Académique Documents
Professionnel Documents
Culture Documents
UNDER TAKEN AT
FEDERAL MOGUL GOETZ INDIA LTD
PATIALA (Punjab)
Submitted to Punjabi University Patiala in partial
fulfillment of the requirements for the degree of
Master of Business Administration
SUBMITTED TO:
PROF.DALVIR SINGH
SUBMITED BY:
JASWINDER KAUR
MBA 3RD SEM
ROLL NO.1411
ACKNOWLEDGEMENT
I hereby want to thank Federal Mougal Goetz India Ltd. and its members for their help
given to me during my training. I was thrilled to find that people here were very cooperative and helped me in all ways possible. They were very eager in solving my
queries and were ready to help all the time.
Moreover, I want to take this opportunity to thank MR. DALVIR SINGH Despite being
one of the busiest people in the bank he took out time to attend to my questions. So for
this, I want to thank him for his co-operation and knowledge that he has imparted to me.
Jaswinder kaur
DECLARATION
I, JASWINDER KAUR hereby declare that the project
entitled PRODUCT COSTING assigned to me by FEDERAL
MOGUL GOETZE (INDIA) LTD, during my 8 weeks training for
the partial fulfillment of MBA is the original work done by me and
the information provided in the study is authentic to the best of my
knowledge.
This study has not been submitted to any other institution or
university for the award of any other degree.
JASWINDER KAUR
TABLE OF CONTENTS
SR. NO.
01
PAGE NO.
ACKNOWLEDGEMENT
02
03
DECLARATION
04
INTRODUCTION
Company Profile [Goetze (India) Ltd.
05-29
03
PRODUCT COSTING
Product Costing of Goetze (India) Ltd.
04
33-80
CONCLUSION
SWOT Analysis
Findings & Suggestions
05
30-32
BIBLIOGRAPHY
81-87
88
Chapter 1
INTRODUCTION
COMPANY PROFILE
It is good to have goodwill
It is good to have enthusiasm
But it is essential to have training
Pt. J.L.Nehru
The above quoted lines by the great soul Pt.J.L.Nehru rightly tell us that training is
a very necessary part in ones life of one wants to achieve success &have proper
knowledge about a particular aspect.
Federal Mogul Goetze (India) Limited was established in 1954 as a joint venture
with Goetze-Werke of Germany.
Goetze-Werke of Germany is now owned by Federal-Mogul Corporation of USA,
a 6.3 billion company and one of the largest manufacturers of automotive
components in the world.
Federal Mogul Goetze (India) Limited is the largest manufacturer of PISTONS &
PISTON RINGS in India.
16949
certified.
Market
leaders
both in
OE
The present product range covers Piston Rings which constitute the Ring Activity
and Pistons, Piston-Pins and Circlips in Piston Activity. The company is the largest
manufacture of Piston Rings and Pistons in the country.
Over a period of time, keeping in view the nature of demand, additional capacities
were created besides upgrading technology to growing trends by virtue of stream
ling quality culture, adaptation of latest technology & equipment.
Technology leadership matched with innovated thinking has made GOETZE
products to enjoy a high degree of customer confidence and is the first choice of
every discerning customer for applications ranging from Bi-wheelers to Battle
Tanks.
Our History
1899 1940: Founded on Innovation
1941 1956: Diversifying for Success
1957 1974: Going Global
1975 2005: A Bright Future
Federal-Mogul Corporation is an innovative and diversified $6.3 billion global
supplier of quality products, trusted brands and creative solutions to the
automotive, light commercial, heavy-duty truck, off-highway, agricultural, marine,
rail and industrial markets. The 45,000 people of Federal-Mogul located in 35
countries
drive
excellence
in
all
they
do.
Companys globally networked engineering and technical centers in the U.S.,
Europe and Asia enable to bring customers breakthroughs in advanced technology
and innovation.
Federal Mogul is a premier supplier of products, services and solutions to original
equipment manufacturers that use quality components in their vehicles and
automotive systems, and to aftermarket customers who sell companys world
renowned brand-name replacement parts through repair shops and retail outlets. As
partner with a global network of suppliers whose commitment to excellence and
on-time
deliver
is
crucial
to
company
success.
For more than a century, Federal Mogul has developed the innovative products
which customers need to produce in the next generation of vehicles. FederalMogul has been creating value through innovation and leading technology for
more than 100 years. Today, the company is a key player in the global marketplace,
serving industries that range from automotive and commercial vehicles to railroad
9
10
BRAND
11
PROFILE
Federal mogul Goetze (India) Limited was established in 1954 as a joint venture
with Goetze-Werke of Germany.
Goetze-Werke of Germany is now owned by Federal-Mogul Corporation, a $6.3
billion global company and one of the leading manufacturers of automotive
components in the world.
Federal-Mogul Goetze (India) Limited is the largest manufacturer of pistons and
piston rings in India.
Production Capacity:
Turnover:
Net Profit (after tax):
Piston rings
54.96 Million
Pistons
Dec, 31st 2013
13.57 Million
INR 67253.44 Lacks
st
Dec, 31 2013
12
MILESTONES
1954 Incorporated as a JV with Goetze Werke
1957 Ring & liner production
1958 Piston production as escorts
1960
1968
1977
1982
1985
1989
1990
1992
1994
1996
1997
2001
2003
Patiala
Patiala
(Automotive Division)
(Collaboration:Mahle)
Cast iron / Forged piston
Patiala
production started
Pins / ring carrier production
Patiala
started
Piston / ring production started Bangalore
Steel rings / Large bore
Bangalore
locomotive piston
Light alloy products
Patiala
Auto thermic pistons production Bangalore
Moly coated / IKA / chrome oil Patiala
rings
Large bore rings / pistons for
Bangalore
battle tanks
Composite pistons / new ring
Bangalore
foundry
Escorts (Automotive Division) hived off into joint venture with M/S
Mahle, Germany
Goetze TP (India) Ltd. - Manufacturer of steel rings
Merger of Federal-Mogul sintered products Ltd. with Goetze (India)
Ltd.
Merger of Escorts pistons activities with Goetze (India) Ltd.
Introduction of chrome-ceramic rings
2004
2004 Technical collaboration for pistons with Federal-Mogul Corporation
13
51 %
24.5 %
24.5 %
14
Federal Mugal
24.5
Goetze india
ltd
Teikoku piston
51
24.5
EXPORT DESTINATION
Dubai
Bangladesh
Singapore
Egypt
Mauritius
U.S.A
Germany
15
Nepal
Sri Lanka
Uganda
COLLABORATIONS
A. GERMANY
Faun
Class
B. JAPAN
Yamaha
Kayaka
Mikni
C. UK
16
JCB (Goetze)
Ford
D. USA
HUGHES
E. FRANCE
Bosch
Dynapal
PRODUCT RANGE
17
Piston Rings
L manufactures a wide range of Piston Rings for Bi-wheelers, Tractors and
Passenger Cars & Jeeps, Commercial Vehicles, Locomotive Engines &
Stationery Engines.
Each Piston Ring is manufactured from raw material whose composition
hardness & microstructure are thoroughly tested to ensure the highest standard of
quality.
18
19
1420 in Piston Activity as on 31 Dec 2013. The turnover of the Patiala Plants
280.39 crores excluding Excise (combined in Ring Activity and Piston Activity)
as on 31 Dec 2013.
20
DEFENCE
Vehicles Factory, Jabalpur
f)
COMPRESSORS
Telco
g) STATIONERY ENGINES
Kirloskar Oil Engines Ltd.
Greaves Ltd.
Birla
22
Federal mogul
30
IPL
25
Shriram Piston
26
Menon
Others
11
Total
100
Federal Mogul
11
8
30
IPL
Shriram Piston
Menon
26
25
Others
23
Chapter 2
ORGANISATION
OF
FEDERAL MOGUL
GOETZE (INDIA) LTD
24
ORGANISATION GOALS
The company has laid down for itself goal of improving the value to the
customers through:
LEADERSHIP: to maintain leadership in following categories
Market share: to maintain its status as brand leaders in the country for
Piston and Piston Pins.
Product Development: to develop Piston and Piston Pins for all new
applications as identified.
Technology: modernization and upgradation of technology to the
latest improvements to meet customer requirements.
CUSTOMER SATISFACTION:
DELIVERY:
To strive to achieve 100% on time delivery as per customer
requirements
25
ORGANISATION STRUCTURE
CHAIRMAN
EXECUTIVE
DIRECT
OR
VICE
PRESIDENT
CHIEF (plant
Services)
CHIEF
(Manufacturing)
CHIEF
(Finance)
CHIEF
(Stores)
CHIEF
(Personnel)
MANAGERS
STAFF
26
ORGANISATION SET UP
The organizational set up of the following departments is studied in detail:
1. Finance Department
2. Personnel Department
3. Purchase and Store Department
4. Production Department
FINANCE DEPARTMENT
D.G.M. (Finance), Patiala who is directly responsible to Plant Head (Finance and
Accounts), one of the most reputed Functional Department in GOETZE (INDIA)
LTD. C.G.M. manage the Department and under him there are two managers, one
is Finance Manager and other is Costing Manager. The Finance Manager is
assisted by two supervisors one of these is responsible for cash and bank balances
and other is responsible for bills payable. Each supervisor is given two or three
assistants to work under him.
The amount of investment to be put in current assets like cash in hand, bank
balance, loans and advances, inventories, accrued expenses; dividends payable etc.
all are decided by Finance Department.
The realization of cash for the purpose of raw materials components and spares to
pay wages and salaries to incur day to day expenses and overhead costs, to meet
27
28
Costing:
The costing is being done for all the products manufactured at the plant. These
relate to Piston, Ring, Cylinder Liners and Light Alloy Products. The Historical
base is being followed for costing purposes.
Consumption:
Every item being received in the plant for consumption. Input is being accounted
for at the plant. The ledgers are maintained for every receipt and issue.
Operating budget:
The budget is being prepared at the start of every year. The sales plan is received
from marketing (H.O.) and according to this sale plan the budget is prepared
highlighting the projections followed
Costing, Fixed
assets & CWIP
General
Accounting
MIS Reporting
Mr. S P Singh
Chopra
Mr. Bharat
Bhushan
Mr. Ashok
Kumar
Mr. O P Ghai
Mr. Manmohan
Singh
Mr. Rabinder
Singh
Mr. Harinath
Singh
Mr. Rajnesh
Uppal
Mr. Suresh
Kumar
30
Chapter-3
SCOPE & OBJECTIVE
OF
STUDY
31
RESEARCH METHODOLOGY
The methodology used for the collection of data has been divided into two groups:
Primary Data
This data is based upon personal discussion with managers, officers and other
employees working in various sections of Finance Department, Piston Ring
Foundry Shop and Piston Ring Machine Shop.
Secondary Data
It is mainly based upon office records, Cost-sheets and other published documents
of Federal Mogul Goetz (India) Ltd., Bahadurgarh, and Patiala.
OBJECTIVES
The major objectives of present study are as follows:
Major Objectives:
To study the manufacturing process of pistons.
To calculate cost per piston.
Minor Objectives:
To study whether the firm is able to cover its cost of production.
To study whether the firm is utilizing its productive capacity efficiently.
32
33
Chapter-4
PRODUCT
COSTING
34
COSTING
It is essential to calculate the amount of expenditure (actual or notional) incurred
on or attributable to, a given thing so that the profit objective of producing it can be
determined.
Costing is the process of ascertaining the cost of activities, processes, products or
services. Cost accounting is the classifying, recording and appropriate allocation of
expenditure for the determination of cost of products or services and for the
presentation of suitably arranged data for purposes of control and guidance of
management. It includes the ascertainment of the cost of every order, job, contract,
processes, services or unit as may be appropriate. It deals with the cost of
production, selling and distribution. It is thus the provision of such analysis and
classification of expenditure as will enable the total cost of any particular unit of
production or services to be ascertained with reasonable degree of accuracy and at
the same time to disclose exactly how much total cost is constituted (i.e. value of
material used, amount of labour and other expenses incurred) so as to control and
reduce its cost. Thus, cost accounting relates to the collection, classification,
ascertainment of cost and control relating to the various elements of cost. It
establishes budgets and standard costs and actual cost of operations, processes and
departments.
35
PLANNING
In planning, the management is concerned with laying down of objectives and
determining the courses of actions to be followed out of the several alternatives
available to achieve those objectives. Planning is thinking in advance, thus costing
provides the management tools to set targets and determining the course of actions.
DECISION MAKING
Management has to take multiple types of decisions. All rational decisions are
based on accounting information. Costing helps the management to take different
types of decisions like
Fixation of prices
Whether or not price should be reduced for increasing level of sales
Whether the change in production is followed
Determination of most profitable levels of production
Whether the product should be exported or not
36
CONTROLLING
Controlling is that par of management activity where by managers compare actual
performance against the planned performance, find out the deviations and take
remedial steps to remove the deviations to make an improvement in performance
because promptness is the essence of an effective control.
Other ways by which costing helps the management are
classification and subdivision of costs
control of materials, labour and overhead costs
business policies
budgeting
standards for measuring efficiency
best use of limited resources
instrument of management control
cost audit
social factors
price determination
expansion
37
TYPES OF COST
Total cost
The total cost curve, if non-linear, can represent increasing and diminishing
marginal returns.In economics, and cost accounting, total cost (TC) describes the
total economic cost of production and is made up of variable costs, which vary
according to the quantity of a good produced and include inputs such as labor and
raw materials, plus fixed costs, which are independent of the quantity of a good
produced and include inputs (capital) that cannot be varied in the short term, such
as buildings and machinery. Total cost in economics includes the total opportunity
cost of each factor of production as part of its fixed or variable costs.
The rate at which total cost changes as the amount produced changes is called
marginal cost. This is also known as the marginal unit variable cost.
Fixed cost
Decomposing Total Costs as Fixed Costs plus Variable Costs. Along with
variable costs, fixed costs make up one of the two components of total cost: total
cost is equal to fixed costs plus variable costs.
38
In economics, fixed costs, indirect costs or overheads are business expenses that
are not dependent on the level of goods or services produced by the business.They
tend to be time-related, such as salaries or rents being paid per month, and are
often referred to as overhead costs. This is in contrast to variable costs, which are
volume-related (and are paid per quantity produced).
Variable cost
Variable costs are costs that change in proportion to the good or service that a
business produces Variable costs are also the sum of marginal costs over all units
produced. They can also be considered normal costs. Fixed costs and variable costs
make up the two components of total cost. Direct costs, however, are costs that can
easily be associated with a particular cost object. However, not all variable costs
are direct costs. For example, variable manufacturing overhead costs are variable
costs that are indirect costs, not direct costs. Variable costs are sometimes called
unit-level costs as they vary with the number of units produced.
Direct labor and overhead are often called conversion cost, while direct material
and direct labor are often referred to as prime cost. In marketing, it is necessary to
know how costs divide between variable and fixed. This distinction is crucial in
forecasting the earnings generated by various changes in unit sales and thus the
financial impact of proposed marketing campaigns. In a survey of nearly 200
senior marketing managers, 60 percent responded that they found the "variable and
fixed costs" metric very useful.
39
Average cost
In economics, average cost or unit cost is equal to total cost divided by the
number of goods produced (the output quantity, Q). It is also equal to the sum of
average variable costs (total variable costs divided by Q) plus average fixed costs
(total fixed costs divided by Q). Average costs may be dependent on the time
period considered (increasing production may be expensive or impossible in the
short term, for example). Average costs affect the supply curve and are a
fundamental component of supply and demand.
41
Conversely, if the firm is able to get bulk discounts of an input, then it could have
economies of scale in some range of output levels even if it has decreasing returns
in production in that output range.
In some industries, the LRAC is always declining (economies of scale exist
indefinitely). This means that the largest firm tends to have a cost advantage, and
the industry tends naturally to become a monopoly, and hence is called a natural
monopoly. Natural monopolies tend to exist in industries with high capital costs in
relation to variable costs, such as water supply and electricity supply.
Long run average cost is the unit cost of producing a certain output when all inputs
are variable. The behavioral assumption is that the firm will choose that
combination of inputs that will produce the desired quantity at the lowest possible
cost.
1. The Average Fixed Cost curve (AFC) starts from a height and goes on declining
continuously as production increases.
2. The Average Variable Cost curve, Average Cost curve and the Marginal Cost
curve start from a height, reach the minimum points, then rise sharply and
continuously.
3. The Average Fixed Cost curve approaches zero asymptotically. The Average
Variable Cost curve is never parallel to or as high as the Average Cost curve due to
the existence of positive Average Fixed Costs at all levels of production; but the
43
Average Variable Cost curve asymptotically approaches the Average Cost curve
from below.
4. The Marginal Cost curve always passes through the minimum points of the
Average Variable Cost and Average Cost curves, though the Average Variable Cost
curve attains the minimum point prior to that of the Average Cost curve.
44
Cost curve
In economics, a cost curve is a graph of the costs of production as a function
of total quantity produced. In a free market economy, productively efficient
firms use these curves to find the optimal point of production (minimizing
cost), and profit maximizing firms can use There them to decide output
quantities to achieve those aims.
45
will select the combination of inputs that will produce a given output at the lowest
possible cost. Given that LRAC is an average quantity, one must not confuse it
with the long-run marginal cost curve, which is the cost of one more unit. The
LRAC curve is created as an envelope of an infinite number of short-run average
total cost curves, each based on a particular fixed level of capital usage. The typical
LRAC curve is U-shaped, reflecting increasing returns of scale where negativelysloped, constant returns to scale where horizontal and decreasing returns (due to
increases in factor prices) where positively sloped. Contrary to Viner, the envelope
is not created by the minimum point of each short-run average cost curve. This
mistake is recognized as Viner's Error.
47
48
the production function. Because the production function determines the variable
cost function it necessarily determines the shape and properties of marginal cost
curve and the average cost curves.
If the firm is a perfect competitor in all input markets, and thus the per-unit prices
of all its inputs are unaffected by how much of the inputs the firm purchases, then
it can be shown that at a particular level of output, the firm has economies of scale
(i.e., is operating in a downward sloping region of the long-run average cost curve)
if and only if it has increasing returns to scale. Likewise, it has diseconomies of
scale (is operating in an upward sloping region of the long-run average cost curve)
if and only if it has decreasing returns to scale, and has neither economies nor
diseconomies of scale if it has constant returns to scale. In this case, with perfect
competition in the output market the long-run market equilibrium will involve all
firms operating at the minimum point of their long-run average cost curves (i.e., at
the borderline between economies and diseconomies of scale).
If, however, the firm is not a perfect competitor in the input markets, then the
above conclusions are modified. For example, if there are increasing returns to
scale in some range of output levels, but the firm is so big in one or more input
markets that increasing its purchases of an input drives up the input's per-unit cost,
then the firm could have diseconomies of scale in that range of output levels.
Conversely, if the firm is able to get bulk discounts of an input, then it could have
economies of scale in some range of output levels even if it has decreasing returns
in production in that output range.
Relationship between different curves
49
o
o
o
50
residual life of the asset. If by investing 10% more per annum in maintenance costs
the asset life can be doubled, this might be a worthwhile investment.
Other issues which influence the lifecycle costs of an asset include:
site conditions,
historic performance of assets or materials,
effective monitoring techniques,
appropriate intervention strategies.
allocated so that the cost of products and services may be accurately ascertained,
these costs may be related to sales and profitability may be ascertained. Yet with
the development of business and industry, its objectives are changing day by day.
The following are the main objectives are cost accounting:
To ascertain the cost per unit of the different products manufactured by a
business concern.
To provide requisite data and serve as a guide to price fixing of products
manufactured or services rendered.
To ascertain the profitability of each of the products and advice the
management as to how these profits can be maximized.
To exercise effective control of stocks of raw materials, work-in-progress,
consumables stores and finished goods in order to minimize the capital locked
up in these stocks.
To advice management on future expansion policies and proposed capital
projects.
To help in the preparation of budgets and implementation of budgetary control.
To guide management in the formulation and implementation of incentive
bonus plans based on productivity and cost saving.
To organize cost reduction programs with the help of different departmental
managers.
Broadly speaking, the above objectives can be re-grouped under the following
three heads:
52
(1) Ascertainment and analysis of cost and income by product, function and
responsibility.
(2) Accumulation and utilization of cost data for control purposes to have the
minimum possible cost consistency with maintenance of quality. The objective
is achieved through fixation of targets, analysis of reasons of deviations
between actual and targets and reporting deviations to the management for
taking corrective action.
(3) Providing useful data to the management for taking decisions.
53
Charge of cost only after its incurrence : Unit cost should include only
those costs, which have been actually incurred. For example, unit cost
should not be charged with selling cost while it is still in factory.
Cost accounting should ignore the convention of prudence : Cost
accounting statements should give the factual picture of profitability of the
project. If some contingencies need to be made, it should be shown
distinctly and separately.
Past cost should not form part of future costs : Past cost (which could not
be recovered in past) should not be recovered from future cost as it will not
only affect the true results of future periods but will also distort other
statements.
55
Management should have a faith in the Costing System and should also
provide a helping hand for its development and success.
METHODS OF COSTING
JOB COSTING
It is the form of specific order costing where work is undertaken on customers
special requirements. Each order is of comparatively shorter duration, each job is
unique in nature with specific start and finish of the manufacturing process.
CONTRACT COSTING
It is form of specific order costing where construction work is undertaken on
customer specifications. It is of longer duration, and project in nature.
BATCH COSTING
It is that form of specific order costing, which applies where similar articles are
manufactured in batches either for sale or used within the undertaking.
PROCESS COSTING
It is that form of costing where standardized products are produced on a continuous
basis.
Modern industries are conducting in highly competitive conditions. In these days,
it is absolutely necessary that a business concern should conduct its activities with
56
maximum efficiency. The manufacturer should always try to introduce his products
in the market at competitive rates. This object can be achieved by installing the
effective costing system. There is no readymade costing system applicable to all
industries; the costing system should be modified in such a way as to suit the
special requirements of an industry
57
Cost Sheet
Cost sheet is a statement designed to show the output of a particular accounting
period along with breakup of costs. The data incorporated in cost sheet is collected
from various statement of accounts, which have been written in cost accounts,
either day to day or regular records.
There is no fixed form for preparation of cost sheet but in order to make the
cost sheet more useful it is generally presented in columnar form. The columns are
for the total cost of current period and cost per unit. The information to be
incorporated in cost sheet would depend upon the requirement of management for
the purpose of control.
Cost sheet is a memorandum statement. Therefore, it does not form part of
double entry cost accounting records. In spite of this, the relationship between cost
sheet and financial accounts, which are maintained on double entry system, is very
important as cost sheet derives its data from financial accounting. In case,
predetermined rates are not used, the entire data required for preparation of cost
sheet is derived from financial accounting. Therefore, periodically it becomes
necessary to reconcile the information obtained from cost accounting and financial
accounting separately.
58
Costing of pistons
PRODUCT (PISTONS)
Piston is a component produced by the company and it is a very important spare
part of all the automobiles.
FUNCTIONS OF A PISTON:
1. To convert chemical energy of fuel into mechanical energy.
2. It develops power, which is converted from reciprocating motion to rotary
motion.
3. It acts as a carrier of piston rings i.e. It forms a movable gas tight plug,
which in turn is required to seal the gases escaping from piston crown down
to the crankcase.
4. It transmits the force of explosion to the connecting rods.
5. It forms a guide and bearing to the small end of the connecting rod and takes
the side trust due to obliquity of the rod.
MANUFACTURING PROCESS:
DEPARTMENTS
Goetze (I) Limited (Piston division) has the following sections:
PISTON FOUNDRY SHOP:The first step in the manufacturing of piston is the casting of
piston . This operation is carried out in piston foundry shop.
59
PIN PLANT :In this section, piston pins for all types of pistons are made with
the state of the art machinery.
FORGE PLANT :In this section, forged pistons are manufactured as per the specific
requirements of Telco.
CENTRAL TOOL ROOM :The tool room facility has the following functions:
It supports tooling requirement of various plants.
It manufactures new machines in its machine vuilding section.
It renovates the worn out machines and its components.
60
As a world leader in the piston manufacturing, Goetze (India) Limited has adopted
aluminium as a base metal for manufacturing pistons because of its many
advantages over cast iron chief being light weight high thermal conductivity and
corrosion resistance. Although aluminium costs much more than steel because of
its light weight, yet it is cheaper per unit volume. Other metals comprising the
alloy are silicon, nickel, copper and magnesium. Piston foundry is the shop where
aluminium alloys are prepared and casted into rough blanks which are machined
and surface treated to form final product piston in the machine shop ready to be
fitted in the engine block. Machining and other processes are carried out in
different shops. Piston foundry comprises of following main sections:
workstation also has die casting machines. The type of the machines
depends upon the piston diameter and number of dies used at a time. Like
the machine MG-9C is used for producing bigger diameter pistons (80 to
116mm) with a single die whereas machine MG-17 is used for smaller
pistons with diameter 60mm and uses two dies. Similarly MG-11 and MG-7
are used for medium pistons and use one or two dies.
FETTLING:In this section runners and risers and gating systems are
removed with the help of the cutters. These cutters are mounted on top of the
machines. Even semi-skilled workers can operate these machines. Sharp
edges and burns are filed at the table area.
INSPECTION:In this section important parameters are checked for each piston
like diameter, size, grooves and especially hardness.
62
PRODUCT LINES:There are around ten lines arranged in the product layout i.e.
blanks are fed into the first machine and finished pistons are obtained at the
end of the line. Planning and manufacturing is done batch wise. The
machine set up and inspection gauges are carried out lot wise or batch wise
for each machine. First line is used for pistons upto 100mm diameter. For
the pistons above 100mm of diameter next line is used. Third line is
exclusively for TATA pistons. Next two lines are of bi-wheelers and next two
lines are exclusively for MARUTI. Rest lines can be used for other piston
types. In each line similar type of machines are arranged, more or less in the
same sequence as the basis process is same across all the lines.
64
65
=.152 kgs
= {final weight * m/c scrap}/{(100-m/c scrap)/100}
= {0.090* 8%)/0.92
= 0.008 kgs
= Rs. 104.85 /kg
= Gross weight recovery
= .152-.008
= .144 kgs
= NAR * alloy rate
= .144 * 104.85
= Rs. 15.10 per piston
Scrap
Aluminium scrap
M/c scrap
= 8%
66
Slag ash
= 13.52%
= Rs. 15.44
= NAR * slag ash % * rate
= .144* 13.52% * 15.44
= Rs. 0.30
Total Scrap
67
Rate per kg
Stores per piston
2.Diesel
Rate per kg
Diesel per piston
68
3.Oil
Rate per kg
Oil per piston
4.Maintenance
Line
losses
Comp
Air
Energy
0-175 gms
Kwh
6.720
0.340
0.221
0.300
0.032
0.034
176-350gms
Kwh
5.250
0.340
0.221
0.290
0.032
0.034
351-525gms
Kwh
5.090
0.340
0.221
0.280
0.032
0.034
Above 526gms(NRC)
Kwh
3.380
0.340
0.221
0.280
0.032
0.034
Above 526gms(RC)
Kwh
4.110
0.340
0.221
0.280
0.032
0.034
Variable
Fixed
Misc
Cateen
Centralised
services
Fdy Castin g
weight
Total
69
5.Dies cost
= {no. of blanks per piston*cost of die}/life of a
die
= {1.121* 160000}/200000
=Re. 0.90
Power rate
Power cost
=6.777 units
=power units* blank weight/{(100-m/c scrap)/100}
=6.777* 0.130/0.92
=0.958 units
=Rs. 4.70 per unit
=power per piston* power rate
=0.958* 4.70
=Rs. 4.50
Compressor Cost:
Total cost
=Rs.2147552
Total transfer
=2097261 kgs
Transfer cost per piston
=Rs.1.024
Total cost per piston =1.024* 0.130/.92
=Re. 0.14
TOTAL POWER COST
=4.50+ 0.14
=Rs. 4.64
70
7.Personnel cost
Foundry Personnel
cost (2008)
Month
Melting
Casting&
Solutionizin
16813532
1474810
Cutting
46577434
4085569
(T-6)
1870144
164041
18288342
50663003
2034185
12
Total Cost Worker Rs.
Total Cost Manager/Supervisor/Staff
TOTAL COST
MGR+SUP+GET/DET+CL
Wt. R/R
Basis
2891293.57
Rate
6.325
No Of
SHIFTS
REQUIRED
PER
ANNUAM
26198.68
RATE PER
SHIFT
MELTING RS
1933.8
No Of Blanks
(T-6)
4750084.00
0.428
71
= Re.1.36
Casting rate
manpower cost of casting/no. of castings per shift
= total
= 50663003/26198.68
=Rs. 1933.80
Average casting
Per day
=411*80%
=329 castings
Shifts per piston
=1.121/329
=.00341
Personnel rate
=1933.80*.00341
=Rs.6.59
Heat treatment
Rate
=total personnel cost of heat/ total hrs.
=2008873/25818.95
=Rs.77.806
2000 pistons are given heat treatment at a time which takes 5.5 hrs.
72
8. Depreciation
Foundry dep.
=Rs.4883914
Power units
=9566731 units
Dep Rate per unit
dep/ power units
=foundry
=4883914/9566731
=Re. 0.511
Power per piston
units* blank wt. / {(100- m/c scrap)/100}
=power
=6.777*.130/.92
73
=0.958 units
Depreciation cost = dep rate per unit* power per piston
= 0.511*.958
= Rs.0.49
=728000/89842.04
=Rs. 8.1/ hr
Cost per piston = (spares per hr* gross m/c time)/ 60
=8.1*14.13/60
=Rs. 1.91
2) Oil
74
=4.85*14.13/60
=Rs.1.142
3) Maintenance
Total cost of maintenance on:
Manpower
=Rs. 726300
Tools
=Rs. 523000
Repairs
=Rs. 1651500
Spares
=Rs. 5424080
Total cost
Total hrs
=Rs.7598580
=1043054.5 hrs
Fixed cost
=48.88%
=14.245*48.88%
=Rs 6.962
=6.962*14.13/60
=Rs 1.64
75
Variable cost
=14.245-6.962
=Rs 7.28
4) Tools cost
5) Power
Annual machine hrs
76
=25.58*14.13/60
=Rs. 6.02
77
EFFICIENCY BONUS:
Bonus is calculated as a percentage on the personnel cost.
Personnel cost of foundry=Rs. 4.712
EB
=21.43% of foundry cost
=Rs. 1.01
Personnel cost of
machine shop
=Rs. 18.369
EB
=16.52% of machine cost
=RS. 3.034
Total EB
=1.01+ 3.034
=RS. 4.044
INSPECTION COST:
Personnel cost of workers=Rs.9382044
Personnel cost of managers=Rs.14092025
%age of managers to workers cost
=150.20%
Total target/day
=4290792 pistons
Overhead cost
=150% of cost of workers of bi-wheelers
=150% of 7823016
=Rs. 11750170
78
Total Cost
TOTAL COST
CORPORATE COST
COST SHEET
79
VARIABLE
15.12
4.275
10.83
5B1-E1631-00-P
54
.185 KGS
.130 KGS
.137 KGS
.043 KGS
13.70 MIN
COST (RS.)
FIXED
TOTAL
15.12
4.275
10.83
1.092
0.872
0.068
1.26
0.90
4.63
8.822
8.43
0.49
7.94
1.092
0.872
0.068
1.26
0.90
4.63
8.43
0.49
16.762
29.33
1.91
1.14
1.71
0.57
1.53
29.33
1.91
1.14
1.71
0.57
1.53
80
DDEPRECIATION
SUB TOTAL(MACHINE SHOP COST)
EFFICIENCY BONUS
PRIME COST
INSPECTION COST
P & A COST
PACKING COST(PRIMARY & SECONDARY)
TOTAL COST
CORPORATE AND INTEREST COST
TOTAL COST PER PISTON
6.86
4.044
27.159
1.03
28.189
28.189
6.02
35.35
32.429
4.56
4.10
0.73
41.819
14.0016
55.82
6.02
42.21
4.044
59.588
4.56
4.10
1.76
70.008
14.0016
84.01
Chapter-5
CONCLUSION
81
SWOT ANALYSIS
STRENGTH
Few competitors.
WEAKNESSES
82
OPPORTUNITIES
With the coming of MNCs in automobile sector like DAEWOO Volkswagen,
BMW, Ford the demand for production has increased the scope of ready
markets. Also scope for further expansions in production of existing products
and some new products has increase as they have wide network.
High export of opportunities.
THREATS
With the coming of MNCs, the demand for higher technology product is the
matter of concern.
83
methodology because the manufacturing process of all pistons is more or less same
only the type of alloy and machining time are different at foundry and machine
shop stage respectively. In the foundry, blank weight is taken as the parameter for
the absorption cost while at machine shop, machining time per ring is taken as
absorption parameter. Using these two parameters, the conversion cost at foundry
and machine shop stages are obtained, this along with other overheads gives us the
total cost for a given ring.
However, it would be appropriate to mention here that the manufacturing
process is carried out in batches. Therefore, the costing methodology should trace
cost batch wise for arriving at cost per piston. Hence, batch-costing methodology
could be adopted.
84
Proportionality:
The conversion cost whether at foundry or machine shop have been
Machining time:
85
In calculating the total machined hours line wise, the company considers
total number of pistons produced in that line and the time per ring produced in that
line.
In calculating the no. of pistons produced, it considers not only good pistons
but also the scrapped ones. These scrapped rings might be generated at the initial,
middle or at the end stages of the line. Therefore, the time spent on each of this
scrapped pistons would be different. However the company loads the scrapped
pistons with the same time. This may unnecessarily leads to a larger time per line
and accordingly affects the allocation of the cost.
Cost of production:
Cost of production must be reduced so that company can face competition in
the market and can reduce its prices. For example, in case of piston ring for
Yamaha, cost of production per ring is Rs. 100.47. But, its selling price is Rs. 92
per ring. I.e., company is suffering due to price less than the cost. Thus, the
company should try to reduce its cost of production.
Budgeting:
The company has adopted incremental approach for the preparation of its
86
The company may use Zero Base Budgeting as a managerial tool where
taking zero as a base, a budget is developed on the basis of likely activities for the
future period.
Capacity utilization:
Earlier before the year 2003, the utilized capacity for production was 92%, but for
the year 2003-2004, the company has proposed to utilize 70% of installed capacity.
The company should try to utilize more and more of installed capacity so as to
reduce cost of production.
87
BIBLIOGRAPHY
Cost Accounting by S.P. Jain, K.L. Narang, Kalayani Publishers
Cost Accounting Theory and Problems by S.N. Maheshwari, S.N.
Mittal, Shree Mahavir Book Depot
Cost Accounting Study Material Board of Studies, The Institute of
Chartered Accountants of India
www.goetzeindia.com
Annual Reports Of FMGL
88