NATIONAL FOODS

LIMITED
Managerial Accounting



2012


04-Jul-12
By:
Ahmed Riaz Kiani
Ayaz Tanveer
Bilal Imtiaz
Muhammad Uzair
Sufiyan Tarique
Sultan Yousaf


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Executive Summary
National Foods limited is the pioneer in the spices business and has been able to be the market
leader for more than 40 years. The secret behind its unparalleled success in the industry is to the
companys values and ethics, which are to manufacture and sell only those products which are
100% safe and healthy for the use of their customers. The core benefit of their products is to
provide hygienic food which requires less time to prepare. This report on the company shows
that the company has been able to remain profitable in the industry for the last three years,
despite the energy crisis and rising costs of raw materials. They have been able to achieve this
profitability due to the managements extreme focus on achieving cost efficiencies in all
operational departments of the company.
Given the homogeneity of its products and the large volumes, the company applies process
costing method. Through this method the costs of individual units is allocated by averaging the
total cost of a batch. Applying the ABC costing method we observed that per unit overhead rate
has fallen over the years and is a proof of that the management is persistently following its goal
of reaching superior cost efficiencies. Break even analysis reveals that the company has quite a
low number of sales units required to reach the breakeven. This low value is due to high profit
margins per unit of sales, which the company is able to charge because of the company brand
equity and the reputation of the products to be of premium quality.
The budgeting by the management has always been on the lower end of the actual outcome every
year. Same trend is seen by the variance analysis that in mid year 2010 the variance of budgeted
from actual was much larger compared to other two years of analysis.


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Table of Contents
Executive Summary ....................................................................................................................................... 2
Introduction .................................................................................................................................................. 4
Vision and Mission Statement .................................................................................................................. 4
Products ........................................................................................................................................................ 5
Benefits of Cost Accounting .......................................................................................................................... 9
Cost accumulation method used ................................................................................................................ 11
Analysis of Income Statement .................................................................................................................... 12
Analysis of Cost of Goods Sold .................................................................................................................... 13
Application of Activity based Costing ......................................................................................................... 14
Break even Analysis .................................................................................................................................... 17
Break even in Units ................................................................................................................................. 17
Break even in Sales ................................................................................................................................. 18
Budgeting .................................................................................................................................................... 19
Sales Budget ............................................................................................................................................ 19
Production Budget .................................................................................................................................. 20
Direct Material Budget ............................................................................................................................ 20
Direct Labor Budget ................................................................................................................................ 21
Manufacturing Overhead Budget ........................................................................................................... 22
Selling and Administrative expense Budget............................................................................................ 22
Computation for CGM and CGS .............................................................................................................. 23
Master Budget ........................................................................................................................................ 24
Budgeted Income Statement .............................................................................................................. 24
Budgeted Balance sheet ..................................................................................................................... 25
Variance Analysis ........................................................................................................................................ 26
Conclusion & Recommendation ................................................................................................................. 28
References .................................................................................................................................................. 30
Appendix ..................................................................................................................................................... 31




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Introduction
National Foods began its journey in 1970 as a Spice company, with a revolutionary product that
popularized the concept of having clean, healthy food. National foods initiatives were, to make
food that is hygienic, reduce time spent in the kitchen by women, foster health and contribute
towards personal attractiveness, so that people who use our products would be able to experience
a more rewarding life-style.
This was long before the phrase Corporate Mission had even been invented. However,
the founders philosophy remains unchanged over time. Even if their language and the notion
of only women doing the housework have become outdated, in this age of rapidly changing
lifestyles, fuelled by the rampant development of technology; consumers are compelled to alter
their eating habits. National Foods responds to this challenge of developing innovative food
products based on convenience and quick preparation in line with modern lifestyles and yet
retains traditional values through its diverse collection of food products.
In a history that now crosses three decades, National Foods success has been influenced by the
major events of the day economic boom, depression, wars, changing consumer lifestyles and
technological advancements. Even after three decades the companys focal point still remains on
customers needs through product development in line with the changing market trends.
Vision and Mission Statement
To be a Rs.50 billion food company by the year 2020 in the convenience food segment by
launching products and services in the domestic and international markets that enhance lifestyle
and create value for our customers through management excellence at all levels.


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Products

Recipe Masala
National Recipes provide an authentic Pakistani food experience, be it Lahori Fish or Peshawari
Chapli Kebab, each recipe has been specially designed to make the preparation of Pakistani
cuisine as simple as possible. National Recipes are available in a variety of varieties to match the
needs and taste buds of the end consumer.
Ketchup
Made from the finest tomatoes, National Ketchups and sauces cater to every taste. From the hot
and tangy to the sweet, National Foods offers ketchup for every dish and occasion. Use them as
dips for your munchies, dressing for your salads, accompaniments for the main course or even as
marinades for your recipes. National Foods sauces can do it all.
Jams


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Made from real fruit pulp and juice, National Jams and Jellies offer you a taste of some of
Pakistans most popular fruits. With a wide range of flavors, National Foods brings you the
varied tastes of a range of tropical fruits, including Mango, Pineapple and even Kino, a variety of
orange only found in the subcontinent.
Rice
Pakistans Basmati Rice is well known round the Globe for its Long Grain, appetizing flavor and
musky Aroma. The finest quality of Rice gives the Perfect Taste and look to your meals.
National Rice is at current available in two basic blends: National finest Super Kernel Basmati
Rice & National Long Grain Basmati Rice.
Desserts
All sweet things are irresistible and so are National Foods Desserts. For some, Pakistani desserts
are a must after every meal, for others any time is dessert time. Some do it for the aftertaste,
others have regular dessert cravings. But almost always, it gets you into the best of moods. In
Pakistan, it is synonymous with good news and happiness. Three products in the range make
National Foods Desserts three times as sweet.
Pickles
Pakistani food without pickles is like a portrait without color. A mix of mustard oil, mixed
spices, salt, citric acid and various vegetables and fruits, Pickles are used as a side relish, taste
enhancer and even as a good source of digestion. Known for their uniquely sharp and tangy
flavor, our pickles add that special something to food, making all the difference.


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Plain spices
Pure Spices make every meal a magical experience. Hygienically packed and specially selected
for the discerning consumer. The pure spices are available in 50g, 100g, 200g, 400g, 1,000g as
well as bulk packing of 25 kgs to meet the specific consumer requirements
Salt
NFL was the first company to manufacture iodized salt in Pakistan, and we are now brand
leaders in the class. National Salt is a brilliant white, hygienic, 99.1% pure, free flowing refined
product that adds taste and serves the human bodys requirement for iodine.
Chinese
National Foods Chinese recipes make authentic, homemade Chinese a breeze to cook. A dash of
our sauces range and vinegar livens up any soup or Chinese dish with savory and develops a
flavor that keeps food lovers coming back for more.
Snacks
The snacks range takes us from the strictly lunch-and-dinner crowd to any-time, any-place
versatility. National Snacks add that extra zest of life to everything on the table, no matter if it is
homemade or store-bought.
Ready to eat
National ready-to-eat meals have come as a helping hand to homemakers. These are complete,
pre-cooked meals packaged to retain absolute freshness, and require only heating before eating.


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Perfect for working women with limited time on their hands, unexpected guests, picnics,
traveling, and even office lunches.
Powdered Drinks
National Foods Fruitily instant drink mix is so much more than a refreshing beverage. Each
serving of Fruitily is chock-a-block with essential nutrients that provide the energy that your
body and mind need to replenish every day.



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Benefits of Cost Accounting
Important advantages of a Cost Accounting System may be listed as below:
1. A good Cost Accounting System helps in identifying unprofitable activities, losses or
inefficiencies in any form.
2. The application of cost reduction techniques, operations research techniques and value
analysis technique helps in achieving the objective of economy in concern's operations.
Continuous efforts are being made by the business organization for finding new and improved
methods for reducing costs.
3. Cost Accounting is useful for identifying the exact causes for decrease or increase in the,
profit/loss of the business. It also helps in identifying unprofitable products or product lines so
that these may be eliminated or alternative measures may be taken.
4. It provides information and data to the management to serve as guides in making decisions
involving financial considerations. Guidance may also be given by the Cost Accountant on a host
of problems such as, whether to purchase or manufacture a given component, whether to accept
orders below cost, which machine to purchase when a number of choices are available.
5. Cost Accounting is quite useful for price fixation. It serves as a guide to test the adequacy of
selling prices. The price determined may be useful for preparing estimates or filling tenders.
6. The use of cost accounting technique viz., variance analysis, points out the deviations from the
pre-determined level and thus demands suitable action to eliminate such deviations in future.

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7. Cost comparison helps in cost control. Such a comparison may be made from period to period
by using the figures in respect of the same unit of firms or of several units in an industry by
employing uniform costing and inter-firm comparison methods. Comparison may be made in
respect of costs of jobs, processes or cost centers.
8. A system of costing provides figures for the use of Government and other bodies for dealing
with a variety of problems. Some such problems include price fixation, price control, tariff
protection, wage level fixation, etc.
9. The cost of idle capacity can be easily worked out, when a concern is not working to full
capacity.
10. The use of Marginal Costing technique may help the executives in taking short term
decisions. This technique of costing is highly useful during the period of trade depression, as the
orders may have to be accepted during this period at a price less than the total cost.
11. The marginal cost has linear relationship with production volume and hence in formulating
and solving "Linear Programming Problems", marginal cost is useful.


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Cost accumulation method used
Generally two cost methods are used; one is the job costing which involves the costing based on
heterogeneous products or different product under one shed. While National Foods uses the
process costing as it is engaged in producing homogenous product with the large volume.
Process costing at NFL requires pre planned demand estimation and costing for the production.
This helps in effective resource management, cost efficiency and timely operations of the
company and thus this ultimately reflected in the financials like ROA. Moreover company
operation department uses normal and actual overhead cost allocation for proper forecasting for
successive years based on differential of both.
Normal Costing is based on the forecasting of the estimated number of units to be sold while the
overhead is allocated based on the movement and level of economic condition and company cost
controlling procedure. Once this normal costing is done the budgets are formed and after the
period it is matched with the actual cost incurred and the difference is kept to minimize the
forecasting error in the next period. Proper journal entries are made with respect to the cost
journal for cost tracking during the production and helpful in final audit for the costing
department. This is how NFL is using the cost accumulation technique for correct forecasting
and planning for production efficiency thus getting a title of cost leadership.


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Analysis of Income Statement
The analysis is done for the period of three years from 2009-2011. NFL has worked on reducing
cost either it is cost of production or general administrative cost associated with operations. As
economic condition are highly tensed like inflation and power shortage but company is able to
maintain its production cost as the percentage of sales at almost the same level over the years.
The distribution cost is reduced compared to previous years because of reduction in total number
of distributors just to reduce cost and giving more business to already existing distributors thus
beneficial for both the company and the associated business partners. Administrative expenses is
also decreased slightly because of increases in sales and keeping the sales force at the same level
thus distributing additional sales over the same workforce. Remaining all the other heads remains
at the same contribution level and providing a cushion for the company to earn higher profit.
Moreover income statement analysis reveals that company has maintained its cost structure even
in the economic pressure and depicted a bullish financial performance in terms of profitability
and maintaining the same financing structure by utilizing strong internal cash generation. The
analysis reveals the company has beaten the declining market trends over the years due to the
global financial recession, profitability rose up to the highest level in all years representing an
annual growth rate of approximately 30%. The major part is contributed by the local operation
while export operations also grew over the years. The combined effect of the improved financial
condition is reflected through the rise in share price from 45Rs/share to almost 200Rs/share as of
the current period, so a good financial representation in such a period.


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Analysis of Cost of Goods Sold
The cost of goods sold is the major cost incurred by every company which generates the revenue
for it also. The CGS as the percentage of the sales remains almost at the same level during this
economic inflationary pressure, which reflects the cost efficiency measures taken by the
company. The material cost increases as proportionate to the additional units of sales. While due
to repositioning of the product leads to a significant increase in the packaging material. While
salaries as respect to output remains at an adequate level while the Islamic financing markup
payment has increased compared to previous years.
Fuel and power cost has increased over the years due to the rising trend of oil prices prevailing in
the market and the extension of the distribution setup to the other countries. NFL has reduced it
expenditure and spending on R&D which is an alarming situation bemuses herbal products
require an intense research element but a major drawback has been seen under this particular
head. The extension of operation leads NFL to invest in fixed assets but contrary company opted
for the rental building which resulted in a double amount of rental expenses as compared to the
previous years. Same situation with the travelling cost a bullish graph due to rising oil and fuel
prices and lastly company has reduced its expenditure on repairs and maintenance.
Finally this year the beginning work in process is in higher amount so as the finished goods
which show the stack of inventory by the company by a higher amount as compared to the
previous years. But on the cost side company has still managed to be as cost efficient as possible
and maintained cost in such economic pressure.


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Application of Activity based Costing
Activity based costing help distributing indirect cost on the basis of different cost object and
further different cost pools. For National foods the total manufacturing overhead is distributed
based upon the number of 6 cost objects or the production process which constitute the total
overhead the phases are:
Cleaning phase
Crushing phase
Boiling phase
Mixing phase
Testing phase
Packaging phase
The cost is distributed based upon these phases on the measure of number of machine hours
the process used, labor hours, number of products, setup hours and quantity passed through a
particular path. The respective cost allocation base are the divide with the cost drivers
leading to get a unified cost object rate further the total respective allocation is divided to the
number of units sold during the respective year to get a overhead cost rate of a single unit.
The overhead cost has a rising trend over the years, also the setup hours has increased means
a more idle work while contrary the machine hours and labor hours has increased meaning
more productivity and output in terms of number of units produced and processed during a
year. The Overhead rate on the basis of ABC is:

Total Indirect Cost Allocated 254,639,850 240,791,540 203,781,565
Total Indirect Cost Allocated per unit 1.96 2.22 2.07

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National Foods Limited 2011 2010 2009
Activity Based Costing
Total Manufacturing Overhead 281,370,000 266,068,000 225,173,000
Number of batches 918 796 753
Number of setups 623 571 513
Setup time (hour) per batch 0.67 0.83 1.3
Number of Machine hours 7,248 6,820 6,542
Number of Labour hours 8,021 7,672 7,221
Production Phases:
1 Cleaning Phase (Labour hours) 5,840 5,221 4,900
2 Crushing Phase (Machine hours) 4,320 4,150 3,950
3 Boiling Phase (Setup hours) 245 229 205
4 Boiling Phase (Machine hours) 3,240 3,190 3,000
4 Mixing Phase (Quantity) 27,500 23,300 22,000
5 Testing Phase (Number of units) 1,000 1,000 1,000
6 Packaging Phase (Quantity produced) 25,000 23,100 21,800
Cost Allocation to production phases (Overhead)
1 Cleaning Phase 21,102,750 19,955,100 16,887,975
2 Crushing Phase 30,950,700 29,267,480 24,769,030
3 Boiling Phase 5,627,400 5,321,360 4,503,460
4 Boiling Phase 56,274,000 53,213,600 45,034,600
4 Mixing Phase 70,342,500 66,517,000 56,293,250
5 Testing Phase 42,205,500 39,910,200 33,775,950
6 Packaging Phase 28,137,000 26,606,800 22,517,300

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Cost Allocation to production phases (Based on drivers)
1 Cleaning Phase (Labour hours) 3,613.48 3,822.08 3,446.53
2 Crushing Phase (Machine hours) 7,164.51 7,052.40 6,270.64
3 Boiling Phase (Setup hours) 23,011.25 23,237.38 21,968.10
4 Boiling Phase (Machine hours) 17,368.52 16,681.38 15,011.53
4 Mixing Phase (Quantity) 2,557.91 2,854.81 2,558.78
5 Testing Phase (Number of units) 42,205.50 39,910.20 33,775.95
6 Packaging Phase (Quantity produced) 1,125.48 1,151.81 1,032.90
Cost Allocation per unit
1 Cleaning Phase 0.16 0.18 0.17
2 Crushing Phase 0.24 0.27 0.25
3 Boiling Phase 0.04 0.05 0.05
4 Boiling Phase 0.43 0.49 0.46
4 Mixing Phase 0.54 0.61 0.57
5 Testing Phase 0.33 0.37 0.34
6 Packaging Phase 0.22 0.25 0.23
Total Indirect Cost Allocated 254,639,850 240,791,540 203,781,565
Total Indirect Cost Allocated per unit 1.96 2.22 2.07

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Break even Analysis
Break even analysis refers to the estimation that when cost will be equal to the revenues
generated and the situation of no profit and loss. In case of NFL the break even is calculated for
both in terms of units and sales volume.
Break even in Units

The breakeven in unit says that the demanded unit to sale is on the increasing trend as the units
needs to sell 83,123,000 units in last year but it actually sold double number of units. The
breakeven units are calculated for the estimation of target that sales force needs to achieve at the
minimum level.

National Foods Limited 2011 2010 2009
Breakeven (Units/Sales) In 000 In 000 In 000
Sales 5,520,780 4,489,946 3,758,706
Variable Cost 3,807,911 3,050,423 2,261,439
Contribution Margin 1,712,869 1,439,523 1,497,267
Fixed Cost 1,098,597 1,091,416 835,914
Operating Income 614,272 348,107 661,353
Breakeven in Units 83,123 82,202 55,061

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Break even in Sales
Now for break even in sales are given as:

The break even in sales volume also shows a same trend of rising one. The main reason is due to
the combined effect of the rise in per unit selling price and the rise in fixed cost which result in
the higher break even of sales. One thing need to be crucially looked by the company that
contribution margin needs to be controlled as it is on declining trend and thats why a large base
of number of units and sales volume.

Selling Price per unit 42.60 41.41 38.11
Variable Cost per unit 29.38 28.14 22.93
Contribution Margin per unit 13.22 13.28 15.18
Fixed Cost 1,098,597 1,091,416 835,914
Breakeven in Sales 3,540,908 3,404,182 2,098,460

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Budgeting
Budgeting refers to the forecasting of the sales and units that Company needs to sell for earning
desired profits and estimating the material require for the production. Three budgets are prepared
for the future three years 2013, 2014, 2015 which includes Sales, production, material, labor,
overhead, selling & admin expenses and Master budget including Budgeted Income statement
and Balance sheet.
Sales Budget

In sales budget the budgeted sales units are estimated based upon GOLY growth over last year
and potential of product it can get more market share. Moreover selling price is estimated based
on the past trend and inflation in the economy.

National Foods Limited 2013 2014 2015
Sales Budget Rs in 000 Rs in 000 Rs in 000
Budgeted Sales Unit 135,000 162,000 194,400
Selling Price per unit 43.50 45.50 48.00
Total Revenue 5,872,500 7,371,000 9,331,200

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Production Budget

NFL has recently changed its inventory policy that it stock 20% of the budgeted units while
previously it hold 10% of the budgeted units. Same case with the beginning inventory, in current
period it hold 12.5% of inventory previously it was 7.5%. And that resulted in greater number of
units to be produced that actually budgeted to sell.
Direct Material Budget

National Foods Limited 2013 2014 2015
Production Budget Rs in 000 Rs in 000 Rs in 000
Sales in units 135,000 162,000 194,400
Desired Ending Inventory 25,920 32,400 38,880
Beginning Inventory 16,200 25,920 32,400
Units to be produced 144,720 168,480 200,880
National Foods Limited 2013 2014 2015
Direct Material Budget Rs in 000 Rs in 000 Rs in 000
Production in units 144,720 168,480 200,880
Materials per unit 28.80 30.96 33.28
Production needs 4,167,936 5,216,141 6,685,688
Desired Ending Inventory 731,981 833,587 1,043,228
Beginning Inventory 567,285 731,981 833,587
Material to be purchased 4,332,632 5,317,747 6,895,329

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The Direct material budget shows the forecasted inventory in value terms it needs to hold in the
beginning and ending which is same as previously. The required material increases with the time
due to increase in production volume.
Direct Labor Budget
For estimating the direct labor cost the labor hours are estimated based on the production
requirement and per unit labor time. Based on this the labor wage rate is multiplied to get the
estimated labor cost. The labor cost shows a drastic movement of upward slope due to inflation
level and per hour increasing labor wage rate.

National Foods Limited 2013 2014 2015
Direct Labor Budget Rs in 000 Rs in 000 Rs in 000
Production in units 144,720 168,480 200,880
Direct Labor hours 0.038 0.040 0.042
Labor hours required 5,499 6,739 8,437
Gauranteed Labor hours 8,760 8,760 8,760
Wage rate per hour 41.05 45.16 49.67
Total Direct Labor cost 225,749 304,309 419,068

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Manufacturing Overhead Budget

Selling and Administrative expense Budget



National Foods Limited 2013 2014 2015
Overhead Budget Rs in 000 Rs in 000 Rs in 000
Indirect labor 43,788 45,978 48,276
Indirect material 52,663 55,296 58,061
Utilities 89,243 93,705 98,390
Rent, rates & taxes 37,213 42,795 49,214
Insurance 10,808 11,348 11,915
Repairs & Maintanece 49,116 51,572 54,150
Ujra Payments 3,505 3,680 3,864
Depreciation 60,985 64,034 67,236
Others 755 793 832
348,075 369,200 391,940
National Foods Limited 2013 2014 2015
Selling & Administrative expense Budget Rs in 000 Rs in 000 Rs in 000
Sales in units 135,000 162,000 194,400
Variable rate 7.58 7.959 8.35695
1,023,300 1,289,358 1,624,591
Fixed expense 500,000 525,000 551,250
1,523,300 1,814,358 2,175,841
Non cash expense (Depreciation & Amortization) 60,985 64,034 67,236
Cash Disbursement 1,462,315 1,750,324 2,108,605

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Computation for CGM and CGS



National Foods Limited 2013 2014 2015
Cost of Goods maufactured Rs in 000 Rs in 000 Rs in 000
Beginning material inventory 567,285 731,981 833,587
Material purchase 4,332,632 5,317,747 6,895,329
Material available for use 4,899,917 6,049,728 7,728,916
Ending material inventory 731,981 833,587 1,043,228
Direct material used 4,167,936 5,216,141 6,685,688
Direct Labor 225,749 304,309 419,068
Manufacturing Overhead 348,075 369,200 391,940
Total manufacturing costs 4,741,760 5,889,650 7,496,696
Beginning work in process 416,794 521,614 668,569
Ending work in process 625,190 782,421 1,002,853
Cost of goods manufactured 4,533,363 5,628,843 7,162,411
National Foods Limited 2013 2014 2015
Cost of Goods Sold Rs in 000 Rs in 000 Rs in 000
Cost of goods manufactured 4,456,067 5,431,773 6,797,762
Beginning Finished Goods Inventory 474,176 588,965 749,670
Cost of goods available for sale 4,930,243 6,020,738 7,547,432
Ending Finished Goods Inventory 711,264 883,447 1,124,504
Cost of goods sold 4,218,979 5,137,290 6,422,927

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Master Budget
Budgeted Income Statement


The data from all the previous budgets are combined to form the profit and loss statement. Next
year profit will fall as compared to this year due to low budgeted number of units but in
remaining years it increases at far greater rate. Master budget comprises of both Income and
balance sheet which are given and reflects company will grow by a good amount in the next
upcoming years both in profitability and asset base.





National Foods Limited 2013 2014 2015
Budgeted Income Statement Rs in 000 Rs in 000 Rs in 000
Revenues 5,872,500 7,371,000 9,331,200
Cost of goods sold 4,218,979 5,137,290 6,422,927
Gross Margin 1,653,521 2,233,710 2,908,273
Operating Expenses 1,462,315 1,750,324 2,108,605
Net Income 191,206 483,386 799,667

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Budgeted Balance sheet



National Foods Limited 2013 2014 2015
Budgeted Balance Sheet Rs in 000 Rs in 000 Rs in 000
Current Assets
Cash
Accounts recievable 587,250 737,100 933,120
Raw material Inventory 731,981 833,587 1,043,228
Work-in-process inventory 625,190 782,421 1,002,853
Finished goods inventory 711,264 883,447 1,124,504
Total Current assets 2,655,685 3,236,556 4,103,706
Property and equipment
Land 350,000 385,000 423,500
Building 150,000 165,000 181,500
Equipment 300,000 330,000 363,000
Total property and equipment 800,000 880,000 968,000
Total Assets 3,455,685 4,116,556 5,071,706
Accounts payable 866,526 1,063,549 1,379,066
Long term Debt 1,533,065 1,860,170 2,086,015
Common stock 825,497 1,001,630 1,123,239
Retained earnings 230,597 191,206 483,386
Total liabilities and equities 3,455,685 4,116,556 5,071,706

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Variance Analysis
Variance represents the deviation from the actual sales and cost structure to the budgeted one.
The variance includes the static variance, flexible budget variance and sales volume variance,
based on actual cost and budgeted cost to check either its favorable or not. U represents the
unfavorable and F represents the favorable.

National Foods Limited
Variances
For year 2011 Rs in 000

Units sold 129,600 9,600 F 120,000 - 129,600 9,600 F
Revenues 5,520,720 480,720 F 5,040,000 77,520 U 5,443,200 403,200 F
Variable Costs
Direct Material 3,275,252 215,252 U 3,060,000 (29,548) F 3,304,800 244,800 U
Direct Labour 280,896 22,896 U 258,000 2,256 U 278,640 20,640 U
Manufacturing Overhead 251,763 14,163 U 237,600 (4,845) F 256,608 19,008 U
3,807,911 252,311 3,555,600 (32,137) 3,840,048 284,448
Contribution Margin 1,712,809 228,409 F 1,484,400 109,657 F 1,603,152 118,752 F
Fixed Costs 1,098,597 98,597 U 1,000,000 98,597 U 1,000,000 -
Operating Income 614,212 129,812 F 484,400 11,060 F 603,152 118,752 F
Sales-Volume
Variances
Actual Results
Static-Budget
Variances
Static-Budget
Flexible-Budget
Variances
Flexible
Budget

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National Foods Limited
Variances
For year 2010 Rs in 000
Units sold 108,420 (1,580) U 110,000 - 108,420 (1,580) U
Revenues 4,489,946 34,946 U 4,455,000 (52,852) U 4,542,798 87,798 F
Variable Costs
Direct Material 2,593,594 118,594 U 2,475,000 154,144 U 2,439,450 (35,550) F
Direct Labour 219,796 (2,514) U 222,310 679 U 219,117 (3,193) F
Manufacturing Overhead 237,032 6,032 U 231,000 9,350 U 227,682 (3,318) F
3,050,422 122,112 2,928,310 164,173 2,886,249 (42,061) F
Contribution Margin 1,439,524 (87,166) U 1,526,690 (217,025) U 1,656,549 129,859 F
Fixed Costs 1,091,416 91,416 U 1,000,000 91,416 U 1,000,000 -
Operating Income 348,108 (178,582) U 526,690 (308,441) U 656,549 129,859 F
Actual Results
Static-Budget
Variances
Static-Budget
Flexible-Budget
Variances
Flexible
Budget
Sales-Volume
Variances

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Conclusion & Recommendation
The analysis of National Foods Limited in this report is showing that the company has remained
profitable in the past years, improved its cost efficiencies, has a low unit volume requirement for
break even, and budgeted data is underestimated from the actual performance recorded in the
current year. There is room for improvement in certain areas of the company which can reduce
its costs further, without any major financial contribution required instead small changes in some
operational areas will help improve efficiencies.
At the production level the setup time is the major source of delays which cause increase in
costs. A reduction in setup time will result in higher percentage of utilization of the
machinery and equipment.
Currently NFL has duplication of resources in their distribution and management teams so it
needs to reevaluate the procedures and be more cost efficient.
National Foods Limited
Variances
For year 2009 Rs in 000
Units sold 98,624 8,624 F 90,000 - 98,624 8,624 F
Revenues 3,758,706 383,706 F 3,375,000 60,306 F 3,698,400 323,400 F
Variable Costs
Direct Material 1,981,316 180,416 U 1,800,900 7,850 U 1,973,466 172,566 U
Direct Labour 212,142 48,342 U 163,800 32,646 U 179,496 15,696 U
Manufacturing Overhead 287,980 94,480 U 193,500 75,938 U 212,042 18,542 U
2,481,438 323,238 2,158,200 116,434 U 2,365,004 206,804 U
Contribution Margin 1,277,268 60,468 F 1,216,800 (56,128) U 1,333,396 116,596 F
Fixed Costs 835,914 (14,086) F 850,000 (14,086) F 850,000 -
Operating Income 441,354 74,554 F 366,800 (42,042) U 483,396 116,596 F
Sales-Volume
Variances
Actual Results
Static-Budget
Variances
Static-Budget
Flexible-Budget
Variances
Flexible
Budget

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Labor contracts should be evaluated in order to stop union influence on demand of more
wage rate and ultimately increase in manufacturing cost.
Investment must be done in the fixed machinery to utilize raw material up to the extent so as
to produce more output with comparatively smaller input base.


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References
www.nfoods.com
National Foods Annual Report 2009
National Foods Annual Report 2010
National Foods Annual Report 2011
http://www.preservearticles.com/201103234647/11-advantages-of-a-good-cost-accounting-
system.html
http://www.hamariweb.com/articles/article.aspx?id=2133
http://classof1.com/homework_answers/cost_accounting/advantages_of_cost_accounting/


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Appendix


National Foods Limited 2011 2010 2009
Income Statement Rs in 000 Rs in 000 Rs in 000
Sales 5,520,780 4,489,946 3,758,706
Cost of sales (3,946,799) (3,163,199) (2,632,255)
Gross profit 1,573,981 1,326,747 1,126,451
Distribution costs (886,106) (909,818) (665,664)
Administrative expenses (179,724) (164,303) (149,802)
Other operating expenses (32,767) (17,295) (20,448)
Other operating income 12,603 23,214 17,006
Operating profit 487,447 258,545 307,543
Finance costs (125,696) (99,364) (86,841)
Profit before taxation 361,751 159,181 220,702
Taxation (131,154) (72,622) (81,241)
Profit after taxation 230,597 86,559 139,461
Other comprehensive income - - -
Total comprehensive income 230,597 86,559 139,461
Earnings per share Rs 5.56 Rs 2.09 Rs 3.37

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National Foods Limited 2011 2010 2009
Cost of goods sold statement Rs in 000 Rs in 000 Rs in 000
Raw material consumed 2,753,111 2,190,781 1,639,565
Packing material consumed 907,298 720,522 500,152
Salaries, wages and other benefits 309,203 242,740 203,586
Contribution to provident fund 4,725 3,981 3,574
Depreciation / amortisation 60,985 60,244 50,906
Ujrah payments 3,505 1,643 539
Fuel and power 75,936 71,274 62,711
Insurance 10,293 11,473 2,988
Laboratory, research and development 2,736 3,495 566
Postage and communications 1,460 1,631 1,974
Printing and stationary 371 59 426
Rent, rates and taxes 32,359 20,133 14,818
Travelling 41,703 39,682 47,915
Repairs and maintanence 46,777 52,165 37,164
Security charges 4,490 3,271 2,538
Others 755 998 2,628
4,255,707 3,424,092 2,672,050
Opening work in process 352,756 235,844 213,773
Closing work in process (495,421) (352,756) (235,844)
Cost of goods manufactured 4,113,042 3,307,180 2,649,979
Opening stock of finished goods 315,491 171,551 154,102
Closing stock of finished goods (481,506) (315,491) (171,551)
Export rebate (228) (41) (275)
3,946,799 3,163,199 2,632,255

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National Foods Limited 2011 2010 2009
Costing In 000 In 000 In 000
Number of Units Sold 129,600 108,420 98,624
Selling price per unit 42.60 41.41 38.11
Cost per unit 30.45 29.18 26.69
Direct Material 3,660,409 2,911,303 2,139,717
Direct Labour 313,928 246,721 207,160
Manufacturing Overhead 281,370 266,068 225,173
4,255,707 3,424,092 2,572,050
Total Fixed Cost 447,796 373,669 310,611
Total Variable Cost 3,807,911 3,050,423 2,261,439
Variable cost per unit 29.38 28.14 22.93
Contribution Margin 1,712,869 1,439,523 1,497,267
Contribution Margin Per Unit 13.22 13.28 15.18
Contribution Margin percentage 31.03% 32.06% 39.83%

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National Foods Limited 2011 2010 2009
Balance Sheet Rs in 000 Rs in 000 Rs in 000
ASSETS
NON - CURRENT ASSETS
Property, plant and equipment 774,356 794,771 614,004
Capital Work in progress 8,958 25,688 35,668
Long term deposits 4,380 4,509 5,163
787,694 824,968 654,835
CURRENT ASSETS
Stores,spare parts and loose tools 5,213 5,360 5,432
Stock-in-trade 1,732,410 1,501,232 846,977
Trade debts 287,742 253,050 274,556
Advances 13,702 43,867 29,044
Trade deposits and prepayments 13,117 10,118 6,660
Other receivables 638 20,664 2,632
Cash and Bank balances 14,225 14,101 15,205
2,067,047 1,849,392 1,180,506
2,854,741 2,674,360 1,835,341
SHARE CAPITAL AND RESERVES
Issued, subscribed and paid- up capital 414,427 414,427 331,542
Unappropiated profit 508,384 327,518 323,844
922,811 741,945 655,386
NON - CURRENT LIABILITIES
Long term financing 169,750 20,000 60,000
Liabilities against assets subject to finance lease - 2,260 13,700
Deffered tax 79,275 72,621 59,999
Retirement benefits obligations 4,627 10,707 6,780
253,652 105,588 140,479
CURRENT LIABILITIES
Trade and other payables 816,029 530,063 460,626
Accrued interest / markup 25,717 28,319 17,764
Short term borrowings 727,940 1,189,769 485,536
Current maturity of:
Long term financing 44,250 40,000 40,000
Liabilities against assets subject to finance lease 2,343 10,238 12,510
Taxation - Provision less payments 48,301 12,407 8,397
Due to government 13,698 16,031 14,643
1,678,278 1,826,827 1,039,476
COMMITMENTS
2,854,741 2,674,360 1,835,341

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National Foods Limited 2011 2010 2009
Cash flow Statement Rs in 000 Rs in 000 Rs in 000
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from / (used in) operations 650,075 (247,050) 370,714
Finance costs (128,298) (88,809) (86,263)
Income tax paid (88,606) (55,990) (81,585)
Retirement benefits obligations paid (10,707) - -
Net decrease in long term deposits 129 654 (719)
Net cash generated from / (used in) operating activities 422,593 (391,195) 202,147
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (63,625) (265,840) (76,454)
Sale proceeds on disposal of property, plant and equipment 8,868 14,171 3,368
Purchase of intangible assets (250) (7,612) (20,949)
Net cash used in investing activities (55,007) (259,281) (94,035)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase / (decrease) in lomg term financing - net 154,000 (40,000) (43,000)
Decrease in liabilities against assets subject to finance lease - net (10,155) (14,846) (12,393)
Dividend paid (49,478) (15) (205)
Net cash generated from / (used in) financing activities 94,367 (54,861) (55,598)
Net increase / (decrease) in cash and cash equivalents 461,953 (705,337) 52,514
Cash and cash equivalents at the beginning of the year (1,175,668) (470,331) (522,845)
Cash and cash equivalents at the end of the year (713,715) (1,175,668) (470,331)

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