Product costing in Prestige Industries PVT TLD

Managerial accounting (FIN 202) report

Date of submission: 23rd April 2013

Submitted to: Mrs. Meghna Dangi

Submitted by: Bhaumit Zaveril Sanjana Choksi Shubham Tekriwal Varsha Baid

Acknowledgement
We would like to express our special thanks of gratitude to our module leader Mrs. Meghna Dangi who gave me the a golden opportunity to work on this wonderful project, the topic of my report is product costing in Prestige Industries pvt ltd, which also helped us in doing lot of research and we came to know about many new concepts and practicality of accounting concepts which indeed help us in increasing our knowledge about real accounting view from managerial level. We would also like to thank god and our friends who helped us a lot in finishing this project within the allotted time. Thanks again to each and everyone who helped us throughout my project. Bhaumit Zaveril Sanjana Choksi Shubham Tekriwal Varsha Baid

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Table of Contents

Product Costing................................................................................... 4 Types of product costing system ......................................................... 6 Introduction ........................................................................................ 7 HISTORY OF EMBROIDERY .................................................................. 8 MANUFACTURING PROCESS ............................................................... 8 BENEFITS OF THE PRODUCT ................................................................ 8 Flow of cost ....................................................................................... 10 Conclusion and recommendation ..................................................... 13

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Executive Summery
Product costing is a type of costing A product cost is any cost that is associated with units of product for a particular purpose. Hence, the identification of product costs depends on the purpose for which it is done. For example, the factory manager is interested in manufacturing costs, whereas the merchandising manager might be interested in both manufacturing and nonmanufacturing costs, including research and development, marketing, and advertising costs. There are two types of product costing systems: a. job-order costing. b. process costing PRESTIGE INDUSTRIES Pvt. Ltd. Company is promoted by MR Sanjay Agarwal. They are into manufacturing & Trading of Grey Fabrics along with Computerized Embroidery Work of Fabrics last 20 Years. They came with a new embroidery machine project in order to fulfill the customers needs efficiently and effectively . The group is having a diverse experience in textile industry and having an entire team to work as a cohesive whole focusing towards the development of our range and the organization as a whole . The cost-effective production technique ensures the product offered by them is available at market competitive costs. Their success has been a direct result of single-minded focus on leveraging their Core strengths-quality, on-time delivery, speed of response and flawless systems. The other promoters of the company are well experienced in this Industry and their able guidance has enabled in attaining the present sky scraping status. Besides, their efficient team management Embroidery adds grace and elegance, life and style even into articles of everyday use. Entire team to work as a cohesive whole focusing towards the development of our range and the organization as a whole.

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Product Costing
Product costing is a type of costing A product cost is any cost that is associated with units of product for a particular purpose. Hence, the identification of product costs depends on the purpose for which it is done. For example, the factory manager is interested in manufacturing costs, whereas the merchandising manager might be interested in both manufacturing and nonmanufacturing costs, including research and development, marketing, and advertising costs.

Product cost are used in two different aspects: in Financial accounting and Managerial accounting. In financial accounting, product cost are used to value inventory and to compute cost of goods sold. Whereas in managerial accounting, product cost are used for planning, control, directing and management decision making. Therefore, this type of costing system is very efficient for a manufacturing company as in a manufacturing company, the products used are large in number and thus computing the cost of these product is a tedious work.

Below is a diagram explaining the flow of cost in a manufacturing company:

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Types of product costing system

There are two types of product costing systems: a. job-order costing. b. process costing

A. Job-order costing: Job-order costing is use for products which are high cost products and are produced in large quantity and are unique in nature, eg any manufacturing company. These good are rather built on order rather than producing in large quantity or mass produce eg aeroplanes. Also, many cost in this type of costing can be directly traced to each job . There are two main operations involved in job-order operation, job-shop operation and batchproduction operations. Job-order operations involves low volume or single manufacturing at one time for eg customised products which are manufacturing according to the needs and wants of customers rather than producing it in large quantity as every product here would be different from each other and is included in service industries like hospitals or law firms. Batch-production operation involves multiple productions in batches of relevant small quantity. Eg manufacturing of medicines or cold-drinks manufacturing where production is done in batches and the quantity is relevantly less.

B. process costing:

Process costing is used for a product which involves production of small, identical and low cost items. Here mass production is automated continuous production process. Therefore, cost here cannot be directly traced to each unit of production.

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Introduction

PRESTIGE INDUSTRIES Pvt. Ltd. Company is promoted by MR Sanjay Agarwal. They are into manufacturing & Trading of Grey Fabrics along with Computerized Embroidery Work of Fabrics last 20 Years. They came with a new embroidery machine project in order to fulfill the customers needs efficiently and effectively . The group is having a diverse experience in textile industry and having an entire team to work as a cohesive whole focusing towards the development of our range and the organization as a whole .

The group has 145Computerized Embroidery machines of the unit to meet the demand of the group. The unit will not face any problem in getting Job work as they are presently in this field only. The group is having a rich and varied experience in textile industry. The cost of the project is around Rs 712 LAKHS. The director of the company takes all the financial decisions. Incepted in the year 1991, Prestige INDUSTRIES PVT LTD is a private limited Firm with their base in SURAT. It helps in targeting their domestic clients. Besides, their globe-covering network facilitates in meeting the demand of their global customers in an appropriate manner.

The cost-effective production technique ensures the product offered by them is available at market competitive costs. Their success has been a direct result of single-minded focus on leveraging their Core strengths-quality, on-time delivery, speed of response and flawless systems. The other promoters of the company are well experienced in this Industry and their able guidance has enabled in attaining the present sky scraping status. Besides, their efficient team management Embroidery adds grace and elegance, life and style even into articles of everyday use. Entire team to work as a cohesive whole focusing towards the development of our range and the organization as a whole.

They are extremely proud of the current infrastructural facilities and the quality of the products. Been in the business for many years, they have got a feel of the people pulse and know just what exactly the customer wants. With considerable market research and by keeping a firm eye on the emerging fashion trends, the team of experienced designers designs products that always keep up ahead of their own competitors. The company is basically now dealing in the north side of India and now they are exploring to different cities in India.

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Company USP Experienced R & D Department Large Product Line Large Production Capacity

HISTORY OF EMBROIDERY
The use of embroidery is to brighten garments, which have been around since man, and women began to wear garments. It is a way of decorating and adorning vesture, adorned styles happened as results of labor and care. This journey began once primitive man discovered that he may use thread to affix items of fur to form garments. As a natural progression, he additionally discovered that a similar thread could be accustomed build ornamental patterns on the garments. He additionally used vibrant beads, stones and bones to feature to those decorations. Several wonderful samples of lovely embroidery work are still living until date. Samples are often found from Ancient Egypt, China, Persia, India and England. Every country has its own distinctive type of embroidery, which contains the culture and representational process from their history and tradition.

MANUFACTURING PROCESS
The manufacturing process is very simple. The design is prepared on the computer and then design is loaded on the USB Drive and put in the on board computer of Embroidery Machine. The cloth, either grey or finished is laid on the frame / Pantograph of the machine where thread for embroidery is already loaded in the shuttles. Since the total process is computerized the working knowledge of the machines is automatic. The unit will do job work of fabric embroidery of the other units in the Surat textile market. The products are exported in mainly northern part of the India. These products are also exported outside India. The countries are Malaysia, Singapore, USA, and LONDON.

BENEFITS OF THE PRODUCT

The usage of products of the unit i.e. EMBROIDERED FABRICS is universal. It is the value addition product, which adds value to the product. The use of the products will be everywhere starting from kids, Teen Ages, young and even older people. Surat is largest manufacturer of Saris and dress materials, which also require embroidery work after dyeing, and printing of the Fabrics. Embroidery adds grace and elegance, life and style even into
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articles of everyday use. The product will have potential for exports also subject always to the price preference. The benefit of purchasing the product from this company is the best price offered by them and the new designs are available which are according to the consumer taste and preference. All the products manufactured by this company are purchased by their own group and further on these products are sold in various parts of India. The main competitors of these firm are lifestyle, kk fabrics,colors etc. These units are located in pandesra and GIDC.

Analysis of cost in PRESTIGE INDUSTRIES PVT LTD

Fixed Cost
Wages Factory Expenses Repair & Maintanence Plant & Machinery

Variable Cost
5,90,995 Alteration Charges 1,03,881 Calendering Charges 59,263 Cutting Charges 15,77,800 Desiging Expenses Electricity Expenses Job Work Claim Saree Charges Streching Charges Water Supply Bill Raw Material Packing Cost 23,31,939 8,57,859 2,00,302 1,56,921 2,05,003 17,37,690 1,41,880 2,63,605 3,34,632 1,737 86,36,200 9,72,000 1,35,07,829

Total fixed expenses are 23,31,939 rupees. Total variable expenses are 135,07,829 rupees.

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Flow of cost
Dr. Particulars

Work In Progress
L.F.Amount (In Lhaks) Particular

Cr. L.F. Amount (In Lakhs) 8.64 210.962

Opening W.I.P Raw Material Packaging Cost Consumable & store Electricity expenses Repairs & Maintanence Other Manufacturing Expenses

7.56 Closing Stock W.I.P 86.362 Balance b/d 9.72 42 17.37 0.592 56 219.602

219.602

Dr. Particulars

Finished Good Inventory

L.F.Amount (In Lhaks) Particular

Cr. L.F. Amount (In Lakhs) 24.16 188.202 212.362

Balance of W.I.P Openeing Balance

210.962 Closing balance 1.4 Balance c/d 212.362

Dr. Particulars

Cost of Goods Sold

L.F.Amount (In Lhaks) 188.202 Balance c/d 188.202 Particular

Cr. L.F. Amount (In Lakhs) 188.202 188.202

Balance from finished goods inventory

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Information provided as per company data are as follow:

Sales Variable cost 313,32,007 135,07,829

Contribution margin= sales- variable cost

Contribution margin = 313,32,007- 135,07,829 Thus, contribution margin is 178,24,178

Contribution margin ratio= contribution margin Sales

= 178,24,178/ 313,32,007 = 0.57 Thus, contribution margin ratio is 0.57

Fixed expenses

23,31,939

Net income= Contribution Margin- Fixed Expenses

=178,24,178 - 23,31,939 =145,92,239

Thus net income is 145,92,239 rupees.

Breakeven point = fixed expenses/ contribution margin ratio = 23,31,939/0.57

= 40,91,121 Thus breakeven point is at Rs 40,91,121.

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 Operating leverage factor= contribution margin Net income

=178,24,178/145,92,239 = 1.22 Thus, operating leverage is 1.22

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Conclusion and recommendation

Company is trying to enter in the textile market. As it is a new player in the industry, it is not an issue that company is not a market leader. Company is earning quite a handsome amount of money i.e. 1,45,92,239 rupees in its starting years, which is good but it would be better that company could follow activity based costing system. In activity based costing system overhead is charged according to each activity cost driver. As we can see in report company follow numerous activities such as cutting, designing, alteration, stretching, roll press, packaging etc. thus it would be helpful for the company if it adopts this method as they can easily identify and can allot the right cost at each level of activity which indeed will help them to setup right cost of the product.

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