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Cost Analysis On Cadbury India Ltd
CADBURY OVERVIEW •
•
Cadbury India is a fully owned subsidy of Kraft Foods Inc. The combination of Kraft Foods and Cadbury creates a global powerhouse in snacks, confectionery confectionery and quick meals.
INTRODUCTION •
•
•
•
In India, Cadbury began its operations in 1948 by importing chocolates. Cadbury India operates operates in four categories categories viz. chocolate confectionery, milk food drinks, candy and gum category. Cadbury enjoys a value market share of over 70% - the highest hi ghest Cadbury brand share in the world! Manufacturing facilities at: 1) Thane, 2) Induri (Pune), 3) Malanpur (Gwalior), 4) Bangalore 5) Baddi (Himachal Pradesh)
Brand Portfolio •
11 brands with more than $1 billion bill ion in revenue
•
70+ brands with more than $100 million mil lion in revenue
•
40+ brands over 100 years old
BRANDS •
Chocolates
•
Snacks
•
Beverages
•
Candy
•
Gums
Some key Brand In INDIA
Objectives •
•
•
•
•
Determine the fixed costs, variable costs and semivariable costs for the business. Identify the indirect costs (Overheads) for the business. Is the profit volume ratio high or low for your business? Examine the ratio critically. Prepare a standard standard cost sheet for your business using imaginary numbers. Prepare an activity based costing statement for your company using imaginary numbers.
'Fixed Cost' A cost that does not change with an increase or decrease in the amount amount of goods or services produced. Fixed costs for Cadbury are: •
Depreciation of factory machinery
•
Office supervisor’s salary
•
Rent
•
Delivery vehicle insurance insurance
Variable Cost •
Variable costs are those costs that vary depending on a company's production production volume; they rise ri se as production increases and fall as production decreases.
Variable costs for Cadbury are: •
Wages of staff
•
Commission paid
Semi-Variabl Semi-Variable e Cost Cost •
A cost composed of a mixture of fixed and variable components. Costs are fixed for a set level of production or consumption, becoming variable after the level is exceeded. exceeded.
Semi-variable costs for Cadbury are: •
Electricity
•
Maintenance cost
Indirect cost •
Indirect costs represent the expenses of doing business that are not readily identified with a particular grant, contract, project function or activity, but are necessary for the general operation of the organization organization and the conduct of activities it performs.
Indirect costs for Cadbury are: •
Salary of factory manager
•
Insurance of factory premises
•
Depreciation
•
Maintenance costs
•
Electricity
•
Insurance
ApportionmentOverhead distribution summary Production departments
Particulars
Basis
Total
X
Y
Material
Direct
1920000000
Direct labour
Direct
90000000
Depreciation of factory machinery
Asset value
15000000
3000000
4000000
Rent
Floor area(sqft)
4000000
1000000
Electricity
Light points
20000000
Salary
No. of employees
Insurance
Maintenance cost
Service departments
Z
A
B
940000000 980000000
60000000
30000000
3000000
2700000
2300000
1200000
800000
600000
400000
5500000
3500000
6500000
1800000
2700000
10000000
3000000
1500000
2500000
1600000
1400000
Floor area(sqft)
25000000
8000000
5000000
4000000
4000000
4000000
Maintenance hrs
10000000
2500000
1800000
2000000
1300000
2400000
Re-distribution Re-distribution of service ser vice depatment expenses Production departments Particulars Total overheads over heads
Total
X 193200000
Y
Service departments Z
A
B
23000000
17000000
18800000
1012000000
1023200000
A
202400000
303600000
404800000
-1012000000
101200000
B
337320000
449760000
112440000
A
44976000
67464000
89952000
-224880000
22488000
B
6746400
8995200
2248800
4497600
-22488000
A
7.19616
10.79424
14.39232
-35.9808
3.59808
B
1.079424
1.439232
0.359808
0.719616
-3.59808 -3.59808
224880000 -1124400000
Calculation of total cost Particulars
Direct material
Direct labour
Overheads
Total cost
X
Y
Z
1500000000 1800000000 2000000000
50000000
40000000
20000000
615497959 848379591.6 630122448.7
2165497959 2688379592 2650122449
Standard Cost sheet •
•
•
•
•
•
A standard cost is the expected or budgeted cost of materials, labor, and manufacturing overhead required to produce one unit of product. A standard cost sheet calculates the total standard cost for one unit of product. It lists the standard costs for one unit of product for the following: Materials (Price standard × Quantity standard) Labor (Price standard standard × Quantity standard) standard) Variable manufacturing overhead (Price standard × Quantity standard) Fixed manufacturing overhead (Price standard standard × Quantity standard)
Standard Cost sheet
Two reasons for adopting a standard cost system are: •
To improve improve planning planning and control:
•
To facilitate facilitate product costing
Cost sheet Particulars
Amount (In crores)
Total Materials consumed:
722
Direct Labour
20 742
PRIME COST
Factory Overheads: Salary of factory manager+Depriciation of factory machinery, Electricity+OTHER
COST OF PRODUCTION Selling & distribution distribution overheads Delivery vehicle insurance,comission paid
COST OF SALES PROFIT
3 754
228
P/V Ratio •
•
•
P/V Ratio (Profit Volume Ratio) is the ratio of contribution to sales which indicates the contribution earned with respect to one rupee of sales. It also measures the rate of change of profit due to change in volume of sales. A high P/V Ratio indicates that a slight increase in sales without increase in fixed costs will result in higher profits. A low P/V ratio which indicates low profitability can be improved by increasing selling price, reducing marginal costs or selling products having high P/V ratio.
P/V Ratio
Profit-volume ratio: 2011
2012
Sales
7840000000
9820000000
Profit
1820000000
2280000000
P/V ratio
Change in profit*100/Change in sales
=23.23%
Activity-Based Costing - ABC' •
•
•
An activity based costing (ABC) system recognizes the relationship between costs, activities and products, and through this relationship assigns indirect costs to products less arbitrarily than traditional traditional methods. Identify and eliminate those products and services that are unprofitable and lower the prices of those that are overpriced Or identify and eliminate production or service processes that are ineffective and allocate processing concepts that lead to the very same product at a better yield
