September 29,

2013

Had It All Week

With the seniors finishing their term exams the Summer Internship Week

started with 20 Companies visiting the campus on Day 0 and 59 students

getting placed. The Placement Committee and the Seniors helped simulate

the process. The placement week ended on a positive note with top

companies like– Marico, Perfetti Van Melle, HSBC, Goldman Sachs, JPMC,

JPMS, Mahindra & Mahindra, RBS offering enviable profiles to prospective

interns at IMT taking the number to over 160 students. Team FinNiche

gives heartiest congratulations to all the students who have been placed.

However, the campus is still abuzz with summer placement activity as a

number of reputed companies are expected to visit the campus in the days

to come.

In this edition of FinXpress, we have the Opinion section on “Activity Based

Costing” and In Focus section on “The Indian Government v/s The RBI”.

Also don't miss the news section and market to get a glimpse of the major

happenings of the week.

We hope that you find the content engaging and informative. We hope you

enjoy the various articles in this edition of FinXpress. We look forward to

your comments, acknowledgements and criticisms regarding our online

magazine. Your opinions are most welcome.

All the Best!!!

Regards,

The Editorial Team

FinNiche Club

From The Editorial FinXpress

Volume 10

Sept 29,2013

FinXpress

Disclaimer: FinXpress takes no responsibility for the opinions expressed in the magazine.

FinNiche

September 2013 Page 1

CONTENTS

From The Editorial

In Focus: Activity Based

Costing

Opinion: Indian Govern-

ment V/S RBI

Market This Week

News

Fun Corner

Page 2

IN FOCUS

Traditionally, in a job order cost system and

process cost system, overhead is allocated

to a job or function based on direct labor

hours, machine hours, or direct labor dollars.

However, in some companies, new

technologies have changed the

manufacturing environment such that the

number of hours worked or dollars earned by

employees are no longer good indicators of

how much overhead will be needed to

complete a job or process products through

a particular function. In such companies,

activity‐based costing (ABC) is used to

allocate overhead costs to jobs or functions.

Activity‐based costing assumes that

the steps or activities that must be followed

to manufacture a product are what determine

the overhead costs incurred. Each overhead

cost, whether variable or fixed, is assigned to

a category of costs. These cost categories

are called activity cost pools. Cost

drivers are the actual activities that cause

the total cost in an activity cost pool to

increase. The number of times materials are

ordered, the number of production lines in a

factory, and the number of shipments made

to customers are all examples of activities

that impact the costs a company incurs.

When using ABC, the total cost of each

activity pool is divided by the total number of

units of the activity to determine the cost per

unit.

A per unit cost is calculated by

dividing the total dollars in each activity cost

pool by the number of units of the activity

cost drivers. As an example to calculate the

per unit cost for the purchasing department,

the total costs of the purchasing department

are divided by the number of purchase

orders. Once the per unit costs are all

calculated, they are added together, and the

total cost per unit is multiplied by the number

of units to assign the overhead costs to the

units.

While using cost drivers to assign

overhead costs to individual units works well

for some activities, for some activities such

as setup costs, the costs are not incurred to

produce an individual unit but rather to

produce a batch of the same units. For other

costs, the costs incurred might be based on

the number of product lines or simply

because there is a manufacturing facility. To

assign overhead costs more accurately,

activity‐based costing assigns activities to

one of four categories:

Unit‐level activities occur every time a

service is performed or a product is

made. The costs of direct materials,

direct labor, and machine maintenance

are examples of unit‐level activities.

Batch‐level activities are costs incurred

every time a group (batch) of units is

produced or a series of steps is

performed. Purchase orders, machine

setup, and quality tests are examples

of batch‐level activities.

Product‐line activities are those

activities that support an entire product

line but not necessarily each individual

unit. Examples of product‐line

activities are engineering changes

made in the assembly line, product

design changes, and warehousing and

storage costs for each product line.

Facility support activities are necessary

for development and production to

take place. These costs are

administrative in nature and include

building depreciation, property taxes,

plant security, insurance, accounting,

outside landscape and maintenance,

and plant management's and support

staff's salaries.

FinNiche

ACTIVITY BASED COSTING —- By Nikhil

September 2013

Page 3

IN FOCUS

The costs of unit‐level, batch‐level, and

product‐line activities are easily allocated to

a specific product, either directly as a unit‐

level activity or through allocation of a pooled

cost for batch‐level and product‐line

activities. In contrast, the facility‐level costs

are kept separate from product costs and are

not allocated to individual units because the

allocation would have to be made on an

arbitrary basis such as square feet, number

of divisions or products, and so on.

Introducing activity-based costing is not a

simple task—it is by no means as easy as

ABC. For a start, all business activities must

be broken down into their discrete

components. As part of its ABC program, for

example, ABB, a Swiss-Swedish power

company, divided its purchasing activity into

things like negotiating with suppliers,

updating the database, issuing purchase

orders and handling complaints.

Nevertheless, ABC has many satisfied

customers. Chrysler, an American car

manufacturer, claims that it saved hundreds

of millions of dollars through this program

that it introduced in the early 1990s. ABC

showed that the true cost of certain parts

that Chrysler made was 30 times what had

originally been estimated, a discovery that

persuaded the company to outsource the

manufacture of many of those parts

FinNiche

September 2013

Page 4

OPINION

These are difficult times for the Indian

economy. A ballooning inflation, heightened

current account deficit and a depreciating

rupee are among the primary parameters to

note the depth of the Indian economy’s

plunge. So whose fault is it? Is it the RBI that

failed to control inflation and boost growth?

Or is it the government’s that systematically

botched promises of economic development

and prosperity? In a socialist country, one

could argue that the government and the

central bank have to work together to

maintain economic stability, and that’s

probably true. In a country that follows

Keynesian Economics, both the institutions,

although apart, should complement each

other. But do we blame both the institutions

for this economy’s debacle?

A central bank faces the dilemma to

limit inflation or to give an impetus to growth.

Achieving both is quite tricky and

commendable. By lowering interest rates,

the central bank, in theory, gives stimulus to

growth but at the same time risks giving rise

to speculative bubbles. Increasing those

rates controls money supply and thereby

limits inflation. However, such an action puts

the brakes on development by limiting

access of funds at low interest rates. This

forms the bedrock of the RBI’s chief

monetary policy function. The government,

on the other hand, has access to greater

powers of stimulating growth and is directly

accountable to the citizens. Through its fiscal

and administrative policies, the government

has the ability to make radical impact on a

country’s economy.

One could assert that the RBI should

have kept interest rates lower to stimulate

widespread growth in India’s economy. One

could also make the claim that this debacle

was due to extraneous conditions outside

India’s control. However, the author of this

article believes that it is the government that

is primarily responsible for the damage done

towards this economy. The central

government got arbitrary and retrospectively

taxed the telecom sector. They even

arbitrarily awarded licenses for power sector

projects. Corruption got rampant and the

courts ordered a blanket ban on iron-ore

mining. If that was not enough, the

government failed to clear manufacturing

bottlenecks. Regulations got stricter and

input costs rose. Even the SEZ policies

came out more as land scam procedures

rather than industrial policies. As a result,

production came down, disposable income

got reduced and the country depended more

on imports.

Further, with the rising trade deficit, the

government went on with its plans to pass

the Food Security Bill – a costly agenda that

would surely push up food inflation prices.

And it is quite a wonder whether we can

afford to give such subsidies. Although FDI

was opened in several sectors, companies

like POSCO and ARCELORMITTAL

refrained from starting plants in India. All

such bad policies harm the economy directly

by failing to boost domestic production and

attract foreign investors.

Although RBI’s functions form the

backbone of India’s economy, it is the

government that has failed to deliver this

time. The government’s policies have cost us

dearly. The RBI might be able to control the

damage but the government brought about

the essential impairment. It would be

interesting to see how both the institutions

bring about changes in the nose-diving

economy in the days to come.

FinNiche

THE INDIAN GOVERNMENT VERSUS THE RBI

—- By Subhankar

September 2013

Page 5

FINANCIAL KNOWLEDGE FinNiche

Market This Week

The Sensex continued its down trend this week with a fall of 536 points after the RBI

increased the interest rates by 25 basis points last week. The increase in lending rates has

hit hard on rate sensitive sectors like banking and real estate. The domestic investors as well

as the FII’s were very skeptic about investing in the Indian markets and the markets went

into a consolidation phase. There was no major event that happened during the week and

the market is eyeing the FED’s decision on QE tapering in October. FII’s had a subdued

week with a net investment of Rs. 843 crore excluding the 27th September data.

SENSEX Simple Moving Averages

BSE SENSEX

CNX Nifty

Thirty Days 19,153.27

Fifty Days 19,291.85

Hundred and Fifty Days 19308.38

Two Hundred Days 19395.99

September 2013

Page 6

FINANCIAL KNOWLEDGE FinNiche

Bank Rate 9.5%

Repo Rate 7.5%

Reverse Repo Rate 6.5%

Cash Reserve Rate 4.0%

Statutory Liquidity Ratio 23.0%

INR/USD 62.51

INR/EURO 84.51

INR/Pound Sterling 100.86

INR/100 Japanese Yen 63.64

Commodity Unit Rs/Unit % Change

Gold 10 grams 30,737 2.76

Silver 1 kg 49,570 -0.53

Crude Oil 1 bbl 6538 -3.92

Base rate 9.70-10.25 %

Savings Deposit rate 4 %

Term deposit rate 8.0-9.0 %

Nifty Simple Moving Averages

Commodities

Lending / Deposit Rates

Thirty Days 5655.03

Fifty Days 5713.72

Hundred And Fifty Days 5800.85

Two Hundred Days 5841.18

Key Policy Rates and Reserve Ratios

Exchange Rates

September 2013

Page 7

FINANCIAL KNOWLEDGE

Brokers may boycott trading on MCX:

NSEL

Brokers may boycott trading on the Multi

Commodity Exchange ( MCX ) for a day as a

protest against the government authorities'

"failure" to resolve the National Spot

Exchange Ltd (NSEL) payment crisis. A

panel headed by economic affairs secretary

Arvind Mayaram had been tasked to look

into alleged irregularities in the functioning of

NSEL, which is grappling with a Rs 5,500-

crore payment crisis.

Wall Street falls as US government faces

possible shutdown

US stocks declined on Friday and the S&P

500 and Dow posted their first weekly drop in

four, as Democrat and Republican

lawmakers struggled to agree on an

emergency funding bill to avert an US

government shutdown day away. The S&P

500 declined 1.1 percent for the week and is

roughly 2 percent below its record high set

September 18 when the Federal Reserve

announced it would keep its stimulus

program unchanged for the present.

PM invites US companies to invest in

India

Citing long-term opportunities in sectors like

infrastructure and defense, Prime Minister

Manmohan Singh yesterday invited US

companies to invest in India while asserting

that concerns about the country's growth

prospects and economic policy environment

are "mistaken". Seeking to assure the

foreign investors, he told US industry leaders

here that virtually all political parties in India

have supported the process of reforms since

1991 which gives confidence about the

future direction of the country's economic

policies.

Barclays lowers India's FY14 GDP growth

forecast to 4.7%

Barclays has lowered India's FY14 GDP

forecast for the current fiscal to 4.7 percent,

saying the growth and fiscal health of the

country are likely to remain under pressure,

with 2014 election dynamics adding to

uncertainties. India's economic growth

had slumped to decade low of 5 percent in

2012-13. It had slid to 4.4 percent during

April-June quarter, the lowest in past several

years, pulled down by drop in mining and

manufacturing output.

Moily hints at reduction in petrol price

Oil Minister M Veerappa Moily on Friday

hinted at a reduction in price of petrol in next

few days, the first cut in rates in over five

months. The reduction in rates is likely to be

announced by the month end as per the

practice of fortnightly revision in prices, and

has been made possible due to appreciation

of rupee against the US dollar.

Fin-Min approves Rs 5500cr as SBA to

pay fertilizer subsidy

Finance ministry has agreed for Rs 5,500

crore against Rs 12,000 crore sought by the

Department of Fertilisers under a special

banking arrangement (SBA) to pay part of

the subsidy bill to the industry which is facing

a liquidity crunch.

Govt notifies implementation of GAAR

rules from April 2016

The government has notified the

controversial anti-avoidance tax rules, which

will be implemented from April 2016 and

apply to business arrangements with a tax

benefit exceeding Rs 3 crore. The General

Anti Avoidance Rules (GAAR) provisions will

come into force from April 1, 2016, the

Central Board of Direct Taxes (CBDT) said

in a notification dated September 23.

FinNiche

NEWS

September 2013

FinNiche

Fin- Fun

Fin-Fun

Page 8

Feel free to write to us at : finniche.imt@gmail.com

We are on the web !

http://www.facebook.com/FinNiche

http://www.imtgfinxpress.co.cc

Volume 10 Publisher : V.V.Raviteja

September 2013

Who does not wants to be rich and what better than to feature in the top of the Forbes’ list. So here we present to you some of the very inspirational RAGS-TO-RICHES STORIES that will definitely make you wonder ‘Am I in the right profession?’

FRANCOIS PINAULT, A HIGH SCHOOL DROPOUT NOW LEADS

LUXURY GOODS GROUP PPR

Pinault was teased for his poor background during high school. He quit

his schooling in the year 1947 and joined his family's timber trading

business. He began buying up smaller firms in the 1970s and his

ruthless business tactics — including slashing jobs and selling his

timber company only to buy it back at a fraction of the cost when the

market crashed — gave him a reputation as a "predator.” He had

similar tactics in the real estate business, and did well buying French

junk bonds and taking government money to save businesses from

bankruptcy. His self-made worth helped him start PPR, a luxury goods

group that sells brands like Gucci and Stella McCartney. At one point

the richest man in France, Pinault is now worth a cool $8.7 billion and

is the father-in-law of actress Salma Hayek.

INGVAR KAMPRAD WHO CREATED A MAIL-ORDER BUSI-

NESS THAT BECAME IKEA

Kamprad lived the farm life growing up. But he always had a knack for business, buying matches in bulk from Stockholm to sell to his neighbors. He later expanded to fish, Christmas decorations, and pens. Not satisfied with the small stuff, Kamprad took money from his father (a reward for good grades) and created a mail-order business that eventually became IKEA (the name comes from his initials plus those of his village and family farm). Furniture became the company's biggest seller, and Kamprad's use of local manufacturers kept his prices low. Once one of the world's richest, his value has fallen recently to a still-amazing $6 billion.