MANAGEMENT ACCOUNTING PROJECT ON

PROJECT REPORT ON COST ANALYSIS ON SETUP OF A FLOUR MILL NAMED

CHADHA FLOUR MILLS

SUBMITTED TO: DR. RITESH SRIVASTAVA

Submitted by: DHRUV CHADHA SECTION B PGDM 09-11

ACKNOWLEDGEMENT

The satisfaction and euphoria that accompany the successful people success. I would like to thank Dr. Ritesh Shrivastava for giving us his precious time and guidance that helped us a lot in completing this project and giving us the opportunity for carrying this project in the field of accounts. We are also obliged to all those people who directly or indirectly helped us in accomplishing this project. completion whose of any task would be and incomplete without mentioning the name of the constant guidance encouragement has crowned all our efforts with

Co-operation and co-ordination amongst the group members is also appreciated.

CONTENTS

Introduction.3

Objectives....6

Requirements for setting a mill...8 Marketing strategies.9

Cost sheet...20

Analysis of the cost sheet ...22 COST sheet of competitor23 Analysis 18

Bringing you nature

About Us
Our company CHADHA FLOUR MILLS is a premier mill. It is one of the growing flour mills in Uttar Pradesh, manufacturing Atta and Bran suitable for producing diverse products like Biscuits, Cakes, Pastas, Naans, Pooris, Rotis, Sweets, etc. The distinctiveness of our products has established us as the most acknowledged new manufacturer of Wheat Flour (Atta). Our impeccable quality product cost effective production process, voluminous experience of the market and prompt delivery shall fetch us tremendous customer response. At Chadha Flour

Mill, quality is a way of life. Quality consciousness is ingrained in our work culture and business operations. Product processing is done under hygienic conditions and stringent quality check measures are in place at different stages of production and supply. The work culture of our organization is focused on high performance, innovation, entrepreneurship and empowerment.

Our Product
We are producing Healthy Life Atta (Whole Wheat Flour).Absolutely hygienically proven and tested quality checks are undertaken at every level of the production process, in order to make sure that only quality proven products are dispatched in the market, we procure high grade wheat grains from reliable farmers. From procurement of raw materials to the preparation and packaging of the finished product,quality is not compromised.

Our Infrastructure
Our manufacturing unit is set up in Agra, Uttar Pradesh because this place is ideally suited for cereal farming and thus reduces raw material

procurement cost. The plant is laid out on 1 acre of land with the present production capacity of 36500 bags of flour every year. We are empowered with a state-of-the-art infrastructure, requisite technology, efficient transport facilities and efficient working environment. We possess a spacious warehouse which can store large quantities of produced flour bags.

Packaging
'Packaging' is supposed to be the fifth "P" in marketing. After product, price, place and promotion, packaging holds the maximum importance in the marketing of a product. As majority of the purchase decisions are made in store, we ensure that our product is attractively packed so as to capture the attention of the buyers. Our packaging is done by a German technique which ensures attractive packaging for our product.

OBJECTIVES

To setup a FLOUR MILL under the small scale industries category. To ascertain the various costs that goes into starting such a business. To spend within the limit of Rs. 50 lakhs to 1 crore (for a small scale industry). To prepare a cost sheet of all the costs to be incurred. To analyze the cost sheet and come to a conclusion business.. regarding the viability of the

To analyse the cost sheet of the nearest competitor

REQUIREMENTS

FOR

STARTING A FLOUR MILL

ITEMS
Land (1 acre) Machinery 10 Labor( RS 3000/ month for each labor) Electricity(tube lights, bulbs, fans etc) Factory Building(construction set up cost) 1 Foreman @ RS 2000 per month 1 manager @ RS 5000 per month 1 accountant @ RS 2500 per month Stationary Insurance premium( RS 2000 per month) Transportation( rent paid for hired vans)

COST (RS)
25,00,000 10,00,000 30,000 3,60,000 3,00,000 24,000 60,000 30,000 5000 24,000 12,00,000

RS 10,000 per month

PRODUCTION PROCESSS OF FLOUR

Flour is a finely ground powder prepared from grain or other starchy plant foods and used in baking. Although flour can be made from a wide variety of plants, the vast majority is made from wheat. Dough made from wheat flour is particularly well suited to baking bread because it contains a large amount of gluten, a substance composed of strong, elastic proteins. The gluten forms a network throughout the dough, trapping the gases which are formed by yeast, baking powder, or other leavening agents. This causes the dough to rise, resulting in light, soft bread. Flour has been made since prehistoric times. The earliest methods used for producing flour all involved grinding grain between stones. These methods included the mortar and pestle (a stone club striking grain held in a stone bowl), the saddlestone (a cylindrical stone rolling against grain held in a stone bowl), and the quern (a horizontal, disk-shaped stone spinning on top of grain held on another horizontal stone). These devices were all operated by hand.

Raw Materials
Although most flour is made from wheat, it can also be made from other starchy plant foods. These include barley, buckwheat, corn, lima beans, oats, peanuts, potatoes, soybeans, rice, and rye. Many varieties of wheat exist for use in making flour. In

general, wheat is either hard (containing 11-18% protein) or soft (containing 8-11% protein). Flour intended to be used to bake bread is made from hard wheat. The high percentage of protein in hard wheat means the dough will have more gluten, allowing it to rise more than soft wheat flour. Flour usually contains a small amount of additives. Bleaching agents such as benzoyl peroxide are added to make the flour more white. Oxidizing agents (also known as improvers) such as potassium bromate, chlorine dioxide, and azodicarbonamide are added to enhance the baking quality of the flour. These agents are added in a few parts per million

The Manufacturing Process

Grading the wheat

Wheat is received at the flour mill and inspected. Samples of wheat are taken for physical and chemical analysis. The wheat is graded based on several factors, the most important of which is the

protein content. The wheat is stored in silos with wheat of the same grade until needed for milling. Purifying the wheat

An illustration from The Young Millwright and Miller's Guide, depicting the processes of an automated grain mill. (From the collections of Henry Ford Museum & Greenfield Village.) wheat can be ground into flour it must be free of foreign matter. This requires several different cleaning processes. At each step of purification the wheat is inspected and purified again if necessary.

The first device used to purify wheat is known as a separator. This machine passes the wheat over a series of metal screens. The wheat and other small particles pass through the screen while large objects such as sticks and rocks are removed. The wheat next passes through an aspirator. This device works like a vacuum cleaner. The aspirator sucks up foreign matter which is lighter than the wheat and removes it. Other foreign objects are removed in various ways. One device, known as a disk separator, moves the wheat over a series of disks with indentations that collect objects the size of a grain of wheat. Smaller or larger objects pass over the disks and are removed.

Another device, known as a spiral seed separator, makes use of the fact that wheat grains are oval while most other plant seeds are round. The wheat moves down a rapidly spinning cylinder. The oval wheat grains tend to move toward the center of the cylinder while the round seeds tend to move to the sides of the cylinder, where they are removed.

Other methods used to purify wheat include magnets to remove small pieces of metal, scourers to scrape off dirt and hair, and electronic color sorting machines to remove material which is not the same color as wheat. Preparing the wheat for grinding The purified wheat is washed in warm water and placed in a centrifuge to be spun dry. During this process any remaining foreign matter is washed away. The moisture content of the wheat must now be controlled to allow the outer

layer of bran to be removed efficiently during grinding. This process is known as conditioning or tempering. Several methods exist of controlling the amount of water present within each grain of wheat. Usually this involves adding, rather than removing, moisture. Cold conditioning involves soaking the wheat in cold water for one to three days. Warm conditioning involves soaking the wheat in water at a temperature of 115F (46C) for 60-90 minutes and letting it rest for one day. Hot conditioning involves soaking the wheat in water at a temperature of 140F (60C) for a short period of time. This method is difficult to control and is rarely used. Wheat of different grades and moistures is blended together to obtain a batch of wheat with the characteristics necessary to make the kind of

flour being manufactured. At this point, the wheat may be processed in an Entoleter, a trade name for a device with rapidly spinning disks which hurl the grains of wheat against small metal pins. Those grains which crack are considered to be unsuitable for grinding and are removed. The wheat moves between two large metal rollers known as breaker rolls. These rollers are of two different sizes and move at different speeds. They also contain spiral grooves which crack open the grains of wheat and begin to separate the interior of the wheat from the outer layer of bran. The product of the breaker rolls passes through metal sieves to separate it into three categories. The finest material resembles a coarse flour and is known as middlings or farina. Larger pieces of the interior are known as semolina. The third category consists of pieces of

the interior which are still attached to the bran. The middlings move to the middlings purifier and the other materials move to another pair of breaker rolls. About four or five pairs of breaker rolls are needed to produce the necessary amount of middlings. The middlings purifier moves the middlings over a vibrating screen. Air is blown up through the screen to remove the lighter pieces of bran which are mixed with the middlings. The middlings pass through the screen to be more finely ground.

MARKETING STRATEGIES

The company follows effective marketing mix strategies to make the product click within the masses. The 4 ps of product,price,place and promotion are kept in mind while advertising and marketing the product. Our company advertises effectively in all channels of media like tv, newspapers and promotions. Our company provides a higher percentage of commission to dealers and retailers compared to our competitors in an attempt to promote our brand effectively. packaging as mentioned earlier also plays a major role in our advertising and promotional strategies as we have very attractive packaging made from German technique.

COST SHEET

(For the year ended 2008) Output = 36,500 units (Each bag weighs 10 kg)
Particulars Raw materials consumed Labor charges Prime cost Cost Total cost per unit 100 41,47,700 .86 100.8 6 3,60,000 45,77,000 3,60,000 24,000 1,00,000 24,000 24,000 15,000 50,54,700

Add: Factory Overheads Electricity .86 Foreman salary 0.05 Depreciation on 0.25 machinery Water charges .05 Repair and maintenance 0.05 (greasing and oiling) Depreciation on factory 0.03 building Factory cost 102.1

5 Add: Office and Administration expenses Managers salary Accountants salary Stationary General expenses Insurance premium Office cost/ cost of production Add: Selling and distribution charges Packaging Advertisement Commission to broker Promotional charges Transportation Total Cost of Goods Sold

.14 0.07 0.01 .02 0.05 102.4 4 4 per bag 0.05 1 per bag .05 .28 107.8 2

60,000 30,000 5,000 10,000 24,000 51,98,700

1,47,000 24000 36,500 24,000 1,20,000 55,49,200

Cost Per Unit= Rs. 107.82

Working notesCost sheet

With input of 100 units of raw material only 88 units are used in production of flour while the rest is saleable waste. So the total cost of raw materials has been calculated as follows (100x 36500)/ 88 = 41477.27

Each bag weighs 10 KG.

Raw materials consumed include wheat which is bought @ RS100 per KG. Depreciation on machinery is charged @10% on the straight line method. Cost of machinery is RS 10, 00,000. Depreciation on factory building is charged @5%. Cost of building is RS 3, 00,000. Salary of foremen, manager and accountant is fixed for each month. General expenses and insurance premium is also fixed. Packaging cost is RS 4 per bag. Commission to broker is RS 1 per bag. Promotional and transportation charges are variable charges. Cost per unit is RS 107.82

Analysis
The idea of starting a flour mill in U.P. seems to be a profitable business venture. The cost of procuring raw material is very low as U.P. being the cereal bowl of India. The total estimated cost of the project is RS 93,49,200(including cost of land, machinery, building and cost of production). The present production capacity is 100 bags of flour per day. This can be increased in future as per the demand in the market. The finished product shall be sold to the retailers directly with no inventory carrying cost and warehousing cost. We have proposed to sell each bag (10 KG) at a price of RS118. Thus the profit earned from finished product will be RS 10.18 per unit (9.5% on cost). The ideal percentage for net profit is 10%. We are currently at a safe level of 9.5%.

As the company is newly established it will take time to develop such a demand, that in future it can earn more profits. In addition to profit from finished product we are also earning revenue of RS 75,280.75 from sale of scrap. Thus the project seems to be a profitable venture.

Cost analysis of competitor. COST SHEET OF UPADHYAY FLOUR MILL

Cost Per Unit

Quantity Manufactured 100000 Quantity sold 100000

1 1 CPU

DIRECT COST
Raw materials consumed Opening stock of raw materials Purchases of Raw Materials

0 94.78 0 94.78 1.24

2.415

0 0

9478000
(-)Closing stock of Raw Materials Materials Consumed

9478000
Direct labour/wages

1080000
Direct cost/expenses

PRIME COST
INDIRECT COST Factory/Works Overheads Indirect labour

98.435

1.22

978000

Depreciation on Machinery

0.675

245000
Works Overheads

0.5204 0.589 0.282 0.385 5.678 9.32

37000
Cost of Maintanence

45000
Other Factory Expenses

16000
Supervisors Salary

60000
Power & Fuel

1545000
Total Overheads

FACTORY COST/WORKS
Office and Administrative Overheads Depreciation on office furniture@7% Office Rent

107.7
0.281 0.585 0.89 0.257 0.219 0.3123 0.0294 02.5737 74800 15000

180000
Salary to Staff

1200000
Office and General Expenses Telephone expenses

62000
Electricity and Lightings

567000
Printing and stationary

18700
Total Office and Administrative Overheads

COST OF production
Selling and Administrative Overheads Sales Commission

110.273
0.75

75000

Advertising cost

.03 3.0 per bag 0.057 3.837

3000
Packaging cost

300000
Sales promotions

5700
Total Selling and Administrative Overheads

383700

COST OF SALES 11410000

114.10

Notes:
Cost of raw material 94.78

ANALYSIS The analysis of the cost sheet of Upadhyay flour mills shows that although they obtain raw materials at a cheaper rate, their cost of goods sold is higher than our company. This is because the cost of production is very high for Upadhyay flour mills. Their factory charges and labor charges are higher as compared to our company. However they are selling the product at a much higher margin than our company . this is primarily because they are an established brand and

people rely on their quality and are thus ready to pay even a bit extra for their product.