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A PRESENTATION ON COST BEHAVIOUR AND FUNDAMENTAL ANALYSIS OF SELLING, GENERAL AND ADMINISTSRATIVE COSTS

Submitted by( SUBRAMANYAM K.N)REG. NO.: 12CQCMN022Under the guidance of

External Guide Internal Guide MR. MOHAN KUMAR MRS. GEETHA SAMPATH

DAYANANDA SAGAR COLLEGE OF ARTS,SCIENCE AND COMMERCE Shavigemalleshwara Hills Kumaraswamy Layout Bangalore 560 078

.INTRODUCTION

A cost is the amount of resources given up in exchange for some goods or services or it is the monetary value of all resources such as labor, buildings and supplies whether tangible or intangible, used to produce a good or a service. Thus cost is that which is or is sacrificed to obtain something. The cost of an article consists of actual outgoings or ascertained charges incurred in its production and sale.

It is to be noted carefully that there is no such thing as an exact cost or true cost as no figure of cost true in all circumstances and for all purposes. It should also be understood that the word cost can rarely stands alone and should be qualified as to its nature and limitations. In order to ascertain cost, it involves system, methods and techniques of accumulation, classification and analysis of cost.

COST BEHAVIOUR:-

Cost behavior is nothing but learning how costs change when there is a change in an organization's level of activity. The costs which vary proportionately with the changes in the level of activity are referred to as variable costs. The costs that are unaffected by changes in the level of activity are classified as fixed costs.However, the understanding of cost behavior is very important for management's efforts to plan and control its organization's costs. Budgets and variance reports are more effective when they reflect cost behavior patterns.

The understanding of cost behavior is also necessary for calculating a company's break-even point and for any other cost-volume-profit analysis. The separation of costs in to fixed, variable and semi variable is necessary in order to determine, analyze, control, measure or evaluate the following.DEFINITION OF COST AND COSTING:-

According to Chartered Institute of Management Accountants (CIMA), London defined the term cost as The amount of expenditure (actual or notional) incurred on or to attributable to a specified thing or activity

According to Chartered Institute of Management Accountants (CIMA), London defined the term costing as The techniques and process of ascertaining costsDEFINITION OF COST ACCOUNTING:-

According to Chartered Institute of Management Accountants (CIMA), London defined Cost accounting as The process of accounting for costs from the point at which its expenditure is incurred or committed to the establishment of ultimate relationship with cost units

ELEMENTS OF COST:There are four main types of costs according to their behavior:1. Fixed costVariable costStep costMixed cost

Fixed Cost:Fixed costs are those which do not change with the level of activity within the relevant range. These costs will incur even if no units are produced. For example rent expense, straight-line depreciation expense, etc.Fixed cost per unit decreases with increase in production.

2. Variable Cost:Variable costs change in direct proportion to the level of production. This means that total variable cost increase when more units are produced and decreases when less units are produced. Although variable in total, these costs are constant per unit. For eg: Materials, fuel etc

3. Step cost:Cost which is fixed over small ranges of activity, but varies across wider rangesFor example: Supervision costs, labor costs, etc.

4. Mixed Cost:Mixed costs or semi-variable costs have properties of both fixed and variable costs due to presence of both variable and fixed components in them. An example of mixed cost is telephone expense because it usually consists of a fixed component such as line rent and fixed subscription charges as well as variable cost charged per minute cost. Another example of mixed cost is delivery cost which has a fixed component of depreciation cost of trucks and a variable component of fuel expense.

KOLAR- CHIKKABALLAPURA MILK UNION LIMITED(KOMUL)

COMPANY PROFILE

Kolar-Chikkaballapura District Co-operative Milk Producers Union Ltd., (KOMUL) is Karnatakas 2nd highest Milk Producing District Organization. It is a District level apex body of milk cooperatives in Karnataka, which aims to provide remunerative returns to the farmers by eliminating the middlemen and also serve the interest of consumers by providing quality Milk & milk products, which are good value for money.

AREA OF OPERATION:

The area of operation is restricted to Kolar and Chikkaballapura Districts having 2919 Villages of 11 revenue Taluks. Dairy along with 3 chilling Centers[ First in Southern India] has obtained certification for ISO: 9001-2000 Quality Management System and we are in the process of upgrading the system to ISO-22000.

:VISION, MISSION AND QUALITY POLICY

VISION:Quality assurance from cow to consumer. To vanish the scarcity of milk.To fulfill the objective of white revolution.To strengthen the living standard of rural people.Product diversity.Avoiding post harvest losses.MISSION:-Procuring the raw milk from the local farmers at a fair price.Pasteurization and the homogenizing of the procured raw milk.Producing the other milk product.Supply milk to consumers at a reasonable price.Development of good infrastructure facilities.

Quality policy:Every employee of the dairy will strive for the customer satisfaction by providing quality milk and milk products at competitive rates and timely delivery through continual improvement .During the last ten years, the KMF is given greater emphasis on procuring quality milk from DCSs (district co-operative societies) under the concept of Quality Excellence from Cow to Consumer Many Clean milk production (CMP) initiative have been implementing at all the stages of procurement , processing and marketing, among these CMP initiatives, noteworthy initiative is the setting up of community Milking parlours in villages.

PRODUCT PROFILE

Pasteurized toned milk: Karnatakas highest selling and most preferred milk. It contains 3% fat and 8.5% SNF . available in 250 ml,5000 ml 1 liter pouches.

2. Good Life milk: It contains 3.5% fat and 8.5% SNF. It is longer shelf life milk variant. It is treated with ultra high temperature and it is has shelf life of 60 days without refrigeration. Available in 500 ml and 1 liter pouches.

3. Nandini Curd: It is made from pure milk. It is thick and delicious. It is available in 200 ml and 500 ml sachets.

Nandini butter milk: fresh butter milk blended with quality spices to give that enlivening spicy tang of traditional spiced butter milk. Available in 200 ml process.

5. Nandini milk powder: Skimmed milk powder made from pure milk, processed and packed hygienically available in 50gms, 100 gms, 500 gms and lkg pack.

6. Nandini Ghee: Nandini ghee is made from the pure butter and it is known for its purity and rich taste. It is packed in special pack to retain the goodness. It is available in 200 ml sachet pouch.

7. Nandini butter: Rich and smooth delicious nandini butter is made out of pasteurised cream, It is available in 100 gms, 200 gms, and 500 gms.

8. Nandini mysore pak: Karnatakas traditional sweet and most favourite choice of all. The appetizing aroma and taste of pure ghee used in the preparation will study melt the hearts when consumed.

9. Nandini peda: Mouth- watering peda made from pure milk. One bite is enough to fill the heart with its creamy milk flavour. McKinsey's 7 S Framework

STRUCTURE:Structure of a company includes the basic organization of the company, its departments, reporting lines, area of expertise and responsibility and how they inter relate.The way of organizations units relate to each other: centralized functional divisions ( top - down); decentralized ( the trend in larger organizations); matrix, network, holding, etc.,

STRATEGY: Strategy is nothing but plans an organization formulates to reach identified goals, and a set of decisions and actions aimed at going a sustainable advantage over the competition.Development of intermediates and bulk milk products order using a variety of procurement technologies of milk.Developed of cattle field plants of 100 TPD capacities, each and one plant of 200 TPD capacities with mineral and mixture production facility in one unit.Providing assured and remunerative maker for the milk product by the farmers.Improving the quality status of milk and their derivatives to urban consumers.Milk and milk products should undergo various tests conducted by the quality control departments

Mission strategy The organization core competence include the entire dairy products chains, namely packed sweet products like peda, kova and Nandini ice creams and their food products must undergo biotechnology and quality control tests.

SYSTEMSystems define the flow of activities involved in the daily operation of business, including its core processes and its support systems. They refer to the procedures, processes and routines that are used to manage the organization and characterize how important work is to be done. Systems include:Business systemBusiness Process Management System ( BPMS)Management information system.Innovation systemPerformance management system.Financial system/ capital allocation systemCompensation system/ reward systemCustomer satisfaction monitoring system

STAFF:

Staff refers to the number and types of personnel within the organization and how companies develop employees and shape basic values.Total staff strength, permanent, contract laborers and security.

SKILL:Skills refer to the dominant distinctive capabilities and competencies of the personnel or of the organization as a whole. As the milk and milk products are perishable in nature sot they handled carefully. So it required skilled manpower for handling, and skill in the sense testing of content, micro organism, humidity, and moisture. It needs training.

STYLE: Style refers to the cultural style of the organization, how key managers behave in achieving the organizations goals, how managers collectively spend their time and attention, and how they use symbolic behavior. How management acts is more important that what management saysSHARED VALUES: Shared values are commonly held beliefs, mindsets, and assumptions that shape how an organization behaves its corporate culture. Shared values are what engender trust. They are an interconnecting center of the 7Ss model. Values are the identity by which a company is known through out its business areas, what the organization stands for and what it believes in, it central beliefs and attitudes. These values must be explicitly stated as both corporate objectives and individual values.SWOT analysis

STRENGTHS:Each department in the organization is very coordinative.All functions related to milk and milk products are processed at the same plant. It can minimize the cost of production.Presently Mother dairy is a brand leader as well as price leader in the local market.The time duration between procurement and sales is comparative less.Providing the necessary welfare facilities for the employees thus putting the employees in the comfort zone and increasing the relation level of employees.

WEAKNESS:As it is government organization employee productivity is less.Mother dairy is lacking enough authority to take the decision still traditional method of milk processing.Lack of specialization of top level management.Difficult to change to an alternate fine production with a existing machinery.All functions relating to milk and milk products are processed at the same plant. It can be minimized the cost of production.

OPPORTUNITIES:

Since Nandini is well known brand it has an opportunity to diversify into some other business.Since KOMUL is recruiting labors for both permanent to meet the production as per fluctuating the demand.Mother dairy is concentrating only on local market, it has got opportunity to enter in to other.Markets like exporting cream milk powder, ghee and other its products to other states.It has got infrastructure to expand the production capacity.Strengthening of union management relationship and achieve the organizational objectives.

THREATS:Stiff competition from other like Arogya, Heritage, Good morning, Nestle, and brands for as mother diary is owned.The Karnataka government changes in policies of government effect the mother dairy. Threats due to entry of the private firm in to milk processing business.STATEMENT OF THE PROBLEMThe study of this is to interpret an increase in the ratio of selling, general and administrative costs to sales between two periods as a negative signal about future profitability and firm value and have an expectation that selling, general and administrative costs should normally move proportionately with increases or decreases in revenues.OBJECTIVES OF THE STUDY

To understand the range of cost concepts that underpin decision making.To analyse the cost behavior and identify the elements of cost.To know the management efforts to plan and control its organizations costs.To analyse the cost based on the system, methods, techniques of accumulation and classification.To offer suggestions based on findings of the study.SCOPE OF THE STUDY

The scope of the study covers the cost behavior and fundamental analysis of selling, general and administrative costs in Kolar- Chikkaballapura Milk Union Limited. The analysis depends on the financial statements and cost particulars that have taken for a period of 5 years from the year 2009 to 2013. The analysis is done as per the basis of comparison and interpretation is based on the same. The interpretation is given for the each analysis and for the position of the company as a whole.LIMITATION OF THE STUDY:There are many limitations or constraints in doing this study. Some of them are as follows:

A.DATA COLLECTION:The collection of the data and other information will be made for the period of 5 years only.

B.TIME FACTOR:First of all the time factor. The time duration prescribed by the university for this study is 1 month, but deeply studying an organization in 1 month is rather impossible.

2.7 METHODOLOGY OF DATA COLLECTION:

1. PRIMARY DATA:Primary data is collected through interaction with the staff of accounting and finance department.

2. SECONDARY DATA:The secondary data includes the information collected through following sources:1. Books and Journals, Magazines, 2. Internal records, 3 Annual reports and 4. Companys website.ANALYSIS AND INTERPRETATION Raw material costSelling and distribution costCost of processingAdministration costWorking capitalProfit or lossProfit variations over 5 yearsSales variations

Part B PresentationChart showing the Raw material cost:-

Interpretation: In the year 2008-2009 the percentage of raw material cost is high because of the increase in the purchase of raw materials and high cost incurred for passing the raw materials

Chart showing the Cost of Processing:-

Interpretation:The percentage of cost of processing is relatively high in the year 2012-2013, whereas it is less in the year 2008-2009. In the year 2008-2009 the cost incurred for indirect materials is less.

Chart showing the Selling and Distribution cost :-

Interpretation:- This is to interpret that the selling and distribution cost percentage has been relatively increased from the year 2008-09 to 2012-13 i.e., 3.07% in the year 2012-13. Hence it should be understood that cost incurred on the selling and distribution activities is relatively high.

Chart showing the administration cost:-

Interpretation:The percentage of administration expenses over the cost of production relatively high i.e., 3.09% in the year 2012-2013 because the cost incurred on the maintenance of machines, salary of office staff including salary of directors, secretaries is high.

Chart showing the Working Capital:-

Showing the Profit / Loss:-

Interpretation:Its better to increase the capacity of production as we are getting continuous profit from the year 2008-2009 to 2012-2013 i.e. at present 2012-2013 the profit earned is 15484245.

Chart showing the Sales:-

Interpretation:Net sales for the year 2012-2013 has been increased because in steady increase in the Demand for the product. This chart indicates companys sales position is better for the Current year compared to the previous years.

FINDINGS:

Change in the government policies lead to increase in the raw material cost which in turns leads to increase in the cost of production.In the year 2008-2009 the percentage of raw material cost is low because of decrease in the purchase of raw materials.Processing cost is gradually increasing from the year 2008-2009 to 2012-2013.There is a gradual increase in the sales trend of the KOMUL which indicates the sign of the growth in sales.Demand of the product is increasing year by year.Net sales for the year 2012-2013 have been marginally increased because of steady increase in the demand for the product.The total cost is higher than the selling price because of high variable cost.Raw material cost is low in the year 2012-2013 because there is changes in the terms and conditions of raw material suppliers like price of raw materials, discounts given to them and credit period allowed.

SUGGESTIONS:

It is advised to open more outlets, as they can reduce the retailer margin.Dairy can provide good facilities to workers to boost up their working level capacity.The Dairy can give more training to workers about the new machines and methods adopted.The dairy needs to recruit even experienced persons to gain their knowledge for betterment.The dairy can follow the prescribed way of doing fundamental analysis of costing.Effective, efficient and focus strategies should be developed in order to maintain the cost behavior and fundamental analysis to increases its sales And profit.

CONCLUSIONS:

The study was undertaken to know about cost behavior and fundamental analysis of selling, general and administrative costs based on the techniques of costing.The overall study indicates the satisfactory performance of the unit, however for attaining higher growth, the company is performing well in the aspects of improving the production mechanism by which the cost will be improved.

BIBLIOGRAPHY

Books:Cost management -------- G.V Kesava RaoCost Management -------- Ravi. M. KishoreAnnual reports of the KOMUL

Websites:www.komul.coop.nic.inwww.kmfnandini.comwww.moneycontrol.comwww.google.com

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