Cost accounting of Brittania

Presentation on Marginal cost analysis of Britannia

1. Marginal Cost Analysis of Britannia Presented By: Shraddha Bhatt (A024) Jincey Jose (A009) Richa Tupsakhare (A022) 1

2. CONTENTS Britannia Industry Basic Definitions Elements of Cost Treatment of stock Cost Sheet Cost Sheet Analysis Conclusion Reference 2

3. BRITANNIA INDUSTRIES Britannia Industries Limited  is an Indian food-products corporation based in Kolkata. It is one of India’s best known brands and also one of the most admired Food Brand in the country. It  is the largest company in the food processing industry whose product range also includes breads and cakes. Britannia has a basketful of goodies with biscuits like NiceTime , Tiger, Marie Gold, 50  50,   Maska  Chaska, Milk  Bikis ,  3

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5. Basic Definitions Cost: It means the amount of expenditure incurred on a particular thing. Costing: It means the process of ascertainment of costs. Cost Accounting : It is broader than costing. Cost accounting can be defined as the technique of recording, classification, allocation, reporting and control of costs. Thus : Cost Accounting = Costing + Cost Reporting + Cost Control 5

6. Elements of Cost 6

7. Functional Classification of Indirect Overheads 7

8. Treatment of Stock 8

9. What is Cost Sheet?? It is a statement which shows various components of total cost of product. It classifies and analyses the components of cost of a products. 9

10. Division of costs 10 TOTAL COST ( COST OF SALES) OFFICE ( ADMINISTRATIONS OVERHEADS) FACTORY COST FACTORY ( WORKS OVERHEAD) FACTORY ( WORKS COST) OFFICE COST (COST OF PRODUCTION) OFFICE COST SELLING ( DISTRIBUTION OVERHEADS) PRIME COST

11. Cost Sheet for the Period: …………… Production:……………. Units Particulars  Total cost Cost per Unit (a) Direct Materials  Opening Inventory ********** Add: Purchase of Raw Materials ********** Less: Purchase Return ********** Less: Purchase Allowance ********** Less: Purchase Discount ********** Add: Freight ********** Direct Materials Available for Consumption ********** Less: Ending Inventory ********** Direct Materials Consumed ********** (b) Direct Labour ********** Direct Expenses ********** Prime Cost ********** ********** 11 (c) Factory OH or Manufacturing OH Indirect Materials ********** Indirect Labour ********** Rents and Rates (Factory) ********** Lighting and Heating (Factory) ********** Power and Fuel ********** Repairs and Maintenance ********** Depreciation of Factory Plants ********** Works Stationery ********** Payroll Taxes ********** Work Manager’s salaries ********** General Factory Overhead ********** Total Factory Overhead Cost  ********** Total MFG Cost ********** ********** Add: Work in Process (Opening) ********** Less: Add: Work in Process (Ending) **********

12. Cost of Goods Manufactured  ********** ********** Add: Finished Goods Inventory (Opening) ********** Cost of Goods Available for Sale ********** ********** Less: Finished Goods Inventory (Ending) ********** Cost of Goods Sold ********** ********** Add: Administrative Overhead Cost ********** Add: Selling and Distribution Overhead Cost ********** Total Cost or Cost of Sales ********** ********** Add: Profit (Loss) ********** Sales  12

13. COST SHEET OF BRITANNIA BREAD 13 580500

14. 14 580500 12400 24150 617050 12200 67500 5204 5890 2820 3850 56780

15. 15 154244 771294 2810 5850 8900 2570 2190 3123 294 25737

16. 16 797031 70500 10000 12798 5700 98998 896029 103971 1000000

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18. CVP Analysis Profit of business firms results from: 1) Selling Prices, 2) Volume of Sales 3) Unit Variable Cost 4) Total Fixed Cost A cost volume profit analysis is useful to management in knowing how profit is influenced by sales volume, sales price, variable expenses and fixed expenses. CVP analysis uses the techniques of Break-even analysis Profit volume (P/V) analysis 18

19. Profit/volume ratio It is the ratio of contribution over sales. It measures the profitability of the firm. P/V ratio = Contribution Sales Contribution itself is a profit since it contributes to recover the fixed cost thus we use contribution by volume and not profit by volume. 19

20. Calculation of P/V ratio Contribution margin = Sales – Variable cost = 1000000 - 810969 = 189031 P/V ratio = C ontribution * 100 S ales = 189031 *100 1000000 = 18.903 % 20

21. Break Even Analysis: It indicates at what level cost and revenue are equal and there is no profit and no loss. It will reveal the management, various effects of alternative decisions to reduce or increase price and which will increase sales volume and income 21

22. Calculation of Break Even Sales Break even sales (Units) = F ixed cost = 85060 P/V ratio 18.903 % = Rs. 449981.48 22

23. Margin of safety This is the difference between sales and break even point If the difference is relatively short, it indicates that a small drop in production/sales will reduce profits considerably and vice versa There should be reasonable MOS, otherwise the level of production may prove dangerous. 23

24. Calculation of margin of safety Margin of safety = Profit P/V ratio Margin of safety = Sales – BEP sales = 1000000 – 449981.48 = Rs. 550018.52 24

25. Overview 25 Particulars F.Y. 2011-12 F.Y. 2010-11 Fixed Cost 85060 80000 Variable Cost 810969 8,03,900 Contribution 189031 166100 Sales 1000000 970000 PV Ratio = Cont./Sales*100 18.903 % 17.124 % BEP (in Rs.) = FC/PV Ratio Rs. 449981.48 Rs, 467180.56 MOS= Total Sales – BEP Sales Rs. 550018.52 Rs. 502819.44

26. CVP Analysis for year 2011 & 2012 The % profit increase seen on year to year whereas the sales have increased, without considerable increase in expenses which indicates that the company has achieved economies of scale. With the increase in sales, the margin of safety also increased in the consecutive year so the risk factor for the company decreased because the business can still make profits even after a drop in production With the increase in contribution the P/V ratio increased for the consecutive year. 26

27. Limitations of CVP Analysis Difficult to classify fixed and variable cost accurately. Contribution cant be a guide if there is some other limiting factor. Undue Importance to marginal costs can lead to low profit & loss. Multiproduct had different contribution margins and costs. 27

28. Conclusion Britannia Bread is easily available due to its excellent distribution channels. Britannia has acquired almost 50% stake in the daily bread market. With improving P/V ratio and other parameters , the company can maintain its trend and economy. 28

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