INTRODUCTION

Internship is an opportunity that employers offer to students interested in gaining

work experience in a particular company. Internships offer students a hands-on
opportunity to work in their desired field, learn how their course of study applies to
the real world and build a valuable experience that makes them stronger candidates
for jobs after graduation. The work experience being gained at the Organization is
going to help me in my curriculum and shall also be an eye-opener for me to have a
firsthand experience of work life culture in a Professional Organization.

Internship Training completed at DIS MRP SEALS (P) Limited on the following
topics from 10-04-18 to 29-04-18.

 Inventory Management - Ageing analysis, Safety stocks, Reorder quantity

 Costing Methods - Process costing.

 Budgeting techniques

 Standard costing.

I selected a reputed organization called DIS MRP SEALS (P) Limited in view of
wide scope of training on various subjects related to day to day costing and
management accounting techniques.

Also the Mentor at DIS MRP SEALS (P) Limited is a very experienced person having
a wide and varied experience on the relevant topics of Inventory Management,
Costing Methods (Process costing), standard costing and Budgeting techniques.

ABOUT THE ORGANITATION

DIS MRP Seals Private Limited was incorporated on 08 July 2003. It is classified as
Non-governmental Company and is registered at Registrar of Companies, Chennai. Its
authorized share capital is Rs. 500,000 and its paid up capital is Rs. 500,000. It is
involved in Manufacture of rubber products.

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Directors of DIS MRP Seals Private Limited are
 Mayuram Krishnamoorthy
 Ganesan, Wilson Davis Palokkaran
 Michael Joseph Begley
 Krishnamoorthy Ganesh.

It is a 100% export oriented unit.

CIN U25191TN2003PTC051151

Company Name DIS MRP SEALS (P) Limited

Company Status Active

RoC Chennai

Registration Number 51151

Company Category Company limited by Shares

Company Sub Category Non-govt company

Class of Company Private

Date of Incorporation 08 July 2003

Activity Manufacture of rubber products

Authorised Capital 500,000

Paid up capital 500,000

Listing status Unlisted

Address of the company: DP4, SIDCO Industrial estate, arakkonam, vellore.

Name of guide: M.Setharaman
Guide designation: General Manager
Contact number: 04177-224004

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 CONCEPTUAL FRAMEWORK

1. INVENTORY MANAGEMENT:

Inventory refers to the stock in hand of an organization. Inventory includes

 Raw materials
 Work in progress
 Finished goods.

Managing the inventory in an efficient manner is a key requirement for success of any
organization. Following are the various methods of inventory management.

Ageing analysis:

Ageing analysis is the analysis of the period for which the inventories are in hand. It
is an inventory management system used to manage raw materials and finished goods.
Ageing analysis helps to know the average period for which the stock is in warehouse,
the opportunity cost for holding inventory and to keep a check on expiry of stock.

Reorder quantity:

Reorder quantity refers to the optimum quantity of raw materials that should be
placed in an order. This technique is used for management of raw materials.

Reorder level:

The reorder level is the quantity of inventory in hand at which an order should be
placed. It is calculated with reference to the time it will take to receive the order from
the supplier and the possible requirements during that time.
The reorder level is calculated as follows:

Reorder level = Maximum usage × Maximum lead time

Safety stock:

It is the lowest level of material stock that must be maintained in hand at all times, so
that there is no stoppage of production due to unavailability of stock. This help in
maintaining adequate quantity of raw materials.
It is calculated as follows:
Safety stock = Reorder level – (average consumption rate × average lead time)

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2. PROCESS COSTING:

Process costing is a method of costing used in industries where the material has to
pass through two or more processes for being converted into a final product. It is
defined as “a method of cost accounting whereby costs are charged to processes or
operations and averaged over units produced”.

A separate account for each process is opened and all expenditure pertaining to a
process is allocated to that process account. CIMA defines process costing as "The
costing method applicable where goods or services result from a sequence of
continuous or repetitive operations or processes. Costs are averaged over the units
produced during the period".

Process costing is suitable for industries producing homogeneous products and where
production is a continuous flow. Each stage of manufacture is known as process
accounts.

Main purpose of process costing is to find out cost per unit at every stage of
manufacture and to value work in progress. Sometimes in a process, the total of the
input units may differ from the total of the output units. Losses may occur due to
wastage of materials. Losses may sometimes be sold and generate a revenue which is
generally referred to as scrap proceeds or scrap value.

Normal loss:

It is expected loss and not actual loss. It is calculated based on past experience. It is
unavoidable. Normal loss is always valued at scrap value.

Abnormal loss:

It is also known as abnormal wastage. It is the loss in excess of the expected loss
(normal loss). This type of loss may occur due to the carelessness of workers, a bad
plant design or operation. Abnormal loss is always valued at cost price.

Abnormal gain:

Abnormal gain arises whenever actual loss is less than normal loss. It represents extra
output produced than expected. Abnormal gain is always valued at cost price.

THE COST OF EACH PROCESS COMPRISES THE COST OF:

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  Materials
 Wages
 Direct expenses, and
 Overheads.

3. BUDGETING:

Budgeting is the process of preparing detailed projections of future. A budget is a

quantitative expression of a plan of action prepared in advance of the period to which
it relates. Budgets set out the costs and revenues that are expected to be incurred or
earned in future periods. The aim of setting budgets is to provide a challenge for
employees and managers that is achievable with an appropriate level of effort.

Functional budget:

A functional budget is one which is related to a function of the business. Functional

budgets are prepared for each function and they are subsidiary to the master budget of
the business.
For example: production budget relating to the manufacturing function.

Types of functional budgets,

1. Sales budget, forecasts budgeted sales
2. Production budget, forecasts the production quantity
3. Raw materials consumption budget, forecasts the raw materials to be used
4. Raw materials purchase budget, forecasts the materials to be purchased
5. Direct expenses budget, forecasts the direct expenses to be incurred
6. Variable overheads budget, forecasts the variable overheads to be incurred
7. Fixed overheads budget, forecasts fixed overheads and helps in absorping
those overheads.

4. STANDARD COSTING:

The budgeted figures should be compared with the actual figures in order to find
whether the functions of a company have been efficiently managed. Management of
an organization uses standard costing as a controlling tool for cost control and
performance evaluation.

The process of standard costing is as below:

 Setting of standards
 Ascertainment of actual costs
 Comparison of actual cost with standard cost
 Investigate the reasons for variances.

Work Experience

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 Day 1: 10.04.19

Inventory management:

I worked with the customized ERP inventory module. Recorded the receipts of raw
materials and it’s issue to the workers. The batch of raw materials is recorded with
date of receipt, the supplier and the employee who has verified the raw materials.
When the raw materials are issued the name of the person receiving it and time of
issue is recorded. I learnt how to create an inventory group, Posting of receipts and
issues in customized ERP.

Reorder quantity:

I estimated the demand for next three months based on the orders received by the
company and calculated reorder quantity. Average of 3 months consumption of raw
materials is stocked.

Day2: 11.04.19:

Ageing analysis of inventory:

I analyzed the period for which the stock of master batch (raw materials) are in stores
and verified 20 batches of raw materials whether they are within the expiry standards
given by the supplier and the quality policy of the company. I learnt about the concept
of ageing analysis of inventory.

Process costing:

I performed the work of ascertaining the direct wages that are to be allocated to
mixing process based on the direct labor hours spend on the process for the period of
10 days and calculated the value of materials issued to mixing process for the period
of 10 days.

Day3: 12.04.19
Process costing:

I assisted in listing the various factory overheads to be allocated to the mixing process
under the guidance of production manager. In addition I calculated the absorption rate
for various factory over heads on their respective basis. Since factory overheads are
incurred for the entire organization and is fixed in nature it becomes necessary to
apportion the overheads. I learnt the method of appropriating the over heads.

I apportioned those overheads to mixing process based on the absorption rate and
actual level of activity and calculated the budgeted office and administrative for the
month based on last year’s data.

Day4: 13.04.19:

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Process costing:

I performed the work of Distributing the office and administrative overheads to

various processes and calculated the quantity of scrap that can be obtained from
mixing and curing processes. I came to know what expenses should be included in
office and administrative overhead.

In addition to this I calculated the value that can be realizable from sale of scrap and
deducted such value from factory overheads. I learnt how to value scrap and the
treatment of scrap in process costing.

Day 5: 15-04-19:

Process costing:

I ascertained the value of direct expenses that are to be allocated to mixing process. I
understood the concept of direct expenses. Direct expenses are those expenses which
can be directly identified with a specific cost unit.

I calculated the value of work in progress of mixing process as on 10.04.19. Work in

progress refers to the raw materials which are partly completed and needs further
processing for intended use. The value of work in progress is ascertained by
calculating equivalent completed units and assuming FIFO.

In addition to this I checked whether there is any abnormal loss in the mixing process
for the period of ten days. Abnormal loss is the loss in excess of the expected loss.

Day 6:16-04-19:

Process costing:

I calculated the value of abnormal loss in mixing process at cost price and ascertained
the reasons of such abnormal loss in mixing process for the period of ten days.
Abnormal loss may occur due to the carelessness of workers, a bad plant design or
operation.

In addition to this I eliminated such abnormal loss from the process cost of mixing
process. I understood the treatment of abnormal loss in process costing.
I also calculated the total process cost and transferred them to the next process.

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 Day 7: 17-04-19:

Safety stock:

I performed the function of calculating the minimum quantity of stocks that needs to
be maintained for two raw materials types. I learnt the concept of safety stock. It is the
lowest level of material stock that must be maintained in hand at all times, so that
there is no stoppage of production due to unavailability of stock.

The safety stock is ascertained on the basis of

1. The average consumption of past years,
2. Estimated trend in current year,
3. Lead time prescribed by the supplier.

Then I configured the customized ERP with the new safety stock levels.

Day 8: 19-04-19

Budgeting:

I estimated the level of sales and value of sales for the next month based on the
purchase orders and past year’s data. I learnt how to prepare sales budget based on
purchase order received, past year’s sales quantity and expected trend.

I also performed the function of preparing the production budget for the next month
based on the sales budget and the stock of finished goods. Budgeted production levels
can be calculated as follows:

Budgeted production = Budgeted sales - Opening inventory of finished goods +

Closing inventory of finished goods.

Day 9: 20-04-19:
Budgeting:

I prepared the raw materials consumption budget. Steps for preparing raw materials
consumption budget:
1. Ascertain the standard quantity of raw materials for producing a unit of
finished goods after taking normal loss into consideration.
2. Consumption budget is prepared by multiplying budgeted production and
standard quantity required.

In addition, I also prepared the raw materials procurement budget based on

1. The raw materials consumption budget
2. Stock of raw materials
3. Economic order quantity.
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 Day 10: 22-04-19:

Budgeting:

I calculated the budgeted cost of raw materials that are to be purchased in next month.
This is done by multiplying the budgeted purchase quantity and price as per contract.

I also ascertained the direct labor hours required for the budgeted production quantity
and calculated the budgeted direct wages for the direct labor hours ascertained. The
budgeted direct labour hours is obtained by multiplying standard labour hours and
budgeted production quantity. The direct wages is calculated by multiplying the direct
labour hours and rate per hour.

Day 11: 23-04-19:

Budgeting:

I calculated the budgeted machine hours of different machines required for the
budgeted production quantity. I understood the concept of machine hours and the
reasons for ascertaining it.

I also calculated the budgeted direct expenses that are estimated to be incurred in the
next month. I under stood the concept of direct expenses and the basis of estimating it.
Direct expenses are the expenses other than direct material cost and direct employee
cost, which are incurred to manufacture a product and can be directly traced in an
economically feasible manner to a cost object.

Day12: 24-04-19:

Budgeting:

I performed the function of listing the variable overheads that are to be incurred in the
next month and bifurcated them whether they are variable based on quantity produced
or machine hours. Direct expenses are those expenses which can be directly identified
with a specific cost unit.

I also calculated the budgeted variable overheads for the next month. Variable
overheads are those overheads which tend to vary with the volume of activity. Any
increase in the activity results in an increase in the variable cost and vice verse.
Example of variable overheads: 1.indirect materials, 2.power and fuel, 3. Lubricants,
4.tools and spares

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 Day 13: 25-04-19:

Budgeting:

I performed the function of listing the fixed overheads that are to be incurred in the
next month. Fixed overheads are the costs which are incurred for a period and which
within certain output and turnover limits. They do not tend to increase or decrease
with the changes in out.

I calculated the budgeted fixed overheads for the next month by preparing the fixed
overheads budget. Example of fixed overheads: depreciation of building, plant and
furniture, salary of permanent employees, interest on capital, insurance.

I prepared cost sheet for the next month on budgeted basis. Cost sheet is a document
which provides detailed cost information. In a typical cost sheet, cost information are
presented on the basis of functional classification.

Day 14: 27-04-19:

Standard costing:

Standard costing is a method of costing which measures the performance or an

activity by comparing actual cost with standard cost, analyze the variances and
reporting of variances for investigation and taking appropriate action. It is a
controlling tool for cost control and evaluation of performance.

I performed the function of ascertaining the variance between the budgeted direct
wages and actual direct wages.
I also calculated the direct material variance and ascertained the reasons for such
variance between budgeted and actual.

Day 15: 29-04-19:

Standard costing:

I assisted in ascertaining the difference between the actual variable overhead and
budgeted variable over head and found out the reasons for those differences. The
variable overhead variance arises due to the deviation in variable overhead utilization
and variable overhead spending.

I also calculated the difference between the actual fixed overheads and budgeted fixed
overheads. The fixed overhead variance can be bifurcated into fixed overhead
expenditure variance and fixed overhead volume variance.

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 Skills Acquired

In the course of my internship I gained lot of technical and personal skills. The
following are the other skills acquired by me during the course of internship:

Passing entries for issues and receipts of raw materials in stores ledger:

After being taught to pass entries for receipts and issues of raw materials in stores
ledger, I recorded the receipt of raw materials along with the date of receipt, the
supplier and the employee who has verified the raw materials. In addition I also
recorded the issues of raw materials in stores ledger.

Calculation of safety stock:

After being taught about the concept of safety stock, I calculated the minimum level
of stock raw materials that should be maintained.
The safety stock is ascertained on the basis of the average consumption of past years,
estimated trend in current year and the lead time prescribed by the supplier.

Conclusion

This internship helped me to gain lots of practical knowledge and analytical thinking.
I acquired more knowledge in cost and management accounting topics like process
costing, inventory management, budgeting and standard costing.

It’s a great lifetime experience for me working in DIS MRP SEAL (P) LTD. I was
exposed to real time challenges and learnt how to tackle them in an efficient manner.

I would like to record here my sincere thanks to my guide Prof. Balaji Ramaswamy
for his guidance and support in respect of my internship. I would like to thank DIS
MRP SEALS (P) LTD for permitting me to do my internship there and Mr.
Setharaman, my mentor at my workplace for exposing me to real time job experience.

Thank you

Kishore kumar M N

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 Bibliography

https://www.zaubacorp.com/company/DIS-MRP-SEALS-PRIVATE-
LIMITED/U25191TN2003PTC051151

https://en.wikipedia.org/wiki/Process_costing

https://resource.cdn.icai.org/46427bosinter-p3-cp15.pdf

https://resource.cdn.icai.org/46425bosinter-p3-cp13.pdf

https://resource.cdn.icai.org/46422bosinter-p3-cp10.pdf

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ANNEXTURES:

DIS MRP SEALS WARE HOUSE, VELLORE.

MIXING PLAN - APPROVAL, ISSUE – RECORD.

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