Cost of production

The topic of our presentation is Cost of production. So, we have come to know that how the firm is working systematically with all its process and methods .The firm has different units to the production of dairy products, which has its own automatic machines for its output. we discovered that the functioning of each product is very smoothly which is easier for the production incharges to put the tags ,logos ,prices and detailing on the packaging. The manager of the dairy firm had practically explained and showed the graphical data from 2015-20 about the revenue ,profits ,losses ,expenses and investment, expenditure . the manager had also said that how these were ranging and how the firm got their product familiar and popular to their consumer. As their product were reaching at the maximum level, their TRP got high through the consumer’s taste and preference. 

1. COST OF PRODUCTION PRESENTED BY - ANUJ A TIGGA(28), KAKOLI BHAKAT(29), CHANDRIKA KUMARI(55), ROSHAN DASH(63), REETIKA RATH(82)

2. INDEX  Acknowledgement  Introduction  Cost  Abstract (Firm Illustration)  Cost Of Production  Product Details  Graph & Explanation  Revenue  Profit  Conclusion  Bibliography

3. ACKNOWLEDGEMENT We would like to express our special thanks of gratitude to our professor Dr. Bibhunandini das who gave us the golden opportunity to do this wonderful project of Managerial Economics on “ COST OF PRODUCTION ”, Who also helped us in completing us project. We came to know about so many new things we are really thankful to her.

4. The topic of our presentation is Cost of production. So, we have come to know that how the firm is working systematically with all its process and methods .The firm has different units to the production of dairy products, which has its own automatic machines for its output. we discovered that the functioning of each product is very smoothly which is easier for the production incharges to put the tags ,logos ,prices and detailing on the packaging. The manager of the dairy firm had practically explained and showed the graphical data from 2015-20 about the revenue ,profits ,losses ,expenses and investment, expenditure . the manager had also said that how these were ranging and how the firm got their product familiar and popular to their consumer. As their product were reaching at the maximum level, their TRP got high through the consumer’s taste and preference.  introduction

5. COST 1.What is the definition of cost production? explain briefly and thoroughly? The cost of production is mainly defined that the price of an object or condition is determined by the sum of the cost of the resources that went into making it. The cost can be briefly comprises as: Labour Capital Land Taxation The two main type of cost of production. The two main types of cost of production are mentioned below & they are: Explicit cost: It is the opportunity cost of purchasing input from the market, is known as an explicit cost. Implicit cost: it is the opportunity cost of using self owned inputs Examples of the cost are mentioned below Wages paid to the workers & payment of electricity bills (explicit cost)

6. Estimated rent on entrepreneur's own building & estimated interest on entrepreneur's own capital. The sub main types of cost of production are to be briefly explained Fixed cost Fixed cost are the cost related to the use of fixed factors of production .Principal component of fixed costs are to the point mentioned below & they are: • Expenditure on machine & plan • Expenditure on land & building • License fee • Wages & salaries of permanent staff

7. Illustrative concept of fixed cost Briefly indicates that fixed costs remains constant at all levels of output. when output is zero unit, fixed cost is 10 rupee. when it increase to 2 to 4 or 6 unit, even then total fixed cost is rupee 10. Diagrammatically of Total Fixed Cost Unit of Output Total fixed cost 10 1 10 2 10 3 10 4 10 5 10 6 10 Output (Units) Total Fixed Cost

8. VARIABLE COST Variable cost refer to the expenditure incurred by the procedure on the use of variable factor of Production. Principal component of variable cost are clearly mentioned below & these are: Cost of raw material Wages of casual worker Expenses on electricity Wear & tear expenses

9. Illustrative concept of variable cost State by showing that as the output increases, total variable cost also increases. when output is zero, total variable cost is also zero Unit of output Total Variable Cost 1 10 2 18 3 24 4 26 5 32 6 38 Diagrammatically of Total Variable Cost Output (unit) Total Variable Cost

10. Average cost Average cost is the cost per unit of output produced. It is also called unit cost of production. Derivation of average cost 𝐴𝐶= The total cost of producing 6 unit of a commodity is ₹ 48. = ₹ =₹8   Fixed and variable component of average cost Average cost is the sum total of average fixed cost and average variable cost AC=AFC+AVC Average fixed cost is the fixed cost per unit of output. Formula as: 𝐴𝐹𝐶=  

11. Illustrative concept of AFC This table briefly states that when 1 unit is produced, the average fixed cost is ₹10 when ₹5 units are produced the average fixed cost is ₹2. average fixed cost goes on diminishing as output increase. Output (units) Total Fixed Cost ( ₹) Average Fixed Cost (10) 1 10 10 2 10 5 3 10 3.3 4 10 2.5 5 10 2 6 10 1.67 7 10 1.43 8 10 1.25 Diagrammatically of Average Fixed Cost Average Fixed Cost ( ₹)

12. Average Variable Cost average variable cost is the variable cost per unit of output. Formula as : AVC =   ILLUSTRATIVE CONCEPT OF AVC Output (units) Total Variable Cost Average Variable Cost 1 10 10 2 18 9 3 24 8 4 28 7 5 32 6.4 6 38 6.3 7 46 6.6 8 62 7.7 Average variable Cost Output (units) Average Variable Cost

13. Marginal Cost marginal cost is the additions to total cost due to the addition to total cost due to the addition of one unit of output. Formula as: MCn =TCn-TCn-1 Or MC=   Illustrative concept of marginal cost Output (units) Total fixed cost Total variable cost Total cost Marginal cost 10 10 - 1 10 10 20 10 2 10 18 28 8 3 10 24 34 6 4 10 28 38 4 5 10 32 42 4 6 10 38 48 6 7 10 46 56 8 8 10 62 72 16 Diagrammatically of Marginal Cost Output (units) Marginal Cost

14. ABSTRACT The present study was conducted at a cooperative milk plant having the capacity of 1.1 lakh Litre/day (LPD). The investigation was carried out to study the cost and return of manufacturing different dairy products and to analyse the breakeven point. During the study it was found that total production of Ghee, Dahi , skimmed milk powder, double tonned milk, full cream milk in the study period were 600109kg, 614790 cups,1688150, 1328259 litre and 168253.50 litre respectively. The cost of manufacturing was found to be ₹ 333.30 per kg for ghee, ₹ 10.35 per unit for dahi , ₹ 221.21 per unit for ₹ 223.70 per kg for skimmed milk powder, ₹ 29.39 for double tonned milk, ₹ 36.48 per litre for standardized milk and, ₹ 43.12 per litre for full cream. Break-Even level of Standardized Milk, DTM, SMP, Dahi , FCM, Salted Lassi, Ghee and Paneer were found to be 2.11 crore litre, 1.05 crore litre, 1.57 crore kg, 48.91 lakh cups, 16.81 lakh litre, 54.136 lakh kg, and 1.25 lakh kg, respectively.

15. S.no Component S.No Component 1 Raw material 9 House keeping 2 Electricity 10 Depreciation on building 3 Water 11 Depreciation on equipment and machinery 4 Steam 12 Expenditure on manpower 5 Refrigeration 13 Quality control 6 Repair and maintenance 14 Interest on plant equipment and machinery 7 Store and stationary 15 Milk and milk solid losses 8 Packing material 16 Miscellaneous expenses

16. TR = TC …….. (1) P × Q = TFC + (AVC × Q) ……... (2) P × Q – (AVC × Q) = TFC …….... (3) (P – AVC) × Q = TFC …….... (4) Q = TFC ….…... (5) Formula estimation Where, TR = Total revenue, TC = Total cost, P = Price of the product Q = Break- even output TFC = Total fixed cost and AVC = Average variable cost Estimation Procedure Total cost was estimated by considering fixed cost and variable cost involved in manufacturing of various products which is represented by: Total cost = Total Fixed Cost + Total Variable Cost Fixed costs Fixed costs are those costs which do not vary with the level of production. Following costs were categorized under fixed costs of the plant.

17. DTM Double toned milk Total production of DTM in the study period was 1328259 litre . Cost of manufacturing DTM was found to be ₹ 29.39 per litre . Share of fixed cost and variable cost in total cost was 7.21% and 92.79%, respectively. Supervision and administration, steam and refrigeration shares 6.71%, 1.16% and 1.39% of the total cost. The share of raw material, packaging and processing was found to be 85.67% , 2.29% and 12.04% , respectively. Major cost component of DTM is shown below Component wise cost of DTM COMPONENT OF COST UNIT COST (₹/LITRE) COST % Raw material 25.17 85.67 Labour 0.14 0.49 Electricity 0.10 0.35 Water 0.02 0.05 Steam 0.34 1.16 Refrigeration 0.41 1.39 Sundries 0.35 1.19 Quality Control 0.06 0.20 Packaging Material 0.67 2.29 Supervision & Administration 1.97 6.71 Depreciation & Interest 0.15 0.50 Total Cost 29.39 100.00

18. Standardized milk Total production of standardized milk in the study period was 2328443 litre . cost of manufacturing standardized milk was found to be ₹ 36.48 per litre . share of fixed cost and variable cost in total cost was 4.19% and 95.81%, respectively. supervision and administration, and refrigeration shares 3.76%, 1.10 % of the total cost. the share of raw material, packaging and processing was found to be 91.91% , 1.85% and 6.24% respectively.

19. Full cream milk T otal production of full cream milk in the study period was 168253.50 litre . reveals that cost of manufacturing full cream was found to be ₹ 43.12 per litre . share of fixed cost and variable cost in total cost was 5.58% and 94.42% , respectively. supervision and administration, and labour shares 4.58%, 1.22 % of the total cost. the share of raw material, packaging and processing was found to be 90.00%, 2.00% and 8.00% respectively Component of cost Unit cost ( litre ) Cost % Raw material 38.72 89.80 Labour 0.53 1.22 Electricity 0.02 0.04 Water 0.02 0.04 Steam 0.33 0.77 Refrigeration 0.40 0.93 Sundries 0.01 0.03 Quality control 0.02 0.05 Packaging material 0.67 1.56 Supervision & administration 1.97 4.58 Depreciation & interest 0.43 1.00 TOTAL COST 43.12 100.00

20. Paneer T he total quantity of paneer produced during the study period was 100882 kg. reveals that the cost of production of paneer turned out to be ₹ 205.09 per kg. The contribution of total fixed cost and total variable cost to the total cost were 2.07% and 97.93%, respectively. in the total cost, processing cost was 5.00% , packaging cost was 1.00% and raw material contributed 94.00% . in total cost, the labour cost contributed 1.39% , supervision and administration contributed 1.28%. the shares of steam, depreciation on equipments and buildings and interest on loans, electricity and sundries were also significant. Component of cost Unit cost ( litre ) Cost % Raw material 192.64 93.93 Labour 2.85 1.39 Electricity 0.58 0.28 Water 0.02 0.01 Steam 0.43 0.21 Refrigeration 0.22 0.11 Sundries 0.14 0.07 Quality control 3.15 1.54 Packaging material 0.81 0.40 Supervision & administration 2.63 1.28 Depreciation & interest 1.62 0.79 TOTAL COST 205.09 100.00

21. Ghee total production of ghee in the study period was 600109 kg. reveals that cost of manufacturing ghee was found to be ₹ 333.30 per kg. share of fixed cost and variable cost in total cost was 1.30% and 98.70%, respectively. sundries and supervision and administration contributed 1.29% and 1.17% , respectively. the share of raw material, packaging and processing was found to be 96.00%, 1.00% and 3.00% respectively Components of cost Unit cost (litre) Cost % Raw material 320.00 96.01 Labour 2.00 0.60 Electricity 0.64 0.19 Water 0.03 0.01 Steam 0.85 0.25 Refrigeration 0.89 0.27 Sundries 0.24 0.07 Quality control 4.31 1.29 Packaging material 3.91 1.17 Supervision & administration 0.43 0.13 Depreciation & interest 333.30 100.00 TOTAL COST 320.00 96.01

22. Dahi Total production of Dahi in the study period was 614790 cups. Cost of manufacturing Dahi was found to be ₹ 10.35/unit. Share of fixed cost and variable cost in total cost was 9.00% and 91.00% respectively. Labour and supervision and administration contributed 6.03% and 5.28%. The share of raw material, packaging and processing was found to be 57.69% , 21.77% and 20.54% respectively. Component of cost Unit cost ( litre ) Cost % Raw material 5.97 57.69 Labour 0.62 6.03 Electricity 0.19 1.84 Water 0.00 0.05 Steam 0.05 0.51 Refrigeration 0.04 0.40 Sundries 0.27 2.58 Quality control 0.01 0.09 Packaging material 2.25 21.77 Supervision and administration 0.55 5.28 Depreciation and interest 0.39 3.78 TOTAL COST 10.35 100.00

23. SKIMMED MILK POWDER Total production of skimmed milk powder in the study period was 1688150 kg. Cost of manufacturing SMP was found to be ₹ 223.70 per kg. Share of fixed cost and variable cost in total cost was 1.71% and 98.29%, respectively. Electricity and supervision and administration shares 1.02% and 1.31% of the total cost. The share of raw material, packaging and processing was found to be 95.23%, 0.70% and 4.00%, respectively shows the component wise cost of manufacturing skimmed milk powder. Component of cost Unit cost ( litre ) Cost % Raw material 213.03 95.23 Labour 0.28 0.13 Electricity 2.27 1.02 Water 0.00 0.00 Steam 1.27 0.57 Refrigeration 0.31 0.14 Quality control 0.07 0.03 Sundries 1.07 0.48 Packaging material 1.57 0.70 Supervision and administration 2.92 1.31 Depreciation and interest 0.90 0.40 TOTAL COST 223.70 100.00

24. REVENUE GENERATED BY DIFFERENT DIARY PRODUCTS IN THE PLANT Product Total sales Price at dock Revenue Percent share Paneer 100600.00 235.00 23641.00 6.12 Ghee 442180.00 369.00 163164.42 42.22 Dahi 593082.60 63.80 37838.67 9.79 SMP 2625.00 240.00 630.00 0.16 Standardized Milk 2328442.50 38.00 88480.82 22.90 Double toned milk 1328258.50 34.00 45160.79 11.69 Full cream milk 168253.50 46.00 7739.66 2.00

25. PROFITABILITY GENERATED BY DIFFERENT DIARY PRODUCTS IN THE PLANT Product Price received by the plant Cost of manufacturing Profit margin Profit percent Paneer 235.00 205.09 29.91 14.58 Ghee 369.00 333.03 35.70 10.71 Dahi 12.76 10.35 2.41 23.29 SMP 240.00 223.70 16.30 7.29 Standardized milk 38.00 36.48 1.52 4.17 Double toned milk 34.00 29.38 4.62 15.72 Full milk cream 46.00 43.12 2.88 6.68

26. CONCLUSION In conclusion , it should be emphasized that in this study and attempt was made to explain that the short run fluctuation in the number of workers employed and the number of hours paid for per workers , and the number of hours worked per workers are related to each other in the short run equilibrium , but that no attempt was made to develop a model which was capable of predicting these variables . in order to use model of short run demand for workers developed in this study for prediction purposes . for example , it would be necessary to know the expected future changes in output in advance , and at lest for those industries in which expectations appeared to be quite accurate (and not based merely on past output behavior ) , this would required knowledge of the industry which an economic for caster ( as opposed to an individual manager in the industry ) does not have at his disposal . Also , in this study an afford was made to use as disaggregate and homogeneous body of data as possible to lessen the problem of aggregating vastly dissimilar firms, but to forecast aggregate employment form the three digit industry level would be a tremendous task .

27. BIBLIOGRAPHY

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