%Kiln 40%Cement mill 20%Packing plant 10%Compressed air 2%Power plant 1%

BASIS OF ALLOCATION OF OVERHEADS ON COMMON ASSETS

Departments RATIOS

Crusher 7%Stockhall staker 7%Raw mill 17%Kiln 39%Cement mill 19%Packing plant 5%Compressed air 3%Power plant 3%

PRIME COSTDIRECT MATERIAL DIRECT LABOR

LIME STONECLAYLATERITEGYPSUM

SKILLED LABORCONTRACT LABOR

CONVERSION COST

DIRECT LABOR MANUFACTURING OVERHEAD

SKILLED LABOR

CONTRACT LABOR

FACTORY

ADMINISTRATION

FINANCIAL

SUNK COST

• COMPANY BUILT A NEW PLANT IN JHANG BAHTAR AND THIS IS SUNK COST FOR THE COMPANY

• THE WORK IN PROCESS MATERIALS OR INVENTORY IS ALSO THE SUNK COST FOR THE FAUJI CEMENT

OPPORTUNITY COST

• THE CONSTRUCTION OF NEW PLANT IN JHANG BAHTAR IS OPPORTUNITY COST FOR THE COMPANY

• ON THE OTHER HAND COMPANY COULD HAVE BOUGHT MARKETABLE SECURITIES, RAW MATERIALS OR ANY OTHER THING

THANK YOU!