CHAPTER –I

INTRODUCTION

A Cost Analysis is a “technique and process of ascertaining costs”. It is a

Terminology of Cost Accounting, the amount of Expenditure actual notional,
incurred on or attributable to a given thing.

The important reason behind my study is know the actual importance of

cost in a manufacturing unit. The move behind this is to go through every detail
which helps in the cost control and Ascertainment of profitability as well as
presentation of information for the purpose of managerial decision making

The rationale for conducting this study is be efficiently able to carry out
the firms objective and yield higher profits by reducing the cost. It aims at
analyzing the quantitative data measuring the accomplishments.

My project foc//uses on a cost sheet or cost statement which present the

information regarding the various elements of cost incurred in production during a
defined period of time. The Cost Sheet is generally prepared at short intervals
(weekly or monthly) and presents the total cost as well as cost per unit of products
manufactured during the period.

The Cost Sheet does not have any statutory format. It is not a part of the
Accounting system. The purpose of Cost Sheet is to present the Element of cost in
as much detail as possible. In order to provide comparison, a Cost may have

1
information pertaining to the previous year in an additional column. Alternatively,
standard costs may also be provided.

Cost Sheet includes only such expenses that are a charge against profit. It shows a
breakup of total cost into various elements, sales value of goods and Profit earned
or Loss incurred during a period. Expenditure incurred towards servicing of dept,
acquisition of assets, payments are not included in the Cost Sheet

SCOPE

The main review is done on the use of Cost Accounting and its common
objective. It always expressed in terms of quality and money. It is the policy to be
followed during the cost period for attainment of specified organization.

 Financial and quantitative statement of the action plan.

 Laid down prior to the cost period during which it followed.

 Prepared for specified objective and

 Based on management policy.

The types of issue raised in my study are to relate the actual operation and
performance of a firm in existences. This system which uses cost for controlling
and reduction different activities of business.

2
  Division of organization on function basis into different sections for cost
reduction of Surana Telecom and power LTD;

 Preparation of separate cost for each cost centers for planning strategies for
innovations and growth of the Company;

 Consolidation of all functional cost to present overall Surana Telecom &

power objective

 Comparison of actual level performance against cost. Comparison process

is stretched far enough to declare either attainment of objective or basis of
revision of plan of action

 Reporting the Variance with proper analysis to provide basis for future.

Objectives
My objective is study the cost analysis in a manufacturing unit is to get insight of
the conceptual details of “a cost analysis helps in formulating its pricing policies
and prepare estimates” and how much truth does this substantiate. Some of the
important objectives are

 To ascertain the cost per unit of different products manufactured or services

rendered by the undertaking.

 To maintained a systematic records of the cost incurred by analyzing and

classifying the cost information so that necessary cost data and information
is available.

3
  To point out how wastage of time, money, machinery, equipment occurs and
to prepare such reports which may be necessary to control such wastage.

 For an effective communicating which is the basic essence of organizational

aims objective to subunits so as to encourage them to play their part
efficiently, My Cost effectively communicate this information to the
employees at different level for maximum contribution to companies
objective

 Coordination holds importance in synchronize the company’s active factors

effectively. To coordinate is to harmonies all the objective of a company so
as to facilitate its successful working.

A. each department works harmonious with the other

B. each of them plays a specific role to accomplish an overall objective
c. The sequential arrangement of activities of different department is to govern the
overlapping of activities and wasting time.

 Motivation depends purely on how the workers can get involve mentally and
physically to put on their maximum output.

An active cost helps the employee to closely relate their personal interest with the
organizations plan it acts like a motivation for plan achievement.

Data collection: Primary data collection from the company records and one to
one interaction with the employees of the company

4
 CHAPTER –II
RESEARCH METHODOLY

Secondary data: Through business magazines literary books journals annual

reports of the company and web based recourses

Data analysis: Mainly analytical (qualitative) however quantitative tool will be

employed as and when required

Inferences and observations; Drawn on the basis of analysis done

Conclusions and recommendations: To conclude the Project

5
 CHAPTER-III
LITERATURE REVIEW

Cost accounting is that part of management accounting which establishes budget

and actual cost of operations, processes, departments or product and the analysis of
variances, profitability or social use of funds. Managers use cost accounting to
support decision making to reduce a company's costs and improve its profitability.
As a form of management accounting, cost accounting need not follow standards
such as GAAP, because its primary use is for internal managers, rather than
external users, and what to compute is instead decided pragmatically.

Costs are measured in units of nominal currency by convention. Cost accounting

can be viewed as translating the Supply chain (the series of events in the
production process that, in concert, result in a product) into financial values.

Cost accounting has long been used to help managers understand the costs of
running a business. Modern cost accounting originated during the industrial
revolution, when the complexities of running a large scale business led to the
development of systems for recording and tracking costs to help business owners
and managers make decisions.

Management requires information to look into the future. Moreover, it has to

ensure that adequate resources are made available and plans are achieved at the
least cost. Formulation of budgets, pricing of new products or investment in new
projects, etc are all examples of costing information being an aid to planning.
Thus, costing helps management plan the product to be produced in order of

6
priority, quantity of production, fixation of optimum selling price, associated costs
and expected profits.

Analysis, allocation and apportionment of costs requires considerable amount of

clerical work. It involves huge financial burden on the concern.

Definition:

Method of accounting in which all elements of cost incurred in carrying out an

activity or accomplishing a purpose are collected, classified, and recorded. This
data is then summarized and analyzed to arrive at a selling price, or to determine
where savings are possible. In contrast to financial accounting (which considers
money as the measure of economic performance) cost accounting considers it as
the economic factor of production.

 Accumulation, examination, and manipulation of cost data for comparisons

and projections.

 Cost analysis is Accounting & Auditing and Statistics, Mathematics, &

Analysis subjects.

“Method of arriving at selling price of an item with reference to another item

without performing a cost analysis. It is employed usually where the two

7
 items are so similar that price differences between them can be identified
and justified”.

FORECASTE: What will happen probable?

COST CONTROL: What management will try and make happen i.e. planning

And Control in a Cost, planning only in a forecast.

Need to manage cost:

Some costs tend to remain the same even during busy periods, unlike variable costs
which rise and fall with volume of work. Over time, the importance of these "fixed
costs" has become more important to managers. Examples of fixed costs include
the depreciation of plant and equipment, and the cost of departments such as
maintenance, tooling, production control, purchasing, quality control, storage and
handling, plant supervision and engineering. In the early twentieth century, these
costs were of little importance to most businesses. However, in the twenty-first
century, these costs are often more important than the variable cost of a product,
and allocating them to a broad range of products can lead to bad decision making.
Managers must understand fixed costs in order to make decisions about products
and pricing.

For example: A company produced railway coaches and had only one product. To
make each coach, the company needed to purchase $60 of raw materials and
components, and pay 6 laborers $40 each. Therefore, total variable cost for each
coach was $300. Knowing that making a coach required spending $300; managers
knew they couldn't sell below that price without losing money on each coach. Any
price above $300 became a contribution to the fixed costs of the company. If the
8
fixed costs were, say, $1000 per month for rent, insurance and owner's salary, the
company could therefore sell 5 coaches per month for a total of $3000 (priced at
$600 each), or 10 coaches for a total of $4500 (priced at $450 each), and make a
profit of $500 in both cases.

Characteristics of good costs: A good Cost Sheet is characterized by the

following:

 Organization set-up: There should be a gradual and smooth introduction of

the system.

 Promptness: The system should be so designed that the relevant

information and data is made available promptly and regularly.

 Accuracy: The costing system must provide accurate information relating to

operations of the organization.

 Uniformity: The costing system must ensure that the various forms and
records used for collection and presentation of cost data is uniformity.
Instruction to staff must be clear.

 Minimal Clerical Work: Paper work is disliked by almost every one and
yet it is important. It must be kept to the minimum particularly in case of
lower level employees providing manual labor.

 Periodicity: The system must provide for periodical preparation and

presentation of costing results.

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  Reconciliation: The system must ensure that figures in cost records can be
easily reconciled with that of financial records. The possibility of installing
an integrated accounting system must be ensured

Advantages of Cost Analysis:

Many of us prepare costs analysis on a personal level: How much income for the
month; how much I, am going to spend; and most importantly, is there anything
left over? It seems true; however, that many businessmen do not prepare cost sheet
their relatively simple lives, when it comes to the much more complex situation of
their business, they prefer to let cash inflows and outflows look after themselves.
The purpose of this part of the chapter is to demonstrate that cost analysis is useful,
informative and communicative. We will see that a cost is a necessity not a
Luxury. There is number of advantages to Cost Analysis and Cost Accounting:

 It reveals profitable and unprofitable activities.

 It helps in controlling costs with special techniques like standard costing and
budgetary control
 It supplies suitable cost data and other related information for managerial
decision making such as introduction of a new product, replacement of
machinery with an automatic plant etc
 It helps in deciding the selling prices, particularly during depression period
when prices may have to be fixed below cost
 It helps in inventory control

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  It helps in the introduction of a cost reduction programmed and finding out
new and improved ways to reduce costs
 Cost audit system which is a part of cost accountancy helps in preventing
manipulation and frauds and thus reliable cost can be furnished to
management
 A good system of costing affords an independent reliable check on the
accuracy of financial accounts. Reconciliation of results shown by cost
accounts and that by financial accounts establishes accuracy of both sets of
books.
 Cost Accounts records the time spent by each workers on a job or process.
This helps the management in ascertaining the unit cost labor for each
activity. The time and job cards indicate the loss caused by idle time.
Suitable measures can be taken to minimize the same.
 Cost Accounting will enable the management to measures its efficiency and
then to maintain and improve it.

Problems or limitation of cost Accounting

Expensive: Analysis, allocation and apportionment of costs requires considerable

amount of clerical work. It involves huge financial burden on the concern. To
install a good system of Cost accounting, some amount of initial expenditure must
be incurred, but this expenditure should be treated as capital expenditure.

Unnecessary: It is argued that costing is of recent origin and many concerns have
prospered in the past and still prospering without any costing system. Hence,
expenditure incurred in installing a costing system would be an unnecessary

11
expenditure. It is to be remembered that the atmosphere under which industries
are now operating is entirely different from what it was some fifty years ago.

Inapplicable: It is inapplicable to many types of industries. It cannot be applied

in case of small business houses and new types of industries that are coming up in
recent times. There is no ready-made system of Cost accounting applicable to all
industries. The system of Cost Accounting should be modified in such a way as to
suit the special requirements of industries.

Unproductive: It is argued that costing system adopted in many concerns has not
produced the desired results. Hence it is defective. There is no rigid system of
Cost Accounting applicable to all industries.

Lack of Uniformity: There is a lack of uniform principles and procedures in Cost

Accounting.

Estimation: Cost Accounting works on a basis of estimates. The user does not
receive the time or exact cost. An error in estimation may throw up totally
different results.

Suitability: Cost data is required for decision making purposes. Thus, a cursory
comparison may result in misleading conclusions.

Role of Management: The usefulness of Costing Accounting is restricted to the

ability and willingness of management to take decisions based on information
received.

Paper work: it is argued that as the cost system requires the use of number of
forms, after some time it becomes stereotyped and degenerates into a matters of
forms and rulings.
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METHODS AND TECHNIQUES OF COSTING

Methods of Costing:

Costing methods is a method of costing that is designed to suit the way goods are
processed or manufactured or the way services are provided. Each industry will
have costing methods with its unique features. However, the basic costing
principles relating to analysis, allocation and apportionment will be the same.
There are two broad categories of product costing methods, namely Specific
Order Costing and Continuous Operation or Process Costing.

1. Specific Order Costing:

The institute of Cost and Works Accountants of India (ICWAI) defines specific
order costing as “the basic costing method applicable where the work consists of
separate contracts, jobs or batches, each of which is authorized by a special order
or contract”. Thus job costing, contract costing and batch costing come under the
category of specific order costing.

(A) Job Costing:

Cost unit in job order costing is taken to be a job or work order for which costs
are separately collected and computed. A job cost card is prepared for the purpose
of cost accumulation. Furniture made, repairs undertaken, printing etc are
examples where job costing is used.

(B) Contract Costing:

Contract costing is very identical to job costing, except that it is applied to a job
which is of relatively long duration and is required to be executed on the site of

13
the client. Contract costing system normally has higher proportion of direct costs.
There are frequent problems of cost control on account of large scale of the
contract. A separate account is kept for each contract. Contract costing is
normally used in construction.

(C) Batch Costing:

This method is applicable where a quantity of identical articles is manufactured as

a batch. The procedures of batch costing are very similar to that of job costing.
The batch itself would be treated as a job and the ‘batch’ becomes the cost unit.
On completion of the batch, the cost per unit is calculated by dividing total batch
cost with number of good units produced in the batch. Batch costing is adapted in
the engineering component industry, footwear, garments industries etc.

2. Continuous Processing:

The ICMA defines continuous processing as “the basic costing method applicable
where goods or services results from a sequence of continuous or repetitive
operations or processes to which costs are charged before being averaged over the
units produced during the period”. The goods or services produced are
standardized. It includes process costing including for joint products and by
products, operating in services costing and unit or output costing.

(A)Process Costing:

This is used in mass production industries manufacturing standardized products in

continuous processes of manufacturing. Costs are accumulated for each process or
department. For spinning mills, process costing is employed. Accurate records are
maintained of number of finished goods and unfinished goods (work in progress),

14
normal and abnormal loss at each process etc. As the processes are in a sequence,
the output of one process is charged as input for the next process. Procedures are
clearly defined for separating costs in the events of two or more products being
simultaneously produced by a particular process. It is applied in Brewing, Oil
Refining, and chemical, Textile, Food Processing and many other industries

(B) Unit or Output Costing:

It is a costing method where organization produces only single product.

Consequently, the whole production process is geared to the one product and is
frequently highly mechanized. The object of this method is to ascertain the total
cost and the cost per unit of output. Cement, mines, quarries, dairies, bricks etc
are example of industries using this method. It is also called Single Costing.

(C) Operating or Service Costing:

It is a method of costing of specific services. It is applied to transport undertaking,

hotels, hospitals, colleges, power supply companies etc. A particular difficulty in
case of operating costing is to define a realistic cost unit that represents a suitable
measure of service provided. A composite cost unit such as passenger kilometer
or patient days is more relevant and hence more commonly adapted.

Multiple costing:

It refers to application of more than one costing methods in case of same

organization. It is suitable in case of organizations producing a number of
unrelated products or components required to be assembled into a final product. It
is necessary to ascertain the cost of each component separately. This method is
15
prominently used in toy manufacturing companies, automobile factories, watch
factories and other industries requiring large-scale assembly.

Techniques of Costing

Techniques of costing refers to the specialized procedures adopted for

ascertaining the cost of products or services for certain special purposes under
special conditions, and for providing relevant cost data to the management for
purpose of cost control, management policy and managerial decision making. The
various techniques are stated as under:

1. Historical Costing:

It refers to ascertainment of cost after they are actually incurred. It has very
limited use, as no control can be ascertained over actual costs. Although it helps
periodic comparison, it is similar to a postmortem action akin to financial
accounting.

2. Marginal Costing:

It is technique that distinguishes b/t fixed and variable costs. The ‘marginal’ cost
of a product is its variable cost. The fixed costs of the period are written off
against total contribution earned in that period, where contribution is the excess of
sales realization over marginal cost. Even the inventory is valued only at marginal
or variable cost. Marginal Costing technique is used to determine the impact of
changes in volume or change in product mix or shut down of a production unit or
current profits.

3. Direct Costing:

16
 It is a technique where in only the direct costs are charged to operations,
processes or products and the indirect costs are written off against profits of the
period. Direct costing technique is very similar to marginal costing technique,
since most direct costs are variable in the nature. It is a useful tool for decision
making.

4. Absorption Costing:

It is a technique that takes into account the total cost of running an enterprise. It is
also known as Total Costing or Full Costing. It is a traditional technique and does
not distinguish b/t various kinds of costs, particularly fixed and variable costs. It
values inventory also at a total cost. It is useful in preparation of job estimates or
quotations.

5. Standard Costing:

It is a technique that establishes pre-determined estimates of costs of products

and services and then compares them with actual costs as they are incurred. It is
very detailed and requires considerable development work before it can be put the
greatest benefits is obtained in case of substantial degree of repetitive activity in
the manufacturing process. It facilitates formulation of production and pricing
policies before the actual start of production.

6. Uniform Costing:

Uniform costing refers to the use of the same costing methods, principles and
techniques by several organizations to facilitate common control and comparison
of stocks. Uniform costing normally does not contain advanced or novel features,
but ensures that there are similar costing foundation and reports in all

17
organizations that may belongs to the same groups, industry or trade association.
It is not a distinct technique in itself, but only a tool that facilitates comparison.

Cost Concepts

1. Cost:

The Institute of Cost & Management Accountant (ICMA) has defined cost as “the
amount of expenditure actual or notional, incurred on or attributable to a specified
thing or activity”. It is the amount of resources sacrificed to achieve a specific
objective. A cost must be with references to the purpose for which it is used and
the conditions under which it is computed. To take decisions, managers wish to
know the cost of something. This something is called a Cost Unit.

2. Cost Unit:

A cost unit is anything for which a separate measurement of costs is desired. A

product, service, department, project or an educational course can all be cost
units. Cost units are chosen not for their own sake but to aid decision-making.
Thus, a cost unit is a “quantitative unit or product or service in relation to which
costs are ascertained.

The cost units may be units of production such as tons of cement produced, or
units of services such as consulting man hours, Cost units can be single cost unit
such as meters of cloth or composite or compound cost unit such as passenger
kilometers.

18
3. Cost Centre:

According to ICMA, London, Cost Centre is “a location, persons or items of

equipment is respect of which costs may be ascertained and related to cost units
for control purposes”. It is simply a method by which costs are gathered together,
according to their incidence, usually by means of cost centre codes. It is a smallest
element of an organization in respect of which costs are charged and ascertained.
Maintenance Department, a Public Relations Officer, a printing machine are all
examples of cost center’s.
The establishment of cost centers serves two important purposes. Firstly, cost
ascertainment made possible by collecting and charging cost to each cost centre.
Secondly, cost control is ensured as costs can be more closely looked at and more
easily monitored by a responsible official. The setting up of cost centers depends
on numerous factors such as organization of the factory, conditions of cost
incidence, availability of information system, requirement of the costing system
and management policy.

Types of Cost Center’s

1. Production and Service Cost Centre:

A production cost centre is directly concerned with production or manufacturing

wherein raw material is processed into finished goods. A service cost centre
provides service to production centers. A stores department or transport

19
department are example of service cost centre. A mixed cost centre is engaged
both in production and service activity. A carpentry shop making moulds and also
taking up repairs is an example of mixed cost centre.

2. Personal and Impersonal Cost Centre:

A personal cost centre consists of a person or group of persons such as sales

representatives, customer etc. Impersonal cost centre consists of a location,
machine or department.

3. Operation and Process cost Centre:

An operation cost centre consists of machines and or persons working on a

process consisting of continuous stream of operations.

ELEMENTS OF COSTS

Elements of cost refer to the essential components or parts of the total cost of a
cost unit. Total cost can be classified on the basis of traceability into Direct Costs
and Indirect Costs. Costs can also classify based on their physical characteristics
into Material, Labour and Overheads. The various components of Total cost can

20
be stated as Element of cost. Let us understand each of the elements of cost in
details

ELEMENTS OF COST

Material Labour Other Expenses

Direct Indirect Direct Indirect Direct Indirect

Overheads

Factory Overheads Office Overheads Selling &Distribution

Overheads

MATERIAL COST

DIRECT MATERIAL:

21
Direct Material is the material that can be measures and charged directly to the
Cost of the product. It is that which can be conveniently identified with and
allocated to cost units. Direct materials generally become a part of the finished
product. For example, cotton used in a spinning mill is a direct material. Primary
packing material such as cartons is also part of direct material. Expenses incurred
towards purchase such as carriage inwards, import duty, etc are also added to the
cost of “Direct Material”.

INDIRECT MATERIAL:

Indirect Material is that which cannot be conveniently identified with individual

cost units. They are required to be distributed amongst multiple cost units. Such
material does not form a part of a finished product. In a spinning mill, engineering
department spares, maintenance spares, lubricating oils, greases, ring travelers etc.
some material, although forming part of the product, may not be treated as direct
materials if they are used in measuring the same. For example, the thread used in
stitching of dress material will be treated as indirect material.

LABOUR COST

DIRECT LABOUR:

Direct Labour is that labour which is used for manufacture of specific article,
process; job etc. Cost consists of wages paid to workers directly engaged in
converting raw materials into finished products. These wages can be conveniently
identified with a particular product, job or process. However, even such expenses
can be considered as “direct labour” if they are exclusively engaged for a
particular products, process or order.

22
INDIRECT LABOUR:

Indirect Labour is that Labour that cannot be conveniently identified with and
allocated to a specific product, process, job or order. It is not directly engaged in
productive operations. Indirect labour includes labour engaged in store keeping,
material handling, maintenance, clerical activities etc. Indirect labour includes
labour that is directly identifiable with the finished product, but the cost is too
small to merit separate measurement. For example, wages paid to trainees is taken
as indirect labour.

OTHER EXPENSES

All costs other than material and labour are termed as expenses.

DIRECT EXPENSES:

Direct expenses, also known as ‘chargeable expenses’, includes all such

expenditure other that expenses on direct material and labour that can be directly
identified with a cost unit. Examples of direct expenses are Architect or
Surveyor’s fee, cost of drawing and patterns, Royalty, Repairs and maintenance of
plan obtained on hire etc.

INDIRECT EXPENSES:

Indirect Expenses are also called Overheads. They are also referred to as “On
Costs”. They include indirect material, indirect labour, and other expenses, which
cannot be directly charged to specific cost units. The overheads can be divided
into three groups namely, (1) Factory overheads (2) Administrative overheads and
(3) Selling and Distribution overheads.

23
OVER HEADS

FACTORY OVER HEADS:

Factory overheads or Factory expenses includes all indirect expenses, which are
connected with the manufacture of a product. When they allocate to different cost
units they are referred to as Factory ‘On Cost’ or work ‘On Cost’. Examples of
factory overheads are salary of factory manager, supervisors’ etc. rents, rates and
insurance of factory building, power, factory lighting and heating, drawing office
expenses, depreciation of plant and machinery, expenses incurred on equipments
etc.

ADMINITRATIVE EXPENSES:

Administrative expenses or overheads include all indirect expenses relating to

administration and management of an enterprise. They are also called as Office
Overheads or Office on Costs. They include expenses incurred towards
formulation of policies, planning and controlling the functions and motivating the
personnel of the organization. Examples of administrative expenses are general
office stationery, postage, telephone and telegram expenses, remuneration of
managing directors, general managers, bank charges, legal expenses and audit
fees etc.

SELLING AND DISTRIBUTION OVER HEADS:

Selling and Distribution overheads are indirect expenses connected with

marketing and sales. Selling expenses consist of expenses incurred in security and
retaining customers. They include advertising, salaries and commission of sales
manager, salesmen training

24
 Expenses cost of samples, catalogues, price lists, exhibition and demonstration
expenses, market research expenses and expenses incurred on entertaining
customers. Distribution expenses are expenses incurred in ensuring that the
products are available at all potential points of sales. They include expenses on
handling the products from the time they are placed in the ware house until they
reach their destination. Examples of distribution overheads are cost of ware
housing, packing and loading charges, freight outwards, damages in transit etc.

ELEMENTS OF COST:

A cost is composed of three elements i.e. material, labour and expense. Each of
these elements may be direct or indirect.

INDIRECT
DIRECT COST
COST
Direct material Indirect material
Direct labour Indirect labour
Indirect
Direct expenses
expenses

By grouping the above elements of cost, the following divisions are obtained:

1. PRIME COST = Direct Material + Direct Labour + Direct Expenses

2. WORK COST (FACTORY) = Prime Cost + Works or Factory Overheads

3. COST OF PRODUCTION = Works Cost + Administrative Overheads

25
4. TOTAL COST OR COST OF SALES = Cost of Production+ Selling &
Distribution
Overheads.

COST SHEET

Cost Sheet of ……………..for the period ended…………..

Particulars Rs. Rs. Cost per unit

Rs.
Direct materials consumed
Opening stock of raw materials XXXX
ADD: Purchase of raw materials XXXX
Carriage on purchases XXXX
XXXX
LESS: Closing stock of raw XXXX XXXX Xx
materials
Direct Wages XXXX Xx
Direct expenses XXXX Xx
PRIME COST XXXX Xx
ADD: Factory Overheads XXXX
XXXX
LESS: Sale of Scrap XXXX
XXXX
ADD: Work in XXXX

26
Progress(Beginning)
XXXX
LESS: Work in Progress(closing) XXXX
WORKSCOST or FACTORY XXXX Xx
COST
ADD: Administrative Overheads XXXX
COST OF PRODUCTIONOF XXXX Xx
GOODS SOLD
ADD: Opening stock of finished XXXX
goods
XXXX
LESS: Closing stock of finished XXXX
goods
COST OF GOODS SOLD XXXX Xx
ADD: Selling & Distribution XXXX
Overhead
COST OF SALES or TOTAL XXXX Xx
COST
NET PROFIT XXXX Xx
SALES XXXX Xx

27
OTHER TECHNIQUES OF COSTING

Standard Cost Accounting

In modern cost accounting, the concept of recording historical costs was taken
further, by allocating the company's fixed costs over a given period of time to the
items produced during that period, and recording the result as the total cost of
production. This allowed the full cost of products that were not sold in the period
they were produced to be recorded in inventory using a variety of complex
accounting methods, which was

consistent with the principles of GAAP (Generally Accepted Accounting

Principles). It also essentially enabled managers to ignore the fixed costs, and look
at the results of each period in relation to the "standard cost" for any given product.

For example: if the railway coach company normally produced 40 coaches per
month, and the fixed costs were still $1000/month, then each coach could be said
to incur an overhead of $25 ($1000/40). Adding this to the variable costs of $300
per coach produced a full cost of $325 per coach.

This method tended to slightly distort the resulting unit cost, but in mass-
production industries that made one product line, and where the fixed costs were
relatively low, the distortion was very minor.

For example: if the railway coach company made 100 coaches one month, then
the unit cost would become $310 per coach ($300 + ($1000/100)). If the next
month the company made 50 coaches, then the unit cost = $320 per coach ($300 +
($1000/50)), a relatively minor difference.

28
An important part of standard cost accounting is a variance analysis which breaks
down the variation between actual cost and standard costs into various components
(volume variation, material cost variation, labor cost variation, etc.) so managers
can understand why costs were different from what was planned and take
appropriate action to correct the situation.

Weaknesses of Standard Cost Accounting for Management Decision Making

As time went on, standard cost accounting lost its usefulness for management
decision making due to a variety of reasons:

 The practice of paying workers on a 'set-piece' basis changed in favor of

paying on an hourly rate.
 Modern companies tend to have relatively low truly variable costs (primarily
raw material, commissions or casual workers) and very high fixed costs
(worker salaries, engineering costs, quality control, etc.).
 Equipment has become more complex and specialized and may be a very
significant proportion of total costs.
 Changes in the level of full cost inventory create swings in profitability that
is difficult to explain or understand. An increase in inventory can "absorb"
costs of production and increase profits, while a decrease in inventory level
will decrease profits.
 Organizations with a wide range of products or services have processes
which are common to several finished items, making cost allocation
irrelevant or misleading.

As a result of the above, using standard cost accounting to analyze management

decisions can distort the unit cost figures in ways that can lead managers to make

29
decisions that do not reduce costs or maximize profits. For this reason, managers
often use the terms "direct costs" and "indirect costs" to replace the standard
costing, to better reflect the way allocation of overhead is actually calculated.
Indirect costs (often large) are usually allocated in proportion to labor cost, other
direct costs, or some physical resource utilization.

For example: If the railway coach company now paid its workforce a fixed
monthly rate of $8,000 (total) and its other fixed costs had risen to $2,600/month,
the total fixed costs would then be $10,600/month. The unit cost to make 40
coaches per month would still be $325 per coach ($60 material + ($10,600/40)),
but producing 100 coaches would result in a unit cost of $166 per coach ($60 +
($10, 600/100)), provided the company had the capacity to increase production to
that level.

Managers using the standard cost for 40 coaches per month would likely reject an
order for 100 coaches (to be produced in one month) if the selling price was only
$300 per unit, seeing that it would result in a loss of $25 per unit. If they analyzed
the fixed vs. variable cost distinction, they would see clearly that filling this order
would result in a contribution to fixed costs of $240 per coach ($300 selling price
less $60 materials) and would result in a net profit for the month of $13,400 (($240
x 100) - 10,600).

30
Activity-based costing

Activity-based costing

(ABC) is a system for assigning costs to products based on the activities they
require. In this case, activities are those regular actions performed inside a
company. "Talking with customer regarding invoice questions" is an example of an
activity performed inside most companies.

Accountants assign 100% of each employee's time to the different activities

performed inside a company (many will use surveys to have the workers
themselves assign their time to the different activities). The accountant then can
determine the total cost spent on each activity by summing up the percentage of
each worker's salary spent on that activity.

A company can use the resulting activity cost data to determine where to focus
their operational improvement efforts. For example, a job based manufacturer may
find that a high percentage of their workers are spending their time trying to figure
out a hastily written customer order. Via ABC, the accountants now have a
currency amount that will be associated with the activity of "Researching
Customer Work Order Specifications". Senior management can now decide how
much focus or money to budget for the resolutions of this process deficiency.
Activity-based management includes (but is not restricted to) the use of activity-
based costing to manage a business.

31
 CHAPTER –IV
COMPANY PROFILE

SURANA TELECOM AND POWER LIMITED

1 .BUSINESS OF THE COMPANY:

The company currently operates in two main business segments,

telecommunication and Power sector. The company has off late forayed in the
infrastructure and Non Conventional Energy sector. The company is all set to
venture into the Solar Photo voltaic (SPV) industry by manufacturing of SPV
Modules. The company has also made a strategic investment in its joint venture
Company M/s. Surana Ventures Ltd
1.1 TELECOM DIVISION:
The Company Telephone Cables division mainly comprises of manufacture of
Jelly Filled Telephone Cables and optical Fiber cables in addition to the
manufacture of jointing kits and assembling of CDMA phones.
1.1 A. Jelly Filled Telephone Cables
32
One of the core areas of the company’s business is manufacture of jelly Filled
Telephone Cables.
The company started this division in the year 1994-95 and has manufacturing
facilities at Hyderabad & Goa. The company manufactures cable from the range
of 5 pairs to 800 pairs with a total production capacity of 2.9 million CKM. The
latest technology and testing facilities have let to the units being recognized and
approved by the BSNL, MTNL, and Indian Railways (IR) and Airtel
The demand for cable is expected to decrease in future. Mitigating this to some
extend is lower incidents of sales tax and income tax, low component of
depreciation on its plans in Goa and low marginal financial cost to the company.
Therefore, the company is continuously shifting its focus on other divisions.
1.1 B. Optical Fiber Cables
Keeping pace with the change in technology, the company started manufacturing
of Optical Fiber Cables in the year 1995. A sophisticated plant equipped with the
state -of-the-art equipment from ROSENDAHL-KOBELKO helps the division
produce 6000 route kilometers of pairs 6, 12, 24 fiber optic cables and accessories
such as branch closures, optical fiber termination boxes and tool kits.
With the present trend of rapid technological up gradation in the
Telecommunication Sectors, communication network. In order to meet this new
challenge, in the year 2001 under backward Integration Plan, the company
established its manufacturing facility for Optical Fiber (which is the main raw
material for manufacture of Optical Fiber Cables) at Hyderabad with an annual
capacity of 2.5 lacks km initially, with Optical Fiber Drawing Towers equipment
from KOBELCO of Japan.

1.1 C.HEAT SHRIKABLE CABLE JOINTING KITS DIVISION

33
Extensive R & D and technological integral has led to this unit becoming entirely
self- sufficient today. An annual production capacity of 6,00000 kits. Equipped
with the most modern and sophisticated plant supplied by German centers of
excellence, the company has successful in totally indigenizing the manufacturing
process.

1.1 D. CDMA TELEPHONES

The company has also entered into assembling and marketing with, LG
Electronics of Korea and Huawei of China for CDMA Fixed Wireless Telephone
and WLL telephones. During the year 2006-07, the company has executed orders
worth 13 crores. Though the market for CDMA phones is growing rapidly, the
Company is not aggressively pursuing the same as the margins are low.

1.2 POWER DIVISION:

To cope with the situation of declining JFTC demand, and in view of the high
demand for the Power Cables in the market and availability of required resources
coupled with optimal utilization of existing facilities, the company restructured a
part of its JFTC plant
to manufacture power cables, which in the long run, will help in increase in the
revenues of the Company?

1.3 INFRASTRUCTURE DIVISION:

Anticipating the potential in the infrastructure business, the Company started
investing its surplus funds in IT infrastructure and leased the same to prominent
IT Companies. The company has presently initialed projects to build up IT/ITES
facilities and Hardware Infrastructure in various parts of the country.

34
1.4 NON CONVENTIONAL ENERGY DIVISION:
With the growing concern over Global Warming and fast depletion of fossil fuels,
worldwide the importance of generating power from non conventional energy
resources such as Wind, Solar, etc, is being recognized. Recently your Company
has made a foray into the non-conventional energy sector with a wind power
project with an initial capacity of 1.25 MW at kapatgudda, Karnataka State. The
project was commissioned on 30.03.07. The Company is also eligible for carbon
credit for this project.
1.5 SOLAR PHOTO VOLTAIC
Taking a step further in the field of Non Conventional energy resources, your
Company has ventured into Solar Photovoltaic (SPV) Sector by establishing SPV
Modules manufacturing Plant (a 100% EOU) at Cherlapally, Hyderabad with an
installed capacity of 12 MW. Photovoltaic is the best known as a method for
generating solar power by using solar cells packaged in photovoltaic modules,
often electrically connected in multiples as solar photovoltaic arrays to convert
energy from the sun into electricity. To explain the photovoltaic solar panel more
simply, photons from sunlight knock electrons into a higher state of energy from
the sun, creating electricity. The term photovoltaic denotes the unbiased operating
mode of a photodiode in which current through the device is entirely due to the
transducer light energy. Virtually all photovoltaic devices are some type of
photodiode.

2. INDUSTRY ANALYSIS
2.1 A. Jelly Filled Telecom Cables:
JFTC demand has suffered as a result of the increasing deployment of wireless
networks and popularity of mobile services and the decline in the rollout of and
demand for wire line services. It is expected that the business scenario for JFTC
35
producers, battling with huge unused capacities (over 90 % of the industry
capacity is lying idle) and weak demand, to continue to remain unfavorable.
Cumulative JFTC demand during 2005-06 to 2009-10 is forecast to be at around
560 lack km (as against 1660 lack km during the period 2000-01 to 2004-05)
which translates into an average demand of 112 lack km annually
JFTC demand in each of the years during this period would primarily depend on
the order flow from BSNL, the largest buyer of JFTC, and rollout plans of private
operators such as Reliance Infocomm and Bharti Tele-Ventures Limited.

2.1 B. Optical Fiber Cables:

The year 2007 experience an impressive revival in global demand for optical
fibers. Developed and emerging economies had encouraging announcements on
infrastructure development projects. There are new and sustainable demand
drivers on the anvil and there is wave of activity to develop new products to
address applications as fiber comes closer to the subscriber. The increase in
emerging-market backbone deployments has resulted from deregulation or
“liberalizing” market developments, investment in new infrastructure to compete
with incumbents, and deployments in t developing economies by utilities that
have extensive rights-of-way.
The demand of the fiber optic cables by Indian Private Telecom Incumbents,
Cellular Industry, CATV Industry, MSOs and others have surpassed that of the
Government incumbents like BSNL, MTNL and Railtel, which were traditionally
the largest buyers of fiber optic cables in
India. The Indian Government as a buyer of Fiber Optic Cables through the
Telecom Incumbents & Public Sector Undertaking such as the Oil and Gas
Sector, Power Sector, etc. cumulatively constituted about 25% of the total

36
purchases of Fiber Optic Cables in India in FY 2007-08. The Private Telecom
Operators constituted about 34%.
There has been a country wide renewal in demand from the Cellular Industry,
with new and expanded networks being laid to cater to the booming subscriber
base. There is also an increasing adaptation of fiber-base networks by the Cable
TV Segment, Multi-Service Operators (MSOs) and e-Governance State
Initiatives. This set of buyers had a
cumulative purchase of about 1.2 million-km of Optical Fibers, which constituted
about 41% of India’s purchases of Fiber Optic Cables in India in FY 2007-08

2.2 POWER CABLES:

Given the strong growth drivers, the industry is expected to grow at a CAGR of
20-25% over the next few years. The size of the industry is expected to @ Rs 15-
20bn p.a. and touch around Rs 150bn by FY2012 from the current Rs 50bn. Most
of the business is expected to flow to existing players, especially the largest ones,
because approvals and references play a very important role in obtaining orders
and these take a long period (around 3-5 years) to be in place. Hence in spite of
low Capex requirement (Sales to Capex ratio of around 4x), supply to some extent
will be constrained. The key experience, execution skills and strong management
bandwidth in terms of streamlining capacity expansion plans to sustain the
accelerated growth rates.
Most of the players witnessed a poor performance over the past few years with
poor demand from the Power Sectors, a sluggish economy and declining
performance of the Telecom cable business. However, there has been a sharp
swing in the performance from the previous year with a healthy demand scenario,
especially from the Power sector, resulting in improving utilization levels and a
sharp improvement in margins.
37
With a strong demand expected to flow over the next few years, most of the
players are ramping up operations by aggressively adding capacities. The product
mix is also witnessing a
Change with focus on HT Cables. With cost rationalization, higher operating
leverage and improved product mix, the margins of the major players are
expected to stabilize at higher levels of around 14-16%. Thus a strong demand
potential, healthy growth in revenues and positive outlook on profitability drives
creates a bullish view on the sectors.
2.3 Infrastructure:
The Indian economy continues to surge ahead. The strong economic growth has
augured well for Indian real estate market. Almost 80% of the real estate
development is IT Parks & residential space and the rest comprises of offices,
hotels, malls and entertainment avenues. Technology sector and the outsourcing
story coupled with the demographic shift
Characterized by rising disposable incomes and increased consumer spending has
changed the face of commercial real estate market in India. It has been estimated
that there is a demand for approximately 75-85mn .sq .ft of IT space over the next
5 years. The housing boom, despite firming up of interest rates on housing loans,
continued its fourth successive year of price rise. 2007-08 witnessed a sharp price
increase, with price rises ranging from 20-505 depending upon cities and
locations within the cities.
India possesses the elements of very strong demand growth on the housing market
in the coming decades. In a very conservative scenario in which the average
household size remains constant at the present-day level, the backlog of demand
cannot be unwound and no shift in quality take place, each year some 4.7 million
housing units would have to be completed up to 2030. This figure is based on

38
additional demand of roughly 2.7 million housing units and annual replacement
demand of roughly 2 million dwellings.

2.4 NON CONVENTIONAL ENERGY (Wind Power):

India consumes about 3.7% of the world’s commercial energy and is ranked as the
fifth largest consumer of energy in the world in terms of energy demanded this
being despite having one of the lowest per capita energy consumption in the
world. Continued economic development and increasing population are pushing
up the demand for energy at a higher rate than additions in generation capacity.
India’s incremental energy demand for the next decade is projected to be among
the highest in the world, spurred by sustained economic growth, rise in income
levels and increased availability of goods and services. With a gross domestic
product (GDP) growth target of over 8.0% set for the next few years, the energy
demanded is expected to grow over
5.0% annually. It has been estimated that to support the government’s GDP
growth targets, the electricity sector alone will have to increase supply by a
minimum of 10-15% annually.
With the rising price of fossil fuels and increasing environmental concerns,
renewable energy, particularly wind power, seems to be back in favour. The
major’s benefit of wind energy is that it is renewable unlike fossil fuels such as
coal and oil. Secondly, it is a clean energy source so there are no emissions of
carbon dioxide, surplus dioxide and other pollutants

2.5 SOLAR PHOTO VOLTAIC:

Photo voltaic (PV) is the field of technology and research related to the
application of Solar cells for energy by converting sunlight directly into
electricity. Due to the growing need for solar energy, the manufacture of solar
39
cells and photovoltaic arrays has expanded dramatically in recent years.
Photovoltaic production has been doubling every two years, increasing by an
average of 485 each year since 2002, marketing it the world’s faster-growing
energy technology. At the end of 2007, according to preliminary data, cumulative
global production was 12400 megawatt. Roughly 90% of this generating capacity
consists of grid-tied electrical systems. Such installations may be ground-mounted
or built into the roof or walls of a building, known as Building Integration
Photovoltaic or BIVP for short.
Although the selling price of modules is still too high to compete with grid
electricity in most places financial incentives, such as preferential feed-in tariffs
for solar-generated electricity and net metering, have supported solar PV
installations in many counties including Germany, Japan, and the United States,
which comprises the potential export market for the Company.

3. RISK ANALYSIS & MITIGATION

3.1 Business Risk

The state of Indian economy and the development in infrastructure, power and
industrial projects and expansions have a direct bearing on the performance of the
Company these sectors are expected to grow and are expected to drive the
demand for the Company’s products also, however, an adverse development in
these sectors can have negative impact on Company’s performance and its
financials. The instability in the raw material prices especially of metals like
Copper and Aluminum being used in the manufacture of cables can also have an
adverse impact on the performance of the Company.

3.2 Technology Risk

40
The Company keeps track of the latest trends in the cable industry globally. The
Company has an in-built quality assurance system whereby the product is tested at
every stage for its quality and technical accuracy. Management of the Company is
giving Quality Assurance and Research its highest priority. Continuous
improvements in the existing products and enhancement of product offerings will
enable the company to emerge as a reliable, cost competitive and quality provider
of complete cable solutions.
3.3 Financial risk
Company’s investment from time to time is made after due analysis and study.
The Company has adequate system to control financial risks. Company has
adequate system and control to monitor adequate inventory levels so as to reduce
the cost of capital and unpredicted fluctuations in the prices of inventory.

3.4 Human Resources

Human resources is the most valuable asset of the Company as it is the ultimate
key to the success of any organization and the Company gives due importance to
maintain cordial employer-employee relations. The Company is committed to
foster a high performance environment, which characterizes the organizational
climate that delivers that business strategy. The company has low labour turnover
and has adequate system to reward and recognize the employee contribution
towards the growth of the company.

4. INTERNAL CONTROL SYSTEM AND ITS ADEQUACY

The Company has adequate Internal Control systems and producers with regard to
purchase of stores, Raw Material including components, plant and machinery,
equipment, sale of goods and other assets. The Company has clearly defined roles

41
and responsibilities for all managerial positions and all operating parameters are
monitored and controlled.
The company has an internal audit system commensurate with its size and nature
of business M/s Luharuka & Associates, a firm of chartered Accountants, are
acting as Internal Auditors of the Company. Periodic reports of Internal Auditors
are reviewed in the meeting of the Audit Committee of the Board. Compliance
with laws and regulations is also ensured and confirmed by the Internal Auditors
of the Company. Standard operating procedures and guidelines are issued from
time to time to support best practice for internal control.

5. BUSINESS OUTLOOK
5.1 A. Jelly Filled Cables Division:
The demand for cable is expected to decrease in Future. Mitigating this to some
extent is lower incidence of sales tax and income tax, low component of
depreciation on the plans in Goa and low marginal financial cost to the Company.
The Company is gradually reducing dependence on jelly filled dabbles and is
shifting its focus on other divisions.

5.1 B Optical Fiber Cables:

During the current year this business has been adversely affected due to deferment
of buying program of PSU telecom majors such as BSNL and MTNL. However,
the Company retains a positive outlook on this business and look forward to
increase business opportunities in the new markets.

5.2 Power Cables:

42
In view of the anticipated investments in infrastructure, power railways and
industrial sector, it is expected that the demand for the Company’s power cables
will grow rapidly. The Company has already received several orders for LT
Power cables and has been constantly maintaining the positions b/w L_1 L_3 in
tenders floated by various Electricity boards across the country. It is expected that
the turnover of the company and its profitability will increase substantially during
the next financial year if the development taking place in the infrastructure, power
and industrial sector, continues to grow at the current pace.

5.3 Infrastructure
The Company has acquired several pockets of land in SEZ, IT Parks and
Hardware Parks in various places in India where the Company will build IT/ITES
Infrastructure. The Company has started the preliminary work for all the projects
as detailed in the New Project Initiatives segmentation of the Directions report
and the construction work will soon commence.

5.4 Wind Power:

The Wind Power project with the present capacity of 1.25 MW will continue to
contribute a steady revenue of about a crore annually. The Company has entered
into a
Power purchase Agreement with Gulbarga Electricity Supply Company for sale of
Power for 20 years.

5.4 Solar Photovoltaic:

To start with the Company is all set to commence the production of SPV Modules
at its 100% EOU plant at Cherlapally, Hyderabad. The Company through its JV
43
Company, M/s Surana Ventures Limited shall take a step further into the Solar
Photo voltaic industry wherein the company is planning to establish facilities for
manufacturing of SPV Modules, Cells and Wafers at its upcoming facility at Fab
City SEZ, Hyderabad. The Commercial production of the same with an initial
capacity of 40MW is expected to commence by Nov/Dec08. Thereafter, the
Company shall also venture into the manufacture of SPV Cells.

7. FINANCIAL PERFORMANCE & OPERATIONAL PERFORMANCE

7.1 Financial Performance:
Capital Structure:
The Equity Share capital of the Company as on 31 st March 2009 is Rs 20804400/-
comprising of 104022000 Equity Share of Rs 5/- each fully paid.
Reserves and Surplus:
The Reserves and Surplus of the Company currently stands at Rs 58.89 Crore in
the previous year.
Fixed Assets:
During the year company has added Fixed Assets amounting to Rs252.39 Lakhs.
Inventories:
Inventories as on 31st March, 2010 amounted to Rs 1359.26 Lacks in the previous
year.
Sundry Debtors:
Sundry Debtors amounted to Rs 1505.30 lakhs as on 31 st March, 2010 as against
Rs 948.12 lakhs in the previous year. These Debtors are considered good and
realizable.

Cash and Bank Balances:

44
Cash and Bank balances with Scheduled Banks as well as in hand amounting to
Rs 450.23 lakhs include amounts deposited with banks as Security and margin
Money Deposit.
Loans and Advances:
The Loans and Advance’s of amounts to Rs 915.86 Lakhs.

Current Liabilities:
Sundry Creditors represent the amount payable to vendors for supply of goods.
Advances received from Customers denote monies received for the delivery of
future services.
7.2 Operational Performance:
During the year 2009-10, the turnover of the Company was Rs 6722.50 Lakhs as
compared to Rs 8689.03 Lakhs in the previous year.
Other Incomes as on 31st March, 2010 was Rs 601.76 Lakhs as compared to Rs
572.96 Lakhs in the previous year.
Expenditure:
During the year company incurred expenses amounting to Rs 1173.64 Lakhs as
compared to Rs 1020.52 Lakhs in the previous.
Depreciation:
The Company has provided a sum of Rs 220.32 Lakhs towards depreciation for
the year as against Rs235.65 Lakhs in the previous year.
Provision for Tax:

45
The Company has provided a sum of Rs 135.00 Lakhs as current Tax, Rs6.63
Lakhs as Deferred Tax, and Rs5.25 Lakhs as fringe Benefit Tax for the current
year.
Net Profit:
The Net Profit of the Company after tax is Rs919.48Lakhs as against Rs 817.88
Lakhs in the previous year.
Earnings per Share:
Basic Earnings per Share for the year ended 31.03.2010is Rs4.07 for face value of
Rs 5/- as against Rs 3.62 per share for the year ended 31.03.2009

HUMAN RESOURCES DEVELOPMENT AND INDUSTRAIL

RELATIONS:
The company believes that the quality of its employees is the key to its success in
the long run and is committed to provide necessary human resource development
and training opportunities to equip them with skills, which would enable them to
adapt to contemporary technological advancements. The Company is also
maintaining a residential colony for its employees.
Industrial Relations during the year continues to be cordial and the Company is
committed to maintain good industrial relations through negotiations, meetings
etc.
46
As on 31st March 2008, the company has a total strength of 119 employees.

BOARD OF DIRECTORS

G. Mangilal Surana - Chairman

O. Swaminatha Reddy - Director

R. Surrender Reddy - Director

S.R Vijayakar - Director

Dr. R.N Sreenath - Director

Narender Surana - Managing Director

Devendra Surana - Director

S.Balasubramanian - Whole time Director

STATUTORY COMMITTEES AUDIT COMMITTEE

O. Swaminatha Reddy - Chairman

G. Mangilal Surana - Member

47
R. Surender Reddy - Member

S.R Vijayakar - Member

SHARE HOLDERS GRIEVANCE COMMITTEE

G. Mangilal Surana - Chairman

Narender Surana - Member

Devendra Surana - Member

V.P CORPORATE AFFAIRS & COMPANY SECRETARY

P.Rajesh Kumar Jain

BANKERS

State Bank of India

Development credit Bank Limited

48
Corporation Bank

HDFC Bank Limited

STATUTORY AUDITORS

Sekhar & Company

Chartered Accountant

133/4, R.P Road,

Secunderabad-500003.

INTERNAL AUDITORS

Luharuka & Associates

Chartered Accountants

5-4-187/3&4, Soham Mansion

2nd Floor, Above Bank of Baroda

M G Road, Secunderabad-500003.

49
DIRECTOR’S RESPOSIBILITY
Pursuant to the requirement under section 217(2AA) of the Companies Act, 1956,
with respect to Directors Responsibility statement, it is hereby confirmed:
(1) That in the preparation of the accounts for the financial year ended 31 st March,
2008; the applicable accounting standards have been followed along with proper
explanations relating to material departures;
(2) That the Directors have such accounting policies and applied them
consistently and made judgments and estimates that were reasonable and prudent
so as to give a true and fair view of the State of Affairs of the Company at the end
of the financial year and of the Profit or Loss of the Company for the year under
review;
(3) That the Directors have taken proper and sufficient care for maintenance of
adequate accounting records in accordance with the provision of the Companies
Act, 1956 for
Safeguarding the assets of the Company and for preventing and detecting fraud
and other irregularities;
(4)That the Directors have prepared the Accounts for the financial year ended 31 st
March, 2008 on a ‘going concern’ basis.

SIGNIFICANT ACCOUNTING POLICIES

A. Basis of Preparation of Financial Statements
The financial statements are prepared under the Historical cost convention with
the generally accepted accounting principles in India and the provisions of the
Companies Act, 1956.

B. use of Estimates

50
The Preparation of Financial Statements requires estimates and assumptions to be
made that affect the reported amount of assets and liabilities on the date of
financial statements and reported amount of revenues and expenses during the
reporting period. Difference b/t the actual results and estimates are recognized in
the period in which the results are known materialized.

C. Own Fixed Assets

Fixed Assets are stated are at cost net of modvat/ cenvat /value added Tax, less
accumulated depreciation and impairment loss, if any. Any costs, including
financial costs till commencement of commercial production, net charges on
foreign exchange contracts and adjustments arising from exchange rate variations
to the fixed assets are capitalized.

D. Leased Assets
Premium paid on Leased Assets is amortized over the lease period and annual
lease rentals are charged to Profit and Loss Account in the year it accrues.

E. Depreciation
Depreciation is provided on written down value methods, except for Wind Power
Plant for which Straight Line Method is followed, at the rate and in the manner
prescribed in schedule XIV to the Companies Act, 1956.
F. Impairment of Assets
An assets is treated as impaired when the carrying cost of assets exceeds its
recoverable value. An impairment loss is charged to the Profit and Loss account
in the year in which an asset is identified as impaired. The impairment loss
51
recognized in prior accounting period is reversed if there has been a change in the
estimate of recoverable amount.

G. Investments
Current investments are carried at the lower of cost and quoted/fair value,
computed category wise. Long Term Investment is stated at cost. Provision for
diminution in the value of long-term investment is made only if such decline is
other than temporary in the opinion of the management.

H. inventories
Items of Inventories are measured at lower of cost or net realizable value, after
providing for obsolescence, if any. Cost of inventories comprises of all cost of
purchase including duties and taxes other than credits under CENVAT and is
arrived on First in First out basis. Semi fix shed goods are valued at cost or net
realizable value whichever is low. Finished goods are valued at cost including
excise duty payable or net realizable value whichever is low. Cost includes direct
Material, Labour cost and appropriate overheads.

I. Foreign Currency Transactions

Transactions in foreign currency are recorded at the exchange rate, prevailing on
the date of transaction or at the exchange rates under the related forward exchange
contracts. Profit/Loss on outstanding Foreign Currency has been accounted for at
the exchange rates, prevailing at the yearend rates as per FEDAI/RBI.

J. Employee Retirement /Terminal Benefits.

The employees of the Company are covered under Group Gratuity Scheme of Life
Insurance Corporation of India. The premium paid there on is charged to Profit
52
and Loss Account. Leave of best management estimates on actual entitlement of
eligible employees at the end of the year.

K. Provision Continent Liabilities and Contingent Assets

Provision involving substantial degree of estimation in measurement is recognized
when past events and it is probable that there will be an outflow of resources.
Contingent Liabilities
Which are not recognized are disclosed in notes? Contingent assets are neither
recognized nor disclosed in Statements.

L. Turnover
Turnover includes sale of goods, services, sales tax, service tax and adjusted for
discounts (net), excise duty. Inter-Unit sales are excluded in the Main Profit and
Loss account.

M. Revenue Recognition in case of real Estate Transactions.

Revenue in case of real estate transactions is made on the basis of concluded on
contracts for sales and purchases.

N. Segment Reporting
Company’s operating Business, organized & Managed unit wise, according to the
nature of the products and service provided, are recognized in
Segments representing one or more strategic business units that offer products or
services of different nature and to different Markets.
Company’s operations could not be analyzed under geographical segments in
considering the guiding factors as per accounting Standard-17 (AS-17) issued by
the Institute of Chartered accountants of India.
53
O. provision for Taxation
Provision is made for Income Tax, estimated to arise on the results the year, at the
current rate of tax, in accordance with the Income Tax Act, 1961. Taxation
deferred as a result of timing difference, b/t the accounting & taxable profits, is
accounted for on the liability methods, at the current rate of Tax, to the extent that
the timing differences are expected to crystallize. Deferred tax assets are
recognized only to the extent there is reasonable certainty of realization in future.
Deferred tax assets are reviewed, as at each Balance Sheet date to re-assess
realization.

P. Excise and Customs Duty

Excise and Customs Duty are accounted on accrual basis. CENVAT credit is
accounted by crediting the amount to cost of purchases on receipt of goods and is
utilized on dispatch of material by debiting excise duty account.
.
Q. Prior Period Expenses/Income
Prior period items, if material are separately disclosed in Profit & Loss Account
together with the nature and amount. Extraordinary items & changes in Account
Policies having material impact on the financial affairs of the Company are
disclosed.

R. Sundry debtors, Loans and Advances

Doubtful Debts/Advances are written off in the year in which those are considered
to be irrecoverable.

S. Earnings per Share

54
The Company reports basis and diluted earnings per share in accordance with
Accounting Standard-20 (AS-20) issued by the Institute of Chartered Accountants
of India. Basic earnings per share are computed by dividing the net Profit or Loss
for the year by the Weighted Average number of equity share outstanding during
the year. Diluted earnings per share is computed by dividing the net Profit or Loss
for the year by weighted average number of equity shares outstanding during the
year as adjusted for the effects of all dilutive potential equity shares, except where
the results are anti-dilutive.

NOTES ON ACCOUNTS

(A). Share Warrants

During the year the Company has issued 3,395600 optionally convertible share
warrants at the conversion rate of 31 per share. The application money received is
shown under the head “share warrants pending allotment” in the Balance Sheet.
The warrants are to be converted in 18 months from the date of issue. None of the
warrant holders have opted for conversion as on the date of Balance sheet.
The proceeds of the warrants have been utilized for setting of new Aluminum
Plant as a part of backward integration.

(B). Secured Loans

Working Capital limited is secured by Hypothecation of stocks, debtors and first
charge on pari-passu basis on specific fixed assets of the company.

(C) Unsecured Loans – Sales Tax deferment

The total sales Tax Loan outstanding as on 01-04-2008 was Rs 684.56 Lakhs.
During the year the company has repaid a sum of Rs 25.63 Lakhs and availed a
55
credit of Rs 10.68 Lakhs. The outstanding liability stands at Rs 669.61 Lakhs as
on 31.03.2010.

(D) Depreciation on Revalued Assets.

The company had credited a sum of Rs 199053280/- towards revaluation reserve
in the financial year 2008-09. The excess depreciation on account of revaluation
of assets amounting to Rs 15767697/- for the current year has been withdrawn
from the said Reserve and credited to depreciation account. There is no impact on
account of above revaluation on the Book Profit of the Company.

(E) Assets – Impairment.

The management of the Company has reviewed the assets keeping in the view the
accounting Standard 28 issued by the Institute of Chartered accountants of India
and is of the view that there is no impairment in the value of assets in accordance
to that standard.

(F) Sundry debtors & Other Balances

In case of balance in Sundry Debtors, loans and Advances, Other Current assets
and sundry Creditors, letter – seeking confirmation and reconciliation.
The Company does not owe any sum to Micro & Small enterprises at the end of
the accounting year on account of principal and interest under the Micro, small
and Medium Enterprises Development Act, 2006 as per the information and
records available with the company about their industrial status which has been
relied upon by the auditors.

(G) Employees Benefits:

56
1. The company has adopted the revised accounting Standard AS-15 –Employees
Benefits with effect from 1st April, 2007.
2. Gratuity: The Company makes annual contribution to the employees group
Gratuity scheme of Life Insurance Corporation of India (LIC), a funded defined
benefits plan for qualifying employees. Gratuity is payable to all eligible on
separation / termination or death in terms of the provisions of The Payment of
Gratuity (Amendment) act, 1997 or per company’s scheme whichever is more
beneficial to the employees.
3. The expected return on plan assets of 85 has been considered based on the
information given by LIC which manages the funds.
4. Gratuity cost amounting to Rs 0.84 Lakhs has been included in schedule – 18
under contribution to Provident and other funds.

FINANCIAL POSITION OF THE COMPANY

SCHEDU 2009- 2008-
PARTICULARS LE N0. 2010 (Rs) 2009 (Rs)

Sources of Funds
113,022,0 113,022,0
a) Share Capital 1 00 00
758,660,9 708,926,6
b) Reserves and Surplus 2 88 82
871,682,9 821,948,6
Share holders Funds 88 82

14,716,36
Equity share warrants 0

57
c) Loans Funds
70,524,41
i) Secured loans 3 6,706,717 5
66,960,97 68,456,51
ii) Unsecured loans 4 4 1

Net deferred Tax Liability 14 7,605,400 6,942,300

967,672,4 967,871,9
Total 39 08

Application of Funds
Fixed Assets (At cost)
738,252,7 780,690,5
a) Gross Block 5 28 78
348,555,6 324,020,7
b) Less Depreciation 18 48
389,697,1 456,669,8
c) Net Block 10 30
85,848,53 45,154,00
capital work-in-progress 1 0
43,974,67 29,185,58
Investment (at cost) 6 7 5

Current assets, Loans and

advances
a) Inventories 7 135,926,0 39,806,56

58
 08 9
150,530,6 94,811,56
b) Sundry debtors 8 10 8
45,823,89 54,776,67
c) Cash & Bank Balances 9 6 3
190,786,4 266,902,3
d) other current assets 10 51 37
91,586,22 81,705,19
e) Loans & Advances 11 5 9
614,653,1 538,002,3
90 46

less current Liabilities &

Provision
139,755,0 74,433,83
a) Liabilities 12 49 5
26,746,02 26,706,02
b) Provisions 13 0 0
166,501,0 101,139,8
69 55

448,152,1 436,862,4
Net Current Assets 21 92
Notes to Accounts 20
967,672,4 967,871,9
39 08

59
the schedules referred to above from an integral part of the Balance Sheet

SHEDUL 2009-10 2008-09

PARTICULARS E NO. Rs. Rs.

INCOME:
672,250,53 868,903,09
Gross sales 15 4 4
less: Excise duty 76,983,743 49,305,295
595,266,79 819,597,79
Net Income from Operations 1 9
Other Income 16 60,176,175 57,296,287
655,442,96 876,894,08
6 6
EXPENDITURE:
Materials 17 401,438,43 640,664,53
60
 2 3
117,364,42 102,007,33
Expenses 18 1 9
Interest & Financial charges 19 10,294,337 13,976,727
depreciation 22,032,249 23,564,593
551,129,43 780,213,19
9 2
104,313,52
Profit for the year 7 96,680,894
Prior Period adjustments 322,597 -38,719
104,636,12
Profit before Taxation 4 96,642,175
Provision for Taxation
Less: 1) Current year 13,500,000 14,000,000
2) Deferred Tax 663,100 304,700
3) Fringe Benefit Tax 525,000 550,000
89,948,024 _
4) MAT credit of earlier
years -2,000,000
Profit after Tax 91,948,024 81,787,475
224,728,30 219,386,85
Balance B/F from Previous year 6 1
Amount available for 316,676,33 301,174,32
appropriation 0 6

Less: Proposed Dividend 22,604,400 22,604,400

Additional Tax on Dividend 3,841,620 3,841,620
Transfer to General Reserve 50,000,000 50,000,000

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 240,230,31 224,728,30
0 6

CHAPTER-V
DATA ANALYSIS AND DATA INTERPREATATION

ANALYSIS

As This Company has two units that is SURANA TELECOM & POWER
LIMITED of Hyderabad unit (STL of Hyd) and SURANA TELECOM &
POWER LIMITED of GAO unit ((STL of GAO) The analysis has done on b/w
this two unit of cost sheet.
1) SALES:
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Table.1

UNITS SALES

STL (Hyd) 200540678.8

STL (Goa) 388298312.6

INTERPRETATION:
The sales of STL (Hyd) unit amounts to Rs 200540678.8 and the sales of STL
(GAO) unit amounts to Rs 388298312.6

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ANALYSIS:
The sales of STL (Goa) unit are high because the sales of Jelly Filled Telephone
Cable are higher as compare to STL (Hyd) the sales are low because the sale of
Jelly Filled Telephone Cable are nil.

2) PROFIT:

TABLE.2

UNITS PROFIT

STL(Hyd) (9795463.19)

STL(Goa) 71607241.61

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INTERPRETATION:

There is a Loss in STL (Hyd) unit which amounts to Rs 9795463.19 and Profit in
STL (Goa) unit which amounts to Rs 71607241.61
ANALYSIS:
As the sales are high in STL (Goa) unit and Expenses are low there is a Profit
where as in STL (Hyd) unit the sales are low and Expenses are high there is a
Loss.

3) MATERIAL CONSUMED:
TABLE.3

UNITS MATERIAL CONSUMED

STL (Hyd) 193744317

STL (Goa) 253962722.8

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INTERPRETATION:
The Material Consumed of STL (Hyd) unit amounts to Rs 193744317 whereas of
STL (Goa) unit amounts to Rs 253962722.8.

ANALYSIS:
The Material Consumed of STL (Goa) unit is high because its Purchases are high,
where as the Material Consumed of STL (Hyd) unit is low because its Purchases
are low

4) PRIME COST:

TABLE.4

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 UNITS PRIME COST

STL (Hyd) 205300223

STL (Goa) 308305585.6

INTERPRETATION:
The Prime cost of STL (Hyd) unit is amounts to Rs 205300223 where as the
Prime cost of STL (Goa) unit is amount to Rs 308305585.6.

ANALYSIS:

67
The Prime Cost of STL (Goa) unit is high because its Direct Expenses are high,
where as the Prime Cost of STL (Hyd) unit is low because its Direct Expenses are
low.

5) WORK COST:

TABLE.5

UNITS WORK COST

STL (Hyd) 195107623.7

STL (Goa) 323600058.1

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INTERPRETATION:
The Work Cost of STL (Hyd) unit amounts to Rs195107623.7, where as the Work
Cost of STL (Goa) unit amounts to Rs323600058

ANALYSIS:
The Work cost of STL (Goa) unit is high because its Electricity Expenses are high
which amounts to Rs 6477816, as compare to STL (Hyd) unit the Electricity
Expenses are low which amounts to Rs 4446262.64.

6) COST OF PRODUCTION:

TABLE.6

UNITS COST OF PRODUCTION

STL (Hyd) 204052062.5

STL (Goa) 3699233.92

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INTERPRETATION:

The Cost of Production of STL (Hyd) unit amounts to Rs 204052062.5, where as

the Cost of Production of STL (Goa) unit amounts to Rs 3699233.92.

ANALYSIS:
The Cost of Production of STL (Goa) unit is high because its Telephone Charges
are high which amounts to Rs 366338, as compare to the Cost of Production of
STL (Hyd) unit are low because its Telephone Charges are low.

7) COST OF GOODS SOLD:

TABLE.7

70
 UNITS COST OF GOODS SOLD

STL (Hyd) 205864037.5

STL (Goa) 308189675

INTERPRETATION:

The Cost of Goods Sold of STL (Hyd) unit is Rs 205864037.5; where as the Cost
of goods sold of STL (Goa) unit is Rs 308189675
ANALYSIS:

71
The Cost of Goods Sold of STL (Goa) units are high because remaining other
Expenses are high, as compare to STL (Hyd) units are low because other
Expenses are low.
8) TOTAL COST:
TABLE.8

UNITS TOTAL COST

STL (Hyd) 210336142

STL (Goa) 323600058.1

INTERPRETATION:

72
The total cost of STL (Hyd) unit is 210336142, where as the Total cost of STL
(Goa) unit are 323600058.1.

ANALYSIS:

The Total cost of STL (Goa) unit are high because its Transportation Charges are
high which amounts to Rs 6873019, as compare to STL (Hyd) unit its
Transportation Charges are low which amounts to Rs 3048588.

OVER ALL ANALYSIS:

As we can see that the STL (Goa) unit is having low Expenses and high sales
which results into Profit. Whereas the STL (Hyd) unit are having higher Expenses
and low sales which results into Loss’s. So, as per the Analysis the STL (Goa)
unit is doing well as compare to STL

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 CHAPTER-VI
FINDINGS & CONCLUSION

SURANA TELECOM & POWER LTD OF HYDERABAD (STL, HYD)

 Major factors effecting to STL (Hyd) unit is loss

 This unit is good at Cost of Production as compare to it Other unit

 This unit have more expenditure and less Sales

 It is observed that these units except cost of production, all the other majors’
area are not satisfactory.

SURANA TELECOM &POWER LTD OF GOA (STL, GOA)

 There is an increase in net profit in 2008-2009

 The Management has control over the service management.

 Its sales are very high and expenditure is manageable low.

74
 Its cost of production is very low.

 A current liability of the company position is increased and then there is a

positive growth.

SUGGESTIONS & RECOMMENDATION

 The STL (Hyd) unit should take steps to overcome the deficits or loss as
soon as possible.

 The STL (Hyd) company should work out maintains its expenses, which
would ultimately increased the profits.

 The company should control its cost, and do the best cost analysis, which in
turn reduced its expenditure and increased its revenue.

 Diversification of products in the global markets.

 Proper utilization of funds.

 Should able to meet the competitive environment.

 However the STL (Goa) unit is doing well only need to maintain the same
strategies as long as its earned profits.

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 BIBLOGRAPHY

BOOKS REFERED

1) R.P Trivedi and Manoj Trivedi, Cost and Management Accounting

2) M.Y Khan and P.K Jain, Financial Management

3) Company Annual Reports (Literature)

WEBSITES

http://www.surana.com

www.google.com

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