Chapter-I Executive Summary: Page 1 of 63

S.K INDUSTRIES.
A STUDY ON COST ANALYSIS

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CHAPTER-I
EXECUTIVE SUMMARY
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EXECUTIVE SUMMARY
S.K. Industries is a company specialized in all type of Manufacturing of engineering goods &
Job works, and is also a reliable source of all kinds of turned components. S.K. Industries is a
provider of high quality machining support to the automotive sector in India. The company is a
vendor of Rij Engineering Private Limited which is an integrated OE Gear manufacturer and
supplier.
A business enterprise must survive, grow, and prosper. Cost Control and Cost Reduction both
arethe activities necessary for ensuring that these objectives are fulfilled. With the liberalization
of the Indian Economy and Globalization, there is now a cut throat competition from various
concerns of the world. As a result there is now a race to secure a place for survival. This has
increased the importance of Cost Control and Cost Reduction.
Hence it is required to study the different tools and techniques used for the Cost Control and
Cost Reduction. For the same we need to start with understanding deeply the concept of cost.
Once we understand the meaning of cost, its controllability, main areas where cost arises, then
we can think of how to control or reduce the cost. We can classify the cost according to their
nature, behavior then we can easily know the cost which can be controlled or reduced.
The study starts with an introduction to cost control and reduction, Company’s profile, its Vision
& Mission, the need for study, review of literature and objectives are set out for the study.
Research methodology, Data analysis & Interpretation, Findings and Suggestions of the study
follow.
One of the main areas of the project is the analysis part, where the data are analyzed &
interpreted, to find out how the cost were managed.
Qualitative research method involves describing in details specific situation using research tools
like interviews, surveys, and Observations. Qualitative Research is primarily exploratory
research. It is used to gain an understanding of underlying reasons, opinions, and motivations
Statistical Research research method is concerned with collection and analysis of data. These
methods are been used for primary as well as secondary research.
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The primary objective of the project is to understand the basic concept of Cost, Cost Control,
and Cost Reduction, to study various Tool and Techniques, to suggest techniques etc.
The secondary objective of the project to reduce the cost and improve the profit picture of
organization, to reduce the cost of organization with help of every department, to achieve
customer satisfaction by consistently meeting his speedy redressal of customer complaints, the
quality policy is given a wide publicity, Make aware the employees about the cost reduction It
determines the effectiveness of methods used to improve the business profitability.
The scopes of this project is that Cost management being a very important concept in all the
company’s having a void coverage often calls for the managerial attention. In the modern times
Cost management has become the integral part of the all companies, To study different
techniques of cost reduction, To help the company understand its standing in terms of cost
reduction, To understand financial records of the company, To minimize cost by reducing
operational waste, To avoid abnormal wastage by excersing direct control on inventories, It
serves to bridge the gap between current production & actual sales.
The collection of data from surveys, or from independent or networked locationsviadata capture,
data entry, or data logging. Data are collected through personal interviews and discussion with
Finance-Executive. Data are collected through personal interviews and discussion with Manager.
The data are collected from the annual reports maintained by the company. Collection from
Published data
Secondary data is the data that have been already collected by and readily available from other
sources. Such data are cheaper and more quickly obtainable than the primary data and also may
be available when primary data cannot be obtained at all
The period of the study sample size Financial Year 2012 To 2015
The Data Analysis is been done by retrieving ratios which is computed by computed by dividing
different proportions. It is expressed as a percentage. The various data used are from the records
of company.
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CHAPTER- 2
OBJECTIVE & SCOPE OF PROJECT WORK
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OBJECTIVE OF PROJECT WORK

The Objective of the project are as follows:
Primary objective & Secondary objective
 Primary objective
1. To understand the basic concept of Cost, Cost Control, and Cost Reduction
2. To study various Tool and Techniques available for Cost Control and Cost Reduction
3. To study the Cost Control and Cost Reduction techniques used in S.K. Industries.
4. To suggest techniques which could show a good impact on cost management.
5. To learn about various concept and terminology related with the costing field.
 Secondary objective
1. To reduce the cost and improve the profit picture of organization.To reduce the
cost of organization with help of every department.
2. To achieve customer satisfaction by consistently meeting his speedy redressal of
customer complaints.The quality policy is given a wide publicity among all
employees to enable them to implement the policy in their day to day operation.
3. Make aware the employees about the cost reduction.Approach to reduce cost
through consideration of its entire people
4. To produce quality goods through effective process control, training motivation,
fostering team spirit, creating congenial atmosphere keeping.
5. It determines the effectivenss of methods used to improve the business
profitability.
Scope of the study

Cost management being a very important concept in all the company’s having a void coverage
often calls for the managerial attention. In the modern times Cost management has become the
integral part of the all companies. So all the firm gives special importance for Cost management.
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The major objective of the study is to examine the effectiveness of cost management system
adopted by industry; the study mainly focuses on the techniques used by the company to control
the cost. The study also covers other areas like the financial ratios.
1. Cost sheet will be useful for price restructuring.

2. To study different techniques of cost reduction.
3. To help the company understand its standing in terms of cost reduction.
4. To understand financial records of the company.
5. To cross check and verify the discrepancies in the financial statement.
6. To minimize cost by reducing operational waste
7. To avoid abnormal wastage by excersing direct control on inventories
8. This study helps to minimize cost of holding the inventory i.e ordering cost & Carrying
cost.
9. The maintenance of inventory also helps a firm to enhance its sales efforts.
10. It serves to bridge the gap between current production & actual sales.
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CHAPTER- 3
THEROTICAL BACKGROUND
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THEROTICAL BACKGROUND
Definition of ‘COST’
Cost:
An amount, that has to be paid or given up in order to get something. In business, cost is usually
a monetary valuation of effort, material, resources, time and utilities consumed, risk incurred,
and opportunities forgone in production and delivery of a goods or service.
 COST CONTROL
“Cost control is the regulation by executive action of the costs of operating an undertaking
particularly where such action is guided by cost accounting.”
Cost Control is function, which makes sure that actual work is done to fulfill the original
intention. It is a widely accepted notion that the actual costs for each cost element should be
within the budget. Cost control is thought of as a managerial effort to attain cost goals within a
particular environment.
Importance of Cost Control

 It enables the firm to achieve its defined objectives.
 It leads to proper utilization of the firm's resources
 It ensures the survival and growth of a firm by preserving its competitive capability
 It makes sure that organization remains efficient.
 COST REDUCTION
“Cost Reduction is to be understood as the achievement of real and permanent reduction in the
unit cost of goods manufacture or services rendered without impairing their suitability for the
use intended”. Cost Reduction is a systematic effort to improve profit margins by eliminating all
forms of waste and unnecessary expense without impairing the generation of revenues. Some
commonly used synonyms for this activity are profit improvement and cost improvement.
The aim of cost reduction is to offset the impact of a squeeze on profits by getting the maximum
return for every rupee of funds spent by the company. Cost saving could be a temporary affair
and may be at the cost of quality.
The three fold assumption involved in the definition of cost reduction may be summarized as
under:-
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1. There is saving in a cost unit

2. Such saving is of a permanent nature
3. The utility and quality of goods remain unaffected, if not improved
Importance of Cost Reduction

 It leads to an improvement in the competitive capabilities of the company and thereby
ensures its survival,growth, and prosperity
 It ensures reasonable prices to customers by not passing on the inefficiency of the
business itself.To create cash for reinvest in R&D
 To reduce manufacturing cost to stay competitive
 To lower cost of service in order to provide additional services.To become more efficient
Causes for Cost Reduction
 To increase company value
 To get competitive advantage
 To eliminate unnecessary expenses
 Cost Control and Cost Reduction

Paticulars Cost Control Cost Reduction
A technique used for maintaining the A technique used to economize the unit
Meaning costs as per the set standards is known as cost without lowering the quality of the
Cost Control product is known as Cost Reduction.
Savings in Total Cost Cost Per Unit
Techniques Budgeting, Just-In-Time (JIT) System

Target Costing
Break-even analysis
Kaizen Costing
Standard costing
Total Quality Management(TQM)
Marginal Costing
Value chain
Variance Analysis
Break Even Point
“COST MANAGEMENT”
Cost Control, Reduction and Estimation in Business!
Meaning:
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Business firms aim at producing the product at the minimum cost. It is necessary in order to
achieve the goal of profit maximisation. The success of financial management is judged by the
action of the business executives in controlling the cost. This has led to the emergence of cost
accounting systems.
Cost control by management means a search for better and more economical ways of completing
each operation. Cost control is simply the prevention of waste within the existing environment.
This environment is made up of agreed operating methods for which standards have been
developed.
These standards may be expressed in a variety of ways, from broad budget levels to detailed
standard costs. Cost control is the procedure whereby actual results are compared against the
standard so that waste can be measured and appropriate action taken to correct the activity.
Cost control is defined as the regulation by executive action of the costs of operating an
undertaking. Cost control aims at achieving the target of sales. Cost control involves setting
standards. The firm is expected to adhere to the standards.
Cost control emphasis is on past and present. Cost control is applied to things which have
standards. It seeks to attain lowest possible cost under existing conditions. Cost control is a
preventive function.
Aspects of Cost Control:

Cost control involves the following steps and covers various aspects of management. It has
to be brought in the following manner:
(i) Planning:Initially a plan or set of targets is established in the form of budgets,
standards or estimates.
(ii) Communication: The next step is to communicate the plan to those whose
responsibility is to implement the plan.
(iii) Motivation:After the plan is put into action, evaluation of the performance starts.
(iv) Costs are ascertained and information about achievements is collected and reputed.
The fact that the costs are being reported for evaluating performance acts as a
prompting force.
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(v) Appraisal:Comparison has to be made with the predetermined targets and actual
performance. Deficiencies are noted and discussion is started to overcome
deficiencies.
(vi) Decision-making:Finally, the reported variances are received. Corrective actions and
remedial measures are taken or the set of targets is revised, depending upon the
administration’s understanding of the problem.
The management and control of the resources used in most commercial organisations leaves a
great deal to be desired. Waste is growing at such an enormous rate that it has spawned a new
industry for recycling and extracting useful materials.
Materials are wasted in a number of ways such as effluents, breakage, contamination, inefficient
storage, poor workmanship, low quality, pilfering and obsolescence. All these contribute to
significantly increased material costs and all can be controlled by efficient working methods and
effective control.
Advantages of Cost Control:

Cost control has the following advantages:
(i) It helps the firm to improve its profitability and competitiveness.
(ii) In the absence of cost control, profits may be drastically reduced despite a large and
increasing sales volume.
(iii) It is indispensable for achieving greater productivity.
(iv) Cost control may also help a firm in reducing its costs and thus reduce its prices.
(v) If the price of the product is stable and reasonable, it can maintain higher sales and
thus employment of work force.
OBJECTIVES OF COST CONTROL:
The primary objective of cost control’s to help the management is systematic planning
and in controlling the operations of the enterprise. The primary objective can be met only of
there is proper communication and coordination amongst different within the organization.
Thusthe objectives can be stated as:
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1. PLANNING
Businesses require planning to ensure efficient and maximum use of their resources. The
first step in planning is to define the broad aims and objectives of the business. Then,
strategiesto achieve the desired goals are formulated and tentative schedule of eh proposed
combinationsof the various factors of production, which is the most profitable for the
defined period. Costinfluences strategies that need to be followed by the originations. It
cultivates forced planningaiming managers.
2. CO-ORDINATION:
Co-ordination is managerial functions under which all factors of production and all
departmental activities are balanced and integrated achieve the objectives of the
organization.Costing provides the basis for individual in all department to exchange ides on
how best theorganizations objectives can be realized. Executives are forced ot think of the
relationshipbetween their department and the company as a whole. This removes
unconscious bases againstother departments. It also helps to identify weaknesses in the
organization structure.
3. COMMUNICATIONS:
All people in the organization must know the objectives, policies and performances of the
organizations. They must have a clear understanding of their part in the organizations goals.
Thisis made possible by ensuring their participation in the costing process.
4. CONTROLS AND PERFORMANCE EVALUTION:

Control ensures control by continuous comparison of actual performance with the costed
performance. Variances are highlighted and corrective action can be initiated. Cost’s also
fromthe basis of performance evaluation in an organization as they reflect realistic estimates
ofacceptable and expected performance
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Types of Costs
A list and definition of different types of economic costs
Fixed Costs (FC). The costs which don’t vary with changing output. Fixed costs might
include the cost of building a factory, insurance and legal bills. Even if your output changes or
you don’t produce anything, your fixed costs stays the same. In the above example, fixed costs
are always £1,000.
Variable Costs (VC). Costs which depend on the output produced. For example, if you
produce more cars, you have to use more raw materials such as metal. This is a variable cost.
Semi-Variable Cost.Labour might be a semi-variable cost. If you produce more cars, you
need to employ more workers; this is a variable cost. However, even if you didn’t produce any
cars, you may still need some workers to look after empty factory.
Total Costs (TC) – Fixed + Variable Costs
Marginal Costs – Marginal cost is the cost of producing an extra unit. If the total cost of 3
units is 1550, and the total cost of 4 units is 1900. The marginal cost of the 4th unit is 350.
Opportunity cost – Opportunity cost is the next best alternative foregone. If you invest
£1million in developing a cure for pancreatic cancer, the opportunity cost is that you can’t use
that money to invest in developing a cure for skin cancer.
Economic Cost. Economic cost includes both the actual direct costs (accounting costs) plus
the opportunity cost. For example, if you take time off work to a training scheme. You may lose
a weeks pay £350, plus also have to pay the direct cost of £200. Thus the total economic cost =
£550.
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Accounting Costs – this is the monetary outlay for producing a certain good. Accounting
costs will include your variable and fixed costs you have to pay.
Sunk Costs. These are costs that have been incurred and cannot be recouped. If you left the
industry you cannot reclaim sunk costs. For example, if you spend money on advertising to enter
an industry, you can never claim these costs back. If you buy a machine, you might be able to
sell if you leave the industry.
Avoidable Costs. Costs that can be avoided. If you stop producing cars, you don’t have to pay
for extra raw materials and electricity. Sometimes known as an escapable cost.
 Market Failure
 Social Costs. This is the total cost to society. It will include the private costs plus also
the external cost (cost incurred by a third party). May also be referred to as ‘True costs’
 External Costs. This is the cost imposed on a third party. For example, if you smoke,
some people may suffer from passive smoking. That is the external cost.
 Private costs. The costs you pay. e.g. the private cost of a packet of cigarettes is £6.10
 Social Marginal Cost. The total cost to society of producing one extra unit. Social
Marginal Cost (SMC) = Private marginal cost (PMC) + External marginal Cost (XMC)
Diagrams of Cost Curves
Short Run Cost curves are U shaped because of diminishing returns.
In the short run capital is fixed. After a certain point, increasing extra workers leads to declining
productivity. Therefore, as you employ more workers the Marginal Cost increases.
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 Diagram of Marginal Cost
Because the short run Marginal cost curve is sloped like this, mathematically the average cost
curve will be U shaped. Initially average costs fall. But, when marginal cost is above the average
cost, then average cost starts to rise.
Marginal cost always passes through the lowest point of the average cost curve.
 Average Cost Curves
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 ATC (Average Total Cost) = Total Cost / quantity
 AVC (Average Variable Cost) = Variable cost / Quantity
 AFC (Average Fixed Cost) = Fixed cost / Quantity
Costs
 Note FC (fixed costs) remain constant. Therefore the more you produce, the lower the
average fixed costs will be.
 To work out Marginal cost, you just see how much TC has increased by.
 For example, the first unit sees TC increase from 1,000 to 1,200 (therefore the increase
(MC) is 200)
 For the second unit, TC increases from 1,200 to 1,300 (therefore the increase MC is 100)
Long Run Cost Curves
The long run cost curves are u shaped for different reasons. It is due to economies of scale and
diseconomies of scale. If a firm has high fixed costs, increasing output will lead to lower
average costs.
However, after a certain output, a firm may experience diseconomies of scale. This occurs where
increased output leads to higher average costs. For example, in a big firm it is more difficult to
communicate and coordinate workers.
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Diagram for Economies and Diseconomies of Scale
Note however, not all firms will experience diseconomies of scale. It is possible the LRAC
could just be downward sloping.
Tools of Cost Control: Control has a regulatory effect. For better performance and
better results certain means of control have been evolved. These are called control techniques
Mainly two types of standards are established to control costs:

External standards are applied for comparing performance with other organisations. The external
standards are used for comparing the cost performance with the other firm take the shape of a set
of cost ratios.
Internal standards, on the other hand, are used for the evaluation of intra firm cost elements like
materials, labour, etc.
The Tools Used For Cost Control Are:

1. Budgetary Control:
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Budgetary Control is an establishment of budgets relating the responsibilities of a policy and the
continuous comparison of actual with budgeted results either to secure by individual action the
objective of that policy, or to provide a basis for its revision.
2. Bench Marking
It is measuring the company's performance against that of Best-In-Class companies determining
how the Best-In-Class achieve those performance levels and using the information as a basis for
the company's targets, strategies and implementation. Benchmarking is the process of comparing
one's business processes and performance metrics to industry bests and/or best practices from
other industries. Dimensions typically measured are quality, time and cost. In the process of
benchmarking, management identifies the best firms in their industry, or in another industry
where similar processes exist, and compare the results and processes of those studied (the
"targets") to one's own results and processes. In this way, they learn how well the targets
perform and, more importantly, the business processes that explain why these firms are
successful.
3. Target Costing
Target costing refers to the design of product, and the processes used to produce it, so that
ultimately the product can be manufactured at a cost that will enable the firm to make profit
when the product is sold at an estimated market-driven price. This estimated price is called
target price.
4. Standard costing
Standard costing is one of the prominently used systems of cost control. It aims at establishing
standards of performance and target costs which are to be achieved under a given set up working
conditions. It is a pre-determined cost which determines what each product or service should
cost under certain situation.
5. Marginal cost
Marginal cost is the change in the total cost when the quantity produced is incremented by one.
That is, it is the cost of producing one more unit of a good.
Marginal Costing Equation: We know that profit is difference between sales & total cost, Total
can bifurcated in to Fixed & Variable costs. Thus
Profit = Sales – Total Cost. (Variable + Fixed Cost).
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Fixed Cost + Profit = Sales – Variable Cost.
6. Break Even Point
The point at which total of fixed and variable costs of a business becomes equal to its total
revenue is known as break-even point (BEP).
The basic formula for break-even analysis, sometimes abbreviated as BEA, is as follows:
BEQ = FC / (P-VC) Where BEQ = Break-even quantity
FC = Total fixed costs
P = Average price per unit, and
VC = Variable costs per unit.
At this point, a business neither earns any profit nor suffers any loss. Break-even point is
therefore also known as no-profit, no-loss point or zero profit point. Calculation of break-
even point is important for every business because it tells business owners and managers
how much sales are needed to cover all fixed as well as variable expenses of the business or
the sales volume after which the business will start generating profit. The computation of
sales volume required to break-even is known as break-even analysis. The concept
explained above can also be presented as follows:
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7. Variances Analysis
A detailed analysis of variances, particularly controllable variances, helps the management to

ascertain the following:
(i) The magnitude of variation.
(ii) Reasons for the occurrence of the variance.
(iii) The factors responsible for it.
(iv) The department on which the responsibility of the variance can be laid.
(v) The corrective measure for reducing the variance.
 Cost Variance (CV)
CV equals earned value (EV) minus actual cost (AC). The cost variance at the end of the project
will be the difference between the budget at the completion (BAC) and the actual amount spent.
Formula: CV=EV-AC
 Schedule Variance (SV):
SV equals earned value (EV) minus planned value (PV). Schedule variance will ultimately equal
zero when the project is completed because all of the planned values will ultimately equal zero
when the project is completed because all of the planned values will have been earned.
Formula: SV=EV-PV
These two values, the CV and SV, can be converted to efficiency indicators to reflect the cost
and schedule performance of any project.
Kinds of Variance:
(i) Material Cost Variance:
Material cost variance is the difference between the standard cost of materials and actual cost of
materials used.Materials price variance is the difference between the standard prices specified
and the actual price paid.
(ii) Labour Cost Variance (Direct Wage Variance):
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It is the difference between the standard direct wages specified and the actual wages paid for an
activity.Wage rate variance arises due to difference between the standard and actual rate of
wages.
(iii) Sales Variance:
It is the difference between the standard cost of sales specified and actual cost of sales.Mix
Variance is due to the difference between the actual contribution of the sales mix and its standard
contribution specified.
(iv) Overhead Variance:

It is the difference between the standard cost of overhead absorbed in the output achieved
and the actual overhead cost.The overhead expenditure variance is due to the difference
between the standard allowance for the output achieved and the actual expenditure incurred.
Techniques for Cost Control in Manufacturing Companies
I. Understanding Costs
Analyze your company's performance, and you will find that your business costs fall into three
categories: materials and labor (also called cost of goods sold), and overhead. Each of these
categories has its own opportunity for cost control, and the impact of changes in one area must
be considered on the other two.
II. Labor Savings

Direct labor is frequently the single greatest expense in the manufacturing sector. In some
regards, it is the most difficult expense to change, because the consequences of change affect
people, and their response to change may be unpredictable.
III. Purchasing Savings

Raw materials provide a variety of ways to reduce and control costs. Watch your suppliers and
search for alternate sources for the same quality stock at better prices. Keep annual contract
terms with suppliers to allow for changes in market conditions, unless you have a very
compelling offer over several years.
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IV. Inventory Management

Consider the time raw material sits waiting for use. Warehouse space can be freed or eliminated
through just-in-time delivery practices, where stock arrives from the supplier and moves directly
to the plant floor. Analyze your situation for similar changes. For example, if you have
warehousing space you can't divest, try negotiating just-in-time trading with a supplier.
V. Take It Off The Top

Overhead expenses are often described as "the cost of doing business" and may be perceived as
static. However, a dollar saved on overhead goes straight to the bottom line. Outsource payroll
or marketing functions such as direct mail..
Cost Estimation: Business managers make use of the cost figures for the
determination of profits and other allied matters like payment of tax, bonuses and dividends.
Definition and distinction of cost concepts are necessary to stress:

(i) The cost estimates by conventional financial accounting are not appropriate for all
managerial uses, and
(ii) that different business problems call for different kinds of cost.
Ratio analysis is used as an instrument of cost control in two ways:

(i) Ratios can be used to compare the performance of a business firm between two
periods. It helps to identify areas which need immediate attention.
(ii) Besides, standard ratios are used to compare actual areas. Standard ratios are
averages of the results achieved by several firms in the same line of business.
If these comparisons reveal any significant differences, the firm can take suitable action to elimi-
nate the causes responsible for increase in costs.
Ratios can be used to help measure the effectiveness over cost control. Operating costs can be
monitored with the use of direct and indirect operating ratios. Examples of Direct Operating
Ratios are:
Direct Labor to Sales = Direct Labor Costs / Sales
Direct Materials to Sales = Direct Materials / Sales
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Factory Overhead to Sales = Factory Overhead / Sales
Indirect Operating Ratios can be computed for almost any itemized expense. Two examples are:
Computer Expenses to Sales = Computer Expenses / Sales
Operating cost ratios are often used by production managers to monitor trends and identify
problems. If a significant change occurs, the problem must be identified as either internal (such
as operations) or external (such as economic conditions). Since investors and other outsiders don't
have access to operating information, operating ratios are rarely used outside the organization.
Some of the most commonly used ratios for cost comparison are listed below:
(i) Net Profits/Sales
(ii) Gross Profits/ Sales
(iii) Net Profits/ Total Assets
(iv) Sales/ Total Assets
(v) Production Costs/Cost of Sales
(vi) Selling Costs/ Costs of Sales
(vii) Administration Cost / Cost of Sales
(viii) Sales/Inventory
(ix) Material Cost/ Production Costs
(x) Labour Cost/ Production Costs
(xi) Overheads/ Production Costs
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CHAPTER 4
COMPANY & PRODUCT PROFILE
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COMPANY PROFILE
S.K INDUSTRIES
S.K INDUSTRIES was established in 2005 to provide high quality machining

support to automotive sector in India. Mr. SunilkumarPanikar is the founder who brought to this
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enterprise a wealth of knowledge in the field. He is a mechanical engineer has 25+ year’s
experience in machining and gear making
The status of company in the records of Registrar is active which means that it is
actively doing all its filing. Our facilities comprise full fledged forging. All manufacturing
processes are conducted in house, with total control at every stage, thus ensuring high standards
of quality. S.K Industries has built a reputation for excellent quality,investment in equipment,
peopleandprocesses.
Our product line includes Helical and Spur Gears, Transmission Shafts and
allied Assemblies for cars, trucks and tractors.
Year of Establishment: 2005

Industry Category: Manufacturing of Engineering Goods and Job works.
Application Area : Automotive, Commercial Vehicles, Engineering Industries
 Our Philosophy
Accepting the fact that we are sole sources to some reputed clients across the globe, we are
committed to serve them with the best in class products within least expected and scheduled
time frame. We ensure that our clients get uninterrupted supplies at competitive prices. We
strictly adhere to this philosophy and it is vividly reflected in our operational activities.
 Client List
We are vendor of companies such as: Rij Engineering Pvt Ltd,
Rij Forging Pvt Ltd,
Preci Forging,
Saira Engineering. etc
These Companies work for prominent Automotive Sector.
-Tata Motors ,Mahindra ,Fiat India Automobiles Ltd. ,VE Commercial Vehicle Ltd.
(Eicher),Tremec (I) Automotive Pvt. Ltd. ,Bharat Gears Limited, Mahindra Vehicle
Manufactures Limited
 Our Mission
Constantly motivating ourselves for better quality and

innovative products to contribute in our customer’s success and to value
our employees.” Page 26 of 63
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 Quality
Total Quality is the cornerstone of every activity . Quality process begins form
participation and encouraging our personnel to improving our productivity and
value of our products.
The suppliers are also integrated into our quality process by helping them to
innovate and improve their productivity
 ORGANIZATIONAL STRUCTURE
OWNER
Accounts Production
Department Department
Accounts Cost Control Inventory Warehousing
SWOT ANALYSIS
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Strength 1) A well Equipped Infrastructure

2) Latest Technology
3) Good Business Image
4) Lower sales to Cash cycle
Weakness 1) Recycling of defective products is not
possible
2) Drawing of Product Specification involve
huge cost
3) Higher Materials handling cost
Opportunity 1) Large Potential market
2) Drawing of product open other options
Threat 1. New Entrance due to high profit ratio

2. Government rules and regulation
PRODUCT PROFILE
PRODUCTS:
 Transmission Shafts
 Transmission Gears
 Synchro Sleeves
 Sub-Assemblies
 Precision Forgings
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 List of machinery
1. Lathe 5.5.ft.kismat 1no.
2. Lathe 5.5.ft.sharad 1no.
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3. Lathe 5.5.ft.shrikant 1no.
4. Lathe 5.5.ft.kismat 1no.
5. Radial drill machine 2.5” 1no.
6. Bench grinder 1no.
7. All requisite measuring instruments.
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CHAPTER 5
RESEARCH METHODOLOGY
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Research problem
The study was carried to know how cost management helps in proper maintenance of
company and how Cost can be Controlled and Reduced, so the title is “A Study on Cost
Analysis”
Research Methodology
The process used to collect information and data for the purpose of makingbusinessdecisions.
The methodology may include publicationresearch, interviews, surveys and other research
techniques, and could include both present and historical information.
TYPE OF RESEACHRCH
DATA COLLECTION
RESEARCH DESIGN
SAMPLE DESIGN
SAMPLE TECHNIQUE
SAMPLE FRAMING
SAMPLE SIZE
PERIOD OF STUDY
Research
Research is a process in which the researcher wishes to find out the end result for a given
problem and thus the solution helps in future course of action. The research has been defined as
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“A careful investigation or enquiry especially through search for new facts in branch of
knowledge”
Definition
Social Research is systematic method of exploring, analyzing, conceptualizing social life in
order to extend, correct or verify knowledge aid in the construction of theory or in the practice
of an art
Kurtlewin (1988)
Research may to defined as systematic and objective analysis and recording of controlled
observations that may lead to development of organizations, principles & possibility ultimate
control
John Webs(2002)
Research is an art aided by skills of inquiry, experimental design, data collection, measurement
and analysis, by interpretation, and by presentation. A further skill, which can be acquired and
developed, is creativity or invention.
According to Greenfield (1996),
Analytical Descriptive Qualitative Statistical

Research Research Research Research
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Research Method use in this project
1.Statistical Research
This research method is concerned with collection and analysis of data. There are several
different types of studies used to collect data, and it helped me to prepare graphs and charts.
2. Qualitative research
This research method involves describing in details specific situation using research tools like
interviews, surveys, and Observations. Qualitative Research is primarily exploratory research. It
is used to gain an understanding of underlying reasons, opinions, and motivations. It provides
insights into the problem or helps to develop ideas or hypotheses for potential quantitative
research. Qualitative Research is also used to uncover trends in thought and opinions, and dive
deeper into the problem.
Significance of Quantative / Qualitative Research
1. It helps to improve the understanding of the problem.
2. It is time saving.
3. It provides a basis for comparison for the data that is collected by the researcher.
4. It is economical. It saves efforts and expenses.
5. It is time saving.
DATA COLLECTION
The collection of data from surveys, or from independent or networked locationsviadata capture,
data entry, or data logging.
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 Primary Sources
1. Data are collected through personal interviews and discussion with Finance-
Executive.
2. Data are collected through personal interviews and discussion with Manager.
 Secondary Sources
1. The data are collected from the annual reports maintained by the company for the
past six years viz.,
2. Data are collected from the company’s records.
3. Books and journals pertaining to the topic
4. Collection from Published data.
SECONDARY DATA USED IN THIS PROJECT
Secondary data is the data that have been already collected by and readily available from
other sources. Such data are cheaper and more quickly obtainable than the primary data and
also may be available when primary data cannot be obtained at all.
Significance of Secondary data
It is economical. It saves efforts and expenses. It is time saving. It helps to make primary data
collection more specific since with the help of secondary data, we are able to make out what are
the gaps and deficiencies and what additional information needs to be collected. It helps to
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improve the understanding of the problem. It provides a basis for comparison for the data that is
collected by the researcher.
RESEARCH DESIGN
Definition:
‘’A detailedoutline of how an investigation will take place. A research design will typically
include how data is to be collected, what instruments will be employed, how the instruments will
be used and the intended means for analyzing data collected.’’
The research design used in this project is Analytical in nature the procedure using, which
researcher
Types:
a. Co relational
b. Field (survey)
c. Experimental
d. Qualitative
e. Meta-analysis
 SAMPLE DESIGN
Definition:
 Measuring a small portion of something and then making a general statement about the
whole thing.
 Process of selecting a number of unit for a study a way that the units represent the larger
group from which they are selected
 SAMPLING TECHNIQUIES
Definition:
Sampling may be definedas the selection of some part of an aggregate or totality on the basis of
which a judgments or inference about the aggregate or totality is made.
 SAMPLING METHODS
Sampling methods are broadly categorized into two groups:
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I.) Probability sampling methods.

ii) Non probability sampling methods.
Probability sampling methods.

Methods require a sample frame (a comprehensive list of the population of interest). Probability
methods rely on random selection in a variety of ways from the sample frame of the population.
They permit the use of higher level statistical techniques which require random selection
Non-probability sample– does not involve random selection and methods are not based on the
rationale of probability theory
 SAMPLE SIZE
The period of the study sample size

Financial Year 2012 To 2015.
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CHAPTER 6.
DATA ANALYSIS & INTERPRETATION
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DATA ANALYSIS & INTERPRETATION
1. GROSS PROFIT RATIO:
Gross profit
Gross Profit ratio = ------------------------- x 100
Sales
This ratio is computed by dividing the Gross profit by the sales. It is expressed as a percentage.
Particulars 2012-2013 2013-2014 2014-2015

Gross profit (Rs) 904740 995712 1088377
Sales (Rs) 1093935 1140024 1165145
Ratio(%) 82.7 87.3 93.4
GRAPH:
Gross Profit Ratio

2014-2015 93.4
Year
2013-2014 87.3
2012-2013 82.7
76 78 80 82 84 86 88 90 92 94 96
Ratio
OBSERVATION / INTERPRETATION:
The above chart show the Gross Profit ratio of financial years 2012-2015.
In 2012-2013 – the ratio was 82.7%, In year 2013-2014 the ratio was 87.3%& In year 2014-
2015 the ratio was 93.4%. Hence we can conclude that Gross Profit Ratio is increasing at a very
low frequency in year 2012 to 2014 i.e from 82.7%, to 87.3%, but has improved in financial
year 2014-2015 by reaching 93.4%.
2. NET PROFIT RATIO:
Net profit
Net Profit ratio = ------------------------- x 100
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Sales
This ratio is computed by dividing the net profit by the sales. It is expressed as a percentage.
Particulars 2012-2013 2013-2014 2014-2015

Net profit (Rs) 320145 365897 380125
Sales (Rs) 1093935 1140024 1165145
Ratio(%) 29.2 32.0 32.6
GRAPH:
Net Profit Ratio

33
32
31
Col umn1
30
29
28
27
29.2
2012-2013 32
2013-2014 32.6
2014-2015
The above chart show the Net Profit ratio of financial years 2012-2015.It show the proportion of
net profit to sale.
In 2012-2013 – the ratio was 29.2%, In year 2013-2014 the ratio was 32% & In year 2014-2015
the ratio was 32.6%. Hence we can conclude that Net Profit Ratio is increasing.
3. FIXED ASSET TURNOVER RATIO:
Cost of Sales
Fixed Asset Turnover ratio = ---------------------
Fixed Assets
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Particulars 2012-2013 2013-2014 2014-2015

Cost of Sales(Rs) 1093935 1140024 1165145
Fixed Assets (Rs) 1771859 1840228 1928482
Ratio(%) 0.617 0.619 0.604
GRAPH:
Fixed Asset Turnover Ratio

0.62 0.62
0.62
0.62
0.61
0.6
0.61
0.6
0.6
2012-2013 2013-2014 2014-2015
Ratio
The above chart show the fixed asset turnover ratio of financial years 2012-2015.Higher the
ratio shows higher efficiency and vice versa .In 2012-2013 – the ratio was 0.617%, in year 2013-
2014 the ratio was 0.619% &in year 2014-2015 the ratio was 0.604%. Hence we can conclude
that fixed asset turnover Ratio has been fluctuating.
4. TOTAL ASSET TURNOVERRATIO:
Sales
Total Asset Turnover ratio = -------------------
Total Assets
Particulars 2012-2013 2013-2014 2014-2015

Cost of Sales (Rs) 1093935 1140024 1165145
Total Assets(Rs) 2103303 2290371 2415357
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Ratio(%) 0.520 0.497 0.482
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GRAPH:
TOTAL ASSET TURNOVER RATIO

0.52
0.52
0.51
0.5
0.5
0.49 0.48
0.48
0.47
0.46
2012-2013 2013-2014 2014-2015
Ratio
The above chart show the Total Asset Turnover ratio of financial years 2012-2015.Higher the
ratio shows higher efficiency and vice versa. In 2012-2013 – the ratio was 0.52%, In year 2013-
2014 the ratio was 0.497% & In year 2014-2015 the ratio was 0.482%. Hence we can conclude
that Total Asset Turnover ratio isDecreasing.
5. CURRENT RATIO:
Current Assets
Current ratio = -------------------------
Current liability
Particulars 2012-2013 2013-2014 2014-2015

Current Assets (Rs) 1274028 2138307 1793918
Current liability (Rs) 1326980 1264895 1132447
Ratio(%) 0.960 1.690 1.584
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GRAPH:
CURRENT RATIO
1.58
2014-2015
1.69
2013-2014
0.96
2012-2013
0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8
Ratio
The above chart show the Current ratio of financial years 2012-2015.In 2012-2013 – the ratio
was 0.96%, In year 2013-2014 the ratio was 1.69% & In year 2014-2015 the ratio was 1.584%.
6. TOTAL CURRENT ASSETS:
Particulars 2012-2013 2013-2014 2014-2015

Current Assets (Rs) 1274028 2138307 1793918
GRAPH:
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Total Current Assets
34.46%
24.47%
41.07%
2012-2013 2013-2014 2014-2015
The above chart show theCurrent Assets ratio of financial years 2012-2015.
In 2012-2013 – the ratio was 25%, in year 2013-2014 the ratio was 41% &In year 2014-2015 the
ratio was 34%. Hence we can conclude that Current Assets Ratio has increased and later
decreased which shows that profitability of the firm was highest during 2013-2014.
7. TOTAL CURRENT LIABILITIES:
Particulars 2012-2013 2013-2014 2014-2015

Current Liabilities (Rs) 1326980 1264895 1132447
GRAPH:
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Total Current Liabilities
2013-2014; 1264895; 2014-2015;

33.96% 1326980; 35.63%
2012-2013; 1132447;
30.41%
2012-2013 2013-2014 2014-2015
The above chart show the Total Current Liabilities ratio of financial years 2012-2015.
In 2012-2013 – the ratio was 30%, In year 2013-2014 the ratio was 34% & In year 2014-2015 the
ratio was 36% as compared to all three years.
8. WORKING CAPITAL TURNOVER RATIO:
Sales
Working Capital Turnover ratio = ----------------------
Working Capital
This ratio is computed by dividing the Sales by the Working Capital. It is expressed as a percentage.
Working Note: - [Working Capital = Current Assets – Current Liabilities]
Particulars 2012-2013 2013-2014 2014-2015

Sales (Rs) 1093935 1140024 1165145
Working Capital (Rs) 141581 873412 147740
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Ratio(%) 7.72 1.305 7.886
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GRAPH:
Working Capital Turnover Rati o
8
7
6
5 7.72 7.89
4
3
2
1.31
1
0
2012-2013 Column2
2013-2014 2014-2015
INTERPRETATION:
The above chart show the Working Capital Turnover ratio of financial years 2012-2015.
Higher the ratio shows higher efficiency and vice versa. Here the efficiency is reduced in 2013-
2014.In 2012-2013 – the ratio was 7.72. In year 2013-2014 the ratio was 1.305&In year 2014-
2015 the ratio was 7.886.
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CHAPTER-7
FINDINGS
FINDINGS
FROM RATIO OBSERVE FOLLOWING POINTS:-
a. Gross Profit Ratio is increasing at a very low frequency in year 2012 to 2014 i.e from
82.7%, to 87.3%, but has improved in financial year 2014-2015 by reaching 93.4%.
b. In 2012-2013 – the ratio was 29.2%, In year 2013-2014 the ratio was 32% & In year
2014-2015 the ratio was 32.6%. Hence we can conclude that Net Profit Ratio is
increasing.
c. In 2012-2013 – the ratio was 0.617%, in year 2013-2014 the ratio was 0.619% & in
year 2014-2015 the ratio was 0.604%. Hence we can conclude that fixed asset
turnover Ratio has been fluctuating.
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d. Higher the ratio shows higher efficiency and vice versa. Total Asset Turnover ratio is
decreasing.
e. TheCurrent ratio of financial years 2012-2015. In 2012-2013 – the ratio was 0.96%,
In year 2013-2014 the ratio was 1.69% & In year 2014-2015 the ratio was 1.584%.
f. Current Assets Ratio has increased and later decreased which shows that profitability
of the firm was highest during 2013-2014.
g. In year 2013-2014 the ratio was 34% &In year 2014-2015 the ratio was 36% as
compared to all three years.
h. Working Capital Turnover has reduced and gained a height. the efficiency is reduced
in 2013-2014.In 2012-2013 – the ratio was 7.72. In year 2013-2014 the ratio was
1.305 &In year 2014-2015 the ratio was 7.886.
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CHAPTER-8
RECOMMENDATIONS
RECOMMENDATIONS
There is good scope for cost reduction of patterns manufactured, which will ultimately
increase the profits.
Recommendations have been given at that particular point, but in brief recommendations
are as follows: -
1) Price restructuring should be carried out. Due to increase in selling price, demand For the
same has been decreased in this financial year. From cost sheet, cost of Production can be
known and selling price can be decided after adding fixed Percentage of profit.
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2) So as to achieve competitive advantage, product differentiation strategy should be adopted.
3) In materials function, techniques such as Just in time, contract with supplier,

ABC analysis, vendor scheduling using internet medium.
4) Sole proprietor should learn the drawing design specification for the product which
Involves huge cost.
5) A proper attention should be given of pattern drawing and attempt should be made to avoid
any mistake in drawing because it is not possible to recycle the wastage again
.
6) Proper Inspection should be done for the finished goods pattern so that cost of carrying the
defective patterns can be avoided.
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CHAPTER-9
CONCLUSION
CONCLUSION
The study is based on standard value which are set by company on their past experience and
analysis. There are many factors like, working environment, operator skill, manpower efficiency,
machine performance and other miscellaneous factors are not considered. Cost reduction
technique may vary for purpose of study, product, process, geometry, weight and material grade
and fitment in vehicle. This study excludes production losses because of low production dies,
which have complex geometries and also cause accidents of operator during work.
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The concept is checked during tool trials and final part is compared by the standard part, so if all
parameters are ok during trial then only consider. This method is based on ideas comes in the
mind during work in production.
We would finally like to conclude our project with high feeling of having gained enormous
knowledge. This includes thanks giving not only to the valued cooperation of the company but
also our professors who gave us such wonderful opportunity to learn so much about practical
aspect of life.
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CHAPTER- 10
LIMITATIONS OF PROJECT
LIMITATIONS OF PROJECT
Due to Time constraint it was not possible to study the all areas of costreduction.
 Limited Access to the Financial and Costing Numerical Data.
 This project is prepared with a Perfect balance of Theory and practical
knowledge of costing subject.
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Limitations of Efficiency Ratios
While efficiency ratios can be a useful indicator of a company’s performance over time, they
have their own drawbacks such as;
 Effects of Inflation- inflation may result in distortion of data, especially with regard to
the firm’s balance sheet. This also affects profits and the company’s bottom-line. Hence
such ratios should be carefully used when internally comparing the company’s
performance over time, or when comparing it against a peer of different age.
 Seasonal Influences- Sometimes, a company may accumulate stocks and buy

equipment in preparation for a “high-season” when sales are higher. As such, the
efficiency ratios may be lower, though this is not the case.
 Different Accounting Practices-Different firms use varying accounting practices,

meaning you should exercise discretion when using the efficiency ratios.
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CHAPTER- 11
ANNEXURE
ANNEXURE
Profit and loss statement for year 2013-2014
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Balance sheet as on 2014
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CHAPTER- 12
BIBLIOGRAPHY
BIBLIOGRAPHY
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1) Cost and management by Ravi M Kishore (4thedition, taxmann‟s)

2) Workbook on Cost and Management Accounting by Ravi M Kishore
3) Basics of Cost Accounting by V.K.Saxena and C.D. Vahist
4) Cost and Management Accounting Module of ICAI (Institute
Accountant of India)
Webography
1) http://www.scribd.com/doc/50786328/Project-Report-on-Costing-and-Cost-
Reduction
2) http://www.scribd.com/doc/54993661/Cost-Accounting-Project
3) http://www.techshristi.com/category/52/final-yearsummer-trainingprojects/
Start/5/15/
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S.K INDUSTRIES.

A STUDY ON COST ANALYSIS

OBJECTIVE OF PROJECT WORK

Scope of the study

1. Cost sheet will be useful for price restructuring.

Importance of Cost Control

1. There is saving in a cost unit

Importance of Cost Reduction

 Cost Control and Cost Reduction

Techniques Budgeting, Just-In-Time (JIT) System

Aspects of Cost Control:

Advantages of Cost Control:

(iii) It is indispensable for achieving greater productivity.

OBJECTIVES OF COST CONTROL:

4. CONTROLS AND PERFORMANCE EVALUTION:

Total Costs (TC) – Fixed + Variable Costs

Diagrams of Cost Curves

Short Run Cost curves are U shaped because of diminishing returns.

 Diagram of Marginal Cost

 Average Cost Curves

 ATC (Average Total Cost) = Total Cost / quantity

 AVC (Average Variable Cost) = Variable cost / Quantity

 AFC (Average Fixed Cost) = Fixed cost / Quantity

Long Run Cost Curves

Diagram for Economies and Diseconomies of Scale

Mainly two types of standards are established to control costs:

The Tools Used For Cost Control Are:

Profit = Sales – Total Cost. (Variable + Fixed Cost).

Fixed Cost + Profit = Sales – Variable Cost.

6. Break Even Point

BEQ = FC / (P-VC) Where BEQ = Break-even quantity

FC = Total fixed costs

P = Average price per unit, and

VC = Variable costs per unit.

A detailed analysis of variances, particularly controllable variances, helps the management to

(i) The magnitude of variation.

(ii) Reasons for the occurrence of the variance.

(iii) The factors responsible for it.

(v) The corrective measure for reducing the variance.

 Cost Variance (CV)

 Schedule Variance (SV):

(ii) Labour Cost Variance (Direct Wage Variance):

(iii) Sales Variance:

(iv) Overhead Variance:

Techniques for Cost Control in Manufacturing Companies

II. Labor Savings

III. Purchasing Savings

IV. Inventory Management

V. Take It Off The Top

Definition and distinction of cost concepts are necessary to stress:

Ratio analysis is used as an instrument of cost control in two ways:

Direct Labor to Sales = Direct Labor Costs / Sales

Direct Materials to Sales = Direct Materials / Sales

Factory Overhead to Sales = Factory Overhead / Sales

Computer Expenses to Sales = Computer Expenses / Sales

(ii) Gross Profits/ Sales

(iii) Net Profits/ Total Assets

(iv) Sales/ Total Assets