A Study Report On Unit Costing Method of ITC LTD

Preface
In today Scenario Practical Knowledge is more important than Theoretical. So for
Improvement of Management Skill of Students they need Practical Work on real situation.
Practical studies are gaining much more importance as compared to the critical knowledge
and management student have wide open space to fulfill their dreams

So For getting Practical Knowledge we make a report on Unit Costing. How it is calculated
and How ITC use it in their business.

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Acknowledgement
We are very lucky because we got an opportunity to make a study report on Unit Costing
Method Of Itc Ltd. We take this opportunity to express our immense gratitude to
PROF. UDAY ACHARYA for giving us the valuable opportunity to do this Report.

We are gratitude to him for his prolonged interest in our work and excellent guidance. They
have been constant source of motivation for us. By their uncompromising demand for quality
work I could do such an excellent work.

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Executive Summary
ITC Ltd is a very well known it is in the Business of Tobacco, Hotels, Paperboards &
Specialty Papers, Packaged Foods & Confectionery, Branded Apparel, Education &
Stationary Products & Incense Sticks.

This Report is all about Unit costing. How ITC ltd use Unit costing Methods in the
Business. In which Products they Mainly use Unit Costing Method.

So, to get that practical knowledge we have Make a report on Unit costing Method of ITC ltd.
Which is Major Company in the FMCG products and others.

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INDEX

Sr. Particular Page.

No. No.
Ch-1 Introduction of Company 5
1.1. History 5
1.2. Products 6
1.3. Costing 7
1.4. Cost Accounting 7
1.5. Objectives of cost accounting 8
1.6. Cost Concept 9
1.7. Costing Method 10

Ch-2 Cost Accounting Standard 12

2.1. Authority Body 12
2.2. Classification of Cost 14

Ch-3 Unit Costing 16

3.1. Introduction 16
3.2.Unit Costing Statement 17
3.3.Balancesheet 18
3.4. P& L A/c 19
3.5. Applicability 20

Ch-4 Findings 21

Ch-5 Suggestions 22

Ch-6 Bibliography 23

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Ch-1 INTRODUCTION
1.1. History of itc

ITC was incorporated on August 24, 1910 under the name of 'Imperial Tobacco Company of
India Limited'.. The Company's headquarter building, 'Virginia House'. The Company's
ownership progressively Indianised, and the name of the Company was changed to I.T.C.
Limited in 1974. In recognition of the Company's multi-business portfolio encompassing a
wide range of businesses - Cigarettes & Tobacco, Hotels, Information Technology,
Packaging, Paperboards & Specialty Papers, Agri-Exports, Foods, Lifestyle Retailing and
Greeting Gifting & Stationery - the full stops in the Company's name were removed effective
September 18, 2001.

ITC is one of India's foremost private sector companies with a market capitalization of
nearly US $ 19 billion and a turnover of over US $ 5 billion.* ITC is rated among the World's
Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes
magazine, among India's Most Respected Companies by Business World and among India's
Most Valuable Companies by Business Today. ITC ranks among India's `10 Most Valuable
(Company) Brands', in a study conducted by Brand Finance and published by the Economic
Times. ITC also ranks among Asia's 50 best performing companies compiled by Business
Week..

 Registered Office

VIRGINIA HOUSE

37 J.L.NEHRU ROAD, KOLKATA 700 071

EPABX NO. : 91-(0)33 22889371

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1.2 Products

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1.3 COSTING
Definition of costing:
Costing involves “the classifying, recording and appropriate allocation of expenditure for the
determination of costs of products or services; the relation of these costs to sales value; and
the ascertainment of profitability”.

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1.4 COST ACCOUNTING

Definition:
Cost accounting is the process of determining and accumulating the cost of product or
activity. It is a process of accounting for the incurrence and the control of cost. It also covers
classification, analysis, and interpretation of cost. In other words, it is a system of accounting,
which provides the information about the ascertainment, and control of costs of products, or
services. It measures the operating efficiency of the enterprise. It is an internal aspect of the
organization. Cost Accounting is accounting for cost aimed at providing cost data, statement
and reports for the purpose of managerial decision making.

The Institute of Cost and Management Accounting, London defines,

“Cost accounting is the process of accounting from the point at which expenditure is incurred
or committed to the establishment of its ultimate relationship with cost centers and cost units.

1.5 OBJECTIVES OF COST ACCOUNTING

Cost accounting has the following main objectives to serve:

1. Determining selling price,

2. Controlling cost
3. Providing information for decision-making
4. Ascertaining costing profit
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5. Facilitating preparation of financial and other statements.

1. Determining selling price

The objective of determining the cost of products is of main importance in cost accounting.
The total product cost and cost per unit of product are important in deciding selling price of
product. Cost accounting provides information regarding the cost to make and sell product or
services.

2. Controlling cost
Cost accounting helps in attaining aim of controlling cost by using various techniques such as
Budgetary Control, Standard costing, and inventory control. Each item of cost [viz. material,
labour, and expense is budgeted at the beginning of the period and actual expenses incurred
are compared with the budget. This increases the efficiency of the enterprise.

3. Providing information for decision-making

Cost accounting helps the management in providing information for managerial decisions for
formulating operative policies. These policies relate to the following matters:
(i) Determination of cost-volume-profit relationship.
(ii) Make or buy a component
(iii) Shut down or continue operation at a loss
(iv) Continuing with the existing machinery or replacing them by
improved and economical machines.

4. Ascertaining costing profit

Cost accounting helps in ascertaining the costing profit or loss of anyactivity on an objective
basis by matching cost with the revenue of the activity.

5. Facilitating preparation of financial and other statements

Cost accounting helps to produce statements at short intervals as the management may
require. The financial statements are prepared generally once a year or half year to meet the
needs of the management. In order to operate the business at high efficiency, it is essential for
management to have a review of production, sales and operating results. Cost accounting
provides daily, weekly or monthly statements of units produced, accumulated cost with
analysis. Cost accounting system

1.6 COST CONCEPT

The cost concept are define as follows:

1) Direct Cost :A cost that can be assigned specifically to a given or particular service.

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2) Indirect Cost: A cost necessary for the functioning of the organization as a whole,
but which cannot be directly assigned to one service.

3) Total Cost: The sum of all costs, direct and indirect, associated with the provision of
a given or particular service.

4) Fixed Cost: A cost that does not change with increases or decreases in the amount of
service provided (e.g., rent).

5) Variable Cost: A cost that increases or decreases with increases or decreases in the
amount of service provided (e.g., salary).

6) Sunk Cost: A cost that has already been incurred (e.g., the cost of a previously
purchased computer system).

7) Marginal Cost: The increase in total cost associated with an increase in the amount
of service provided (e.g., if a new computer report was requested, its
marginal cost would be predominantly the cost of the time it would take to program it
assuming the computer was a sunk cost).

8) Avoidable Cost: The amount of expense that would not occur if a particular decision
was implemented (e.g., if a clerk is laid off and a community is self insured for
unemployment compensation, the avoidable cost is total direct salary less payments
for unemployment benefits plus savings in employee benefits).

9) Life-Cycle Cost: The total of all costs associated with ownership of an item,
including acquisition, operation, and maintenance, over the life of the equipment, less
the resale value, if any.

10) Unit Cost: The cost of production of one “unit” of a given service.

11) Opportunity Cost: The benefit that would have been received if an alternative course
of action had been pursued.

12) Expense: A decrease in net total assets. Expenses represent the total cost of
Operations during a period, regardless of the timing of related expenditures.

13) Expenditure: A decrease in net current assets.

1.7 COSTING MEHTODS

Various Methods of Costing

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Different industries follow different methods for ascertaining cost of their products. The
method to be adopted by business organization will depend on the nature of the production
and the type of out put.
The following are the important methods of costing.
1) Job Costing
2) Contract Costing
3) Batch Costing
4) Process Costing
5) Service (Operating) Costing
6) Operation Costing
7) Single or Output costing
8) Multiple costing

1) Job Costing: Job costing is concerned with the finding of the cost of each job or work
order. This method is followed by these concerns when work is carried on by the
customers request, such as printer general engineering work shop etc. under this system a
job cost sheet is required to be prepared find out profit or losses for each job or work
order.
2) Contract Costing: Contract costing is applied for contract work like construction of dam
building civil engineering contract etc. each contract or job is treated as separate cost unit
for the cost ascertainment and control.
3) Batch Costing: A batch is a group of identical products. Under batch costing a batch of
similar products is treated as a separate unit for the purpose of ascertaining cost. The total
cost of a batch is divided by the total number of units in a batch to arrive at the costs per
unit. This type of costing is generally used in industries like bakery, toy manufacturing
etc.
4) Process Costing: This method is used in industries where production is carried on through
different stages or processes before becoming a finished product. Costs are determined
separately for each process. The main feature of process costing is that output of one
process becomes the raw materials of another process until final product is obtained. This
type of costing is generally used in industries like textile, chemical paper, oil refining etc.
5) Service (Operating) Costing: This method is used in those industries which rendered
services instead of producing goods. Under this method cost of providing a service is also
determined. It is also called service costing. The organization like water supply
department, electricity department etc. are the examples of using operating costing.
6) Operation Costing: This is suitable for industries where production is continuous and
units are exactly identical to each other. This method is applied in industries like mines or
drilling, cement works etc. Under this system cost sheet is prepared to find out cost per
unit and profits or loss on production.

7) Single or output costing: This type of costing is implemented in industries where only a
single product is manufactured E.g., Bricks, coal, only one type of detergent powder, etc.

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8) Multiple Costing: It means combination of two or more of the above methods of costing.
Where a product comprises many assembled parts or components (as in case of motor
car) costs have to be ascertained for each component as well as for the finished product
for different components, different methods of costing may be used. It is also known as
composite costing. This type of costing is applicable to industries producing motor
vehicle, aero plane, radio, T.V. etc.

CH-2 Cost accounting standard

2.1 AUTHORITY BODY Of ITC
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Board of Directors

CHAIRMAN

Y.C.Deveshwar

EXECUTIVE DIRECTORS

Nakul Anand Pradeep Vasant Dhobale Kurush Noshir Grant

NON-EXECUTIVE DIRECTORS
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 Anil Baijal

 Shilabhadra Banerjee

 Angara Venkata Girija Kumar

 Serajul Haq Khan

 Sunil Behari Mathur

 Dinesh Kumar Mehrotra

 Hugo Geoffrey Powell

 Pillappakkam Bahukutumbi Ramanujam

 Anthony Ruys

 Krishnamoorthy Vaidyanath

 Balakrishnan Vijayaraghavan

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2.2 CLASSIFICATION OF COST

The following is the text of the COST ACCOUNTING STANDARD 1 (CAS 1) issued by
the Council of the Institute of Cost and Works Accountants of India on “Classification of
Cost”. The standard deals with the principle of classifying costs in the cost statements. In this
Standard, the standard portions have been set in bold italic type. These should be read in the
context of the background material which has been set in normal type.

1. Introduction
The standard on classification of costs deals with the basis of classification of costs and the
practice to be adopted for classification of cost elements in regard to its nature and
management objective. The statement aims at providing better understanding on
classification of cost for preparation of various cost statements required for statutory
obligations or cost control measures.
2. Objective
 The objective of this Standard is to prescribe the classification of costs for
ascertainment of cost of a product or service and preparation of cost statements on a
consistent and uniform basis with a view to effect the comparability of the same of
an enterprise with that of previous periods and of other enterprises.

 The classification and its disclosure are aimed at providing better transparency in the
cost statement.

 The standard is also for better adoption of Uniform Costing and Inter-firm
Comparison.
3. Scope
 The standard on classification of cost should be applied in assessment of cost of a
product or service, application of costing technique and in case of management
decision making by the manufacturing industries in India.

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 The standard is to be followed by an enterprise, whether covered under section
209(1)(d) of the Companies Act,1956 or not, to classify cost in order to prepare cost
statement on uniform basis to make it relevant and understandable for effective cost
management.

 The standard has also to be followed for the purpose of assessment of cost of
production or valuation of product or the valuation of stock to be certified for
calculation of duties and taxes, tariffs and other purposes as the case may be. The
cost statement prepared based on standard will be used for assessment of excise duty
and other taxes, anti-dumping measures, transfer pricing etc.

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CH-3 Unit Costing

3.1. INTRODUCTION

Definition of Unit Cost

product or service

equipment) and all variable costs (labor,

materials, etc.) involved in the production of a service or product

Understanding the Fundamentals of Unit Cost

The Importance of Knowing Unit Costs

provided

te
reductions by payers

Uses of Unit Costing

Once we know what our unit costs are, what can we do with them?
• We can measure cost effectiveness by looking at unit costs year on year.
• We can set unit costs as a target, with the aim of maintaining the unit cost.
• We can compare our performance against other councils.

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3.2 UNIT COSTING STATEMENT OF ITC LTD.

Particulars 31-3-2011 31-3- 2010

Opening Stock of Raw Material 3102.37 2695.49
Add: Purchase of Raw materials 7524.95 6469.70
Less: Closing stock of Raw Materials (3486.70) (3102.37)
Raw Materials Consumed 7140.62 6062.82
Direct Wages (Labour) 1450.54 1209.76

Prime cost (1) 8591.16 7272.58

Add :- Factory Over Heads:
Factory Rent 192.79 182.18
Factory Power 447.22 410.37
Factory Insurance 42.12 37.25
Factory Asset Depreciation 699.09 643.90
Works cost Incurred 9972.38 8546.28
Add: Opening Stock of WIP 81.79 77.75
Less: Closing Stock of WIP (98.92) (81.79)
Works cost (2) 9955.25 8542.24
Add:- Administration Over Heads:-
Audit Fees 85.55 71.83
Bank Charges 20.91 18.25
Other Office Expenses 766.55 692.04

Cost of Production (3) 10828.26 9324.36

Add: Opening stock of Finished Goods 1286.27 1756.06
Less: Closing stock of Finished Goods (1591.14) (1286.27)
Cost of Goods Sold 10523.39 9794.15
Add:- Selling and Distribution OH:-
Sales man Commission 27.60 24.51
Traveling Expenses 212.73 178.75
Advertisement 654.55 542.20
Sales Tax 2365.45 2034.93
Bad Debts 2.74 14.92
Cost of Sales (5) 13786.46 12589.46
Profit 8487.2 6546.41
Sales 22273.66 19135.87

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3.3. balance sheet

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3.4 Profit &loss A/c

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3.5 APPLICABILITY OF UNIT COSTING

 Unit cost is applicable to Manufacturing Industries where the production is
continuous and uniform, and a single article is produces in twoor more grades.
 ITC use unit costing in Paper & packaging industries
 Unit Costing is calculated by following formula:

Cost Per Unit = Total Cost

Number of unit Produced

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CH-4 FINDINGs
 We Come to Know From this report that ITC is Growing day by day.
 We show that ITC ltd Profit is increase in the year 2011 in compare to year
2010.
 We also think that ITC Capture high market share. SO, we can say that ITC
is at a good Position.

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CH-5 SUGGESTIONs
 The company today has achieved a lot in market and is standing at great position so it
becomes very difficult to give any suggestions.

 We recommend ITC to expand their business in Soft drink Market and beat with the
well known leader of soft drink Coca-cola and Pepsi.

 They have to make their policy Strong for collection of money so the bad debt will
not occurs.

 The company should organize more seminars to let people know about their activities
and quality of their Product. It should now also try to enter in some other field except
for only manufacturing Garments and Food Products.

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CH-6 BiBLIOGRAPHY

Websites
 http://www.Google.com
 http://www.itcportal.com/about-itc/itc-profile/history-and-evolution.aspx

BOOK
 Managemant Accounting ( Page no.-35,195,203)
-Author -Paresh Shah
-Publisher- Oxford

 Two year’s Annual Report of ITC LTD (2010 &2011)

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