EXECUTIVE SUMMARYEXECUTIVE SUMMARY

T h e p r o j e c t w e u n d e r t o o k i s b a s i c a l l y t o f o c u s o n h o w d i f f e r e n t

m e t h o d s o f c a l c u l a t i n g c o s t o f p r o d u c t i o n b e i n g u s e d i n t h e

c o r p o r a t e w o r l d . F o r t h i s , o u r g r o u p c o n d u c t e d b a s i c r e s e a r c h

a n d v i s i t e d t h e c o m p a n y a n d i t s f a c t o r y b y w h i c h w e g o t t h e

b a s i c i d e a a n d i n f o r m a t i o n a b o u t t h e m a j o r c o s t s w h i c h a r e

i n c u r r e d i n t h e p r o d u c t i o n o f t h e p r o d u c t .

T h e p r o d u c t t h a t h a s b e e n c h o s e n f o r o u r p r o j e c t i s D e n t o n i c

t o o t h p a s t e .

F o r c a l c u l a t i n g t h e c o s t o f p r o d u c t i o n w h i c h i s b e i n g i n c u r r e d

o n t h e m a n u f a c t u r i n g o f D e n t o n i c , w e t o u c h e d u p o n t h e

d i f f e r e n t d e p a r t m e n t s , a c t i v i t i e s a n d p r o c e s s e s t h r o u g h w h i c h a

p r o d u c t g o e s t h r o u g h . T h e c o m p o n e n t s w h i c h a r e h i g h l y

f o c u s e d a r e t h e r a w m a t e r i a l w h i c h i s b e i n g u s e d , d i r e c t a n d

i n d i r e c t l a b o r a n d o v e r h e a d s i n c l u d i n g p a c k a g i n g a n d p r i n t i n g ,

f i l l i n g , d e p r e c i a t i o n e t c f o r t h e m a k i n g o f p r o d u c t .

ACKNOWLEDGEMENTACKNOWLEDGEMENT

We have deeply indebted to Mr. Athar Iqbal for giving us such a

useful assignment, which has helped us to improve our

capabilities to understand the different ways to calculate the

cost of a product and to collect information through different

sources.

As the project advisor it was his guidance, help and

encouragement that lead to the successful completion of this

report. We would also like to thanks all those people, who have

directly and indirectly helped us in providing the information;

without this help, the report would not have been in this

presentable form.

LETTER OF TRANSMITTALLETTER OF TRANSMITTAL

April, 24th, 2008Mr. Athar Iqbal,

Instructor,

Iqra University,

Karachi.

Dear Sir,

We would like to take the pleasure of presenting the research report of the course Managerial

Accounting. This report is the outcome of the research conducted by the students to study the

costing process.

We are grateful to you Sir for helping us for this report and we would also like to thank all

the other people from whom we inspired ideas. Last but not least we would like to thank all

the people who shared their opinion on the topic, for their support and cooperation without

which we would not have been able to complete this research.

If you have any question regarding this report, we will be more than obliged to discuss them

with you.

Thank you.

Yours Sincerely,

TABLE OF CONTENTSTABLE OF CONTENTS

Production and production cost

Cost for the product

Company Profile

Product Profile

Cost data

Manufacturing Cost

- Direct Material

- Direct Labor

- Over heads

Advertising Budgets

Verification

Conclusion

PRODUCTION / PRODUCTION COSTSPRODUCTION / PRODUCTION COSTS

It is essential to make realistic forecast of production or costs for a project proposal in order to determine the future viability of the project. One of the major deficiencies encountered in pre-investment studies is the inaccuracy of production cost estimates. This frequently leads to unexpected losses which, if reinforced by low capacity utilization caused by wrong sales forecasts, may quickly push a nascent establishment out of operation. The analysis of cost structures and identification of critical cost items, as well as critical comparisons with similar projects, are proper means of improving the reliability and accuracy of cost projections and predictions of the financial feasibility of an investment.

Production costs should be calculated as total annual costs and preferably also as cost per unit produced (unit costs).Often pre-investment studies deal only with overall production costs, which is relatively simple for single product factories; but may become rather complicated for certain technologies and the manufacture of a variety of products. For the analysis and justification of an envisaged production programme and for the break-even analysis, it is necessary to determine the main cost items directly related to each individual product. Production costs must be determined for the different levels of capacity utilization and for an operational period corresponding to the planning horizon of the investors and financing institutions interested in the project.

The feasibility study of a product costing in terms of financial costs should be geared towards the use of discounting methods for financial analysis and investment appraisal. All cost elements required for the calculation of total production costs therefore have to be projected and scheduled in line with the projection programme and for the full planning period. Once production costs at full output level have been defined and their breakdown into variable and fixed costs established, it is possible to adjust the variable costs in proportion to the percentage of capacity utilization assuming that fixed costs remain approximately unchanged. All of the cost items entering into production costs should now be assembled in order to arrive at production costs. For this purpose a schedule should be used.

COSTING FOR THE PRODUCTCOSTING FOR THE PRODUCT

Production costs are intended to record those costs which are connected in one or more cost centers of the production sector or the other productive cost centers with the chemical or physical manufacture, formulation (mixing, working up, composition/ assembly), checking of conformity with analyses of measurements (analysis) and inner packing and include the costs for material input, packaging and special individual production costs. The calculation should show the process of production from the raw or input materials to the semi finished or finished product ready for storage, shipment or sale. The cost and results accounting system should be designed in such a way that although production support and supply services (e.g. internal transport, energy supply, environmental protection, factory security, administrative and social management and care of the employees in production, etc.) are to be recorded in the production costs, the other functions of the operational process (research and development, marketing, logistics, general management and administrative functions, including financing) are not to be included in the production costs.

PRODUCTION OVERHEADSPRODUCTION OVERHEADS

A production cost center covers those parts of the company which are involved in production, in other words with the manufacture of the chemical products and other products and also with the filling and packing. Support and supply services should only be included to the extent that they are directly connected with the production processes. In smaller production department the production cost centers include the analytical departments, including in-process testing, provided they are not amalgamated in central analytical departments.

COMPANY PROFILECOMPANY PROFILE

ALA Chemicals has been in business since 1963, manufacturing and marketing the quality

oral care products for healthy and beautiful smiles. As per their commitment with the nation

and also with their valued consumers, they are consistently maintaining excellent quality

standards of their products at all the stages. Every product that comes out of the Ala plant

achieves the highest level of quality. The company is proactive with the rapidly changing

market requirements of the consumers.

Dentonic ToothpasteDentonic Toothpaste

After the success of Dentonic Tooth powder among the masses Ala Chemicals launched a

better version in form of Dentonic Toothpaste. Dentonic Toothpaste with dual action whitens

your teeth and protects from bacteria and other tooth decay. The MFP fluoride helps

strengthen teeth and effectively protects against cavities. It contains clinically proven anti

bacterial agent Triclosan for healthier gums and teeth.

Dentonic toothpaste contains gentle cleaning agents. Its Mint Flavor gives consumers a fresh

breath and a confident smile. The unique flavor of the toothpaste makes the consumer feel

good while using the product.

DIRECT MATERIAL USEDDIRECT MATERIAL USED

Chemical Percentages Used

Aqua 20.8 19.3

Calcium Glycerol-phosphate 1.95 1.8

Glycerin 30.00 27.96

Sodium Saccharin 3.9 3.6

Tri-Sodium Phosphate 4.5 4.1

Formalin 0.4 0.3

Sodium Mono-fluoro-phosphate 11.25 10.5

Sodium Methyl Cocoyl Taurate 11.25 10.5

Iodine 3.00 2.8

Triclosan 15.75 14.7

TCP 4.5 4.1

Total raw Material cost Rs. 487500

DIRECT LABOR DIRECT LABOR

The production process is consist of four different processes and divided into four different stages:

1. Lab test In lab test we have 2 chemist and 4 helpers

2. Actual Production In this process there are 5 people to look after the operations.

3. Size of Particles For operating this activity there is 1 chemist and 3 assistants.

4. Paste Storing There are 5 people to look after this process.

Total numbers of workers are 20 out of which 3 are chemists and 17 helpers.

Each helper is paid Rs. 8000

Each chemist is paid Rs. 40000

OVER HEADSOVER HEADS

The overhead includes the following:

Packaging and printing Plant depreciation Electricity Indirect labor Gas/heat Other over heads Inspection / quality control

Total FOH: Rs. 444500 per month

Ala Chemical’s Main Entrance

MANUFACTURING & PACKAGING PLANTMANUFACTURING & PACKAGING PLANT

Production & Packaging Plant To check the shelf life of the product called as Oven

Ritovischo machine to check the particles size and binding force of toothpaste.1000 millions pdm

In the Lab for the Test Production of the batch

ADVERTISING BUDGETSADVERTISING BUDGETS

Additional Expense of the company but not considered in the report

Print Ad Media Vehicle:

The print ad media we chose for Magazine (Akhbaar-e-Jahan & Junge) & for News Paper

(Jung ,Ummat & Awwam).

Designing Cost= Rs 28,000 for two different sizes that is half page and full page

magazine ad.

Magazine: Akhbaar-e-Jehan (Weekly) (Alternate Weeks)

Duration: 3 months

1st month 2nd month 3rd month

1time 1time 1time

Rate = Rs. 8000 per week

Quarter page ad

Details of Akhbaar-e-Jehan

Page Size = 40 cm x 20 cm; Column width = 4.25 cm; Column length = 37

cm;

No. of columns = 6; no. of pages (72 approx);

Paper used news print or offset

Outside cover = white offset

Circulation = It is the largest circulated Urdu weekly in Pakistan

Newspaper: Awaam

Rate per day 4 column, 30 cm = Rs. 3,925/-

Add will be on the 3rd page

On consecutive Sundays, twice in a month

Per month Rs. 7850

CONCLUSIONCONCLUSION

Af te r work ing on t h i s p ro j ec t now we a r e ab l e t o unde r s t and t he p r ac t i c a l a spec t s and imp lemen ta t i on o f cos t i ng p roce s s i n t he p roduc t i on o f a p roduc t . Cons ide r i ng t he cos t s t ha t a r e i ncu r r ed i n p roduc ing t he va r i an t s o f a p roduc t , we have been ab l e t o imp lemen t t he cos t i ng concep t s and me thods t ha t we have l e a rn t , i n ou r fu tu r e . Pu t t i ng a l l ou r e f fo r t s and w i th t he t e am work we ga the red a l l t he manufac tu r i ng cos t s i ncu r r ed and a t l a s t we we re ab l e t o i den t i fy t he cos t pe r un i t o f Den ton i c (A la chemica l s ) .

Managerial Accounting

Final Project

Submitted to: Mr. Athar Iqbal

Date: April, 24th, 2008

Submitted by: Aisha Talpur 4101 Nawaz Nasar Khan 3944 Nida Ghanchi 4113