Assignment of:

Cost Accounting

Submitted to:
Sir. Aamir Shaheen

Submitted by:
Zaid Ali

(29)

Masab Frooq

(10)

FAHAD SATTAR

(06)

Class:
BBA(HONS) 4th R1

Date:
17-12-2012

Table of Contents
Sr.N
o

Details

Page

Summery

Introduction To Company

Organizational chart

Contribution Income Statement

Contribution Income Ratio

Breakeven Point

Margin of safety

Annexures

10

Summary
This report is on FAUJI FERTILIZER CARPORATION and consists of contribution
income statement. In this report we have calculated the total fixed cost and total variable cost of
this company, contribution margin, contribution margin ratio, breakeven point sales, margin of
safety.
First of all in this report we have included the introduction of FAUJI FERTILIZER
COMPAN. Which consists of the history, its products its business projects and its mission and
vision? This company is earning a large profit and running successfully. Company is producing
DAP and Urea fertilizer. It is also working in new plants of steel billets and electric Arc Furnace.
It is also working on the wind power project in its Bin Qasim project. FFC's vision is to play a
leading role in the industrial and agricultural advancement of the country pursuing new growth
opportunities offering the convenience of multiple products, brands and channels within and
beyond the territorial limits of Pakistan, to the benefit of our customers and our shareholders,
elevating our image as a socially responsible and ethical company that is watched and emulated
as a model of success.
FFC's vision is to play a leading role in the industrial and agricultural advancement
of the country pursuing new growth opportunities offering the convenience of multiple products,
brands and channels within and beyond the territorial limits of Pakistan, to the benefit of our
customers and our shareholders, elevating our image as a socially responsible and ethical
company that is watched and emulated as a model of success.
We have made its contribution income statement and computed its net operating
profit which shows that company is performing very well and is earning profit this is it growth
period and it is very much success full to cover its fixed cost and is going in right direction.
Its margin of safety is high which shows that company has no chance of loss yet and
is performing its operations in a right direction.

Introduction:
With a vision to acquire self - sufficiency in fertilizer production in the country, FFC was
incorporated in 1978 as a private limited company. This was a joint venture between Fauji Foundation
and Haldor Topsoe A/S of Denmark.The initial share capital of the company was 813.9 Million Rupees.
The present share capital of the company stands above Rs. 8.48 Billion. Additionally, FFC has more than
Rs. 8.3 Billion as long term investments which include stakes in the subsidiaries FFBL, FFCEL and
associate FCCL.FFC commenced commercial production of urea in 1982.

Products:
FFC participated as a major shareholder in a new DAP/Urea manufacturing complex with
participation of major international/national institutions. The new company Fauji Fertilizer Bin Qasim
Limited (formerly FFC-Jordan Fertilizer Company Limited) commenced commercial production with
effect from January 01, 2000. The facility is designed with an annual capacity of 551,000 metric tons of
urea and 445,500 metric tons of DAP, revamped to 670,000 metric tons of DAP.

Business Development:
FFC on Course to develop 50 MW Wind Power Project & Evaluating
Other Diversification Options:
The feasibility study to set up steel billets plant of 1.2 million billets per year in progress.
The billets are primarily used for production of re-bars and structural steel. In Pakistani market quality
steel billets are short and generally available at high premium.For producing steel billets the Electric Arc
Furnace (EAF) route has been selected over the conventional route (blast furnace) considering the
economy of scale. The flow diagram illustrates of the EFA process. Pakistan is a country which seriously
lacks in steel production compared to other developing countries. This project, facility of our country
after Pakistan Steel Mills which was set up 40 years ago.The decision to invest in this venture will be
taken up by the board after the study is completed and financial aspects are factored in.FFC Wind Power
4

Project development activities continued to progress at full pace. The highlight are in succeeding pares. A
new Company FFC Energy Limited has been incorporated for the Wind Power Projects.
FFCEL Project Team along with legal & Financial consultant negotiated the Energy Purchase Agreement
(IA) with NTDC & AEDB respectively. Upon agreement by Lenders of these contracts, same were
finalized and initialed by FFCEL.FFCEL presented the Grid Studies to the CEO NTDC and NTDC Power
Planning Division which have been approved.FFCEL participated in Grid Code Review Panel meeting
arranged by NTDC. The grid Code amendments to address specific requirement of Renewable Energy
Power Plants have been approved by NEPRA.

Vision:
In a nation of increasing population, we believe there is substantial opportunity of growth for FFC
in the years to come.
FFC's vision is to play a leading role in the industrial and agricultural advancement of the country
pursuing new growth opportunities offering the convenience of multiple products, brands and channels
within and beyond the territorial limits of Pakistan, to the benefit of our customers and our shareholders,
elevating our image as a socially responsible and ethical company that is watched and emulated as a
model of success.

Mission:
FFC is a market-focused, process-centered organization delivering successful performance through
a strong focus on quality.
Our mission is to stand above the competition and provide our customers with premium quality fertilizer
products in a safe, reliable, efficient and environmentally sound manner, deliver exceptional services and
unparalleled customer support, produce predictable earnings for our shareholders, and provide a dynamic
and challenging environment for our employees.

Organizational Chart

Contribution income statement:

Fauji Fertilizer Company

Contribution income statement
for the year ended December 31, 2010

Details

Rs.

Sales

88,154,698

Less: Variable Cost

(35,240,997)

Contribution Margin

52,913,701

Less: Fixed Cost

(31,237,198)

Net Operating Profit

21,676,503

Contribution margin ratio:

Contribution margin ratio = contribution margin / total sales

= 52913701 / 88154698
= 0.60
This contribution margin ratio shows that each successive unit which we
produce will participate 0.60 or 60% to cover the fixed cost and will lead the
company towards the profit by decreasing its fixed cost.

Break even sales:

Break even sales = total fixed cost / contribution margin ratio

= 31237198 / 0.6
= 52061997
Breakeven sales are the sale at which company gains no profit. At this point sales
of FAUJI FERTILIZER COMPANY are 52061997 and company is not gaining no
profit and it is only covering its total fixed and variable cost. If sales increase from
this point then company will earn profit and if the sales decreases from this point
company will move towards the loss.

Margin of safety:

Margin of safety = Actual sales Breakeven sales

= 88154698 52061996.67
= 36092701.33

Difference between actual sales and breakeven sales is margin of safety if the
sales are in the range of margin of safety then then company will not be in loss. If
the sales of FAUJI FERTILIZER COMPANY decreases 36092701 rupees then the
company will not be in loss. This is secure range of the company. But if the sales
decreases more than the margin of safety of the company then it will be in loss.

Degree of leverage:

Degree of leverage = Contribution Margin / Operating Profit

= 52913701 / 21676503
= 0.244

Annexures
FIXED COST:
Product transportation
Salaries, wages and benefits
Rent, rates and taxes
Insurance
Technical services
Travel and conveyance
Sale promotion and advertising
Communication and other expenses
Warehousing expenses
Depreciation
Administrative expenses

4,548,162
1,368,001
103,276
8,214
13,540
134,267
61,039
187,736
82,456
47,394
732,244

Mark up on long term financing and murabaha

Mark up on short term borrowings
Exchange loss net

827,558
1,134,890
21,558

Bank charges

16,102

Research and development

Workers Profit Participation Fund
Adjustment in WPPF relating to prior year charge
Workers Welfare Fund
Loss on disposal of property, plant and equipment
Auditors remuneration
Audit fee
Fee for half yearly review, audit of consolidated accounts
and certifications for Government and related agencies
Out of pocket expenses

286,586
1,384,969
(199,097)
517,865
86,866

Raw materials consumed

Fuel and power
Chemicals and supplies
Salaries, wages and benefits

31,655,000
8,478,880
441,999
4,359,503
10

2,184
7,040
150

Training and employees welfare

Rent, rates and taxes
Insurance
Travel and conveyance
Repairs and maintenance
Depreciation
Communication and other expenses

467,625
48,474
230,677
312,285
1,854,773
2,469,561
1,200,

VARIABLE COST:

Interest on wppf

1247

Raw material

31655000

Less : Difference in WIP opening and ending inventory

(15242)

Difference in opening and ending of finished goods inventory

(109925)

Purchases for resale

3709917

Total

35240997

11