a project on cost analysis

7/30/2019 A Project on Cost Analysis

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A PROJECT REPORT

ON

COST ANALYSIS

IN

SURANA TELECOM AND POWER LTD.

by

PARVATHI DEVI(520875269)

Submitted in partial fulfillment of therequirement for the award of the Master of

Business Administration

Acme College of InformationTechnology(Affiliated to Sikkim Manipal University)

2008-2010


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ACKNOWLEDGEMENTS

I take this opportunity to acknowledge, all the people who rendered their valuable advice

in bringing the project to function.

As part of curriculum at Acme college, under SIKKIM MANIPAL UNIVERSITY

Hyderabad the project enables us to enhance our skills, expand our knowledge by

applying various theories, concepts and laws to real life scenario which would further

prepare us to face the extremely Competitive Corporate World in near future.

I respectfully express my gratitude Mr.Surendra Bhutoria Chief Finance Officer of

Surana Telecom & Power ltd for giving me opportunity to undertake this project work.

I express my gratitude to my faculty guide Mr.G.Srinivas Reddy (Finance Lecturer)

Acme College, Hyderabad for his unparallel support throughout my projectI have tried my level best to put my experience and analysis in writing this reports. I am

grateful to Surana Telecom & Power Ltd as an Organization and its various employees

for helping me to learn and explore many fields.


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ABSTRACT

The establishment of Costs relating the responsibilities of executives to the requirement

of a policy, and the continuous comparison of actual with cost sheet results, either to

secure by individual action the objectives of that policy, or to provide a basis for its

revision.

The project is taken up with the object to study Cost Analysis System in Surana Telecom

and Power Pvt Ltd.

The project is mainly a study to know about the meaning of the Cost Accounting, Cost

preparation Process and comparing cost provision with actual. The main aim of the study

is to know the effectiveness of the current and if any requirements for improvements. Itsalso

An indication and explanation of the important of the Cost Accounting technique

An overview of the advantages and disadvantages of Costing

An introduction to the methods for preparing cost sheet

An appreciation of the uses of costs

Conclusion is drawn on the basis of analysis of the cost accounting. The analysis reveals

the company financial position i.e. its Expenditure and Revenue generated

TABLE OF CONTENTS


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Chapters Description Page.No.

Chapter I Introduction of the study 1-2

Scope 3

Objectives 4

Methodology 5

Chapter II Review Of Literature 6-25

Introduction of Cost Analysis 7

Definition of Cost Analysis 8

Characteristics of Cost Analysis 9

Advantages of Cost Analysis 10

Limitations of Cost Analysis 11

Methods & Techniques of Cost Analysis 12-17

Elements of Cost Analysis 18-25

Chapter III Company Profile 27-46

Chapter IV Data Analysis & Interpretation 48-56

Chapter V Findings & Conclusion 58Chapter VI Suggestion & Recommendation 60

Chapter VII Bibliography 62

Chapter VIII Appendices 64-69


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CHAPTER I

INTRODUCTION

INTRODUCTION


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A Cost Analysis is a technique and process of ascertaining costs. It is aTerminology of Cost Accounting, the amount of Expenditure actual notional, incurred onor attributable to a given thing.

The important reason behind my study is know the actual importance of cost in

a manufacturing unit. The move behind this is to go through every detail which helps inthe cost control and Ascertainment of profitability as well as presentation of information

for the purpose of managerial decision making

The rationale for conducting this study is be efficiently able to carry out the firms

objective and yield higher profits by reducing the cost. It aims at analyzing the

quantitative data measuring the accomplishments.

My project focuses on a cost sheet or cost statement which present the informationregarding the various elements of cost incurred in production during a defined period of

time. The Cost Sheet is generally prepared at short intervals (weekly or monthly) and

presents the total cost as well as cost per unit of products manufactured during the

period.

The Cost Sheet does not have any statutory format. It is not a part of the Accounting

system. The purpose of Cost Sheet is to present the Element of cost in as much detail

as possible. In order to provide comparison, a Cost may have information pertaining to

the previous year in an additional column. Alternatively, standard costs may also be

provided.

Cost Sheet includes only such expenses that are a charge against profit. It shows a

breakup of total cost into various elements, sales value of goods and Profit earned or

Loss incurred during a period. Expenditure incurred towards servicing of dept,

acquisition of assets, payments are not included in the Cost Sheet

SCOPE


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The main review is done on the use of Cost Accounting and its common objective. Italways expressed in terms of quality and money. It is the policy to be followed during thecost period for attainment of specified organization.

Financial and quantitative statement of the action plan.

Laid down prior to the cost period during which it followed.

Prepared for specified objective and

Based on management policy.

The types of issue raised in my study are to relate the actual operation and performance

of a firm in existences. This system which uses cost for controlling and reductiondifferent activities of business.

Division of organization on function basis into different sections for costreduction of Surana Telecom and power LTD;

Preparation of separate cost for each cost centers for planning strategies forinnovations and growth of the Company;

Consolidation of all functional cost to present overall Surana Telecom & powerobjective

Comparison of actual level performance against cost. Comparison process isstretched far enough to declare either attainment of objective or basis of revisionof plan of action

Reporting the Variance with proper analysis to provide basis for future.

Objectives


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My objective is study the cost analysis in a manufacturing unit is to get insight of theconceptual details of a cost analysis helps in formulating its pricing policies and prepareestimates and how much truth does this substantiate. Some of the important objectivesare

To ascertain the cost per unit of different products manufactured or services

rendered by the undertaking.

To maintained a systematic records of the cost incurred by analyzing and

classifying the cost information so that necessary cost data and information is

available.

To point out how wastage of time, money, machinery, equipment occurs and to

prepare such reports which may be necessary to control such wastage.

For an effective communicating which is the basic essence of organizational

aims objective to subunits so as to encourage them to play their part efficiently,

My Cost effectively communicate this information to the employees at differentlevel for maximum contribution to companies objective

Coordination holds importance in synchronize the companys active factors

effectively. To coordinate is to harmonies all the objective of a company so as to

facilitate its successful working.

A. each department works harmonious with the otherB. each of them plays a specific role to accomplish an overall objectivec. The sequential arrangement of activities of different department is to govern theoverlapping of activities and wasting time.

Motivation depends purely on how the workers can get involve mentally and

physically to put on their maximum output.

An active cost helps the employee to closely relate their personal interest with theorganizations plan it acts like a motivation for plan achievement.

Control in a functional cost a thorough discussion is done on the forecasted cost

therefore there are a lot of cuts and adjustments to be made to fit in

organizational objective. Feedback system helps in the extending of variation b/t

the actual levels of performance and the forecasted cost.

Approved plan:

Master cost sheet is an approved summary of result to be expected from proposed

plan of action. It serve as a guide to executives and departmental heads responsible

for various objectives

To develop an understanding the Surana telecom &Power Ltd in the management

point of view in general and manufacturing unit in particular. Ascertaining the major


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of cost and its actual implications of the costing process at Surana Telecom & Power

Ltd

Methodology:

Data collection: Primary data collection from the company records and one to oneinteraction with the employees of the company

Secondary data: Through business magazines literary books journals annual reports ofthe company and web based recourses

Data analysis: Mainly analytical (qualitative) however quantitative tool will be employedas and when required

Inferences and observations; Drawn on the basis of analysis done

Conclusions and recommendations: To conclude the Project


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Chapter -II

REVIEW

OF

LITERATURE


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INTRODUCTION

Cost accounting is that part of management accounting which establishes budget and

actual cost of operations, processes, departments or product and the analysis of

variances, profitability or social use of funds. Managers use cost accounting to support

decision making to reduce a company's costs and improve its profitability. As a form of

management accounting, cost accounting need not follow standards such as GAAP,

because its primary use is for internal managers, rather than external users, and what tocompute is instead decided pragmatically.

Costs are measured in units of nominal currencyby convention. Cost accounting can be

viewed as translating the Supply chain (the series of events in the production process

that, in concert, result in a product) into financial values.

Cost accounting has long been used to help managers understand the costs of running

a business. Modern cost accounting originated during the industrial revolution, when the

complexities of running a large scale business led to the development of systems for

recording and tracking costs to help business owners and managers make decisions.

Management requires information to look into the future. Moreover, it has to ensure that

adequate resources are made available and plans are achieved at the least cost.

Formulation of budgets, pricing of new products or investment in new projects, etc are all

examples of costing information being an aid to planning. Thus, costing helps

management plan the product to be produced in order of priority, quantity of production,

fixation of optimum selling price, associated costs and expected profits.

Analysis, allocation and apportionment of costs requires considerable amount of clerical

work. It involves huge financial burden on the concern.


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Definition:

Method ofaccounting in which all elements ofcost incurred in carrying out an activity or

accomplishing a purpose are collected, classified, and recorded. This data is then

summarized and analyzed to arrive at a selling price, or to determine where savings are

possible. In contrast to financial accounting (which considers money as the measure of

economic performance) cost accounting considers it as the economic factor of

production.

Accumulation, examination, and manipulation of cost data for comparisons and

projections.

Cost analysis is Accounting & Auditing and Statistics, Mathematics, & Analysis

subjects.

Method of arriving at selling price of an item with reference to another item

without performing a cost analysis. It is employedusually where the two items

are so similar that price differences between them can be identified and justified.

FORECASTE:What will happen probable?

COST CONTROL: What management will try and make happen i.e. planning

And Control in a Cost, planning only in a forecast.

Need to manage cost:

Some costs tend to remain the same even during busy periods, unlike variable costs

which rise and fall with volume of work. Over time, the importance of these "fixed costs"

has become more important to managers. Examples of fixed costs include the

depreciation of plant and equipment, and the cost of departments such as maintenance,

tooling, production control, purchasing, quality control, storage and handling, plant

supervision and engineering. In the early twentieth century, these costs were of little

importance to most businesses. However, in the twenty-first century, these costs are
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often more important than the variable cost of a product, and allocating them to a broad

range of products can lead to bad decision making. Managers must understand fixed

costs in order to make decisions about products and pricing.

For example: A company produced railway coaches and had only one product. To make

each coach, the company needed to purchase $60 of raw materials and components,

and pay 6 laborers $40 each. Therefore, total variable cost for each coach was $300.

Knowing that making a coach required spending $300; managers knew they couldn't sell

below that price without losing money on each coach. Any price above $300 became a

contribution to the fixed costs of the company. If the fixed costs were, say, $1000 per

month for rent, insurance and owner's salary, the company could therefore sell 5

coaches per month for a total of $3000 (priced at $600 each), or 10 coaches for a total of

$4500 (priced at $450 each), and make a profit of $500 in both cases.

Characteristics of good costs: A good Cost Sheet is characterized by the

following:

Organization set-up: There should be a gradual and smooth introduction of

the system.

Promptness: The system should be so designed that the relevant information

and data is made available promptly and regularly.

Accuracy: The costing system must provide accurate information relating to

operations of the organization.

Uniformity: The costing system must ensure that the various forms and records

used for collection and presentation of cost data is uniformity. Instruction to staff

must be clear.

Minimal Clerical Work: Paper work is disliked by almost every one and yet it

is important. It must be kept to the minimum particularly in case of lower level

employees providing manual labor.


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Periodicity: The system must provide for periodical preparation and

presentation of costing results.

Reconciliation: The system must ensure that figures in cost records can be

easily reconciled with that of financial records. The possibility of installing an

integrated accounting system must be ensured

Advantages of Cost Analysis:

Many of us prepare costs analysis on a personal level: How much income for the month;

how much I, am going to spend; and most importantly, is there anything left over? It

seems true; however, that many businessmen do not prepare cost sheet their relatively

simple lives, when it comes to the much more complex situation of their business, they

prefer to let cash inflows and outflows look after themselves. The purpose of this part of

the chapter is to demonstrate that cost analysis is useful, informative and

communicative. We will see that a cost is a necessity not a Luxury. There is number of

advantages to Cost Analysis and Cost Accounting:

It reveals profitable and unprofitable activities.

It helps in controlling costs with special techniques like standard costing and

budgetary control

It supplies suitable cost data and other related information for managerialdecision making such as introduction of a new product, replacement of

machinery with an automatic plant etc

It helps in deciding the selling prices, particularly during depression period when

prices may have to be fixed below cost

It helps in inventory control


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It helps in the introduction of a cost reduction programmed and finding out new

and improved ways to reduce costs

Cost audit system which is a part of cost accountancy helps in preventing

manipulation and frauds and thus reliable cost can be furnished to management

A good system of costing affords an independent reliable check on the accuracy

of financial accounts. Reconciliation of results shown by cost accounts and that

by financial accounts establishes accuracy of both sets of books.

Cost Accounts records the time spent by each workers on a job or process. This

helps the management in ascertaining the unit cost labor for each activity. The

time and job cards indicate the loss caused by idle time. Suitable measures can

be taken to minimize the same.

Cost Accounting will enable the management to measures its efficiency and then

to maintain and improve it.

Problems or limitation of cost Accounting

Expensive:Analysis, allocation and apportionment of costs requires considerable

amount of clerical work. It involves huge financial burden on the concern. To install a

good system of Cost accounting, some amount of initial expenditure must be incurred,but this expenditure should be treated as capital expenditure.

Unnecessary: It is argued that costing is of recent origin and many concerns have

prospered in the past and still prospering without any costing system. Hence,

expenditure incurred in installing a costing system would be an unnecessary

expenditure. It is to be remembered that the atmosphere under which industries are now

operating is entirely different from what it was some fifty years ago.

Inapplicable:It is inapplicable to many types of industries. It cannot be applied in case

of small business houses and new types of industries that are coming up in recent times.

There is no ready-made system of Cost accounting applicable to all industries. The

system of Cost Accounting should be modified in such a way as to suit the special

requirements of industries.


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Unproductive: It is argued that costing system adopted in many concerns has not

produced the desired results. Hence it is defective. There is no rigid system of Cost

Accounting applicable to all industries.

Lack of Uniformity: There is a lack of uniform principles and procedures in CostAccounting.

Estimation:Cost Accounting works on a basis of estimates. The user does not receive

the time or exact cost. An error in estimation may throw up totally different results.

Suitability: Cost data is required for decision making purposes. Thus, a cursory

comparison may result in misleading conclusions.

Role of Management: The usefulness of Costing Accounting is restricted to the ability

and willingness of management to take decisions based on information received.

Paper work: it is argued that as the cost system requires the use of number of forms,

after some time it becomes stereotyped and degenerates into a matters of forms and

rulings.

METHODS AND TECHNIQUES OF COSTING

Methods of Costing:

Costing methods is a method of costing that is designed to suit the way goods are

processed or manufactured or the way services are provided. Each industry will have

costing methods with its unique features. However, the basic costing principles relating

to analysis, allocation and apportionment will be the same. There are two broad

categories of product costing methods, namely Specific Order Costing and Continuous

Operation or Process Costing.

1. Specific Order Costing:

The institute of Cost and Works Accountants of India (ICWAI) defines specific order

costing as the basic costing method applicable where the work consists of separate


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contracts, jobs or batches, each of which is authorized by a special order or contract.

Thus job costing, contract costing and batch costing come under the category of specific

order costing.

(A) Job Costing:

Cost unit in job order costing is taken to be a job or work order for which costs are

separately collected and computed.A job cost card is prepared for the purpose of cost

accumulation. Furniture made, repairs undertaken, printing etc are examples where job

costing is used.

(B) Contract Costing:

Contract costing is very identical to job costing, except that it is applied to a job which is

of relatively long duration and is required to be executed on the site of the client.

Contract costing system normally has higher proportion of direct costs. There are

frequent problems of cost control on account of large scale of the contract. A separate

account is kept for each contract. Contract costing is normally used in construction.

(C) Batch Costing:

This method is applicable where a quantity of identical articles is manufactured as abatch. The procedures of batch costing are very similar to that of job costing. The batchitself would be treated as a job and the batch becomes the cost unit. On completion ofthe batch, the cost per unit is calculated by dividing total batch cost with number of goodunits produced in the batch. Batch costing is adapted in the engineering componentindustry, footwear, garments industries etc.

2. Continuous Processing:

The ICMA defines continuous processing as the basic costing method applicable where

goods or services results from a sequence of continuous or repetitive operations or

processes to which costs are charged before being averaged over the units produced

during the period. The goods or services produced are standardized. It includes process

costing including for joint products and by products, operating in services costing and

unit or output costing.

(A)Process Costing:


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This is used in mass production industries manufacturing standardized products in

continuous processes of manufacturing. Costs are accumulated for each process or

department. For spinning mills, process costing is employed.Accurate records are

maintained of number of finished goods and unfinished goods (work in progress), normal

and abnormal loss at each process etc. As the processes are in a sequence, the output

of one process is charged as input for the next process. Procedures are clearly defined

for separating costs in the events of two or more products being simultaneously

produced by a particular process. It is applied in Brewing, Oil Refining, and chemical,

Textile, Food Processing and many other industries

(B) Unit or Output Costing:

It is a costing method where organization produces only single product. Consequently,

the whole production process is geared to the one product and is frequently highly

mechanized. The object of this method is to ascertain the total cost and the cost per unit

of output. Cement, mines, quarries, dairies, bricks etc are example of industries using

this method. It is also called Single Costing.

(C) Operating or Service Costing:

It is a method of costing of specific services. It is applied to transport undertaking, hotels,

hospitals, colleges, power supply companies etc. A particular difficulty in case of

operating costing is to define a realistic cost unit that represents a suitable measure of

service provided. A composite cost unit such as passenger kilometer or patient days is

more relevant and hence more commonly adapted.

Multiple costing:

It refers to application of more than one costing methods in case of same organization. Itis suitable in case of organizations producing a number of unrelated products or

components required to be assembled into a final product. It is necessary to ascertain

the cost of each component separately. This method is prominently used in toy

manufacturing companies, automobile factories, watch factories and other industries

requiring large-scale assembly.


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Techniques of Costing

Techniques of costing refers to the specialized procedures adopted for ascertaining the

cost of products or services for certain special purposes under special conditions, and

for providing relevant cost data to the management for purpose of cost control,

management policy and managerial decision making. The various techniques are stated

as under:

1. Historical Costing:

It refers to ascertainment of cost after they are actually incurred. It has very limited use,

as no control can be ascertained over actual costs. Although it helps periodic

comparison, it is similar to a postmortem action akin to financial accounting.

2. Marginal Costing:

It is technique that distinguishes b/t fixed and variable costs. The marginal cost of a

product is its variable cost. The fixed costs of the period are written off against total

contribution earned in that period, where contribution is the excess of sales realization

over marginal cost. Even the inventory is valued only at marginal or variable cost.

Marginal Costing technique is used to determine the impact of changes in volume or

change in product mix or shut down of a production unit or current profits.

3. Direct Costing:

It is a technique where in only the direct costs are charged to operations, processes or

products and the indirect costs are written off against profits of the period. Direct costing

technique is very similar to marginal costing technique, since most direct costs are

variable in the nature. It is a useful tool for decision making.

4. Absorption Costing:

It is a technique that takes into account the total cost of running an enterprise. It is also

known as Total Costing or Full Costing. It is a traditional technique and does not

distinguish b/t various kinds of costs, particularly fixed and variable costs. It values

inventory also at a total cost. It is useful in preparation of job estimates or quotations.


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5. Standard Costing:

It is a technique that establishes pre-determined estimates of costs of products and

services and then compares them with actual costs as they are incurred. It is very

detailed and requires considerable development work before it can be put the greatest

benefits is obtained in case of substantial degree of repetitive activity in the

manufacturing process. It facilitates formulation of production and pricing policies before

the actual start of production.

6. Uniform Costing:

Uniform costing refers to the use of the same costing methods, principles and

techniques by several organizations to facilitate common control and comparison of

stocks. Uniform costing normally does not contain advanced or novel features, butensures that there are similar costing foundation and reports in all organizations that

may belongs to the same groups, industry or trade association. It is not a distinct

technique in itself, but only a tool that facilitates comparison.

Cost Concepts

1. Cost:

The Institute of Cost & Management Accountant (ICMA) has defined cost as the amountof expenditure actual or notional, incurred on or attributable to a specified thing or

activity. It is the amount of resources sacrificed to achieve a specific objective. A cost

must be with references to the purpose for which it is used and the conditions under

which it is computed. To take decisions, managers wish to know the cost of something.

This something is called a Cost Unit.

2. Cost Unit:

A cost unit is anything for which a separate measurement of costs is desired. A product,

service, department, project or an educational course can all be cost units. Cost units


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are chosen not for their own sake but to aid decision-making. Thus, a cost unit is a

quantitative unit or product or service in relation to which costs are ascertained.

The cost units may be units of production such as tons of cement produced, or units of

services such as consulting man hours, Cost units can be single cost unit such asmeters of cloth or composite or compound cost unit such as passenger kilometers.

3. Cost Centre:

According to ICMA, London, Cost Centre is a location, persons or items of equipment is

respect of which costs may be ascertained and related to cost units for control

purposes. It is simply a method by which costs are gathered together, according to their

incidence, usually by means of cost centre codes. It is a smallest element of an

organization in respect of which costs are charged and ascertained. Maintenance

Department, a Public Relations Officer, a printing machine are all examples of cost

centers.

The establishment of cost centers serves two important purposes. Firstly, cost

ascertainment made possible by collecting and charging cost to each cost centre.

Secondly, cost control is ensured as costs can be more closely looked at and more

easily monitored by a responsible official. The setting up of cost centers depends on

numerous factors such as organization of the factory, conditions of cost incidence,

availability of information system, requirement of the costing system and management

policy.


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Types of Cost Centers

1. Production and Service Cost Centre:

A production cost centre is directly concerned with production or manufacturing wherein

raw material is processed into finished goods. A service cost centre provides service to

production centers. A stores department or transport department are example of service

cost centre. A mixed cost centre is engaged both in production and service activity. A

carpentry shop making moulds and also taking up repairs is an example of mixed cost

centre.

2. Personal and Impersonal Cost Centre:

A personal cost centre consists of a person or group of persons such as salesrepresentatives, customer etc. Impersonal cost centre consists of a location, machine or

department.

3. Operation and Process cost Centre:

An operation cost centre consists of machines and or persons working on a process

consisting of continuous stream of operations.


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ELEMENTS OF COSTS

Elements of cost refer to the essential components or parts of the total cost of a cost

unit. Total cost can be classified on the basis of traceability into Direct Costs and Indirect

Costs. Costs can also classify based on their physical characteristics into Material,Labour and Overheads. The various components of Total cost can be stated as Element

of cost. Let us understand each of the elements of cost in details

ELEMENTS OF COST

Material Labour Other Expenses

Direct Indirect Direct Indirect Direct Indirect

Overheads

Factory Overheads Office Overheads Selling&Distribution

Overheads


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MATERIAL COST

DIRECT MATERIAL:

Direct Material is the material that can be measures and charged directly to the Cost of

the product. It is that which can be conveniently identified with and allocated to cost

units. Direct materials generally become a part of the finished product. For example,

cotton used in a spinning mill is a direct material. Primary packing material such as

cartons is also part of direct material. Expenses incurred towards purchase such as

carriage inwards, import duty, etc are also added to the cost of Direct Material.

INDIRECT MATERIAL:

Indirect Material is that which cannot be conveniently identified with individual cost

units. They are required to be distributed amongst multiple cost units. Such material

does not form a part of a finished product. In a spinning mill, engineering department

spares, maintenance spares, lubricating oils, greases, ring travelers etc. some material,

although forming part of the product, may not be treated as direct materials if they are

used in measuring the same. For example, the thread used in stitching of dress material

will be treated as indirect material.

LABOUR COST

DIRECT LABOUR:

Direct Labour is that labour which is used for manufacture of specific article, process; job

etc. Cost consists of wages paid to workers directly engaged in converting raw materials

into finished products. These wages can be conveniently identified with a particular

product, job or process. However, even such expenses can be considered as direct

labour if they are exclusively engaged for a particular products, process or order.

INDIRECT LABOUR:

Indirect Labour is that Labour that cannot be conveniently identified with and allocated to

a specific product, process, job or order. It is not directly engaged in productive

operations. Indirect labour includes labour engaged in store keeping, material handling,

maintenance, clerical activities etc. Indirect labour includes labour that is directly


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identifiable with the finished product, but the cost is too small to merit separate

measurement. For example, wages paid to trainees is taken as indirect labour.

OTHER EXPENSES

All costs other than material and labour are termed as expenses.

DIRECT EXPENSES:

Direct expenses, also known as chargeable expenses, includes all such expenditure

other that expenses on direct material and labour that can be directly identified with a

cost unit. Examples of direct expenses are Architect or Surveyors fee, cost of drawing

and patterns, Royalty, Repairs and maintenance of plan obtained on hire etc.

INDIRECT EXPENSES:

Indirect Expenses are also called Overheads. They are also referred to as On Costs.

They include indirect material, indirect labour, and other expenses, which cannot be

directly charged to specific cost units. The overheads can be divided into three groups

namely, (1) Factory overheads (2) Administrative overheads and (3) Selling and

Distribution overheads.

OVER HEADS

FACTORY OVER HEADS:

Factory overheads or Factory expenses includes all indirect expenses, which are

connected with the manufacture of a product. When they allocate to different cost units

they are referred to as Factory On Cost or work On Cost. Examples of factory

overheads are salary of factory manager, supervisors etc. rents, rates and insurance of

factory building, power, factory lighting and heating, drawing office expenses,

depreciation of plant and machinery, expenses incurred on equipmentsetc.

ADMINITRATIVE EXPENSES:

Administrative expenses or overheads include all indirect expenses relating to

administration and management of an enterprise. They are also called as Office


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Overheads or Office on Costs. They include expenses incurred towards formulation of

policies, planning and controlling the functions and motivating the personnel of the

organization. Examples of administrative expenses are general office stationery,

postage, telephone and telegram expenses, remuneration of managing directors,

general managers, bank charges, legal expenses and audit fees etc.

SELLING AND DISTRIBUTION OVER HEADS:

Selling and Distribution overheads are indirect expenses connected with marketing and

sales. Selling expenses consist of expenses incurred in security and retaining

customers. They include advertising, salaries and commission of sales manager,

salesmen training

Expenses cost of samples, catalogues, price lists, exhibition and demonstration

expenses, market research expenses and expenses incurred on entertaining customers.

Distribution expenses are expenses incurred in ensuring that the products are available

at all potential points of sales. They include expenses on handling the products from the

time they are placed in the ware house until they reach their destination. Examples of

distribution overheads are cost of ware housing, packing and loading charges, freight

outwards, damages in transit etc.

ELEMENTS OF COST:

A cost is composed of three elements i.e. material, labour and expense.Each of these elements may be direct or indirect.

DIRECT COST INDIRECT COST

Direct material Indirect material

Direct labour Indirect labourDirect expenses Indirect expenses

By grouping the above elements of cost, the following divisions areobtained:


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1. PRIME COST = Direct Material + Direct Labour + Direct Expenses

2. WORK COST (FACTORY) = Prime Cost + Works or Factory Overheads

3. COST OF PRODUCTION = Works Cost + Administrative Overheads

4. TOTAL COST OR COST OF SALES = Cost of Production+ Selling &Distribution

Overheads.

COST SHEET

Cost Sheet of ..for the period ended..

Particulars Rs. Rs. Cost per unitRs.

Direct materials consumed

Opening stock of raw materials XXXXADD: Purchase of raw materials XXXX

Carriage on purchases XXXXXXXX

LESS: Closing stock of raw materials XXXX XXXX Xx

Direct Wages XXXX Xx Direct expenses XXXX XxPRIME COST XXXX Xx

ADD: Factory Overheads XXXXXXXX

LESS: Sale of Scrap XXXXXXXX

ADD: Work in Progress(Beginning) XXXXXXXX

LESS: Work in Progress(closing) XXXXWORKSCOST or FACTORY COST XXXX Xx

ADD:Administrative Overheads XXXXCOST OF PRODUCTIONOF GOODSSOLD

XXXX Xx

ADD: Opening stock of finishedgoods

XXXX

XXXX

LESS: Closing stock of finishedgoods

XXXX


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COST OF GOODS SOLD XXXX Xx

ADD: Selling & Distribution Overhead XXXXCOST OF SALES or TOTAL COST XXXX Xx

NET PROFIT XXXX Xx

SALES XXXX Xx

OTHER TECHNIQUES OF COSTING

Standard Cost Accounting

In modern cost accounting, the concept of recording historical costs was taken further,by allocating the company's fixed costs over a given period of time to the items produced

during that period, and recording the result as the total cost of production. This allowed

the full cost of products that were not sold in the period they were produced to be

recorded in inventory using a variety of complex accounting methods, which was

consistent with the principles of GAAP (Generally Accepted Accounting Principles). It

also essentially enabled managers to ignore the fixed costs, and look at the results of

each period in relation to the "standard cost" for any given product.

For example: if the railway coach company normally produced 40 coaches per

month, and the fixed costs were still $1000/month, then each coach could be said to

incur an overhead of $25 ($1000/40). Adding this to the variable costs of $300 per coach

produced a full cost of $325 per coach.

This method tended to slightly distort the resulting unit cost, but in mass-production

industries that made one product line, and where the fixed costs were relatively low, the

distortion was very minor.

For example: if the railway coach company made 100 coaches one month, then the

unit cost would become $310 per coach ($300 + ($1000/100)). If the next month the

company made 50 coaches, then the unit cost = $320 per coach ($300 + ($1000/50)), a

relatively minor difference.
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An important part of standard cost accounting is a variance analysis which breaks down

the variation between actual cost and standard costs into various components (volume

variation, material cost variation, labor cost variation, etc.) so managers can understand

why costs were different from what was planned and take appropriate action to correct

the situation.

Weaknesses of Standard Cost Accounting for Management

Decision Making

As time went on, standard cost accounting lost its usefulness for management decision

making due to a variety of reasons:

The practice of paying workers on a 'set-piece' basis changed in favor of payingon an hourly rate.

Modern companies tend to have relatively low truly variable costs (primarily raw

material, commissions or casual workers) and very high fixed costs (worker

salaries, engineering costs, quality control, etc.).

Equipment has become more complex and specialized and may be a very

significant proportion of total costs.

Changes in the level of full cost inventory create swings in profitability that is

difficult to explain or understand. An increase in inventory can "absorb" costs ofproduction and increase profits, while a decrease in inventory level will decrease

profits.

Organizations with a wide range of products or services have processes which

are common to several finished items, making cost allocation irrelevant or

misleading.

As a result of the above, using standard cost accounting to analyze management

decisions can distort the unit cost figures in ways that can lead managers to make

decisions that do not reduce costs or maximize profits. For this reason, managers often

use the terms "direct costs" and "indirect costs" to replace the standard costing, to better

reflect the way allocation of overhead is actually calculated. Indirect costs (often large)

are usually allocated in proportion to labor cost, other direct costs, or some physical

resource utilization.
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For example:If the railway coach company now paid its workforce a fixed monthlyrate of $8,000 (total) and its other fixed costs had risen to $2,600/month, the total fixed

costs would then be $10,600/month. The unit cost to make 40 coaches per month would

still be $325 per coach ($60 material + ($10,600/40)), but producing 100 coaches would

result in a unit cost of $166 per coach ($60 + ($10, 600/100)), provided the company had

the capacity to increase production to that level.

Managers using the standard cost for 40 coaches per month would likely reject an order

for 100 coaches (to be produced in one month) if the selling price was only $300 per

unit, seeing that it would result in a loss of $25 per unit. If they analyzed the fixed vs.

variable cost distinction, they would see clearly that filling this order would result in a

contribution to fixed costs of $240 per coach ($300 selling price less $60 materials) and

would result in a net profit for the month of $13,400 (($240 x 100) - 10,600).

Activity-based costing

Activity-based costing

(ABC) is a system for assigning costs to products based on the activities they require. In

this case, activities are those regular actions performed inside a company. "Talking with

customer regarding invoice questions" is an example of an activity performed inside

most companies.

Accountants assign 100% of each employee's time to the different activities performed

inside a company (many will use surveys to have the workers themselves assign their

time to the different activities). The accountant then can determine the total cost spent

on each activity by summing up the percentage of each worker's salary spent on that

activity.
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A company can use the resulting activity cost data to determine where to focus their

operational improvement efforts. For example, a job based manufacturer may find that a

high percentage of their workers are spending their time trying to figure out a hastily

written customer order. Via ABC, the accountants now have a currency amount that will

be associated with the activity of "Researching Customer Work Order Specifications".

Senior management can now decide how much focus or money to budget for the

resolutions of this process deficiency. Activity-based management includes (but is not

restricted to) the use of activity-based costing to manage a business.
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CHAPTER III

COMPANY PROFILE


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SURANA TELECOM AND POWER LIMITED

1 .BUSINESS OF THE COMPANY:

The company currently operates in two main business segments, telecommunication

and Power sector. The company has off late forayed in the infrastructure and Non

Conventional Energy sector. The company is all set to venture into the Solar Photo

voltaic (SPV) industry by manufacturing of SPV Modules. The company has also made a

strategic investment in its joint venture Company M/s. Surana Ventures Ltd

1.1 TELECOM DIVISION:

The Company Telephone Cables division mainly comprises of manufacture of Jelly

Filled Telephone Cables and optical Fiber cables in addition to the manufacture of

jointing kits and assembling of CDMA phones.

1.1 A. Jelly Filled Telephone CablesOne of the core areas of the companys business is manufacture of jelly Filled

Telephone Cables.

The company started this division in the year 1994-95 and has manufacturing facilities at

Hyderabad & Goa. The company manufactures cable from the range of 5 pairs to 800

pairs with a total production capacity of 2.9 million CKM. The latest technology and

testing facilities have let to the units being recognized and approved by the BSNL,

MTNL, and Indian Railways (IR) and AirtelThe demand for cable is expected to decrease in future. Mitigating this to some extend is

lower incidents of sales tax and income tax, low component of depreciation on its plans

in Goa and low marginal financial cost to the company. Therefore, the company is

continuously shifting its focus on other divisions.

1.1 B. Optical Fiber Cables

Keeping pace with the change in technology, the company started manufacturing of Optical Fiber

Cables in the year 1995. A sophisticated plant equipped with the state -of-the-art equipment from

ROSENDAHL-KOBELKO helps the division produce 6000 route kilometers of pairs 6, 12, 24 fiber

optic cables and accessories such as branch closures, optical fiber termination boxes and tool

kits.

With the present trend of rapid technological up gradation in the Telecommunication

Sectors, communication network. In order to meet this new challenge, in the year 2001

under backward Integration Plan, the company established its manufacturing facility for


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Optical Fiber (which is the main raw material for manufacture of Optical Fiber Cables) at

Hyderabad with an annual capacity of 2.5 lacks km initially, with Optical Fiber Drawing

Towers equipment from KOBELCO of Japan.

1.1 C.HEAT SHRIKABLE CABLE JOINTING KITS DIVISION

Extensive R & D and technological integral has led to this unit becoming entirely self-

sufficient today. An annual production capacity of 6,00000 kits. Equipped with the most

modern and sophisticated plant supplied by German centers of excellence, the company

has successful in totally indigenizing the manufacturing process.

1.1 D. CDMA TELEPHONES

The company has also entered into assembling and marketing with, LG Electronics ofKorea and Huawei of China for CDMA Fixed Wireless Telephone and WLL telephones.

During the year 2006-07, the company has executed orders worth 13 crores. Though the

market for CDMA phones is growing rapidly, the Company is not aggressively pursuing

the same as the margins are low.

1.2 POWER DIVISION:

To cope with the situation of declining JFTC demand, and in view of the high demand for

the Power Cables in the market and availability of required resources coupled with

optimal utilization of existing facilities, the company restructured a part of its JFTC plant

to manufacture power cables, which in the long run, will help in increase in the revenues

of the Company?

1.3 INFRASTRUCTURE DIVISION:

Anticipating the potential in the infrastructure business, the Company started investing

its surplus funds in IT infrastructure and leased the same to prominent IT Companies.

The company has presently initialed projects to build up IT/ITES facilities and Hardware

Infrastructure in various parts of the country.

1.4 NON CONVENTIONAL ENERGY DIVISION:


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With the growing concern over Global Warming and fast depletion of fossil fuels,

worldwide the importance of generating power from non conventional energy resources

such as Wind, Solar, etc, is being recognized. Recently your Company has made a foray

into the non-conventional energy sector with a wind power project with an initial capacity

of 1.25 MW at kapatgudda, Karnataka State. The project was commissioned on

30.03.07. The Company is also eligible for carbon credit for this project.

1.5 SOLAR PHOTO VOLTAIC

Taking a step further in the field of Non Conventional energy resources, your Company

has ventured into Solar Photovoltaic (SPV) Sector by establishing SPV Modules

manufacturing Plant (a 100% EOU) at Cherlapally, Hyderabad with an installed capacity

of 12 MW. Photovoltaic is the best known as a method for generating solar power by

using solar cells packaged in photovoltaic modules, often electrically connected in

multiples as solar photovoltaic arrays to convert energy from the sun into electricity. To

explain the photovoltaic solar panel more simply, photons from sunlight knock electrons

into a higher state of energy from the sun, creating electricity. The term photovoltaic

denotes the unbiased operating mode of a photodiode in which current through the

device is entirely due to the transducer light energy. Virtually all photovoltaic devices are

some type of photodiode.

2. INDUSTRY ANALYSIS

2.1 A. Jelly Filled Telecom Cables:

JFTC demand has suffered as a result of the increasing deployment of wireless

networks and popularity of mobile services and the decline in the rollout of and demand

for wire line services. It is expected that the business scenario for JFTC producers,

battling with huge unused capacities (over 90 % of the industry capacity is lying idle) and

weak demand, to continue to remain unfavorable. Cumulative JFTC demand during

2005-06 to 2009-10 is forecast to be at around 560 lack km (as against 1660 lack km

during the period 2000-01 to 2004-05) which translates into an average demand of 112

lack km annually

JFTC demand in each of the years during this period would primarily depend on the

order flow from BSNL, the largest buyer of JFTC, and rollout plans of private operators

such as Reliance Infocomm and Bharti Tele-Ventures Limited.


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2.1 B. Optical Fiber Cables:

The year 2007 experience an impressive revival in global demand for optical fibers.

Developed and emerging economies had encouraging announcements on infrastructure

development projects. There are new and sustainable demand drivers on the anvil and

there is wave of activity to develop new products to address applications as fiber comes

closer to the subscriber. The increase in emerging-market backbone deployments has

resulted from deregulation or liberalizing market developments, investment in new

infrastructure to compete with incumbents, and deployments in t developing economies

by utilities that have extensive rights-of-way.

The demand of the fiber optic cables by Indian Private Telecom Incumbents, Cellular

Industry, CATV Industry, MSOs and others have surpassed that of the Government

incumbents like BSNL, MTNL and Railtel, which were traditionally the largest buyers of

fiber optic cables in

India. The Indian Government as a buyer of Fiber Optic Cables through the Telecom

Incumbents & Public Sector Undertaking such as the Oil and Gas Sector, Power Sector,

etc. cumulatively constituted about 25% of the total purchases of Fiber Optic Cables in

India in FY 2007-08. The Private Telecom Operators constituted about 34%.

There has been a country wide renewal in demand from the Cellular Industry, with new

and expanded networks being laid to cater to the booming subscriber base. There is

also an increasing adaptation of fiber-base networks by the Cable TV Segment, Multi-

Service Operators (MSOs) and e-Governance State Initiatives. This set of buyers had a

cumulative purchase of about 1.2 million-km of Optical Fibers, which constituted about

41% of Indias purchases of Fiber Optic Cables in India in FY 2007-08

2.2 POWER CABLES:

Given the strong growth drivers, the industry is expected to grow at a CAGR of 20-25%

over the next few years. The size of the industry is expected to @ Rs 15-20bn p.a. and

touch around Rs 150bn by FY2012 from the current Rs 50bn. Most of the business is

expected to flow to existing players, especially the largest ones, because approvals and

references play a very important role in obtaining orders and these take a long period

(around 3-5 years) to be in place. Hence in spite of low Capex requirement (Sales to

Capex ratio of around 4x), supply to some extent will be constrained. The key


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experience, execution skills and strong management bandwidth in terms of streamlining

capacity expansion plans to sustain the accelerated growth rates.

Most of the players witnessed a poor performance over the past few years with poor

demand from the Power Sectors, a sluggish economy and declining performance of the

Telecom cable business. However, there has been a sharp swing in the performance

from the previous year with a healthy demand scenario, especially from the Power

sector, resulting in improving utilization levels and a sharp improvement in margins.

With a strong demand expected to flow over the next few years, most of the players are

ramping up operations by aggressively adding capacities. The product mix is also

witnessing a

Change with focus on HT Cables. With cost rationalization, higher operating leverage

and improved product mix, the margins of the major players are expected to stabilize at

higher levels of around 14-16%. Thus a strong demand potential, healthy growth in

revenues and positive outlook on profitability drives creates a bullish view on the sectors.

2.3 Infrastructure:

The Indian economy continues to surge ahead. The strong economic growth has

augured well for Indian real estate market. Almost 80% of the real estate development is

IT Parks & residential space and the rest comprises of offices, hotels, malls and

entertainment avenues. Technology sector and the outsourcing story coupled with the

demographic shift

Characterized by rising disposable incomes and increased consumer spending has

changed the face of commercial real estate market in India. It has been estimated that

there is a demand for approximately 75-85mn .sq .ft of IT space over the next 5 years.

The housing boom, despite firming up of interest rates on housing loans, continued its

fourth successive year of price rise. 2007-08 witnessed a sharp price increase, with price

rises ranging from 20-505 depending upon cities and locations within the cities.

India possesses the elements of very strong demand growth on the housing market in

the coming decades. In a very conservative scenario in which the average household

size remains constant at the present-day level, the backlog of demand cannot be

unwound and no shift in quality take place, each year some 4.7 million housing units

would have to be completed up to 2030. This figure is based on additional demand of

roughly 2.7 million housing units and annual replacement demand of roughly 2 million

dwellings.


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2.4 NON CONVENTIONAL ENERGY (Wind Power):

India consumes about 3.7% of the worlds commercial energy and is ranked as the fifth

largest consumer of energy in the world in terms of energy demanded this being despite

having one of the lowest per capita energy consumption in the world. Continued

economic development and increasing population are pushing up the demand for energy

at a higher rate than additions in generation capacity. Indias incremental energy

demand for the next decade is projected to be among the highest in the world, spurred

by sustained economic growth, rise in income levels and increased availability of goods

and services. With a gross domestic product (GDP) growth target of over 8.0% set for

the next few years, the energy demanded is expected to grow over

5.0% annually. It has been estimated that to support the governments GDP growth

targets, the electricity sector alone will have to increase supply by a minimum of 10-15%

annually.

With the rising price of fossil fuels and increasing environmental concerns, renewable

energy, particularly wind power, seems to be back in favour. The majors benefit of wind

energy is that it is renewable unlike fossil fuels such as coal and oil. Secondly, it is a

clean energy source so there are no emissions of carbon dioxide, surplus dioxide and

other pollutants

2.5 SOLAR PHOTO VOLTAIC:Photo voltaic (PV) is the field of technology and research related to the application of

Solar cells for energy by converting sunlight directly into electricity. Due to the growing

need for solar energy, the manufacture of solar cells and photovoltaic arrays has

expanded dramatically in recent years. Photovoltaic production has been doubling every

two years, increasing by an average of 485 each year since 2002, marketing it the

worlds faster-growing energy technology. At the end of 2007, according to preliminary

data, cumulative global production was 12400 megawatt. Roughly 90% of this

generating capacity consists of grid-tied electrical systems. Such installations may beground-mounted or built into the roof or walls of a building, known as Building Integration

Photovoltaic or BIVP for short.

Although the selling price of modules is still too high to compete with grid electricity in

most places financial incentives, such as preferential feed-in tariffs for solar-generated

electricity and net metering, have supported solar PV installations in many counties


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including Germany, Japan, and the United States, which comprises the potential export

market for the Company.

3. RISK ANALYSIS & MITIGATION

3.1 Business Risk

The state of Indian economy and the development in infrastructure, power and industrial

projects and expansions have a direct bearing on the performance of the Company

these sectors are expected to grow and are expected to drive the demand for the

Companys products also, however, an adverse development in these sectors can have

negative impact on Companys performance and its financials. The instability in the raw

material prices especially of metals like Copper and Aluminum being used in the

manufacture of cables can also have an adverse impact on the performance of the

Company.

3.2 Technology Risk

The Company keeps track of the latest trends in the cable industry globally. The

Company has an in-built quality assurance system whereby the product is tested at

every stage for its quality and technical accuracy. Management of the Company is giving

Quality Assurance and Research its highest priority. Continuous improvements in the

existing products and enhancement of product offerings will enable the company to

emerge as a reliable, cost competitive and quality provider of complete cable solutions.

3.3 Financial risk

Companys investment from time to time is made after due analysis and study. The

Company has adequate system to control financial risks. Company has adequate

system and control to monitor adequate inventory levels so as to reduce the cost of

capital and unpredicted fluctuations in the prices of inventory.

3.4 Human Resources

Human resources is the most valuable asset of the Company as it is the ultimate key to

the success of any organization and the Company gives due importance to maintain

cordial employer-employee relations. The Company is committed to foster a high


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performance environment, which characterizes the organizational climate that delivers

that business strategy. The company has low labour turnover and has adequate system

to reward and recognize the employee contribution towards the growth of the company.

4. INTERNAL CONTROL SYSTEM AND ITS ADEQUACY

The Company has adequate Internal Control systems and producers with regard to

purchase of stores, Raw Material including components, plant and machinery,

equipment, sale of goods and other assets. The Company has clearly defined roles and

responsibilities for all managerial positions and all operating parameters are monitored

and controlled.

The company has an internal audit system commensurate with its size and nature of

business M/s Luharuka & Associates, a firm of chartered Accountants, are acting as

Internal Auditors of the Company. Periodic reports of Internal Auditors are reviewed in

the meeting of the Audit Committee of the Board. Compliance with laws and regulations

is also ensured and confirmed by the Internal Auditors of the Company. Standard

operating procedures and guidelines are issued from time to time to support best

practice for internal control.

5. BUSINESS OUTLOOK5.1 A. Jelly Filled Cables Division:

The demand for cable is expected to decrease in Future. Mitigating this to some extent

is lower incidence of sales tax and income tax, low component of depreciation on the

plans in Goa and low marginal financial cost to the Company. The Company is gradually

reducing dependence on jelly filled dabbles and is shifting its focus on other divisions.

5.1 B Optical Fiber Cables:

During the current year this business has been adversely affected due to deferment of

buying program of PSU telecom majors such as BSNL and MTNL. However, the

Company retains a positive outlook on this business and look forward to increase

business opportunities in the new markets.


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5.2 Power Cables:

In view of the anticipated investments in infrastructure, power railways and industrial

sector, it is expected that the demand for the Companys power cables will grow rapidly.

The Company has already received several orders for LT Power cables and has been

constantly maintaining the positions b/w L_1 L_3 in tenders floated by various Electricity

boards across the country. It is expected that the turnover of the company and its

profitability will increase substantially during the next financial year if the development

taking place in the infrastructure, power and industrial sector, continues to grow at the

current pace.

5.3 Infrastructure

The Company has acquired several pockets of land in SEZ, IT Parks and HardwareParks in various places in India where the Company will build IT/ITES Infrastructure. The

Company has started the preliminary work for all the projects as detailed in the New

Project Initiatives segmentation of the Directions report and the construction work will

soon commence.

5.4 Wind Power:

The Wind Power project with the present capacity of 1.25 MW will continue to contribute

a steady revenue of about a crore annually. The Company has entered into a

Power purchase Agreement with Gulbarga Electricity Supply Company for sale of Power

for 20 years.

5.4 Solar Photovoltaic:

To start with the Company is all set to commence the production of SPV Modules at its

100% EOU plant at Cherlapally, Hyderabad. The Company through its JV Company, M/s

Surana Ventures Limited shall take a step further into the Solar Photo voltaic industry

wherein the company is planning to establish facilities for manufacturing of SPV

Modules, Cells and Wafers at its upcoming facility at Fab City SEZ, Hyderabad. The

Commercial production of the same with an initial capacity of 40MW is expected to


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commence by Nov/Dec08. Thereafter, the Company shall also venture into the

manufacture of SPV Cells.

7. FINANCIAL PERFORMANCE & OPERATIONAL

PERFORMANCE

7.1 Financial Performance:

Capital Structure:

The Equity Share capital of the Company as on 31st March 2009 is Rs 20804400/-

comprising of 104022000 Equity Share of Rs 5/- each fully paid.

Reserves and Surplus:

The Reserves and Surplus of the Company currently stands at Rs 58.89 Crore in the

previous year.

Fixed Assets:

During the year company has added Fixed Assets amounting to Rs252.39 Lakhs.

Inventories:

Inventories as on 31st March, 2010 amounted to Rs 1359.26 Lacks in the previous year.

Sundry Debtors:

Sundry Debtors amounted to Rs 1505.30 lakhs as on 31st March, 2010 as against Rs

948.12 lakhs in the previous year. These Debtors are considered good and realizable.

Cash and Bank Balances:

Cash and Bank balances with Scheduled Banks as well as in hand amounting to Rs

450.23 lakhs include amounts deposited with banks as Security and margin Money

Deposit.

Loans and Advances:

The Loans and Advances of amounts to Rs 915.86 Lakhs.


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Current Liabilities:

Sundry Creditors represent the amount payable to vendors for supply of goods.

Advances received from Customers denote monies received for the delivery of future

services.

7.2 Operational Performance:

During the year 2009-10, the turnover of the Company was Rs 6722.50 Lakhs as

compared to Rs 8689.03 Lakhs in the previous year.

Other Incomes as on 31st March, 2010 was Rs 601.76 Lakhs as compared to Rs 572.96

Lakhs in the previous year.

Expenditure:

During the year company incurred expenses amounting to Rs 1173.64 Lakhs as

compared to Rs 1020.52 Lakhs in the previous.

Depreciation:

The Company has provided a sum of Rs 220.32 Lakhs towards depreciation for the year

as against Rs235.65 Lakhs in the previous year.

Provision for Tax:

The Company has provided a sum of Rs 135.00 Lakhs as current Tax, Rs6.63 Lakhs as

Deferred Tax, and Rs5.25 Lakhs as fringe Benefit Tax for the current year.

Net Profit:

The Net Profit of the Company after tax is Rs919.48Lakhs as against Rs 817.88 Lakhs

in the previous year.

Earnings per Share:

Basic Earnings per Share for the year ended 31.03.2010is Rs4.07 for face value of Rs

5/- as against Rs 3.62 per share for the year ended 31.03.2009


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HUMAN RESOURCES DEVELOPMENT AND INDUSTRAIL

RELATIONS:

The company believes that the quality of its employees is the key to its success in the

long run and is committed to provide necessary human resource development and

training opportunities to equip them with skills, which would enable them to adapt to

contemporary technological advancements. The Company is also maintaining a

residential colony for its employees.

Industrial Relations during the year continues to be cordial and the Company is

committed to maintain good industrial relations through negotiations, meetings etc.

As on 31st March 2008, the company has a total strength of 119 employees.

BOARD OF DIRECTORS

G. Mangilal Surana - Chairman

O. Swaminatha Reddy - Director

R. Surrender Reddy - Director

S.R Vijayakar - Director

Dr. R.N Sreenath - Director

Narender Surana - Managing Director

Devendra Surana - Director

S.Balasubramanian - Whole time Director

STATUTORY COMMITTEES AUDIT COMMITTEE

O. Swaminatha Reddy - Chairman

G. Mangilal Surana - Member

R. Surender Reddy - Member

S.R Vijayakar - Member


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SHARE HOLDERS GRIEVANCE COMMITTEE

G. Mangilal Surana - Chairman

Narender Surana - Member

Devendra Surana - Member

V.P CORPORATE AFFAIRS & COMPANY SECRETARY

P.Rajesh Kumar Jain

BANKERS

State Bank of India

Development credit Bank Limited

Corporation Bank

HDFC Bank Limited

STATUTORY AUDITORS

Sekhar & Company

Chartered Accountant

133/4, R.P Road,

Secunderabad-500003.

INTERNAL AUDITORS

Luharuka & Associates

Chartered Accountants

5-4-187/3&4, Soham Mansion

2nd Floor, Above Bank of Baroda

M G Road, Secunderabad-500003.


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DIRECTORS RESPOSIBILITY

Pursuant to the requirement under section 217(2AA) of the Companies Act, 1956, with

respect to Directors Responsibility statement, it is hereby confirmed:

(1) That in the preparation of the accounts for the financial year ended 31st March, 2008;

the applicable accounting standards have been followed along with proper explanations

relating to material departures;

(2) That the Directors have such accounting policies and applied them consistently and

made judgments and estimates that were reasonable and prudent so as to give a true

and fair view of the State of Affairs of the Company at the end of the financial year and

of the Profit or Loss of the Company for the year under review;

(3) That the Directors have taken proper and sufficient care for maintenance of adequate

accounting records in accordance with the provision of the Companies Act, 1956 for

Safeguarding the assets of the Company and for preventing and detecting fraud and

other irregularities;

(4)That the Directors have prepared the Accounts for the financial year ended 31 st

March, 2008 on a going concern basis.

SIGNIFICANT ACCOUNTING POLICIES

A. Basis of Preparation of Financial Statements

The financial statements are prepared under the Historical cost convention with the

generally accepted accounting principles in India and the provisions of the Companies

Act, 1956.

B. use of Estimates

The Preparation of Financial Statements requires estimates and assumptions to be

made that affect the reported amount of assets and liabilities on the date of financial

statements and reported amount of revenues and expenses during the reporting period.Difference b/t the actual results and estimates are recognized in the period in which the

results are known materialized.


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C. Own Fixed Assets

Fixed Assets are stated are at cost net of modvat/ cenvat /value added Tax, less

accumulated depreciation and impairment loss, if any. Any costs, including financial

costs till commencement of commercial production, net charges on foreign exchange

contracts and adjustments arising from exchange rate variations to the fixed assets are

capitalized.

D. Leased Assets

Premium paid on Leased Assets is amortized over the lease period and annual lease

rentals are charged to Profit and Loss Account in the year it accrues.

E. DepreciationDepreciation is provided on written down value methods, except for Wind Power Plant

for which Straight Line Method is followed, at the rate and in the manner prescribed in

schedule XIV to the Companies Act, 1956.

F. Impairment of Assets

An assets is treated as impaired when the carrying cost of assets exceeds its

recoverable value. An impairment loss is charged to the Profit and Loss account in the

year in which an asset is identified as impaired. The impairment loss recognized in prior

accounting period is reversed if there has been a change in the estimate of recoverable

amount.

G. Investments

Current investments are carried at the lower of cost and quoted/fair value, computed

category wise. Long Term Investment is stated at cost. Provision for diminution in the

value of long-term investment is made only if such decline is other than temporary in the

opinion of the management.

H. inventories

Items of Inventories are measured at lower of cost or net realizable value, after providing

for obsolescence, if any. Cost of inventories comprises of all cost of purchase including

duties and taxes other than credits under CENVAT and is arrived on First in First out


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basis. Semi fix shed goods are valued at cost or net realizable value whichever is low.

Finished goods are valued at cost including excise duty payable or net realizable value

whichever is low. Cost includes direct Material, Labour cost and appropriate overheads.

I. Foreign Currency Transactions

Transactions in foreign currency are recorded at the exchange rate, prevailing on the

date of transaction or at the exchange rates under the related forward exchange

contracts. Profit/Loss on outstanding Foreign Currency has been accounted for at the

exchange rates, prevailing at the yearend rates as per FEDAI/RBI.

J. Employee Retirement /Terminal Benefits.

The employees of the Company are covered under Group Gratuity Scheme of Life

Insurance Corporation of India. The premium paid there on is charged to Profit and Loss

Account. Leave of best management estimates on actual entitlement of eligible

employees at the end of the year.

K. Provision Continent Liabilities and Contingent Assets

Provision involving substantial degree of estimation in measurement is recognized when

past events and it is probable that there will be an outflow of resources. Contingent

LiabilitiesWhich are not recognized are disclosed in notes? Contingent assets are neither

recognized nor disclosed in Statements.

L. Turnover

Turnover includes sale of goods, services, sales tax, service tax and adjusted for

discounts (net), excise duty. Inter-Unit sales are excluded in the Main Profit and Loss

account.

M. Revenue Recognition in case of real Estate Transactions.

Revenue in case of real estate transactions is made on the basis of concluded on

contracts for sales and purchases.


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N. Segment Reporting

Companys operating Business, organized & Managed unit wise, according to the nature

of the products and service provided, are recognized in

Segments representing one or more strategic business units that offer products or

services of different nature and to different Markets.

Companys operations could not be analyzed under geographical segments in

considering the guiding factors as per accounting Standard-17 (AS-17) issued by the

Institute of Chartered accountants of India.

O. provision for Taxation

Provision is made for Income Tax, estimated to arise on the results the year, at the

current rate of tax, in accordance with the Income Tax Act, 1961. Taxation deferred as a

result of timing difference, b/t the accounting & taxable profits, is accounted for on the

liability methods, at the current rate of Tax, to the extent that the timing differences are

expected to crystallize. Deferred tax assets are recognized only to the extent there is

reasonable certainty of realization in future. Deferred tax assets are reviewed, as at each

Balance Sheet date to re-assess realization.

P. Excise and Customs Duty

Excise and Customs Duty are accounted on accrual basis. CENVAT credit is accountedby crediting the amount to cost of purchases on receipt of goods and is utilized on

dispatch of material by debiting excise duty account.

.

Q. Prior Period Expenses/Income

Prior period items, if material are separately disclosed in Profit & Loss Account together

with the nature and amount. Extraordinary items & changes in Account Policies having

material impact on the financial affairs of the Company are disclosed.

R. Sundry debtors, Loans and Advances

Doubtful Debts/Advances are written off in the year in which those are considered to be

irrecoverable.


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S. Earnings per Share

The Company reports basis and diluted earnings per share in accordance with

Accounting Standard-20 (AS-20) issued by the Institute of Chartered Accountants of

India. Basic earnings per share are computed by dividing the net Profit or Loss for the

year by the Weighted Average number of equity share outstanding during the year.

Diluted earnings per share is computed by dividing the net Profit or Loss for the year by

weighted average number of equity shares outstanding during the year as adjusted for

the effects of all dilutive potential equity shares, except where the results are anti-

dilutive.

NOTES ON ACCOUNTS

(A). Share Warrants

During the year the Company has issued 3,395600 optionally convertible share warrants

at the conversion rate of 31 per share. The application money received is shown under

the head share warrants pending allotment in the Balance Sheet. The warrants are to

be converted in 18 months from the date of issue. None of the warrant holders have

opted for conversion as on the date of Balance sheet.

The proceeds of the warrants have been utilized for setting of new Aluminum Plant as a

part of backward integration.

(B). Secured Loans

Working Capital limited is secured by Hypothecation of stocks, debtors and first charge

on pari-passu basis on specific fixed assets of the company.

(C) Unsecured Loans Sales Tax deferment

The total sales Tax Loan outstanding as on 01-04-2008 was Rs 684.56 Lakhs. Duringthe year the company has repaid a sum of Rs 25.63 Lakhs and availed a credit of Rs

10.68 Lakhs. The outstanding liability stands at Rs 669.61 Lakhs as on 31.03.2010.


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(D) Depreciation on Revalued Assets.

The company had credited a sum of Rs 199053280/- towards revaluation reserve in the

financial year 2008-09. The excess depreciation on account of revaluation of assets

amounting to Rs 15767697/- for the current year has been withdrawn from the said

Reserve and credited to depreciation account. There is no impact on account of above

revaluation on the Book Profit of the Company.

(E) Assets Impairment.

The management of the Company has reviewed the assets keeping in the view the

accounting Standard 28 issued by the Institute of Chartered accountants of India and is

of the view that there is no impairment in the value of assets in accordance to that

standard.

(F) Sundry debtors & Other Balances

In case of balance in Sundry Debtors, loans and Advances, Other Current assets and

sundry Creditors, letter seeking confirmation and reconciliation.

The Company does not owe any sum to Micro & Small enterprises at the end of the

accounting year on account of principal and interest under the Micro, small and Medium

Enterprises Development Act, 2006 as per the information and records available with the

company about their industrial status which has been relied upon by the auditors.

(G) Employees Benefits:

1. The company has adopted the revised accounting Standard AS-15 Employees

Benefits with effect from 1st April, 2007.

2. Gratuity: The Company makes annual contribution to the employees group Gratuity

scheme of Life Insurance Corporation of India (LIC), a funded defined benefits plan for

qualifying employees. Gratuity is payable to all eligible on separation / termination ordeath in terms of the provisions of The Payment of Gratuity (Amendment) act, 1997 or

per companys scheme whichever is more beneficial to the employees.

3. The expected return on plan assets of 85 has been considered based on the

information given by LIC which manages the funds.

a project on cost analysis

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