CHAPTER-ONE

Introduction
1.1 Background:

All types of businesses, whether service, manufacturing or trading, require cost accounting to
track their activities. 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.

In the early industrial age, most of the costs incurred by a business were what modern
accountants call "variable costs" because they varied directly with the amount of
production. Money was spent on labor, raw materials, power to run a factory, etc. in direct
proportion to production. Managers could simply total the variable costs for a product and use
this as a rough guide for decision-making processes.

Some costs tend to remain the same even during busy periods, unlike variable costs, which rise
and fall with volume of work. Over time, these "fixed costs" have 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 nineteenth century, these
costs were of little importance to most businesses. However, with the growth of railroads, steel
and large scale manufacturing, by the late nineteenth century these costs were often more
important than the variable cost of a product, and allocating them to a broad range of products
led to bad decision making. Managers must understand fixed costs in order to make decisions
about products and pricing

Cost accounting is a process of collecting, recording, classifying, analyzing, summarizing,

allocating and evaluating various alternative courses of action & control of costs. Its goal is to
advise the management on the most appropriate course of action based on the cost efficiency and
capability. Cost accounting provides the detailed cost information that management needs to
control current operations and plan for the future.

1
Since managers are making decisions only for their own organization, there is no need for the
information to be comparable to similar information from other organizations. Instead,
information must be relevant for a particular environment. Cost accounting information is
commonly used in financial accounting information, but its primary function is for use by
managers to facilitate making decisions.

Unlike the accounting systems that help in the preparation of financial reports periodically, the
cost accounting systems and reports are not subject to rules and standards like the Generally
Accepted Accounting Principles (GAAP). As a result, there is wide variety in the cost accounting
systems of the different companies and sometimes even in different parts of the same company
or organization of the Study Cost accounting is one of the branches of accounting and is
predominately meant for meeting the informational needs of the management. Managers need
cost information for informed decision-making. Banerjee (2006) defined, cost accounting is a
quantitative method that accumulates, classifies, summarizes and interprets financial and non-
financial information for three major purposes such as ascertainment of cost of a product or
service, operational planning and control and decision-making. Although financial accounting
had its beginning early in the modern civilization along with trade and industry, cost accounting
has been rather late in coming. The first cost accounting beginning may be traced to Robert
Loders farm accounts for 1610-1620. Efforts were made by many industrialists in Great Britain
and in the United States to install factory cost systems as early as in1805. Such efforts were
however sporadic (Banerjee, 2006).The main objective of cost accounting is communicating
both financial and non-financial information to management for planning, controlling and
evaluating resources. Traditionally some technique like Financial Statement Analysis, Standard
Costing, and Cash Flow Analysis are found widely used followed by CVP Analysis, Marginal
Costing, and Fund Flow Analysis etc on organizations. But todays modern organizations would
like to adopt Modern like Activity-Based Costing, Target Costing, Just-in-Time (JIT), Total
Quality Management (TQM), Process Reengineering and The Theory of Constraints (TOC) to
improve their information and cost efficiency. Cost accounting provides the detailed cost
information that management needs to control current operations and plan for the future. Since
managers are making decisions only for their own organization, there is no need for the
information to be comparable to similar information from other organizations. Instead,

2
information must be relevant for a particular environment. Unlike the accounting systems that
help in the preparation of financial reports periodically, the cost accounting systems and reports
are not subject to rules and standards like the Generally Accepted Accounting Principles. As are
result, there is wide variety in the cost accounting systems of the different companies and
sometimes even in different parts of the same company or organization.

Classification of costs:

Classification of cost means, the grouping of costs according to their common characteristics.
The important ways of classification of costs are:

By nature or traceability: direct cost and indirect costs. Direct costs are directly attributable/
traceable to Cost object. Direct costs are assigned to Cost Object. Indirect Costs are not directly
attributable/ traceable to Cost Object. Indirect costs are allocated or apportioned to cost objects.

1. By functions: production, administration, selling and distribution, R&D.

2. By behavior: fixed, variable, semi-variable. Costs are classified according to their behavior
in relation to change in relation to production volume within given period of time. Fixed
Costs remain fixed irrespective of changes in the production volume in given period of time.
Variable costs change according to volume of production. Semi-variable costs are partly
fixed and partly variable
3. By control ability: controllable, uncontrollable costs. Controllable costs are those which can
be controlled or influenced by a conscious management action. Uncontrollable costs cannot
be controlled or influenced by a conscious management action.
4. By normality: normal costs and abnormal costs. Normal costs arise during routine day-to-
day business operations. Abnormal costs arise because of any abnormal activity or event not
part of routine business operations. E.g. costs arising of floods, riots, accidents etc.
5. By Time: Historical costs and predetermined costs. Historical costs are costs incurred in the
past. Predetermined costs are computed in advance on basis of factors affecting cost
elements. Example: Standard Costs.

New Mangalasaini Food Production:

3
New Mangalasaini Food Production established in 2071. It's located at mid-side of Tikapur
Municipality. There are four labours & one manager Mr. Siddha bdr. Khatri is the owner of this
small-cottage industry. Starting share capital of new Mangalasaini food production is three lakh.
It is small private industry manufacturing sauces and chow-min. The main objective of industry
is earning profit through high production and sells of sauces.

1.2Statement of Problem:

A problem statement is basically a statement that illustrates a clear vision and the overall method
that will be used to solve the problem at hand. Usually used when doing research, a problem
statement discusses any foreseeable tangible or intangible problems that the researcher may face
throughout the course of the project.

A problem statement is a clear concise description of the issue(s) that need(s) to be addressed by
a problem solving team. It is used to center and focus the team at the beginning, keeps the team
on track during the effort, and is used to validate that the effort delivered an outcome that solves
the problem statement.

1. Is organization applying cost accounting?

2. Is organization classified the cost accounting?
3. Is organization proper follows the cost accounting?

4
1.3Objectives of the study:

Every research is conducted with specific purpose and objective. Without any objective the
research work cannot give proper direction. Thats why we have to know the objective ofthe
research work before conducting research work. Which help us how much work is complete or
the research going wrong direction or not.

The project report which is conducted by me is based on following objective.

1 To ascertain the cost per unit of the products manufactured by New Mangalasaini food
productions.

2 To provide identified nature of fixed, variable, semi-variable cost of New Mangalasaini

Food Products.

3 To provide requisite data and serve as a guide for fixing prices of products manufactured
or services rendered.

1.4 Rationale:

Every research report is conducted to find out the conclusion. This report is prepared to analysis
the per unit cost of production of Mangalasaini food product Tikapur, kailali. Which show in
what trend per unit cost of production of Mangalasaini food product changing? It not only shows
the changing but it also shows the position of Mangalasaini food product Tikapur, kailali. This
report is conducted by me using tables and graphs to shows the fixed cost, Variable Cost & semi-
variable cost.

The Mane Rational of the Report Writing Of Cost Accounting Of New Mangalasaini Food
Production is identified of par unite cost of production &To know the Fixed, variable& semi-
variable cost of industry.

5
1.5. Report Structure:
The researcher prepares this report as per following structure:

In the 1st chapter, the researcher discuss about the introduction of the study which includes
background of the study, problems statement of the study, objectives of the study, theoretical
framework, and rationale of the study.

In the 2nd chapter, the researcher studies the various literatures and includes some of the major
conceptual review, of supportive texts and review of previous related studies and also the gap of
this research.

In the 3rd chapter, the researcher had used various methods for data collection. In this section the
researcher select some kinds of research and selecting the sample among the population. This
chapter shows the data collection procedure, instruments, techniques of analysis which are used
by researcher.

In the 4th chapter, the researcher shows the result and findings of this study. After collecting data,
collected data are shows in the tables, figures and analyzing those data.

In the 5th chapter, the researcher discuss about the conclusion summary and the recommendation
of this study. It is the most important chapter of this study.

6
 CHAPTER TWO

RELATED LITERATURE REVIEW:

Previous study materials, books and research report related to current research issue are as
literature review .study of previous research works and books with purpose of knowing the
research issue in details and find out appropriate methodology is known as literature review .

2.1 Conceptual Review:

This fields report is only with the help of my friends, textbooks, reference books, senior
Students & subjects books and teacher .the complete this work report concern factory manager
provided very helpful hops to conducts research in this topics.

Cost accounting ascertain the cost of production ,cost par job control, service, units department,
different methods ,techniques and system of costing are under different cost .it is internal report
system that aims to assist the management for planning and decision-making.it primarily
emphasizes on cost and deal with collection, analyzing, interpretation and presentation for
managerial decision making on ascertained and controlled. Cost accounting is more concerned
with short term planning and its reporting period is much lesser then financial accounting. Their
deal with historical data but it is also futuristic in approach. cost accounting system cannot be
installed without proper financial system. each organization can develop a cost system best
suited to its individual needs. In financial accounting the major emphasis is in cost classification
best to its types of transition. cost account is accounting for costs aimed at providing cost data ,
statement and report of assisting the management in planning, decision making and controlling.

7
2.2 Review of Previous works:

Review of Literature refers to the collection of the results of the various researches relating to
the present study. It takes into consideration the research of the previous researchers which are
related to the present research in any way. Here are the reviews of the previous researches related
with the present study:

V.G. Narayanan(2012): Cost accounting is that strategic considerations may make it

desiring for a firm to have divisions and product management internalize something other then
their true costing.

Harold j.Wheldon (2013) Cost accounting is the classification, recording ,and appropriate
allocation of expenditure for the determination of the cost of productions or service, and for the
presentation of suitability arranged data for the purpose of control and guidance of management.

KR Kont (2013) Cost accounting is focus on historical cost ,costing, time and motion
study ,which were initially developed for industry for private sector and organization.

J Garcia-Unanue, JL Felipe (2014) Cost accounting is the study of the developed new
tools and technique which increase in production ,sales volume, and markets.

Ajmer (2015) Cost accounting is which costs are determined par units cost of product
continuous manufacturing activities known as cost sheet. He discus the par units cost be arrived
after dividing the total expenditure by the quantity produced. A statement of cost sheet is made
out which throws light on every aspect of cost.

2.3 Research Gap:

No one can conduct research in daily; weekly and monthly .The research is conducts with the
certain gap which help the researcher to find out the accurate and needed result of the research
work .the different in previous researcher to this research to this study on cost accounting of New
Mangalasaini Food Productions. No one has researched in this topic of this institute previously.
Therefore, this study has various objective difference then previous research.

8
 CHAPTER-THREE

Methods

3.1 Types of Research:

Research methods reference to the various sequential steps adopted by researcher to arrive the
solution of the problem .It is a planned and systematic dealing with the collection, analysis and
interpretation of facts and figures .The research entirely considers about the cost accounting of
New Mangalasaini Food production .For the purpose of achieving the objective of the study
below mentioned research will be followed .which is reduced for survey.

Research Design is descriptive research design. A limited scale is survey is conducted among the
Telephone interview in order to the collect relevant data and other information relating to the
research telephone interview adopts for this study.

3.2 Population and Sample:

There are four private sauces factory in Tikapur, municipality .which are consider to study of
them required the study topic. Therefore sampling will be done selection for the population.

All the factories are taken as the population where as the factory selected as sample New
Mangalasaini Food Production .Tikapur, Kailali as chosen topic.

3.3 Types of Data:

Both primary and secondary data is used to perform the research.

A. Primary Data :

The data collected by the investigator himself or his agents, which are called primary data.
Primary data is gathering with the help of telephone interview .the telephone interview used
to collect the needed primary data.

9
B. Secondary Data:

Sometimes, secondary may be necessary to collect and used original data for an research.
Researcher can used the data already collected and used by other; such data is called secondary
data .Secondary data was collected from Quest.

3.4 Data collection procedure:

The researcher collected data and information about present cost accounting of through final
report of New Mangalasaini food production, of Tikapur, Kailali. for this report i take required
information from owner, manager and employees of New Mangalasaini food production, of
Tikapur, Kailali.

After the orientation class held in report writing in college I am able to impart the basic idea
about the report writing by our management department head Mr. Sitaram Rimal and supervisor
sir Mr. Damodar Kandel and Mr. Khem Subedi. After orientation class I take recommendation
letter from the Tikapur Multiple Campus I went to New Mangalasaini food products to collect
the required and relevant information to complete the partial fulfillment of project report. There
three step to complete the report project work on concerned topic such as:

Pre field activities:

Before the project work various books, articles, journals, internet websites were log in to
generate the required facts and ideas provided by the supervisor sir is generalized taking in
consideration. So, that the study fruitful according to the format of project report.

On the field activities:

To complete the pre-field activities the field work activities are continued various relevant
information, data and facts generated are generalized, summarized and presented in to table,
diagram, and pie chart.

Post field activities:

It is the stage at which the on the field data are concluded. Data obtained from the various source
cannot directly be used in their original form. They need to further verified and simplified for the

10
purpose of analysis. Data, information, figure and facts so obtained data and information need to
be checked, rechecked, edited and tabulated tor comparison.

According to the data they are inserted in to meaningful tables, different data have been sorted in
one table and sorted in to various tables have been prepared in understandable manner. Data and
information have been analyzed and interpreted by using mathematical.

3.5 Instrument:

For this research I used face to face interview, questionnaire and telephone interview with the
owner and employee of the industry to collects data and information. Which help me to conduct
my research with my problem and required questions needed for the report work.

3.6 Data analysis tools:

Data needs to be properly analyzed before drawing any conclusions. In this study, collected data
are analyzed using both descriptive and analytical tools.

Some of the tools that are used are:

1. Tabulation

2. Graphs

3. Bar-diagram

3.7 Limitation:

Each study has its own limitations we cannot write freely where we want the study can be free
from constraints as economic resources time etc. All the necessary data may not be available due
to business sectors. The study tools no exception and in character by following limitation.

This study examined only the nature of fixed, variable and semi-variable cost of New
Mangalasaini food production
This study was to be completed within limited time period of month. It was impossible to
all the activities of cost.
This study is mainly based on the secondary data.

11
 Due to the safety and privacy standard of factory the I tried to present only whatever be
presented.
This study used limited tools and techniques.
Only two year data are taken in consideration for the study

12
 CHAPTER-FOUR

Results and Findings

4.1 Presentation of Data in Table and Figures and Their Analysis:

The following cost data of New Mangalasaini Food Production are available for the output of
40000 & 90000 bottle for the year 2072 & 7073 ended Chaitra.

Table no: 1

Particular Amount amount

Direct material 420000 945000

Direct labour 196000 441000

Other direct expenses 40000 90000

Depreciation of machine 50000 50000

Repair & maintenance 7500 8000

Selling& distribution expenses 70000 80000

Office &administrative expenses 10000 10000

Salary of permanent staff 48000 48000

Electricity charge 40000 48000

Rent 54000 54000

Advertisement expenses 1500 2000

Telephone charge 6000 7000

Water charge 36000 48000

Total cost 980000 1831000

Sources: New Mangalasaini Food Products

13
Fixed cost:

The costs, whose total amount remains constant, up to a certain capacity is called fixed cost. The
level of production charges, but total amount of fixed cost remains constant. Fixed cost is also
called capacity cost; periodic cost, standing cost & burden cost .If the level of production
increases then par unit cost decreases &vice-versa, but total amount of fixed cost remain
constant. These costs remain fixed in total but their par unit cost changes with changes in output
or sales. The par unit fixed cost increases with decreases in output &vice versa.

Deprecation on plant ,Rent, Office & distribution expenses & Salary of permanent staff are fixed
cost because the total cost are same however, it is charged in production

Nature of Fixed Cost

Table no: 2

40000 bottle par bottle 90000 bottle par bottle

Particular total cost Cost total cost cost
Deprecation on plant 50000 1.25 50000 0.5555
salary of permanent staff 48000 1.2 48000 0.5333
Office & adm. Expenses 10000 0.25 10000 0.1111
Rent 54000 1.35 54000 0.6
Total Fixed Cost 162000 4.05 162000 1.7999

14
 Figure no: 1

fixed cost
180000
160000
140000
120000
fixed cost
100000
80000
60000
40000
20000
0
2072 (40000 bottle) 2073(90000 bottle)

In the above figure in 2072 year total production is 40000 bottles and in 2073 year total
production is 90000 bottles. In both years the total fixed cost remains constant Rs.162000.

Feature of Fixed Cost:

1. The amount of fixed cost is never zero, even through the production is zero.
2. The amount of fixed cost is constant up to a certain range.
3. Generally, fixed costs are unavoidable & uncontrollable.

Variable Cost:

The costs that change proportionately with the change in output are known as variable costs. An
increase in the volume means a proportionate increase in the total variable costs& decrease in
volume will lead to a proportionate decline in the total variable costs. There is a liner relationship
between volume & variable costs. The variable cost par units are always constants.
When production is zero, the total amounts of variable cost are also zero. Variable cost also
called marginal cost, direct cost & pocket cost.

15
16
 Nature of Variable Cost
Table no: 3

40000 bottle par bottle 90000 bottle par bottle

Particular total cost Cost total cost cost
Direct material 420000 10.5 945000 10.5
Direct labour 196000 4.9 441000 4.9
Direct other Expenses 40000 1 90000 1
Total Variable costs 656000 1476000
Figure no: 2

Total variable cost

1600000

1400000

1200000

1000000
Total variable cost
800000

600000

400000

200000

0
2072( 40000 bottles) 2073(90000 bottles )

In the above diagram it shows the total variable cost. In 2072 total variable cost is Rs.656000 and
in 2073 variable cost is Rs.1476000 which is 125% higher than last year of New Mangalasaini
food production, of Tikapur kailali.

17
Feature of Variable Cost:

1. Par bottle variable cost is constant.

2. When the production is zero, then total amount of variable cost is also zero but par bottle
variable cost will never be zero.
3. Variable cost is a controllable cost.
Semi-Variable Cost:

The costs which are neither perfectly variable nor absolutely fixed in relation to changes in
volume are called semi-variable costs or semi-fixed costs. Neither total amounts nor par unit cost
of semi-variable costs remains constant .If the level of production increase then total amounts of
semi-variable cost also increase and par unit cost decrease but not proportionately .These costs
have the characters of both fixed &variable cost .They are also called mixed cost ,combined
costs .

Nature of Semi-variable Costs

Table no: 4

40000 bottle units costs 90000 bottle units cost

Particular total cost total cost
Selling & dist. Expenses 71000 1.775 80000 0.8888
Repair & mantin. Expenses 7500 0.1875 8000 0.0888
Telephone charge 6000 0.15 7000 0.0777
Electricity charge 40000 1 48000 0.5333
Water expenses 36000 0.9 48000 0.5333
Advertisement 1500 0.0375 2000 0.0222
162000 4.05 193000 2.1441
Total cost
Figure no: 3

18
 semi-variable cost
200000

190000

180000
semi-variable cost
170000

160000

150000

140000
2072(40000 bottle) 2073(90000 bottle)

In the above diagram it shows the total Semi -variable cost In 2072 Rs 162000 and total semi-
variable cost is Rs. 193000 which is 19.14% higher than last year of New Mangalasaini food
production, of Tikapur, Kailali.

Feature of Semi-Variable Cost:

1. Neither total amount nor par bottle cost remains constant.

2. Semi-Variable cost can never be zero.
3. When the level of production increases then total amount of semi-variable cost also increase
but par unit cost is decreases &vice-versa.

19
 Table no: 5

Total fixed, variable, and semi-variable cost

Year

2072 2073

particular 40000 bottle 90000 bottle

fixed costs 162000 162000
variable costs 656000 1476000
semi-variable costs 162000 193000
Total cost 980000 1831000

Figure no: 4

Total fixed, variable, and semi-variable cost

2000000
1800000
1600000
1400000
1200000 FC
1000000 VC
800000 SVC
600000 TC

400000
200000
0
2072 2073

In the figure no 4 shows the fixed cost, variable cost, semi variable cost and total cost of New
Mangalasaini food production, of Tikapur, kailali. In 2072 total fixed cost is Rs. 162000 and
variable cost is Rs. 656000 and semi variable cost is Rs162000 and total cost is Rs. 980000. In
2073 fixed cost is constant, variable cost is increased to 1476000, similarly semi variable cost is
increased to Rs. 193000 and total cost is increased to Rs. 1831000.

20
 Table no 6

TFCPU, TVCPU, TSVCPU & TCPU

Particular 40000 bottle(2072) 90000 bottle(2073)

TFCPU 4.10 1.80
TVCPU 16.40 16.40
TSVCPU 4.10 2.10
TCPU 24.60 20.30

Figure no 5

TFCPU, TVCPU, TSVCPU & TCPU

30

25

20

TFCPU
15 TVCPU
TSVCPU
TCPU
10

0
2072(40000 bottle) 2073 (90000 bottle)

In the above figure 5 shows the per unit cost of fixed, variable, semi variable and total cost of
each bottle. In 2072 fixed cost per bottle is Rs. 4.10, semi variable cost is Rs.4.10 and variable
cost is Rs. 16.40. In 2073 due to increase in production fixed cost per unit is decrease to Rs. 1.80,
similarly variable cost per unit is constant and semi variable cost per unit is decreased to Rs 2.10.

21
Total cost per bottle of 40000 bottles in 2072 is Rs. 24.60 when the production increased to
900000 bottles the total cost per bottle is decreased to 20.30 in 2073.

4.2 Major Findings:

After doing this field work research. I got the knowledge of nature of fixed variable and semi
variable cost of New Mangalasaini Food Productions the major findings of this field work can be
listed below.

a. Fixed cost remains constant in this two year.

b. The variable cost increase with increase in output.
c. The semi variable cost increases slowly with increase in output.
d. Fixed, variable and semi variable per unit cost also identified.
e. Per unit cost of fixed cost decreasing while production is increases.
f. Variable cost per unit is constant although the production is increase.
g. Semi-variable cost is slowly decreasing.

22
 CHAPTER-FIVE

DISCUSSION AND CONCLUSION

This chapter deals with the major conclusion and discussed in separate section of this chapter
likewise, recommendation regarding the study are also presented in separate section of this
chapter. Lastly the chapter ends with the discussion of scope of the future study in the same field.

5.1 Discussions:

From the study of this field work report it is identified that fixed, variable & semi-variable cost
and pre unit cost of production. The factory has effective production, quality of sauce which
leads in decrease in cost per unit .But they do not manufacturing Noodles which lead to increase
in par units cost.

The study also creating that cost accounting are responsibility for reduce cost of production in
factory. This indicated that the manager of factory also manufacture the high bottle of sauce for
reduced the cost the study concluded that factory has the most effective price, location advantage
reduced per unit cost. Similarly as per study management belief increasing in high bottle of
sauces is the most variable of reduce of cost

5.2 Conclusion and Implication:

On the basis of the finding of the study .the following recommendation are made for future
improvement of cost accounting of New Mangalasaini Food Productions.

The fixed cost of factory is remaining constant.

The variable cost of factory is increased due to increase in production.
The semi variable cost of factory slowly increased.
The total per unit of factory is decreased when the production is increased.
To identified nature of cost.

23
 REFERANCE:

Adhikari Dev Raj & Pandey Dhurba lal(2073),Business Research Methods, Kathmandu
Asmita publication.
A field work report by Rawal Ram Bahadur, Fieldwork Assignment & Report Writing,
and Nepalgunj: Mahendra Multiple Campus.
The cost sheet of Mangalasaini Food Productions.
V.G. Narayanan(2012), Harold j.Wheldon (2013), KR Kont (2013), J Garcia-Unanue, JL
Felipe (2014), Ajmer (2015)
www.google.com

APPENDIX:

While preparing this project report many questions were asked with the owner of industry.
Which are as follows?
1. When was Mangalasaini Food Productions established?
2. What is the main objective of Mangalasaini Food Productions?
3. What is the initial capital of Mangalasaini Food Productions?
4. How many workers are there in Mangalasaini Food Productions?
5. How much fixed cost occurred during production?
6. How much variable and semi-variable cost incurred during production?
24
25