ACTIVITY BASED COSTING AS A MEASURE OF IMPROVING THE COST STRUCTURE OF VIKASH INDUSTRIES
GUIDED INDEPENDENT STUDY REPORT
Submitted ByName: Saurabh KumarRoll No: 03Course: Strategic Cost ManagementCourse Mentor: Pfof. F M A Khan
I sincerely thank and pay my gratitude to my faculty mentor Professor FMA Khan for his valuable guidance and support on completion of this project.
Name of Student
Activity-Based Costing (ABC) represents an alternative paradigm to traditional cost accounting system and it often provides more accurate cost information for decision making such as product pricing, product mix, and make-or buy decisions. ABC models the causal relationships between products and the resources used in their production and traces the cost of products according to the activities through the use of appropriate cost drivers.
In this project, the costing system followed by Vikash Industries is compared with ABC in terms of the effects on the product costs that are carried out to highlight the difference between two costing methodologies. By using this methodology, a valuable insight into the factors that cause the cost is provided, helping to better manage the activities of the company.
Vikash Industries should go for Activity Based costing as it understands true profitability of the customers, products, or services and also helps in identifying areas where the cost can be reduced or efficiencies can be increased.
Table of ContentsS.NoChapter No. ContentsPage No.From - To
1.Title Page I
6.Executive Summary III
7.Table of Contents / List of Illustrations
8.Chapter-1Introduction to the Sector/ Company05-08
9.Chapter-2Review of Literature 09-12
10Chapter-3Research Methodology 13-14
11Chapter-4Data Analysis & Interpretation / Description of the Work Performed 15-37
Manufacturing industry refers to those industries which involve in the manufacturing and processing of items and indulge in either creation of new commodities or in value addition. The manufacturing industry accounts for a significant share of the industrial sector in developed countries. The final products can either serves as a finished good for sale to customers or as intermediate goods used in the production process.
Manufacturing industries are the chief wealth producing sectors of an economy. These industries use various technologies and methods widely known as manufacturing process management. Manufacturing industries are broadly categorized into engineering industries, construction industries, electronics industries, chemical industries, energy industries, textile industries, food and beverage industries, metalworking industries, plastic industries, etc.
Manufacturing industries are important for an economy as they employ a huge share of the labor force and produce materials required by sectors of strategic importance such as national infrastructure and defense. However, not all manufacturing industries are beneficial to the nation as some of them generate negative externalities with huge social costs. The cost of letting such industries flourish may even exceed the benefits generated by them.
Indias manufacturing base, which is the fourth-largest among emerging economies, is among the fastest growing and has seen more investments as a proportion of gross domestic product than any country except China. Employment opportunities in the manufacturing industry have declined comparatively. Manufacturing industry analysis also suggests that in some countries like China, technological know how has to be developed. Despite the fact that China is ranked fourth in the manufacturing productivity, due to technological lacunae, it is not being able to compete in the world market
VIkash Industries, a pioneer in the manufacture of sheet metal pressed components was established in the year 1977. Ever since, it has grown into a big organization with a focus in quality in everything. An ISO 9001-2000 Company with a good customer base in the domestic as well as the International market activities of Vikash Industries include tool design also with a highly skilled & professional work force, tools is designed for the components as per the customer requirements. Their specialty being the deep drawn components, they cater the electrical, elevator, home appliances automobile industry and the defense.Vikash Industries are in it for a long haul with a focus on continual improvement. They are having mechanical presses ranging from 10T to 80T capacity & hydraulic presses ranging from 10T to 250T capacity, out of which 50T, 80T, 160T & 250T hydraulic presses are double acting presses to carry out deep drawing operations. They also use triple acting arrangement for some of these machines to carry out more precision items & to make multiple operations at a time.Apart from this, shearing machine of capacity 3.0mm x 2500mm & 10mm x 2000mm both hydraulically operated are installed for better cutting accuracy. The other relevant machineries such as welding transformers, spot welding, grinding, and circle cutting machines are installed to support our manufacturing activity with maximum productivity. The two material handling equipments for loading & unloading of tools are in place to make setting faster and easier. The separate tool maintenance area to carry out maintenance of tool is provided with surface grinding & drilling machines to attend immediate rectification, such as sharpening of punches & dies. They are equipped with 62 KVA generators to overcome power failure. The painting facility with 7 tank process of components before painting is available. The painting booth & drier for quick drying is also installed to give our customers a complete satisfaction by supplying ready for fitment components.
Vikash Industry has the pride to have clients from various industries many of them are well - known in the global industrial community. Some of our esteemed clients are as under:-
Cummins Generator Technologies OTIS Elevator (I) Ltd. Trident Power craft Pvt. Ltd. Crompton Greaves Ltd Kaytee Switch Gears Ltd. IFB India
QUALITY POLICY AT VIKASH INDUSTRIES
1. To meet customers requirement and strive to exceed customer expectations.2. Manage all activities and related resources as a process.3. Create and maintain an environment in which personnel are fully involved in achieving organization objectives so as to ensure continual improvement and growth.4. Take decisions and implement necessary actions based upon analysis of data and information.5. Involve all our suppliers in quality improvement process as to ensure mutually beneficial and long time relationship.
List of Customers of Vikash Industries:
Cummins Generator Technologies, India Motorsense, U.K Cummins Generator Technologies, Mexico Fasco Motors, USA ABB Ltd, Bangalore OITS Elevator company, India Trident Power craft Pvt.Ltd, Hubli Kirloskar Electric co. Hubli Mallik Engineering , Bangalore Telco Construction Equipment, Dharwad
Review of Literature:
ACTIVITY BASED COSTING
Activity Based Costing (ABC) is an accounting technique that allows an organization to determine the actual cost associated with each product and service produced by the organization without regard to the organizational structure. It is developed to provide more-accurate ways of assigning the costs of indirect and support resources to activities, business processes, products, services, and customers. ABC systems recognize that many organizational resources are required not for physical production of units of product but to provide a broad array of support activities that enable a variety of products and services to be produced for a diverse group of customers. The goal of ABC is not to allocate common costs to products. The goal is to measure and then price out all the resources used for activities that support the production and delivery of products and services to customers.
Concept of Activity-Based-Costing:An organization performs activities to do its business. These activities define the kind of business you are in: a ship owner has an activity to unpack boats; an accounting firm prepares tax returns; a manufacturer produces products; a council delivers services; a university teaches students. All activities consume resources. It is the consumption of these resources that adds to overhead costs. The basis of Activity Based Costing is look at the activities required to produce the cost of the product or service. The activities consume resources and the cost of these can be calculated. The amount of activity required for each product and service is determined, hence the real cost can be determined.
What's what in ABC? The activity is the work that is done. The resource is what the activity uses to do the work e.g. people, equipment, and services. Resources cost money. The cost of the activity depends on the quantity of resources used to accomplish the activity. The cost driver for an activity is the factor that influences the amount of the resources that will be consumed by this activity. Example: the activity is delivering goods. The costs of this activity include the truck drivers' wages, fuel, depreciation of the truck, insurance, etc. The quantities of the resources that will be consumed by this activity are i