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COST ACCOUNTING

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CIA 3 COMPONENT 2

ADITYA JAIN
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1620203
4 BBA ‘B’

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 BACKGROUND OF THE INDUSTRY

 Bread has become an integral part of modern living and is available in various
patterns and flavours. The bread industry forms a segment of the bakery industry.
 The bread industry in India, valued at INR 33bn (~USD 0.53 bn) in FY 2015(E), grew
at a CAGR of ~9% over the last three years. Value Notes estimates that the industry
will be worth approximately INR 53bn (~USD 0.86bn) by FY 2020, growing at a
CAGR of ~10%
 Demand for brown and fruit breads is estimated to increase further due to an
increasing urban consumer base and a rise in health awareness about nutritional food.
 Growing disposable incomes, changing lifestyles and preferences of consumers
supported by an increase in the youth population, female work participation as well as
a widening scope of the Indian retail market will drive the industry growth.
 Latest trends witnessed in the industry reveal that companies manufacturing bread
products are likely to increase their manufacturing capacities to expand their foothold
in different regions. With a change in eating habits and preferences of consumers, the
bread industry is coming up with innovative products and flavors, and a variety of
breads.

BACKGROUND OF THE COMPANY

The first ingredients for Atta Galatta’s now-renowned breads were merely three
individuals in a shed, a small oven and plenty of commitment to raise creative dough. The
intention was to bake some items for their own bookstore’s cafe.

Soon book lovers also grew into bread lovers. The increasing demand to buy the breads
was just the sign they needed to realise that their baking held a different charm. Today,
Atta Galatta’s flavourful breads find their way into homes through leading supermarket
chains, making people happy across Bangalore city. Its manufacturing unit is located in
Yeshwanthpur, Bengaluru.
 Cost Sheet for Producing 50,000 Units of Bread.

TOTAL COST
PARTICULARS
COST P.U.
Direct Material:
Raw Material 3,40,250
Add: Carriage inwards 25,000 3,65,250
Direct Wages 56,200 1.12
Direct Expenses 17,075 0.34
PRIME COST 4,38,525 8.77

Add: Works Overheads:

Indirect Materials 6,100 0.12

Indirect Wages 5,500 0.11

Salary of factory workers 84,000 1.68

Fuel & Motive Power 25,390 0.5

Factory Rent &Taxes 80,000 1.6

Other Factory Expenses 5,000 0.1

Supervisor's Salary 25,000 0.5

Depreciation on Plant &
25,750 2,56,740 0.52
Machinery
WORKS COST 6,91,265 13.82

Add: Office and

Administration Overheads:

Office Salaries 30,000 0.6

Office Rent & Rates 15,000 0.3
Depreciation on Office
4200 0.08
Furniture & Building
Office Electricity 4,500 0.09

Printing & Stationary Charges 500 0.01

Other Office Expenses 1,600 0.03

Telephone Charges 1,200 57,000 0.02

COST OF PRODUCTION 7,48,265 14.96

Add: Selling and Distribution

Overheads:
 Salary & Commission of
35,500
Salesmen
Carriage Outwards 6,500
Sales Expenses 1,00,000
Packing Charges 25,000 1,67,000 3.34
TOTAL COST OR COST
9,15,265 18.33
OF SALES
PROFIT 1,83,053 3.66
SALES 11,44,082 23

COST SHEET ANALYSIS

Direct Cost:

Direct materials

To manufacture one unit of bread the following Raw Materials are required.

 Flour  Water  Oat Flour

 Yeast  Salt  Antioxidant

 Sugar  Edible Vegetable Oil

 Malt Products  Gluten 

 Acidity Regulator  Milk Solids 

Cost = INR 3,40,250

Direct labour/wages:

Direct labour/Wages amounts to Rs. 1.124 per unit which is approximately 12% of the Prime

Cost. This percentage is slight low because a good amount of work is automated as a result of

which Human resources are diverted to more productive areas such as Sales.

Direct Labour mainly includes: The Dough Operator, 3 Bakers, and the Essence Operator

cum Taste Customizer.

 Particulars Salary/Month Total Salary

Dough Operator 6,000 6,000

Bakers 14,400 * 3 43,200

Taste Customizer 7,000 7,000

- - 56,200

Direct cost/expenses:

Direct cost includes costs incurred in bringing the raw materials into the factory which is

Carriage inward. It also includes the amount paid loading unloading charges and other petty

expenses and duties. The factory is situated in Yelahanka, Bengaluru

Indirect Costs:

Factory Overheads:

The Factory Overheads includes the Indirect labour, Depreciation on Machinery, Cost of

Maintenance, Fuel & Motive Power , Supervisor's Salary and Other Factory Expenses.

 Indirect labor: The amount of indirect labor is Rs. 0.11 per unit. This value includes

sweeper charges, support staff and cleaning/hygiene staff.

 Salary of factory workers= INR 84,000

Salary/Worker No of Workers Total

Skilled 9000 4 36,000

Unskilled 6000 8 48,000

- - 12 84,000
 Indirect Materials: These are petty materials which play a part in production indirectly like

glue, rubber bands, etc.

 Depreciation on machinery: The depreciation is calculated on the basis of Straight Line

calculated @ 10% p.a. This value amounts to around 20 % of the Factory Overheads. The

percentage moderate because of the level automation and technology used for production.

Machinery is assumed to be worth INR 2,50,000

Baking Sheets Bread pans Measuring cups, Measuring Mixing bowls,

dry and liquid spoons two large
Oven Rubber spatula Ruler Rolling pin Saucepan,
medium-sized
Serrated knife Thermometer Timer Wire cooling Wooden spoon,
rack large or long
handled

 Power: Per unit power and fuel consumption is Rs. 0.5078 per unit.

 Other factory expenses: Other factory expenses include maintenance of factory and other

miscellaneous expenses.

Factory Maintenance INR 4000

Other Urgent factory needs INR 1000

Office and Administration Overheads:-

Office and administration overheads include Depreciation on office furniture@7%, office

rent, salary to staff, office and general expenses, Postage and Telegrams, telephone expenses,

electricity and lightings.

 Salary to staff: The salary paid to staff is fixed.

Particulars Salary/Month Total Salary

Employee 7500 * 4 Employees 30,000

- - 30,000

 Office and general expenses: This comprises of refreshments (tea and snacks), Postage and

Telegrams and other petty expenses.

Cost= INR 1600

 Printing and stationary: This consists of photocopy charges, printouts and other stationary

items.

Cost= INR 500

 Telephone Expenses: Calls made by the staff members.

Cost= INR 1200

 Electricity and lightings: It consists of office lighting and air conditioning expenses

Cost= INR 4500

Sales and Distribution Overheads:

Selling and distribution cost includes Sales Commission, Discount allowed, Salary of

salesmen, Carriage outward and Sales expenses

 Sales Commission Salesman Wages:

As a part of encouragement for sales people, they are given commission of 5 % of the total

sales done by them.

Sales done by salesman is assumed to be INR 5,00,000 out of INR 9,00,000

Commission to Salesman= 5% of 5,00,000= INR 25,000

 Wages of salesmen:

The average salary paid to the sales people is around Rs. 0.2 of the total per unit cost of the

product.

 Carriage outward :

To carry the finished goods to the whole sellers, the transportations charge per unit/product is

set as INR 0.13

Cost= 0.13 * 50,000 units= INR 6,500

 Sales expenses :

This includes expenses incurred on advertisements and promotional expenses such as

newspaper advertisements, hoardings, Local/Regional TV commercials etc.

Cost= INR 1,00,000

Profit:

The Profit arise out of selling per unit of the product is 25% of the total per unit cost price

COST CONTAINMENT STRATEGIES

 The amount of direct as well as indirect labor should be decreased from Rs. 0.122 per
unit to Rs. 0.1 in order to decrease the per unit cost.
 The company should distribute free samples and other items to its distributors in order
to encourage them to purchase more.
 The average Salary paid to the sales people should be maximized in order to motivate
the sales personnel in order to maximize the sales in the market.
 As a part of encouragement for sales people, they should be given a commission of 8
% instead of 5% of the total sales done by them in order to maximize sales and
production and decreasing cost per unit.
 The company can reduce its cost by maintaining its own delivery system and not
relying on Third party delivery systems.
 The company should focus on using more capital intensive techniques of production
in order to minimize cost spent on labor. But it should be kept in mind that too much
of capital may result a large amount of depreciation on them.
 Marketing should be kept at lower budget. Instead of Local TV commercials the
company can opt for distribution of free samples in stalls, directly selling it to the
final consumer. Social Media Marketing can also be done with less cost.
 Quality Equipments should be purchased though it may cost more. It reduces the cost
of breakdown and maintenance. Otherwise the breakage of the equipment may result
in producing less units overall.
 The number of units produced should be increased in order to minimize fixed cost and
other fixed charges like rent, salary, etc.