ASSIGNMENT-1

ADVANCE COST ACCOUNTING

TOPIC: MARGINAL COSTING OF DABUR INDIA LTD.

PONDICHERRY UNIVERSITY
M.COM (BF)

REG NO: 20351002

SUBMITTED TO: DR.D.LAZER

SUBMITTED BY: ABHISEK SENAPATI

MARGINAL COSTING OF DABUR INDIA LTD

INTRODUCTION
Marginal costing is a principle whereby variable costs are charged to cost units
and the fixed costs attributable to the relevant period is written off in full against
the contribution for that period. Marginal costing is the ascertainment of
marginal cost and the effect on profit of changes in volume or type of output by
differentiating between fixed costs and variable cost. In marginal costing, costs
are classified into fixed and variable costs. The objective of the report is to
study the balance sheet of a manufacturing company and carry out the
following: Prepare Cost Sheet, Analysis the cost sheet, Apply the concepts of
marginal costing and CVP analysis. To achieve this purpose I have chosen
Dabur India Ltd. and studied its annual report 2020-21.

COMPANY PROFILE: DABUR INDIA LTD

Dabur India Limited has marked its presence with significant achievements and
today commands a market leadership status. The story of success is based on
dedication to nature, corporate and process hygiene, dynamic leadership and
commitment to the partners and stakeholders. Dabur India Ltd is considered as
the leading consumer goods company in India with a turnover of Rs. 2834.11
Crore(FY2009). The three major strategic business units (SBU) - Consumer
Care Division (CCD), Consumer Health Division (CHD) and International
Business Division (IBD). It has 17 ultra-modern manufacturing units spread
around the globe. Products marketed in over 60 countries. Wide and deep
market penetration with 50 C&F agents, more than 5000 distributors and
over2.8 million retail outlets all over India. The master brands are : Dabur-
Ayurvedic healthcare products), Vatika - Premium hair care, Hajmola – Tasty
digestives, Réal - Fruit juices & beverages, Fem - Fairness bleaches & skin care
products.
Dabur India Limited is the fourth largest FMCG Company in India
with Revenues of over Rs. 9,500 Crore & Market Capitalization of over Rs
100,000 Crore. Building on a legacy of quality and experience of over 137
years, Dabur is today India’s most trusted name and the world’s largest
Ayurvedic and Natural Health Care Company with a portfolio of over 250
Herbal/Ayurvedic product. 
Known as the 'Custodian of Ayurveda', Dabur marries age-old traditional
wisdom with modern-day Science to develop products for consumers across
generations and geographies. Dabur's FMCG portfolio today includes 8 Power
Brands with distinct brand identities -- Dabur Chyawanprash, Dabur Honey,
Dabur Pudin Hara, Dabur Lal Tail and Dabur Honitus in the Healthcare
space; Dabur Amla and Dabur Red Paste in the Personal Care category;
and Réal in the Food & Beverages category. In addition, Vatika is an
International Power Brand.
Dabur today operates in key consumer product categories like Hair Care, Oral
Care, Health Care, Skin Care, Home Care and Foods. The ayurvedic
company has a wide distribution network, covering 6.7 million retail outlets
with a high penetration in both urban and rural markets.
Dabur's products also have huge presence in the overseas markets and are
today available in over 120 countries across the globe. Its brands are highly
popular in the Middle East, SAARC countries, Africa, US, Europe and
Russia. Dabur's overseas revenue today accounts for over 27% of the total
turnover.
 
COSTING

Costing is the technique of ascertaining cost. A cost sheet is a statement of cost

prepared at given interval of time showing various elements of cost of a product
produced, or service rendered during a particular period. This statement gives
details about total cost and cost per unit at different stages of production.

Important components of marginal cost are:

 Prime Cost = Direct material cost + Direct labour cost

 Works Cost = Prime cost + Factory overheads.
 Cost of production = Works cost + Office & Administrative overheads.
 Total Cost (Cost of sales) = Cost of production + Selling & Distribution
overheads.
From the balance sheet of Dabur India Ltd. as on 2020-21 and with the help of
schedules to accounts and notes to schedules i have prepared the cost sheet.

I have assumed the following for the preparation of cost sheet

 Rent has been assumed to be factory rent.
 Insurance has been taken on building.
 I assume that the land is used only for factory purpose.
 As the company has variant products, the selling price per unit cannot be
estimated. So all the calculation of sales has been limit to sales in rupees.

ANALYSIS OF COST SHEET

 Freight and forwarding charges form about 12.018% of selling and

distribution overhead.
 Advertisement expense constitutes about 74.589% i.e the company
focuses more on advertisements.
 General expenses account to major portion of Administrative overhead
which is 52.1%.
 Direct material constitutes 5.91% of the prime cost while Direct labour
constitutes only 12.12 %.
 The factory overhead consists mainly of power and fuel which is 36.08%.
and followed by processing charges which is 17.86% . Depreciation
forms the major part of the factory overhead which is 24.87%.
 Rent paid for the building constitutes 12.07%.
 Profit margin is 32.049 % of net sales.

Factory OH as a % of Direct labour 65.25

Administrative OH as a % of 11.14
works cost

Selling OH as a % of Cost of 29.71

production

 The total depreciation expense incurred during the year is Rs. 3496 crores
out of which Rs. 2118 crore is towards plant and machinery and Rs.170
crore is only for office furniture and fixtures.
 Depreciation on Plant and machinery is 71.18% of depreciation on
factory assets.
  Overall deprecation constitute of 1.98 % of total cost of production.

MARGINAL COSTING

Marginal costing is the ascertainment ,by differentiating between fixed cost and
variable cost of marginal costs and of the effect on profit of changes in volume
or type of output .It is not a system of ascertaining cost but a special technique
which is concerned with the changes in costs resulting from the changes in
volume or range of output.

According to CIMA Terminology, Marginal Costing is the ascertainment of

marginal cost and of the effect on profit of changes in volume or type of output
by differentiating between fixed costs and variable costs. In this technique of
costing only variable costs are charged to operations, processes or products,
leaving all indirect costs to be written off against profits in the period in which
they arise. It is clear from the above that only variable costs form part of
product cost in the technique of marginal costing because only variable costs are
changed if output is increased or decreased and fixed costs remain the same.

The technique of marginal costing involves:

 Differentiation between fixed cost and variable cost

 Ascertainment of marginal costs

 Ascertaining the effect on profit due to changes in volume i.e cost volume
profit analysis

Tools of marginal costing:

 Contribution
 P/V Ratio
 Break even point
 Margin of safety

CALCULATION OF FIXED & VARIABLE COST

FIXED COSTS Rs. In Crore

Depreciation on Building 727
Depreciation Plant & Machinery 2118
Depreciation lease on land 10
Rates And Taxes 348
Depreciation Vehicle 196
Depreciation furniture & fixtures 170
Depreciation computer 275
R&D 368
Auditors Remuneration 76
General Expenses 9201
Security 446
Insurance 286
Directors Fee 2192
Telephone and Fax 355
Legal and Professional 2159
Repair and Maintenance Building 281
Processing charges 2098
Other Repairs 678
Rent 2132
Advertisement 39019
Total fixed cost 63135
VARIABLE COST Rs. In Crore
Repairs To Machinery 423
Direct labour 18000
Raw material 77335
Primary Packing Material 50071
Power and Fuel 4239
Stores and Spares 1172
Excise Duty 3099
Sales tax 289
Freight and forwarding 6287
Travel and Conveyance 3007
Commission and Discount 3166
Total Variable costs 167088

Total cost 230223

All the expenses have been classified under two categories of cost:
 Fixed cost
 Variable cost
Fixed cost as a % of Total Cost 27.423
Variable cost as a % of Total Cost 72.575
  Major part of the expense is variable cost accounting to 27.423% while
only 27.423% is fixed cost. That means if variable cost per unit is
controlled to some extent then cost can be controlled. Though fixed cost
seems to be low when compared to variable cost it is also an indication
that company has invested well in fixed assets as 27.423% is a
comparably high value.
 The company has invested a considerable amount in advertisement and
publicity which accounts to around 63.13% of fixed cost.
 Expense on raw materials and primary packing material together
constitutes 76.25% of variable cost. This depends mainly on the market
demands as well the capacity of production.
CALCULATION OF MARGINAL COSTING TOOLS

Particulars Formula Calculation Result

Break Even Fixed costs/ (P/V 12933.24
Sales(in Rs. ratio)
Crores)
P/V ratio (Contribution 3737.91/16910.06 0.48815
/Sales )*100
Margin of safety Actual sales – 16910.06-3032.036 197100.76
BEP(Rs)
Margin of safety (Margin of 13878.02/16910.06 60.38
ratio safety/ Actual
sales)*100

WORKING NOTE
Sales 326437
Fixed Cost 63135
Variable Cost 167088
Contribution 159349
P/V Ratio 0.488146258

 Suppose the company expects a profit of Rs. 150000 crores for the next
financial year.
Column 1 Column 2
Desired Profit 150000 crore
P/V Ratio 0.488146258
Fixed Cost 63135
Desired Sales 436621.1899

BENEFIT ACHIVED BY DABUR INDIA LTD THROUGH THE

ADOPTION OF MARGINAL COSTING METHOD

The current year fixed costs is not carried forward to the next year. As such, cost
and profit are not vitiated. Cost comparisons become meaningful.

Under absorption and over absorption of overheads problems are not

arisen under marginal costing in dabur ltd.

It shows more clearly the impact on profit of fluctuations in the volume of sales.

The prevailing relationship between cost, selling price and volume are properly
explained in clear terms.

It shows the relative contributions to profit that are made by each of a number of

products and show where the sales effort should be contracted.

FINDINGS
 Margin of safety is an advantage to the company. It indicted the extra
profit the company earns over the breakeven point. Dabur’s MOS is
60.38% which is high. This means that the firm will earn profits even if
there is a slight fall in production or sales. This also contributes to a high
angle of incidence.
  BEP sales is Rs.129336.24 crores which is extremely low in comparison
to current sales(Rs.326437 crores).
 BEP analysis will help the banker in appraisal of actual/projected
performance of the borrower. It also acts a sensitivity analysis tool to
judge the projected performance.
 . For the company to reach a profit value of Rs.150000 it has to impove
its sales by Rs.110184crores.

CONCLUSION
After analysing the application of Marginal costing method of Dabur India ltd,
it is found that they were able to achieve good results. It giving it the best way
to calculating their overall profit. It indicted the extra profit the company earns
over the breakeven point. This means that the firm will earn profits even if there
is a slight fall in production or sales. This also contributes to a high angle of
incidence.
Dabur has shown in all the ways that why it is one of the leading company in
the market for Ayurvedic product. Since the company is earning some amount
of profit, the business is capable to expand and diversity over a period of time.
Dabur has marked the selling price of their product roughly 20% above the cost
price. This implies that they are making profit on each unit of output that is
sold. From out of the analysis we get to know that the adoption of Marginal
costing in Dabur India ltd is a good choice.

REFERENCE
1. WWW.DABUR.COM
2. WWW.GNWEBSERVER.DABUR.COM
3. WWW.YOURARTICLELAIBRERY.COM
4. WWW.RESEARCHGATE.IN