A training report submitted in partial fulfillment of the requirement for the degree of

MASTERS OF BUSINESS ADMINISTRATION (2010-2012)

Submitted by: Rupeet Singh

SCHOOL OF MANAGEMENT STUDIES

PUNJABI UNIVERSITY PATIALA

PREFACE
Management is a vital function with all aspects of the working of an enterprise and hence a course in business administration has become a sort of prerequisite for a successful carrier in todays dynamic business environment. Theories on management aim at establishing the best way of doing things undyingly the situational needs determine their mode of application. Effective management is always a situational management. So a student undergoing a postgraduate program in management needs to be exposed to the realities in the field, which puts to the test of classroom learning.

The project report related to Product Costing was prepared at Federal-Mogul Goetze (India) Limited, Patiala. The field of financial management has undergone many changes and the management requires elaborate financial data of the growth and development of any company. Therefore the presentation of proper account has become essential for the further growth and diversification of the company.

To sum up, in this humble exercise an effort has been made to learn about the Product Costing of a reputed and esteemed automobile parts company Federal-Mogul Goetze(India) Limited with the hope that it will be useful for my carrier in the field of management, and further add to my knowledge.

ACKNOWLEDGEMENT
No work is considered complete unless due indebtedness is expressed to all those, who made the work successful. Concentration, dedication, hard work & application are essential but not the only factors to achieve the desired goal. They must be supplemented by guidance, assistance and co-operation of people to make it a success. Every complete successful assignment is the result of many hands joined together. I take this opportunity to thank all those who have made it possible for me to complete my present assignment. I am highly obliged to acknowledge the valuable suggestions, guidance and encouragement extended to me by Mr. Ajay Singla (Manager, Finance) for appointing me to Accounts Department as a Trainee. On the completion of my summer training, I express warm regards and a deep sense of gratitude to the whole Finance dept. of Federal Mogul. They have provided me an unconditional support during the project work and above all it was he who rightly incepted the ideas and gave me valuable guidance and information about the project.

Last but not the least; I would like to thank the whole unit of FEDERAL MOGUL (India) Ltd. for their kind co-operation. It is warmth and efforts of my teachers, friends and well-wishers who has been a source of strength and confidence for me in the endeavor, how can I forget to owe my indebtedness to my parents who provided moral support as well as adequate finances during the course of my studies.
(RUPEET SINGH )

DECLARATION

I, RUPEET SINGH hereby declare that the project entitled Product Costing in FEDERAL MOGUL GOETZE INDIA LIMITED assigned to me by FEDERAL MOGUL GOETZE (INDIA) LTD, during my eight weeks training for the partial fulfillment of M.B.A, Degree from PUNJABI UNIVERSITY, Patiala is the Original work done by me and the information provided in the study is authentic to the best of my knowledge.

This study has not been submitted to any other institution or university for the award of any other degree.

RUPEET SINGH

CONTENTS

INTRODUCTION Company Profile [Federal Mogul Goetze (India) Ltd.]

ORGANISATION OF FEDERAL MOGUL GOETZE INDIA LIMITED

SCOPE

& OBJECTIVE OF STUDY Research Methodology Limitations PRODUCT COSTING Concepts Product Costing of Goetze (India) Ltd.

CONCLUSION Discussion and Analysis Findings & Suggestions

INTRODUCTION

Our History: 1899 1940: Founded on Innovation 1941 1956: Diversifying for Success 1957 1974: Going Global 1975 2011: A Bright Future

Federal-Mogul Corporation is an innovative and diversified $6.17 billion global supplier of quality products, trusted brands and creative solutions to the automotive, light commercial, heavy-duty truck, off-highway, agricultural, marine, rail and industrial markets. Established in 1954, Goetze (India) Limited (GIL) is joint venture between the Anil Nanda group and Federal Mogul, a global supplier of quality products and solutions to automotive industry. Goetze (India) Limited was established in 1954 as a joint venture with Goetze-Werke of Germany. GoetzeWerke of Germany is now owned by Federal-Mogul Corporation, a global company and one of the leading manufacturers of automotive components in the world. The 45,000 work strength of Federal-Mogul located in 35 countries drive excellence in working.

Companys globally Europe and Asia

networked enable to

engineering bring

and

technical

centers in

the

U.S.,

customers

breakthrough in advanced technology.

Federal Mogul is a premier supplier of products, services and solutions to original equipment manufacturers that use quality components in their vehicles and automotive systems, and to aftermarket customers who sell companys world-renowned brand-name replacement parts through repair shops and retail outlets. For more than a century, Federal Mogul has developed the innovative products, which customers need to produce the next generation of vehicles. Federal-Mogul has been creating value through innovation and leading technology for more than 100 years. Today, the company is a key player in the global marketplace, serving industries that range from automotive and commercial vehicles to railroad and aerospace. Customers know they can rely on FederalMoguls quality excellence in products, trusted brands and creative solutions. This company started with a bold idea and over time grew into a FORTUNE 500 companies with a global workforce thousands strong. The Federal-Mogul team has celebrated countless victories and worked hard to overcome the inevitable challenges. Federal-Mogul is a global supplier of automotive components, modules and systems serving the world's original equipment manufacturers and the aftermarket industry. The company utilizes its engineering and materials expertise, proprietary technology, manufacturing skill, distribution flexibility and marketing power to deliver quality products and services, and leading brands. Federal-Mogul is focused on driving global profitable growth and creating value to satisfy customer, employee and stakeholder expectations. Headquartered in Southfield, Michigan, the Company, which reported sales of $6.17 billion in 2011, employs 45,000 people worldwide. Federal-Mogul was founded in Detroit in 1899. The Companys principal customers include many of the worlds foremost original equipment manufacturers of automotive, light commercial, heavy-duty truck, agricultural, marine, rail and industrial vehicles and equipment as well as the worldwide aftermarket.

Federal-Mogul employees throughout the organization create value for their stakeholders and continuously strive to exceed their customers expectations by following these core values:

We are a team first. We respect, trust and help each other. We act with integrity. We are driven to be the best in all we do. We create value through innovation. We celebrate our success.

Share Holding Pattern:

Goetze (India) Limited Federal-Mogul Corporation Teikoku Piston Rings Co. Ltd., Japan

51.0 % 24.5 % 24.5 %

BRAND

Federal-Moguls products are sold under a variety of power brands, including but not limited to, AE engine products, ANCO wipers, Champion spark plugs and wipers, Fel-Pro gaskets, Ferodo brake pads, Glyco bearings, Goetze piston rings, Moog chassis products, National wheel-end components, Nral pistons, Payen gaskets, Sealed Power engine products and Wagner lighting and brake products.

Manufacturer of world-class pistons, piston rings, piston pins covering a wide range of applications including two/threewheelers, cars, SUVs, tractors, light commercial vehicles, heavy commercial vehicles, stationary engines and high output locomotive diesel engines.

Widest range of piston rings and pistons varying from 30mm to 300mm diameter.

The most modern production facilities at Bangalore, Patiala and Bhiwadi are certified TS 16949, ISO14001 and OHSAS 18001.

Market leaders both in OEM and aftermarket. Exports to many countries.

Goetze and Goetze Brico provide leading-edge technologies and competitive solutions for original equipment manufacturers and the automotive aftermarket.

Production Capacity: Piston rings Pistons 58 Million 18 Million

Turnover: Jan -Dec 2010 Net Profit (after tax): Jan -Dec 2010 INR 9518.74Million INR 343.89 Million

Milestones
1954 1957 1958 Incorporated as a J.V. with Goetze Werke Ring & liner production Piston production ( Automotive Division) ( Collaboration : Mahle) 1960 1968 1977 1982 1985 1989 1990 1992 1994 1996 Cast Iron/ Forged piston production started Pins/ ring carrier production started Piston/ Ring production started Steel rings/ large bore locomotive piston Light alloy products Auto thermic pistons production Moly coated/ IKA/ Chrome oil rings Large bore rings/ pistons for battle tanks. Composite pistons / new ring foundry Escorts (Automotive Division) hived off into joint venture with M/S Mahle, Germany. 1997 2001 Goetze TP (India) Ltd. Manufacturer of steel rings. Merger of Federal Mogul sintered products Ltd. WITH Goetze (India) Ltd. 2003 Merger of Escorts pistons activities with Goetze (India) Ltd. Patiala Patiala Bangalore Bangalore Patiala Bangalore Patiala Bangalore Bangalore Patiala Patiala

2004

Technical collaboration for pistons with Federal Mogul corporation.

2006

Majority stake holding acquisition by Federal Mogul corporation.

2006

Named changed Goetze (India) Ltd. to Federal Mogul Goetze.

ACQUISITION OF ESCORTS MAHLE LTD

Escorts Mahle Ltd. was a 50:50 joint venture between Escorts Ltd. & Mahle GmbH (Mahle) manufacturing Pistons & Piston Pins at Bangalore & Patiala. Pursuant to the disengagement & share purchase agreement among Escorts Ltd, Mahle & Escorts Mahle Ltd. Mahle had decided to exit from the joint venture & sell its entire share holding in Escorts- Mahle Ltd. Having decided to exit from this joint venture, also sold its entire share holding in Escorts- Mahle Ltd.

In view of the fact that the businesses of the Escorts-Mahle and Goetze (India) Ltd., are closely inter-linked and have obvious financial and technical synergies due to common locations of plants, common customers, complementary products etc., it was considered advisable in the interest of the company to acquire the share capital of the Escorts-Mahle Ltd. through the special purpose vehicle (100% subsidiary). The new company named ESCORTS PISTONS LTD. came to existence on Nov.1, 2002.

Further, Escorts Pistons Ltd. was amalgamated with Goetze (India) Ltd. on May 26, 2003 and w.e.f. June 2003, the name of the company is GOETZE INDIA LTD.

RECENT DEVELOPMENTS (Joint venture)

American auto components major Federal Mogul Corporation had made a renewed bid for acquiring an additional 24.64 per cent stake in Goetze India Ltd (GIL) from the Joint Investments Pvt Ltd and offered Rs 222.5 per equity share. The stake was acquired through offmarket inter se promoter transfer at price per share will be Rs 222.50. The bid was carried out by Federal Mogul Holding Ltd. Post-acquisition, Federal Mogul would hold 50.10 per cent stake in Goetze. Post-transaction, the company is likely to enhance sourcing from Goetze as well as infuse more funds. "Federal-Moguls technology, global manufacturing, and distribution expertise, combined with GILs high-quality, best-cost capabilities, result in a world-class automotive supplier with significant opportunities for future market and product development,"

The manufacturing facilities are situated at plants in Patiala, Bangalore, Alwar, Bhiwadi. Patiala:-The plant at Patiala is engaged in the production of automotive Piston, Piston Rings, and Pins. The foundry producers cast iron for rings

Bangalore:-This plant is also capable for producing both piston and piston rings. Both the factories use advanced inspection equipment, quality control technology, mechanical and machining equipment. Alwar:-FMGI Ltd. Commissioned its solvent extraction vegetable oil plant in 1993 and began commercial production in 1994 for processing sunflower, soyabean and mustard seeds. FMGI Ltd. is planning to exit from this noncore activity i.e. solvent extraction business and is looking for a suitable buyer.

Quality Policy
FEDERAL MOGUL GOETZE (INDIA) LIMITED commits itself to leadership in national market for all its products and ensuring total customers satisfaction highest in industry. It commits to develop and build an image in the international market to achieve a sustained annual growth in exports.

QS-9000 QUALITY SYSTEM

The QS 9000 Standard is a Harmonized Quality System Standard established by FORD, CHRYSLER, GENERAL MOTORS & TRUCK MANUFACTURERS with inputs from TRUCK MANUFACTURERS. It primarily uses the ISO-9000 Standard as a basis but has certain additional customer requirements and company specific requirements.

PURPOSE
The purpose of QS-9000 is to define the fundamental expectations of FCGT and/or other companies with respect to supplies that they procure. Its purpose also is to ensure customer satisfaction, reduce variation & waste and eventually benefit the customer and the supplier.

GOAL
The goal of QS-9000 is the development of fundamental Quality Systems that provide: Continuous improvement Defect prevention Reduction in variation Reduction in waste

Policy
We shall continue to manufacture all our products in conformity with accepted international norms/ standards. We shall also continue to retain our leadership in development of products through technical know-how from our Collaborators and in-house developments.

Consistent development of human resources through training at all levels will be our major thrust area.

MISSION OF THE COMPANY

Steadily moving towards leadership with piston with vision strategy seeing it as the best way to leaders in business Our company has committed to increase shareholder value by aggressively pursuing growth and profit opportunities by providing innovative, diverse and high performance products and solutions to meet our customers needs. We shall provide our work force with an environment that develops teamwork, continuous learning and improvements that rewards good performers. We will support our products with all technical expertise at the customers end. We value the environment and the community and would like to build better future for our children.

VISION OF THE COMPANY

To be one of the worlds leading automotive solutions provider Driving The Future Through Leading Technology and Innovation

EXPORT DESTINATION
Dubai Bangladesh Singapore Egypt Mauritius U.S.A Germany Nepal Sri Lanka Uganda

COLLABORATIONS
A. GERMANY Faun Class B. JAPAN Yamaha Kayaka Mikni

C. UK JCB (Goetze) Ford D. USA HUGHES E. FRANCE Bosch Dynapal

PRODUCT RANGE
Federal Mogul Goetze India Limited manufactures wide range of Piston, Piston rings, Piston Pins.

PISTONS
For their original equipment, FEDERAL MOGUL Pistons is the first choice of every discerning manufacturer like Telco, John Deere, Hindustan Motors, Mitsubishi Lancer, Tata Cummins, Ashok Leyland, Mahindra, Escorts, Eicher, Maruti, Bajaj Auto, Fiat, Bajaj Tempo, TVS, Yamaha motors, Swaraj Mazda etc.Federal-Mogul Goetze India has state-of-the-art test bed facilities, design facilities for products and dies and tooling with CAD/PRO-E.

Products suitable for:

4 stroke engines 2 stroke engines

Gasoline engines

Applications:
Bi-wheelers Cars SUVs Tractors Light commercial vehicles Heavy commercial vehicles Heavy output locomotive diesel engines

Stationary engine

Piston Rings :

Goetze piston rings of OEMs and Aftermarket in India have state-of-the-art design facilities for products, tooling with CAD/PRO-E/GLIDE SOFT and test bed facilities. Federal-Mogul Goetze India is dedicated to developing new technologies and continuously improving its products. Production Capacity: 58 million rings per annum

Product Range:

30mm to 300mm diameter

Goetze manufactures a wide range of piston rings for:

Bi-wheelers Tractors Passenger cars & SUVs Commercial vehicles (HCVs, MCVs & LCVs) Locomotive engines Stationary engines

Coating on Running Surface:

Chrome ceramic plated rings (CKS) Molybdenum coated rings Plasma filled rings Semi-inlaid rings Ferrox filled rings

Chrome Plated Ring

Features

Thin rings made from SG iron

Asymmetric profile rings Specially honed chrome rings Lower sharp edge rings Reverse torsion rings Conformable chrome oil rings Keystone Napier Nit riding

Cylinder Liners GOETZE manufactures wet and dry types of cylinder liners with honing, and sleeves for bi-wheeler applications for our quality conscious customers. Application Bi-wheelers Cars Tractors Light Commercial Vehicles Heavy Commercial Vehicles Stationary Engines

Range Production Capacity Production Capacity Features Thin wailed Plateau boned With and without flanges

: :

50 mm to 120 mm Internal Dia 0.5 million liners per annum

Light Metal Casting

Goetze (India) Ltd. is making a wide variety of Light Metal Castings. These include Cylinder Blocks, Cylinder Heads, Aluminum tube castings and Aluminum crown handles for single cylinder engines.

Sintered Metals Products Goetze India Limited (Sintered Products Division), produces a wide range of sintered metal products for varied automotive applications such as valve, trains, transmission and oil pumps with technical assistance from manufacturing facilities and R&D centers of Federal mogul sintered products in U.K., France and USA.

Goetze (India) Limited (Sintered Product Division) are suppliers to most of the O.EMs in India and abroad. Some of these are: Maruti Udyog Limited Tata Motors Bajaj Auto Limited Tvs Mahindra & Mahindra Escorts Swaraj Ashok Leyland Hero Honda

Valve Train Parts

Valve seat inserts and valve guides are a special category of sintered components for new generation engines. Goetze India limited (Sintered Product Division) uses latest technology / processes along with specially sourced powder Little wonder that auto majors manufacturing engines for varied applications such as two/three wheelers, passenger cars, LCV MCVs, HCV and tractors prefer GIL Sintered Products.

Synchronizer Hubs Sintered Synchronizer Hubs offer a very cost effective alternative to conventional hubs and at the same time, meet the ever-increasing performance requirement of automotive designers.

Oil Pump Rotor & Gears Sintered Oil pump rotor & gears are one of the widest used sintered application in an automotive industries. Goetze India Limited (Sintered Products Division) with support from Federal Mogul Sintered Products R&D centers has developed its own capabilities to design and manufacture oil pump motors.

FEDERAL MOGUL GOETZE (INDIA) LTD. BAHADURGARH, PATIALA

Goetze (India) Ltd., Bahadurgarh, Patiala was set up in 1954 with the collaboration of M/s. Goetze Werke, Germany which started its production of Piston Rings for automobile industry in 1957. The plant is situated at Bahadurgarh, about 9 kms. from Patiala on the Patiala-Rajpura Road. Considering the need of complete Piston assembly, Escorts Ltd. ventured into manufacturing of Pistons in 1958 with the collaboration of M/s. Mahle GmbH, Germany, which delivered the Indian automobile industry its Pistons in 1960.

Escorts entered in collaboration with M/s. SUKO GmbH, Germany for Piston Rings in 1967 and manufacturing started in 1968. To meet the increasing demand of market, in 1977, a parallel unit for manufacturing Pistons and Piston Pins was set up in Bangalore.

From 1 October 1996, Escorts Ltd. entered into joint venture with M/s. Mahle GmbH, Germany with the formation of the new company Escorts Mahle Ltd. in 1998, Goetze-Werke of Germany is now owned by Federal-Mogul Corporation of USA, a 6.17 billion company and one of the largest manufacturers of automotive components in the world.. In June 2000, both Escorts Mahle Ltd. and Goetze have become QS-9000 certified companies. The present capacity of the plant is 285.09 lacs nos. Piston Rings and 52.68 lac nos. Pistons (on 302 working days). The total capital employed as on 31 March 2010 is 134.46 crores in Ring Activity and Piston Activity. The workforce including managers and supervisors is 1131 nos. in Ring Activity and 1304 in Piston Activity as on 31 March 2010.

TIMINGS
The factory runs round the clock in three shifts, namely- Morning, Afternoon and Night.

SHIFT TIMINGS
6.30 a.m. To 2.30 p.m. Morning Shift 2.30 p.m. To 10.30 p.m. 10.30 p.m. To 6.30 a.m. Afternoon Shift Night Shift

However the Non-production department works in a General Shift. (From 8.30 a.m. to 4.30 p.m.).

MAJOR CUSTOMERS OF THE COMPANY

1. PASSENGER CARS & JEEPS

Hindustan Motors Mahindra and Mahindra Fiat India Limited

BI WHEELERS:

Escorts Yamaha Motor Ltd Escorts Automobiles Ltd Bajaj Auto Ltd Kinetic Engg. Ltd TVS Suzuki Ltd Scooters India Ltd Idea Java (I) Ltd Royal Enfield LML Ltd Lohia Machines Ltd.

3. TRACTORS: Mahindra and Mahindra Ltd Eicher Tractor Ltd Escorts Ltd Escorts Ltd (Farmtrac division) HMT Ltd Swaraj Engines Ltd International Tractors Ltd Standard Tractors Ltd New Holand Ltd VST Tillers Ltd Harayana tractors

4. COMMERCIAL VEHICLES: Telco Swaraj Majda Ltd

San Engg. and Locomotives Tata Cummins

5. COMPRESSION / AIR CONDITIONING: LG equipments Ltd Voltas Ltd Sunaram Clayton Ltd Frick India Ltd Telco Gabriel India Ltd L & T John Deere Ltd

6. STATIONARY ENGINES Kirloskar Engines Ltd Ruston Oil engines Ltd Greaves Lombardine Ltd Indian Railways Southern Agro Engines Pvt. Ltd Patel Field Marshal Sandam Vikas ( India ) Ltd L & T Komatsu Ltd

LOCATION OF DEPOTS
Ahmedabad Patna Delhi Raipur Secundrabad Kolkata Jaipur Chennai Bangalore cochin Indore Dehradun Ghaziabad Rohtak Ranchi Gurgaon Mumbai Chandigarh Guwahati

MARKET SHARE OF PISTON MANUFACTURES IN INDIA

Company Name Market Share (%)

Goetze Perfect Circle IP Ring Shriram Piston SAMKRG Piston Menon Piston

36.5 12.0 16.5 22.5 9.0 3.5

ORGANISATION OF FEDERAL MOGUL GOETZE (INDIA) LTD.ORGANISATION GOALS

The company has laid down for itself goal of improving the value to the customers through: 1. LEADERSHIP: - To maintain leadership in following categories Market share: To maintain its status as brand leaders in the country for Piston and Piston Pins. Product Development: To develop Piston and Piston Pins for all new applications as identified. Technology: Modernization and up gradation of technology to the latest improvements to meet customer requirements. 2. CUSTOMER SATISFACTION: It shall strive to achieve customer satisfaction rating more than 90%. 3. TECHNICAL REQUIREMENT: Products are manufactured as per specifications based on DIN / JIS / IS / MAHLE NORMS / SUKO NORMS as also against customers specific requirements. 4. QUALITY: To improve quality consistently through quality assurance and process control. 5. DELIVERY: To strive to achieve 100% on time delivery as per customer requirements

SECONDARY OBJECTIVES To create and distribute products To profit earning Protection and security to workers Safety for its workers To meet social obligations Economy of operations by lowering costs Ensure a good quality system Training and development of existing workforce Better management Better human relation

ENVIRONMENT AND SAFETY

Federal Mogul Goetze India is fully aware of its environment and social responsibilities. To keep the environment healthy, several measures like smoke precipitators, effluent treatment plant, plantation programs etc. have been adopted. Pollution control methods adopted by the company have been approved by the Central Govt. Periodic checks and regular training is conducted to ensure safety.

MEDICAL FACILITIES
Company takes a lot of interest in the extra-curricular activities like medical programs and rural development programs etc. The company has its own medical center as well as a heart institute and research center, where employees get treatment on reimbursement basis.

ORGANISATION SET UP
The organizational set up of the following departments is studied in detail: 1. Finance Department 2. Personnel Department 3. Purchase and Store Department 4. Production Department

FINANCE DEPARTMENT
D.G.M. (Finance), Patiala who is directly responsible to the Managing Director and Chief Financial Officer (MD & CFO), one of the most reputed Functional Department in FEDERALMOGUL GOETZE (INDIA) LTD. DGM manage the Department and under him there are two managers, one is Finance Manager and other is Costing Manager. The Finance Manager is assisted by two supervisors one of these is responsible for cash and bank balances and other is responsible for bills payable. Each supervisor is given two or three assistants to work under him. The amount of investment to be put in current assets like cash in hand, bank balance, loans and advances, inventories, accrued expenses, dividends payable etc. all are decided by Finance Department.

The realization of cash for the purpose of raw materials components and spares to pay wages and salaries to incur day to day expenses and overhead costs, to meet selling costs to provide credit facilities to customers and to maintain inventories is also the function of this department. The formulation of policies with regard to profitability risk and liquidity, decisions about comparison and level of current assets and liabilities, formulation of production policy to keep the production steady by accumulating inventories, formulation and execution of credit policy is also the function of Finance Department. This Department is responsible for handling transaction relating to purchase of raw material as well as accounts relating to sales. It is also concerned with payment of all expenses incurred by the company like purchase of raw material, electricity bills, repairs etc. It is also concerned with valuation of various costs relating to inventories. It deals with determination of monthly wages, salaries of employees, fringe benefits of retirement, provident funds deduction, incentives, bonus and all the rewards, which the employees get for rendering their services to the company

Functions of Finance Department

Cash Flow:

C.F. statements are being prepared by the plant, to be conveyed to HO. These include sources as well as application of funds. Similarly applications of funds related to the salary, payment to suppliers. Major expenses (like Electricity, Telephone Bills, Excise duty and other personal & sales & administration expenses).

Costing:
The costing is being done for all the products manufactured at the plant. These relate to Piston, Ring, Cylinder Liners and Light Alloy Products. The Historical base is being followed for costing purposes.

Consumption:
Every item being received in the plant for consumption, Input is being accounted for at the plant. The ledgers are maintained for every receipt and issue.

Management Information System (MIS):

At the end of every month, profit & loss A/C is being prepared, highlighting the sales, the expenses and profit/loss there on. Similarly first information report (FIR) on the projected profit is prepared to find out the profits at the start of month.

Working capital management Operating budget:

The budget is being prepared at the start of every year. The sales plan is received from marketing (H.O.) and according to this sale plan the budget is prepared highlighting the projections followed

ORGANIZATIONAL CHART OF FINANCE DEPARTMENT

Mr. S. Kohli (Head Finance)

Mr. Ajay Singla (General Finance & MIS)

Costing, Fixed assets & CWIP Mr. S P Singh Chopra Mr. Inderjit Singh

General Accounting Mr. Rajinder Singla Mr. O P Ghai

Sap Head

Store A/cing & Bills Payable Mr. Bharat bhushan Mr. Ajay Jindal

Mr. Parminder Singh

Mr. Manmohan Singh

Mr. Sarbjit Singh

Mr. Suresh Kumar Mr. Rajnesh Uppal Mr. Ashok Kumar

Mr. Rabinder Singh Mr. Gurcharan Singh

RESEARCH METHODOLOGY
SOURCES OF THE STUDY
Data has been collected from both the primary and the secondary sources for the completion of the project. Primary sources: - Primary data has been collected through personal discussions with various accounts personal, various sections of Finance Department, Piston Ring Foundry Shop and Piston Ring Machine Shop. The secondary source is related to the use of material from various books, Annual reports and published documents of the FEDERAL MOGUL Goetze. It is mainly based upon office records, Cost-sheets and other published documents of Goetze (India) Ltd., Bahadurgarh, (Patiala). This project is basically based on secondary data.

The major objectives of present study are as follows:

Major Objectives:

To study the manufacturing process of pistons. To calculate cost per piston.

Minor Objectives:

To study whether the firm is able to cover its cost of production. To study whether the firm is utilizing its productive capacity efficiently.

LIMITATION OF THE STUDY

Limited Time

Although the staff of Goetze (India) Ltd., Patiala was highly co-operative and devoted enough to its valuable time on me but because of their busy schedules, I feel I was unable to gain the complete knowledge. Further more, I was allotted a limited time period for study. Both of these became the limiting factors to get thoroughly familiar with entire organizational activities.

Lack of Confidential Data

The company did not provide some of the information confidential to the management. Thus constraints in the availability of information resources came in the way to learn more and thus in better completion of the project report.

Lack of Comparative Data for Interim Comparison

Interim comparison of Goetze (India) Ltd. with other companies has not been done due to non-availability of data regarding other enterprises in the same field.

COSTING
It is essential to calculate the amount of expenditure (actual or notional) incurred on or attributable to, a given thing so that the profit objective of producing it can be determined. Costing is the process of ascertaining the cost of activities, processes, products or services. Cost accounting is the classifying, recording and appropriate allocation of expenditure for the determination of cost of products or services and for the presentation of suitably arranged data for purposes of control and guidance of management. It includes the ascertainment of the cost of every order, job, contract, processes, services or unit as may be appropriate. It deals with the cost of production, selling and distribution. It is thus the provision of such analysis and classification of expenditure as will enable the total cost of any particular unit of production or services to be ascertained with reasonable degree of accuracy and at the same time to disclose exactly how much total cost is constituted (i.e. value of material used, amount of labor and other expenses incurred) so as to control and reduce its cost. Thus, cost accounting relates to the collection, classification, ascertainment of cost and control relating to the various elements of cost. It establishes budgets and standard costs and actual cost of operations, processes and departments.

COSTING - AN AID TO MANAGEMENT

Costing mainly helps the management in three ways:
PLANNING

In planning, the management is concerned with laying down of objectives and determining the courses of actions to be followed out of the several alternatives available to achieve those objectives. Planning is thinking in advance, thus costing provides the management tools to set targets and determining the course of actions.
DECISION MAKING

Management has to take multiple types of decisions. All rational decisions are based on accounting information. Costing helps the management to take different types of decisions like Fixation of prices Whether or not price should be reduced for increasing level of sales Whether the change in production is followed Determination of most profitable levels of production Whether the product should be exported or not Whether the production should be discontinued due to current loss etc.

CONTROLLING

Controlling is that par of management activity where by managers compare actual performance against the planned performance, find out the deviations and take remedial steps to remove the deviations to make an improvement in performance because promptness is the essence of an effective control. Other ways by which costing helps the management are classification and subdivision of costs control of materials, labour and overhead costs business policies budgeting standards for measuring efficiency best use of limited resources instrument of management control cost audit social factors price determination expansion

OBJECTIVES OF COST ACCOUNTING

The objectives of cost accounting are ascertainment of cost, fixation of selling price, proper recording and presentation of costs data to the management for measuring efficiency and for cost control. The aim is to know the methods by which expenditure on materials, wages and overheads is recorded, classified and allocated so that the cost of products and services may be accurately ascertained, these costs may be related to sales and profitability may be ascertained. Yet with the development of business and industry, its objectives are changing day by day. The following are the main objectives are cost accounting: To ascertain the cost per unit of the different products manufactured by a business concern. To provide requisite data and serve as a guide to price fixing of products manufactured or services rendered. To ascertain the profitability of each of the products and advice the management as to how these profits can be maximized. To exercise effective control of stocks of raw materials, work-in-progress, consumables stores and finished goods in order to minimize the capital locked up in these stocks. To advice management on future expansion policies and proposed capital projects. To help in the preparation of budgets and implementation of budgetary control.

 To guide management in the formulation and implementation of incentive bonus plans based on productivity and cost saving. To organize cost reduction programs with the help of different departmental managers. Broadly speaking, the above objectives can be re-grouped under the following three heads: (1) Ascertainment and analysis of cost and income by product, function and responsibility. (2) Accumulation and utilization of cost data for control purposes to have the minimum possible cost consistency with maintenance of quality. The objective is achieved through fixation of targets, analysis of reasons of deviations between actual and targets and reporting deviations to the management for taking corrective action. (2) Providing useful data to the management for taking decisions.

GENERAL PRINCIPLES OF COST ACCOUNTING

The following are the main principles of cost accounting:
1. Cause and effect relationship: Cause and effect relationship should be

established for each item of cost. Each item of cost should be related to its cause as minutely as possible and the effect of the same on the various departments should be ascertained. This cost should be shared only by those

units, which pass through the departments for which such cost has been incurred.
2. Charge of cost only after its incurrence: Unit cost should include only those

costs, which have been actually incurred. For example, unit cost should not be charged with selling cost while it is still in factory.
3. Cost accounting should ignore the convention of prudence: Cost accounting

statements should give the factual picture of profitability of the project. If some contingencies need to be made, it should be shown distinctly and separately.
4. Past cost should not form part of future costs: Past cost (which could not be

recovered in past) should not be recovered from future cost as it will not only affect the true results of future periods but will also distort other statements.

5. Exclusion of abnormal costs from cost accounts: All costs incurred because

of abnormal reasons (like theft, negligence) should not be taken into consideration while computing the unit cost. If done so, it will distort the cost figures and mislead the management resulting in wrong decisions.
6. Principle of double entry should be followed preferably: To lessen the

chances of any mistake or error, cost ledgers and cost control accounts, as far as possible should be maintained on double entry principles. This will ensure the correctness of cost sheets and cost statements which are prepared for cost ascertainment and cost control.

ESSENTIALS OF A GOOD COST ACCOUNTING SYSTEM

The essential features, which a good Cost Accounting System should possess, are as follows: Cost Accounting System should be tailor-made, practical, simple and capable of meeting the requirements of a business concern. The data to be used by the Cost Accounting System should be accurate; otherwise it may distort the output of the system. Necessary co-operation and participation of executives from various departments of the concern is essential for developing a good system of Cost Accounting. The cost of installing and operating the system should justify the results. The system of costing should not sacrifice the utility by introducing meticulous and unnecessary details. A carefully phased programme should be prepared by using network analysis for the introduction of the system.

 Management should have a faith in the Costing System and should also provide a helping hand for its development and success.

METHODS OF COSTING
JOB COSTING
It is the form of specific order costing where work is undertaken on customers special requirements. Each order is of comparatively shorter duration, each job is unique in nature with specific start and finish of the manufacturing process.

CONTRACT COSTING
It is form of specific order costing where construction work is undertaken on customer specifications. It is of longer duration, and project in nature.

BATCH COSTING
It is that form of specific order costing, which applies where similar articles are manufactured in batches either for sale or used within the undertaking.

PROCESS COSTING
It is that form of costing where standardized products are produced on a continuous basis. Modern industries are conducting in highly competitive conditions. In these days, it is absolutely necessary that a business concern should conduct its activities with maximum efficiency. The manufacturer should always try to introduce his products in the market at competitive rates. This object can be achieved by installing the effective costing system. There is no readymade costing system applicable to all

industries; the costing system should be modified in such a way as to suit the special requirements of an industry

COSTING SYSTEM OF FMGL, PATIALA

Federal Mogul Goetze (India) Ltd. has not installed any separate costing department at its Patiala plant. The finance manager does costing and all the cost records are kept under his control. Various records are maintained for every element of cost. Cost Sheets are prepared for every type of piston as ordered by the customers. In cost sheet, cost is measured per piece of piston. The company has adopted the method of process costing and production is made batch-wise. In any manufacturing process, costs are incurred on direct material, direct labour, indirect material, production overheads, service-centre overheads, sales and administration overheads. In FMGL, for production of pistons, costing up to plant level consists of the following main components- Alloy Cost, Foundry Conversion Cost, Machine Shop Conversion Cost and Packing Cost. Head office overheads, Royalty and profit margins are included later after apportioning between the two plants of Patiala and Bangalore. The Finance department at the Patiala plant is engaged in the determination of the total cost of manufacturing a piston, exclusive of Head Office charges, as these are included in the cost by the Head Office itself.

Cost Sheet
Cost sheet is a statement designed to show the output of a particular accounting period along with breakup of costs. The data incorporated in cost sheet is collected from various statement of accounts, which have been written in cost accounts, either day to day or regular records. There is no fixed form for preparation of cost sheet but in order to make the cost sheet more useful it is generally presented in columnar form. The columns are for the total cost of current period and cost per unit. The information to be incorporated in cost sheet would depend upon the requirement of management for the purpose of control. Cost sheet is a memorandum statement. Therefore, it does not form part of double entry cost accounting records. In spite of this, the relationship between cost sheet and financial accounts, which are maintained on double entry system, is very important as cost sheet derives its data from financial accounting. In case, predetermined rates are not used, the entire data required for preparation of cost sheet is derived from financial accounting. Therefore, periodically it becomes necessary to reconcile the information obtained from cost accounting and financial accounting separately.

Costing of pistons
PRODUCT (PISTONS) Piston is a component produced by the company and it is a very important spare part of all the automobiles. FUNCTIONS OF A PISTON: 1. To convert chemical energy of fuel into mechanical energy. 2. It develops power, which is converted from reciprocating motion to rotary motion. 3. It acts as a carrier of piston rings i.e. It forms a movable gas tight plug, which in turn is required to seal the gases escaping from piston crown down to the crankcase. 4. It transmits the force of explosion to the connecting rods. 5. It forms a guide and bearing to the small end of the connecting rod and takes the side trust due to obliquity of the rod.

MANUFACTURING PROCESS: DEPARTMENTS Federal Mogul Goetze (I) Limited (Piston division) has the following sections:

1. PISTON FOUNDRY SHOP

The first step in the manufacturing of piston is the casting of piston . This operation is carried out in piston foundry shop.

2. PISTON MACHINE SHOP 1 The second step in the manufacturing of pistons after casting is the machining, which is carried out in piston machine shop, which has the highly sophisticated CNC controlled machines. In the piston machine shop 1 pistons for four wheelers are manufactured and pistons for bi-wheeler vehicles are also manufactured. 3. PISTON MACHINE SHOP 2 In this shop, pistons for only bi-wheeler vehicles are manufactured. 4. PIN PLANT In this section, piston pins for all types of pistons are made with the state of the art machinery. 5. FORGE PLANT In this section, forged pistons are manufactured as per the specific requirements of Telco. 6. CENTRAL TOOL ROOM The tool room facility has the following functions: It supports tooling requirement of various plants. It manufactures new machines in its machine vuilding section. It renovates the worn out machines and its components.

PISTONS FOUNDRY SHOP As a world leader in the piston manufacturing,Federal Mogul Goetze (India) Limited has adopted aluminium as a base metal for manufacturing pistons because of its many advantages over cast iron chief being light weight high thermal conductivity and corrosion resistance. Although aluminium costs much more than steel because of its light weight, yet it is cheaper per unit volume. Other metals comprising the alloy are silicon, nickel, copper and magnesium. Piston foundry is the shop where aluminium alloys are prepared and casted into rough blanks which are machined and surface treated to form final product piston in the machine shop ready to be fitted in the engine block. Machining and other processes are carried out in different shops. Piston foundry comprises of following main sections: 1) MELTING Aluminium alloys 124, 138, 244, AC8A and AC9A are prepared here by melting the charge consisting of virgin metal, converted alloy, scrap and other alloying consisting of silica, nickel, copper and magnesium in the induction furnace. To shorten the metal preparation time, scrap and shop returns are simultaneously melted in the oil-fired furnace. 2) CASTING This section comprises of five lines having workstations consisting of holding furnaces and casting machines. The holding furnaces as the name suggests is for holding the alloy at the particular temperature, degassing and grain refinement (in some cases) before casting. Every workstation also has die casting machines. The type of the machines depends upon the piston diameter and number of dies used at a time. Like the machine MG-9C is used for producing bigger diameter pistons (80 to 116mm) with a single die whereas machine MG-17 is used for smaller pistons with diameter 60mm

and uses two dies. Similarly MG-11 and MG-7 are used for medium pistons and use one or two dies.

3) FETTLING In this section runners and risers and gating systems are removed with the help of the cutters. These cutters are mounted on top of the machines. Even semi-skilled workers can operate these machines. Sharp edges and burns are filed at the table area.

4) HEAT TREATMENT This section consists of solutionizing which is the process of dipping some of the selected pistons in the solution to get the required hardness. These solutions are kept in the furnaces which are now being operated or controlled by thrusters. This has resulted in better temperature control, thereby saving power consumption substantially. SPECTROMETER is used to check the chemical composition of the sample submitted at various stages of production in the laboratory. It also provides service to incoming inspection on request.

5) INSPECTION In this section important parameters are checked for each piston like diameter, size, grooves and especially hardness.

PISTON MACHINE SHOP: Piston machine shop consists of the following main sections: 1) PRODUCT LINES There are around ten lines arranged in the product layout i.e. blanks are fed into the first machine and finished pistons are obtained at the end of the line. Planning and manufacturing is done batch wise. The machine set up and inspection gauges are carried out lot wise or batch wise for each machine. First line is used for pistons upto 100mm diameter. For the pistons above 100mm of diameter next line is used. Third line is exclusively for TATA pistons. Next two lines are of bi-wheelers and next two lines are exclusively for MARUTI. Rest lines can be used for other piston types. In each line similar type of machines are arranged, more or less in the same sequence as the basis process is same across all the lines. 2) COATING There are mainly three types of surface treatment (coating) carried out i.e. Tin coating, Anodizing and Graphic coating based on customer requirements. Latter two are mostly done for TATA pistons. Anodizing is carried out on the crown surface to provide a resistance surface at high temperature generated in the combustion chamber. Tin and graphic coating is carried out for initial run lubrication. In tin coating, sodium stannate solution liberates tin, which form metallic bonds on the piston surface. In graphite coating, graphite particles are sprayed onto a heated piston surface and further baked to form a layer of graphite. In anodizing, electrolysis is

done with aluminium anode, graphite cathodes and sulphuric acid acting as electrolyte.

3) FINE MEASURING ROOM This section consists of measuring and calibration areas. Measuring is mostly achieved by two instruments i.e. perthometer and macrograph. Former is used for assessing roughness, waviness and peak profiles while latter is used for determining serration profiles, groove form, polar profile, groove blank squareness and other related features. Calibration of gauges and other instruments are taken up according to planned periodicity and records are kept or ready reference. 4) GROOVE-CUTTER SECTION This section carries out two main activities: Making groove cutting tools including re-sharpening of tools. Profile grinding of came. For groove cutting tools, carbide bits are brazed on shanks and grinded for various clearance and relief angles. While in came profile grinding, required ovality and taper are grinded twice the value then that required on the piston because error transmitted from came to the piston through tool by the tracer is only half. This results from tracer operating in one extreme of a lever, while tool operating at half the distance of the same level arms. 5) TOOL STORE This section is responsible for issue, collection and storage of all tools jigs and fixtures necessary for the production activity on each machine. 6) INSPECTION

In this section, important parameters are checked. Especially hardness test is carried out for the 100% lot. The setting of the tools to the required angle on the tool post and packet formation is also undertaken by the inspection department. It also keeps stock of machine spares to be used in the breakdown cases. It also interacts with the stores and the purchase department to ensure the availability of the required material in sufficient quantity for the production.

CALCULATION OF THE COST OF A PISTON OF YAMAHA LIBERO

Alloy - CSA12 Blank Weight Blank weight with R/R Process Loss Foundry Scrap Machine Shop Scrap Finished Weight No. of Blanks per piston = 0.113 Kgs = 0.172 Kgs = 6.2 % = 2% = 6.97% = 0.067 Kgs = 1/ {(100- Foundry scrap)/100 /(100- M/C scrap)/100} = 1/ {(100-2)/100/(100-6.97)/100} = 1.097 nos. = Blank Weight/ {(100- Process loss)/ 100/(100M/c scrap)/100} = 0.113/ {(100-6.2)/100 / (100-6.97)/100} = 0.129 Kgs = Blank weight with R/R / {(100-Foundry scrap) (100- M/c scrap)/100} = 0.172/{(100-2/100)/(100-6.97)/100} = 0.188 Kgs /100/

Gross weight

Gross weight with R/R

NET RAW MATERIAL:

Gross weight Recovery

=0.129 kgs = {final weight * M/c scrap}/{(100-M/c scrap)/100} = {0.067* 6.97%)/0.9303 = 0.005 kgs

Alloy rate Net alloy required per piston (NAR)

= Rs. 111.92 /kg = Gross weight recovery = 0.129-0.005 = 0.124 kgs

Cost of raw material

= NAR * alloy rate = 0.124* 111.92 = Rs. 13.88 per piston

Scrap Aluminium scrap

= Aluminium scrap+ Slag ash (85.80% Recovery of Converted Alloy) = Blank weight - Finished weight = 0.113 -0.067 = 0.046 kgs

M/c scrap Scrap per piston

= 6.97% = Aluminium scrap/{(100-Machine scrap)/100} = 0.046/0.9303 = 0.050 kgs

Recovery

= Scrap * Rate

(Rate=111.92 *85.80 % Recovery of Converted Alloy=96.02) = 0.050 * 96.02 = Rs. 4.80 Slag ash Slag ash rate Recovery = 15.34% = Rs. 15.69 = NAR * Slag ash % * Rate = 0 .124* 15.34% * 15.69 = Rs. 0.30 Total Scrap = 4.80 +0.30 = Rs. 5.10

NET RAW MATERIAL COST= Cost of raw material scrap = 13.88 - 5.10 = Rs. 8.78

TOTAL FOUNDRY COST:

1. Store and Spares Consumables & Tooling Rate per kg =Total cost of stores/ total gross weight of RR (kg)

= 6005562/1122401.06 =Rs. 5.350 Stores per piston = Rate* Gross weight R/R =5.350 * 0.188 = Rs. 1.01

2. Diesel
Rate per kg =Total cost of diesel/total gross weight of R/R = 4775986/1122401.06 =Rs.4.255 Diesel cost per piston = Rate * Gross weight =4.255*0.188 =Rs. 0.80

3. Oil
Rate per kg = Total cost of oil/ total gross weight of R/R = 565448/1122401.06 =Rs. 0.504 Oil cost per piston = Rate * Gross weight = 0.504* 0.188

=Rs. 0.10

4. Maintenance
Components Salary - Workers Salary - Managers Consumable- maintenance Foundry spares Repair building Foundry maintenance -depreciation Total Percentage % 28.93 3.55 6.36 47.56 13.59 0.00 100 Maintenance value( in lakhs) 106.45 13.06 23.42 175.00 50.00 0.01 367.94 Maintenance value per piston 0.34 0.04 0.07 0.56 0.16 0.00 1.17

(Total maintenance cost = Consumable- maintenance+ Foundry spares+ Repair building) = Rs.24843330.68 Total transfer in kg Maintenance cost/kg = 3905928 kgs =Total maintenance cost / total transfer in kg =24843330.68/3905928

=Rs. 6.36 Maintenance cost per piston =Gross weight * maintenance rate (Gross weight =Blank Weight/ {(100Foundry scrap/ 100/(100- M/c scrap)/100} =0.124 * 6.36 =Rs. 0.79

5. Dies cost
Dies cost ={no.of blanks per piston*cost of die}/life of a die = {1.097* 120000}/200000 = Rs. 0.66

6.Power and fuel

Power units Power per piston =5.374 units = power units* blank weight/{(100-Foundry scrap) (100- M/c scrap)/100} = 5.374* 0.113/0.98/.9303 = 0.666 units Power rate Power cost = Rs. 5.25per unit = power per piston* power rate = 0.666* 5.25 = Rs. 3.50 /100/

Compressor Cost:
Total cost = Rs.2206000

Total transfer

= 2862328 kgs

Transfer cost per piston = Total cost/total transfer = 2206000/2862328 = Rs.0.77 Total cost per piston = Rate*Gross blank weight = 0.77* 0.129 = Rs. 0.10 TOTAL POWER COST= Power cost+ Compressor Cost = 3.50+ 0.10 = Rs. 3.60

7. Personnel cost

Foundry Personnel cost (2010) Month Total Cost Worker Rs. Total Cost Manager/Supervisor/Staff TOTAL COST 12 Melting 15537445 2143748 17681193 Wt. R/R Casting& Cutting 59600451 8223255 67823706 No. of shifts required per Heat treatment 863191 119097 982288 No. Of charge hours

annum Basis 3905410.54 64736.57 RATE PER SHIFT MELTING RS

1047.69

42036.32

Rate

4.53

23.37

It includes payment made to workers of melting section, casting and cutting section, solution zing section and heat treatment section. It includes personnel cost relating to the service department such as finance dept., human resource dept., planning and administration dept. etc. Melting cost Melting rate = Total manpower cost/total weight of R/R = 17681193/3905410.54 = Rs. 4.53 Blank wt. with R/R Total melting cost = 0.188 kgs = Melting rate * Blank wt. with R/R = 4.53*0.188 = Rs.0.85

Casting cost No. of casting per shift 80% Utilization No.of pistons produced = 222 = 222*80% = 177.6 = 900

No.of blanks required = 900/ {(100- Foundry scrap)/100 /(100- M/C scrap)/100} = 900 / 0.98 / 0.9303 = 987 no.s No. of shifts required = No.of blanks required / No. of casting per shift = 987/177.6 = 5.56 Shifts per piston = No. of shifts required/ No.of pistons produced = 5.56/900 = 0.00617 Rate per shift = Total manpower cost/No. of shifts required = 67823706/64736.57 = Rs. 1047.69 Total casting cost = Rate per shift * Shifts per piston = 1047.69 * 0.00617 = Rs.6.47

Heat treatment 3000 pistons are given heat treatment at a time which takes 5.5 hrs. No.of pistons produced No.of blanks required = 900/ {(100- Foundry scrap)/100 /(100- M/C scrap)/100} = 900

= 900 / 0.98 / 0.9303 = 987 no.s No. of charge required = No.of blanks required /No. of pistons = 987/3000 = 0.329 Total charge hours = 5.5* No. of charge required =5.5* 0.329 =1.8095 hrs Charge hours per piston = Total charge hours * No.of pistons produced =1.8905*900 = 0.002010 Rate per hours = Total manpower cost / total hours = 982288 /42036.32 = Rs. 23.37 Total heat treatment cost = Charge per piston * Rate per hours = 0.002010 * 23.37 =Rs. 0.05 TOTAL PERSONNEL COST = Maintenance cost + Melting + Casting + = 0.38 + 0.85 + 6.47 + 0.05 = Rs. 7.75 Heat treatment

8. Depreciation cost

Foundry depreciation Total transfer in kg Rate per kg

= Rs. 10180491.06 = 3905928 = Foundry depreciation/ Total transfer in kg = 10180491.06/ 3905928 = Rs. 2.61

Depreciation cost

= Rate per kg * blank wt./(100- M/c scrap)/100} = 2.61 * 0.1215 = Rs. 0.32

TOTAL FOUNDRY COST = Store and Spares +Diesel + Oil+ Maintenance + Dies+ Power+ Personnel cost+ Depreciation =1.01+0.80+ 0.10+ 0.79+ 0.66+ 3.60+7.75+0.32 =Rs.15.03

TOTAL MACHINE SHOP COST

Cost of a piston in a machine shop is calculated on the bases of total hour in the machining of a piston which are as follows: Machining = 5.60 minutes Hand operation time = 0.70 minutes used

Total time

= 6.30 minutes

Gross machine time

= Machine time/ {(100-m/c scrap)/100} =5.60/ {(100-6.97)/100} = 6.02 minutes

1. Stores and spares: consumables, oil and lubricant

Consumable rate per hour = Total cost/ total hrs. = 19987620.52/504762 = Rs. 39.60/ hr

Consumable cost per piston = (Rate per hour * Gross m/c time)/ 60 = 39.60 * 6.02/60 = Rs. 3.97 Tooling rate per hour = Total cost/ total hrs = 5094411.61/1053772 = Rs.4.83 Tooling cost per piston = (Rate per hour * Gross m/c time)/ 60 = 4.83 * 6.02 /60 = Rs. 0.49

Total Stores and spares cost = Consumable cost per piston+ Tooling cost per piston

= 3.97+0.49 = Rs. 4.46

2. Maintenance Components Salary - Workers Salary - Managers Consumable- maintenance M/shop spares(Elec. & Mech.) Repair building Foundry maintenance -depreciation Total Percentage % 31.48 3.56 10.12 46.95 4.70 3.19 100 Maintenance value( in lakhs) 67.04 7.59 21.54 100.00 10.00 6.80 212.98 Maintenance value per piston 0.64 0.07 0.21 0.95 0.10 0.06 2.03

(Total maintenance cost = Consumable- maintenance+ Foundry spares+ Repair building ) = 13154330.06 Total hrs = 1053772 hrs

Maintenance cost per hour = Total cost/ total hrs. = 13154330.06/1053772

= Rs.12.48 Maintenance cost per piston = (Gross M/c time* Maintenance rate)/60 = (6.02 * 12.48)/60 =Rs. 1.25

3. Power
Annual machine hrs = 54 m/c *288 days*21 hrs /day = 326592 hrs Total M/c hrs line wise = 504762 hrs

%age of production hrs to working hrs = (Total M/c hrs line wise / Annual machine hrs)/100 = (504762/326592)*100 = 154.55% Load on line Power factor Total power units = 607.40 units = 0.2322 = Load on line * % age of production hrs to working hrs* Power factor*288 days*21 hrs = 607.40 * 154.55%*0.2322*288*21 = 1318313 units Power rate Total power cost = Rs.5.37 = Total power units * Power rate

= 1318313 * 5.37 = Rs. 7085131.34 Power Cost per hr = Total power cost/ Total M/c hrs line wise = Rs. 7085131.34/504762 hrs = Rs .14.04 Power Cost per piston = (Power Cost per hr * Gross m/c hour)/60 = (14.04*6.02)/60 = Rs. 1.41

Compressor Cost:
Total cost Total hours Rate per hour = Rs.5006000 = 1053772 = Total cost/total hours = 5006000/1053772 = Rs.4.75

Total cost per piston

= (Rate*Gross m/c hr )/60 = (4.75* 6.02)/60 = Rs. 0.48

TOTAL POWER COST= Power cost+ Compressor Cost = 1.41+ 0.48 = Rs. 1.89

4. Personnel cost
Total Manpower cost = Rs. 37350844.17

Total hours(M/c +Hand operations) = 479802 Rate per hour = Total Manpower cost/ Total hours (M/c +Hand operations) = 37350844.17 /479802 = 77.85 Cost per piston = Rate*Gross M/c & Hand operation hrs = (77.85*6.77)/60 = Rs. 8.79 Manager salary Manager cost = 8.46% of worker salary = 8.46% of worker cost = 8.46% * 8.79 = Rs. 0.74 Personnel Cost (Rs.) Maintenance cost(Rs.) Total cost

Worker cost Manager cost Total cost

8.79 0.74 9.53

0.64 0.07 0.71

9.43 0.81 10.24

Total personnel cost = 10.24

5. Depreciation Rate per hour =Total cost/Total hrs =13428189.74/504762 = Rs. 26.60 Depreciation cost per piston = (Rate per hour * Gross m/c hour)/60 = 26.60 *6.02/60 = Rs. 2.67 TOTAL DEPRECIATION COST = Depreciation cost per piston+ Maintenance depreciation cost

=2.67+0.06
= Rs. 2.73

TOTAL MACHINE SHOP COST = Store and Spares + Maintenance + Power + Personnel cost + Depreciation =4.46+1.25+1.89+10.24+2.73

=Rs. 20.57

INSPECTION COST:
Total salary of workers Total salary of managers Total target/day = Rs. 10084817 = Rs. 2268226 = 3927680 pistons

Total salary of workers per piston =Total salary of workers / Total target/day =10084817/ 3927680 =Rs. 2.57 Total salary of managers per piston = Total salary of managers/ Total target/day = 2268226/3927680 = Rs. 0.58 Depreciation cost Consumable cost = Rs. 0.51 = Rs. 0.47

Inspection cost/piston = Total salary of workers per piston + Total salary of managers per piston + Depreciation cost + Consumable cost

= 2.57+0.58+0.51+0.47 = Rs. 4.13

PLANT AND ADMINISTRATION COST:

Total P/A cost = Prime cost-raw material cost = 44.41-8.78 = Rs. 35.63 Total cost without raw material Direct piston common expenses = Rs. 8620.42 lakhs = Rs. 887.90 lakhs

%age of common expenses = (Direct piston common expenses / Total cost without raw material)*100 = (887.90/8620.42)*100 =10.30% Plant and administration cost = Total P/A cost * %age of common expenses = 35.63*10.30% = Rs.3.67

TOTAL COST

= Net Raw material cost + Foundry cost +

M/C shop cost + Inspection cost + Plant and administration cost + Packing cost = 8.78+ 15.03+ 20.57+ 4.13+ 3.67+ 5.90 = Rs. 58.08

HEAD OFFICE COST

= 20% of total cost = 20% of 58.08 = Rs. 11.62

TOTAL COST OF YAMAHA LIBERO PISTON = Total cost + Head office cost = 58.08+11.62 = Rs. 69.70

COST SHEET

CUSTOMERS NAME:

M/S YAMAHA MOTORS INDIA PVT. LTD.

SET NO. LINE NO. ALLOY TYPE ALLOY RATE (Rs./Kg) ALUMINIUM SCRAP RATE PROCESS LOSS FOUNDRY SCRAP MACHINE SHOP SCRAP PRODUCTION NOS. DIA (MM) BLANK WT. WITH R/R(KGS) BLANK WT. (KGS) NET ALLOY REQUIRED (KGS) M/C TIME (M/C + HO) (MIN.)

110 5/6/7/ 9 CSA 12 111.92 85.80 6.20% 2.00% 6.97 % 1 57 0.172 0.113 0.124 6.30

DESCRIPTION GROSS ALLOY COST LESS:- ALUMINIUM SCRAP

NET RAW MATERIAL COST

YAMAHA LIBERO
VARIABLE FIXED TOTAL

13.88 5.10

13.88 5.10

8.78

8.78

COST OF COMPONENTS:FOUNDRY COSTSTORES AND SPARES DIESEL FOR FOUNDRY OILS AND LUBS MAINTENANCE DIES POWER AND FUEL PERSONNEL DEPRECIATION
SUBTOTAL(FOUNDRY COST)

1.01 0.80 0.10 0.79 0.66 3.60 6.82

0.93 0.32

1.01 0.80 0.10 0.79 0.66 3.60 7.75 0.32

13.78

1.25

15.03

MACHINE SHOP COSTSTORES AND SPARES -OILS AND LUBS MAINTENANCE POWER AND FUEL PERSONNEL DDEPRECIATION
SUB TOTAL(MACHINE SHOP COST)

4.46 1.25 1.89 9.44

4.46 1.25 1.89 10.24 2.73

0.80 2.73

17.04
39.60

3.53
4.78 4.13 3.67 1.79 14.37 11.62

20.57
44.38 4.13 3.67 5.90 58.08 11.62

PRIME COST INSPECTION COST P & A COST PACKING COST(PRIMARY & SECONDARY) TOTAL COST HEAD OFFICE COST TOTAL COST PER PISTON

4.11 43.71

43.71

25.99

69.70

FINDINGS
PROPORTIONALITY The conversion cost whether at foundry or machine shop have been allocated based on proportionality. In case of foundry cost, the type of ring having more blank weight would be absorbing more overhead cost in stores and spares or in other categories whereas the lesser blank weight would be absorbing lesser overheads cost. This assumption may not be correct for the following reasons: There might be some stores and spares, which are exclusively used for manufacturing the lesser blank weight rings, so the cost of these items should not be borne by the rings of more blank

weight. Similarly, there might be the cases where large blank weight will be using standard tools of lesser cost while smaller blank weight rings might be using costlier tools. However, due to proportionately aspect the larger weight ring is unnecessarily burdened with extra cost. So, these dilemmas arising in proportionality based costing would be avoided by using the activity based costing which traces out the cost incurred for conducting various activities based on the cost drivers and periodicity of occurrence. As a result of the activity based costing, the smaller rings would bear the cost, which arise specifically due to it rather than loading on the larger blank weight rings. Similar incidents can be traced out in cost components whether in the foundry or in machine shop.

Machining time: In calculating the total machined hours line wise, the company considers total number of rings produced in that line and the time per ring produced in that line. In calculating the no. of rings produced, it considers not only good rings but also the scrapped ones. These scrapped rings might be generated at the initial, middle or at the end stages of the line. Therefore, the time spent on each of this scrapped rings would be different. However the company loads the scrapped rings with the same time. This may unnecessarily leads to a larger time per line and accordingly affects the allocation of the cost.

Cost of production:

Cost of production must be reduced so that company can face competition in the market and can reduce its prices. For example, in case of piston ring for Yamaha, cost of production per ring is Rs. 100.47. But, its selling price is Rs. 92 per ring. I.e., company is suffering due to price less than the cost. Thus, the company should try to reduce its cost of production.

Budgeting: The company has adopted incremental approach for the preparation of its budgets. Such approach carries forward previous years inefficiencies because previous years figures are taken as a base for the development of a budget. Thus incremental approach does not promote operational efficiency because it does not require managers to review their past activities. The company may use Zero Base Budgeting as a managerial tool where taking zero as a base, a budget is developed on the basis of likely activities for the future period.

Control of scrap and defectives:

To increase the profitability, company should try to reduce scrap and defectives. These should be standardized properly by following standard costing system. The actual scrap and defectives should be compared with the predetermined standard scrap and defectives and the reasons for the differences, if any, should be enquired into and corrective action taken whenever actual scrap and defectives are more than what is normally allowed.

Capacity utilization:

In the year 2010, the utilized capacity for production was 83% in the case of Rings and 81% in Pistons.

SWOT ANALYSIS

STRENGTH Highly diversified, producing many products. Availability of cheap and skilled labour. Profit making and reputed firm. Capable and highly disciplined staff. Producing high quality products comparable with the international standards as awarded by ISO 9001. Few competitors. Technical and operating efficiency comparable with other firms. WEAKNESSES Facing some infrastructure problems, erratic power supply.

Problem of timely availability of imported and indigenous raw materials. Low return on capital employed.

OPPORTUNITIES With the coming of MNCs in automobile sector like Volkswagen, BMW, Ford the demand for production has increased the scope of ready markets. Also scope for further expansions in production of existing products and some new products has increase as they have wide network. High export of opportunities.

THREATS With the coming of MNCs, the demand for higher technology product is the matter of concern.

REFERENCES

I.M. PANDEY: Financial Management, New Delhi, Vikas Publications;

PRASANA CHANDRA : Fundamentals of Financial Management, Theory and practices

KHAN & JAIN; Financial Management; New Delhi, Tata Mc Graw Hill Publications;

SHASHI K. GUPTA & R.K. SHARMA; Management Accounting and Public Finance; New Delhi, Kalyani publications.

JAIN & NARANG; Management Accounting and Cost accounting, New Delhi, Kalyani publications. www.federalmogulgoetzeindia.com

Annual Reports of FEDERAL MOGUL Goetze (India) Ltd.

S.P.GUPTA; Statistical Methods