Unit Costing Report

A Study Report On Unit Costing Method of ITC LTD

In today Scenario Practical Knowledge is more important than Theoretical. So for Improvement of Management Skill of Students they need Practical Work on real situation. Practical studies are gaining much more importance as compared to the critical knowledge and management student have wide open space to fulfill their dreams So For getting Practical Knowledge we make a report on Unit Costing. How it is calculated and How ITC use it in their business.

1 Hashmukh Goswami College of Management


We are very lucky because we got an opportunity to make a study report on Unit Costing Method Of Itc Ltd. We take this opportunity to express our immense gratitude to PROF. UDAY ACHARYA for giving us the valuable opportunity to do this Report.

We are gratitude to him for his prolonged interest in our work and excellent guidance. They have been constant source of motivation for us. By their uncompromising demand for quality work I could do such an excellent work.



ITC Ltd is a very well known it is in the Business of Tobacco, Hotels, Paperboards & Specialty Papers, Packaged Foods & Confectionery, Branded Apparel, Education & Stationary Products & Incense Sticks. This Report is all about Unit costing. How ITC ITC ltd use Unit costing Methods in the Business. In which Products they Mainly use Unit Costing Method. So, to get that practical knowledge we have Make a report on Unit costing Method of ITC ltd. Which is Major Company in the FMCG products and others.



Sr. No.

Particular

Ch-1 Introduction of Company 1.1. History 1.2. Products 1.3. Costing 1.4. Cost Accounting 1.5. Objectives of cost accounting 1.6. Cost Concept 1.7. Costing Method

Page. No. 5 5 6 7 7 8 9 10

Ch-2 Cost Accounting Standard 2.1. Authority Body 2.2. Classification of Cost

12 12 14

Ch-3 Unit Costing 3.1. Introduction 3.2.Unit Costing Statement 3.3.Balancesheet 3.4. P& L A/c 3.5. Applicability

16 16 17 18 19 20

Ch-4 Findings

21

Ch-5 Suggestions

22

Ch-6 Bibliography

23



ITC was incorporated on August 24, 1910 under the name of 'Imperial Tobacco Company of India Limited'.. The Company's headquarter building, 'Virginia House'. The Company's ownership progressively Indianised, and the name of the Company was changed to I.T.C. Limited in 1974. In recognition of the Company's multi-business portfolio encompassing a wide range of businesses - Cigarettes & Tobacco, Hotels, Information Technology, Packaging, Paperboards & Specialty Papers, Agri-Exports, Foods, Lifestyle Retailing and Greeting Gifting & Stationery - the full stops in the Company's name were removed effective September 18, 2001. ITC is one of India's foremost private sector companies with a market capitalization of nearly US $ 19 billion and a turnover of over US $ 5 billion.* ITC is rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, among India's Most Respected Companies by Business World and among India's Most Valuable Companies by Business Today. ITC ranks among India's `10 Most Valuable (Company) Brands', in a study conducted by Brand Finance and published by the Economic Times. ITC also ranks among Asia's 50 best performing companies compiled by Business Week..

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Registered Office VIRGINIA HOUSE 37 J.L.NEHRU ROAD, KOLKATA 700 071 EPABX NO. : 91-(0)33 22889371





Definition of costing: Costing involves “the classifying, recording and appropriate allocation of expenditure for the determination of costs of products or services; the relation of these costs to sales value; and the ascertainment of profitability”.



Definition: Cost accounting is the process of determining and accumulating the cost of product or activity. It is a process of accounting for the incurrence and the control of cost. It also covers classification, analysis, and interpretation of cost. In other words, it is a system of accounting, which provides the information about the ascertainment, and control of costs of products, or services. It measures the operating efficiency of the enterprise. It is an internal aspect of the organization. Cost Accounting is accounting for cost aimed at providing cost data, statement and reports for the purpose of managerial decision making. The Institute of Cost and Management Accounting, London defines, “Cost accounting is the process of accounting from the point at which expenditure is incurred or committed to the establishment of its ultimate relationship with cost centers and cost units.

Cost accounting has the following main objectives to serve: 1. Determining selling price, 2. Controlling cost 3. Providing information for decision-making 4. Ascertaining costing profit 8 Hashmukh Goswami College of Management


5. Facilitating preparation of financial and other statements.

1. Determining selling price

The objective of determining the cost of products is of main importance in cost accounting. The total product cost and cost per unit of product are important in deciding selling price of product. Cost accounting provides information regarding the cost to make and sell product or services. 2. Controlling cost Cost accounting helps in attaining aim of controlling cost by using various techniques such as Budgetary Control, Standard costing, and inventory control. Each item of cost [viz. material, labour, and expense is budgeted at the beginning of the period and actual expenses incurred are compared with the budget. This increases the efficiency of the enterprise. 3. Providing information for decision-making Cost accounting helps the management in providing information for managerial decisions for formulating operative policies. These policies relate to the following matters: (i) Determination of cost-volume-profit relationship. (ii) Make or buy a component (iii) Shut down or continue operation at a loss (iv) Continuing with the existing machinery or replacing them by improved and economical machines. 4. Ascertaining costing profit Cost accounting helps in ascertaining the costing profit or loss of anyactivity on an objective basis by matching cost with the revenue of the activity. 5. Facilitating preparation of financial and other statements Cost accounting helps to produce statements at short intervals as the management may require. The financial statements are prepared generally once a year or half year to meet the needs of the management. In order to operate the business at high efficiency, it is essential for management to have a review of production, sales and operating results. Cost accounting provides daily, weekly or monthly statements of units produced, accumulated cost with analysis. Cost accounting system

The cost concept are define as follows: 1) Direct Cost :A cost that can be assigned specifically to a given or particular service.



2) Indirect Cost: A cost necessary for the functioning of the organization as a whole, but which cannot be directly assigned to one service. 3) Total Cost: The sum of all costs, direct and indirect, associated with the provision of a given or particular service. 4) Fixed Cost: A cost that does not change with increases or decreases in the amount of service provided (e.g., rent). 5) Variable Cost: A cost that increases or decreases with increases or decreases in the amount of service provided (e.g., salary). 6) Sunk Cost: A cost that has already been incurred (e.g., the cost of a previously purchased computer system).

7) Marginal Cost: The increase in total cost associated with an increase in the amount of service provided (e.g., if a new computer report was requested, its marginal cost would be predominantly the cost of the time it would take to program it assuming the computer was a sunk cost). 8) Avoidable Cost: The amount of expense that would not occur if a particular decision was implemented (e.g., if a clerk is laid off and a community is self insured for unemployment compensation, the avoidable cost is total direct salary less payments for unemployment benefits plus savings in employee benefits). 9) Life-Cycle Cost: The total of all costs associated with ownership of an item, including acquisition, operation, and maintenance, over the life of the equipment, less the resale value, if any. 10) Unit Cost: The cost of production production of one “unit” of o f a given service. 11) Opportunity Cost: The benefit that would have been received if an alternative course of action had been pursued. 12) Expense: A decrease in net total assets. Expenses represent the total cost of Operations during a period, regardless of the timing of related expenditures. 13) Expenditure: A decrease in net current assets.

Various Methods of Costing



Different industries follow different methods for ascertaining cost of their products. The method to be adopted by business organization will depend on the nature of the production and the type of out put. The following are the important methods of costing. 1) 2) 3) 4) 5) 6) 7) 8)

Job Costing Contract Costing Batch Costing Process Costing Service (Operating) Costing Operation Costing Single or Output costing Multiple costing

1) Job Costing: Job costing is concerned with the finding of the cost of each job or work order. This method is followed by these concerns when work is carried on by the customers request, such as printer general engineering work shop etc. under this system a job cost sheet is required to be prepared find out profit or losses for each job or work order. 2) Contract Costing: Contract costing is applied for contract work like construction of dam building civil engineering contract etc. each contract or job is treated as separate cost unit for the cost ascertainment and control. 3) Batch Costing: A batch is a group of identical products. Under batch costing a batch of similar products is treated as a separate unit for the purpose of ascertaining cost. The total cost of a batch is divided by the total number of units in a batch to arrive at the costs per unit. This type of costing is generally used in industries like bakery, toy manufacturing etc. 4) Process Costing: This method is used in industries where production is carried on through different stages or processes before becoming a finished product. Costs are determined separately for each process. The main feature of process costing is that output of one process becomes the raw materials of another process until final product is obtained. This type of costing is generally used in industries like textile, chemical paper, oil refining etc. 5) Service (Operating) Costing: This method is used in those industries which rendered services instead of producing goods. Under this method cost of providing a service is also determined. It is also called service costing. The organization like water supply department, electricity department etc. are the examples of using operating costing. 6) Operation Costing: This is suitable for industries where production is continuous and units are exactly identical to each other. This method is applied in industries like mines or drilling, cement works etc. Under this system cost sheet is prepared to find out cost per unit and profits or loss on production.

7) Single or output costing: This type of costing is implemented in industries where only a single product is manufactured E.g., Bricks, coal, only one type of detergent powder, etc. 11 Hashmukh Goswami College of Management


8) Multiple Costing: It means combination of two or more of the above methods of costing. Where a product comprises many assembled parts or components (as in case of motor car) costs have to be ascertained for each component as well as for the finished product for different components, different methods of costing may be used. It is also known as composite costing. This type of costing is applicable to industries producing motor vehicle, aero plane, radio, T.V. etc.



Board of Directors

CHAIRMAN

Y.C.Deveshwar

EXECUTIVE DIRECTORS

Nakul Anand

Pradeep Vasant Dhobale

Kurush Noshir Grant


A Study Report On Unit Costing Method of ITC LTD 

Anil Baijal

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Shilabhadra Banerjee

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Angara Venkata Girija Kumar

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Serajul Haq Khan

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Sunil Behari Mathur

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Dinesh Kumar Mehrotra

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Hugo Geoffrey Powell

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Pillappakkam Bahukutumbi Ramanujam

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Anthony Ruys

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Krishnamoorthy Vaidyanath

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Balakrishnan Vijayaraghavan



The following is the text of the COST ACCOUNTING STANDARD 1 (CAS 1) issued by the Council of the Institute of Cost and Works Accountants of India on “Classification of Cost”. The standard deals with the principle of classifying costs in the cost statements. In this

Standard, the standard portions have been set in bold italic type. These should be read in the context of the background material which has been set in normal type.

1. Introduction

The standard on classification of costs deals with the basis of classification of costs and the practice to be adopted for management objective.

classification of cost elements

in regard to its nature and

The statement aims at providing better understanding on

classification of cost for preparation of various cost statements required for statutory obligations or cost control measures. 2. Objective 

The objective of this Standard is to prescribe the classification of costs for ascertainment of cost of a product or service and preparation of cost statements on a consistent and uniform basis with a view to effect the comparability of the same of an enterprise with that of previous periods and of other enterprises.

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The classification and its disclosure are aimed at providing better transparency in the cost statement.

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The standard is also for better adoption of Uniform Costing and Inter-firm Comparison.

3. Scope 

The standard on classification of cost should be applied in assessment of cost of a product or service, application of costing technique and in case of management decision making by the manufacturing industries in India. 15 Hashmukh Goswami College of Management

A Study Report On Unit Costing Method of ITC LTD 

The standard is to be followed by an enterprise, whether covered under section 209(1)(d) of the Companies Act,1956 Act,1956 or not, to classify cost in order to prepare cost statement on uniform basis to make it relevant and understandable for effective cost management.

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The standard has also to be followed for the purpose of assessment of cost of production or valuation of product or the valuation of stock to be certified for calculation of duties and taxes, tariffs and other purposes as the case may be. The cost statement prepared based on standard will be used for assessment of excise duty and other taxes, anti-dumping measures, transfer pricing etc.



Definition of Unit Cost product or service equipment) and all variable costs (labor, materials, etc.) involved in the production of a service or product Understanding the Fundamentals of Unit Cost

The Importance of Knowing Unit Costs provided

te reductions by payers

Uses of Unit Costing Once we know what our unit costs are, what can we do with them? • We can measure cost effectiveness by looking at unit costs year on year. • We can set unit costs as a target, with the aim of maintaining the unit cost. • We can compare our performance against other councils.



Particulars Opening Stock of Raw Material Add: Purchase of Raw materials Less: Closing stock of Raw Materials Raw Materials Consumed Direct Wages (Labour) Prime cost (1) Add :- Factory Over Heads: Factory Rent Factory Power Factory Insurance Factory Asset Depreciation Works cost Incurred Add: Opening Stock of WIP Less: Closing Stock of WIP Works cost (2) Add:- Administration Over Heads:Audit Fees Bank Charges Other Office Expenses Cost of Production (3) Add: Opening stock of Finished Goods Less: Closing stock of Finished Goods Cost of Goods Sold Add:- Selling and Distribution OH:Sales man Commission Traveling Expenses Advertisement Sales Tax Bad Debts Cost of Sales (5) Profit Sales

31-3-2011 31-3- 2010 3102.37 7524.95 (3486.70) 7140.62 1450.54

2695.49 6469.70 (3102.37) 6062.82 1209.76

8591.16

7272.58

192.79 447.22 42.12 699.09 9972.38 81.79 (98.92) 9955.25

182.18 410.37 37.25 643.90 8546.28 77.75 (81.79) 8542.24

85.55 20.91 766.55

71.83 18.25 692.04

10828.26 9324.36 1286.27 1756.06 (1591.14) (1286.27) 10523.39 9794.15

27.60 212.73 654.55 2365.45 2.74 13786.46 8487.2 22273.66

24.51 178.75 542.20 2034.93 14.92 12589.46 6546.41 19135.87









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Unit cost is applicable to Manufacturing Industries where the production is continuous and uniform, and a single article is produces in twoor more grades. ITC use unit costing in Paper & packaging industries Unit Costing is calculated by following formula: Cost Per Unit =

Total Cost Number of unit Produced



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We Come to Know From this report that ITC is Growing day by day. We show that ITC ltd Profit is increase in the year 2011 in compare to year 2010. We also think that ITC ITC Capture high market share. SO, we can say that ITC is at a good Position.



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The company today has achieved a lot in market and is standing at great position so it becomes very difficult to give any suggestions.

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We recommend ITC to expand their business in Soft drink Market and beat with the well known leader of soft drink Coca-cola and Pepsi.

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They have to make their policy Strong for collection of money so the bad debt will not occurs.

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The company should organize more seminars to let people know about their activities and quality of their Product. It should now also try to enter in some other field except for only manufacturing Garments and Food Products.



Websites 

http:/ /www.Google.com

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http://www.itcportal.com/about-itc/itchttp://www.itcportal.com/about-itc/itc-profile/history-and-e profile/history-and-evolution.aspx volution.aspx

BOOK 

Managemant Accounting ( Page no.-35,195,203) -Author -Paresh Shah -Publisher- Oxford

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Two year’s Annual Report of ITC LTD (2010 &2011)






Unit Costing Report

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