PRODUCT COSTING

Presented To: Sir Nadeem Ahmed Khan

Presented By: Ayesha Majeed
Iffat Ali
Qurat ul AIN
Iffat Nabeela
• INTRODUCTION to Shan Foods
• Shan Food Offerings
• Organizational Management
• Selected Product
• Manufacturing Process
• Departmental percentage of COGM
• Wastage Level at each department
• Percentage distribution of Various Costs with respect to COGM
• Costing Assumptions
• VFOH and FFOH for each department
• Unit Manufacturing Cost Distribution for Process Costing, without taking losses
• Table 1,2,3,4 for Cost of Production (RM Warehouse, Grinding Facility, Packaging
Facility, & Dispatch Terminal)
• Table 5:Consolidated Cost of Goods Manufactured(Absorption
Shan Foods (Private) Ltd. was founded in 1981 in a single room as Shan
Masala. Later, due to its popularity, the company was named Shan Foods. It has
presence in more than 50 countries today and deals in several broad categories
of offerings. Shan Foods has capitalized on the changing market trends and
consumer tastes and through product trials, it has made sure to churn out
offerings that are best in line with consumer tastes.  
• A huge part of their sales consist of Recipe Mix Category.
• Recipe Mix Category consists of 64 variants, classified into 9
ranges
• The share of products from Biryani Range in the Recipe Mix
Category Sales is significantly larger than any other range.
• The costing methods Shan Foods has adopted, for the regular
SKU (60 gm Pack), of Bombay Biryani Masala.
• Shan Foods have a brand portfolio of two brand names, Shan
and Delve.
• sub divided into several categories and ranges of different
variants
Shan Foods Offerings
• Shan Variants  Delve Deserts
• Recipe Mix 64 • Jelly Crystals4
• Plain Spices 16 • Custard Powders 3
• Oriental Recipe 10 • Pudding Mix 3
• Arabic Recipe 7
• Salt 2  Ready to eat 13
• Pickle 7  Instant Noodles 3
• Paste 3
• Sauces 5
• Rice 5
• Vermicelli 1
Organizational Management
• Kaizen approach for continuous improvement
• Implementation of technological advancements
• Process automation, Process re-engineering
• Reduced labor count
• Controlling wastages and quality standards(six sigma)
• limiting the warehousing costs
• keep material and finish goods inventory
• Projected 20% reduction in production cost,
 Selected Product

• 64 different variant with 4 to 8 different SKU’s for each

• We selected Bombay Biryani from Recipe Mix Range
• Shan Foods Private limited has adopted Process costing method
• different cost associations, but same costing methods
• Selling Price of Regular SKU (60 gm Pack)of this Product is PKR 75
Manufacturing Process
• highly machinery intensive and automatic processing facility
• eliminated direct human hand interfaces with the product
• Manufacturing process of the selected product is divided into twelve sub processes
• performed in four departments
• five quality checks in the process
• effective wastage control mechanism
• wastage of RM is negligible
• spoilage comprises of packaging material
• wastage costs are adjusted in the departmental costs
Manufacturing Process
• Unit production is conducted in a batch
• the costing unit is 1 unit of product
• total units in a batch is 250,000 units
• Departmental Optimal production is one batch a day(8 continuous
working hrs)
• average production period for a batch of 250,000 units is 4 working days
• which is 32 working hrs, and 7,812.5 units are produced every hour
• inventories are operated on FIFO
Departmental percentage of COGM
• Department Process(s) %age COGM
• RM Warehouse 52
• Quality Classification 10.4
• Sterilization 31.2
• Cold Storage and Warehousing 10.4
• Grinding Facility 21.75
• Chopping 1.81
• Cryogenic Grinding 9.06
• Sifting Classification 1.81
• Temp Regulated SILO Storage 3.63
• Recipe Batching 1.81
• Blending 3.363
• Packaging Facility 21.5
• Poly Filling 5.02
• Packaging and Cartooning 16.48
• Dispatch Terminal 4.75
• Finished Goods Warehouse 4.75
Wastage Level at each department
•  
Department Normal Spoilage (Wastage)
 RM Warehouse 0.1~0.5%
 Grinding Facility
0.01~0.1%

 Packing Facility 0.1~1%

 DT2
0~0.1%
 Total Wastage 0.2~1.7%
Percentage distribution of Various Costs
with respect to COGM
Costing Assumptions
• Period = May,2020
• 24 working days (192 machine hrs,8 hrs/day)
• Units introduced in THE process = 6,000,000 (at normal Capacity)
• Units Produced = 5,958,066
• Spoilage at maximum level of Normal Spoilage at all inspection level.
• All Departments completed their work by the end of the month
• Selling Price = PKR 75, Marketing and Admin Expense =10% of Sales
• Profit Margin = 34.63%
• Therefore unit COGM = 75 - (34.63+10=44.63%*75=33.47) =PKR 41.53
• Considering all the data mentioned earlier
• Opening and Closing inventories of FG at all departments are nil.
VFOH and FFOH for each department

Department FFOH VFOH

RM Warehouse 6% of COGM 0.75% of COGM
Grinding Facility 16% of COGM 1.75% of COGM
Packaging Facility 14% of COGM 1.75% of COGM
Dispatch Terminal 4% of COGM 0.75% of COGM
Unit Manufacturing Cost Distribution for Process Costing, without taking losses
Unit Manufacturing Cost DM DL VFOH FFOH CC Total
             
RMWH 13.8 4.98 0.31 2.49 7.78 21.58
Grinding Facility 0.00 1.66 0.73 6.64 9.03 9.03
Packaging Facility 0.73 1.66 0.73 5.81 8.2 8.93
Dispatch Terminal 0.00 0.00 0.31 1.66 1.97 1.97

  14.53 8.3 2.08 16.6 - 41.51

1. RMWH 3. Packaging Facility
DM: [com pound x + y =65+35 of DM]*35%of COGM DM: [5% OF 35] =1.75% OF COGM =0.175*41.53=0.73
=95% of 35 = 33.25% of 41.53= 13.8 DL: [20% of 20] =4% of COGM =0.04*41.53=1.66
DL: [60%*20 of DL] = 12% * 41.53 = 4.98 VFOH: 1.75% OF COGM = 0.0175*41.53=0.73
VFOH: 0.75 % of COGM = 0.75%*41.53 = 0.31 FFOH: 14% of COGM =0.14*41.53=5.81
FFOH: 18.6 % of COGM = 18.6%*41.53 = 2.49
2. Grinding Facility 4. Dispatch Terminal
DM: 0 DM: 0
DL: [20% of 20] =4% of COGM =0.04*41.53=1.66 DL: 0
VFOH: 1.75% of COGM = 0.0175*41.53=0.73 VFOH: 0.75% of COGM =0.0075*41.53=0.31
FFOH: 16% of COGM = 0.16*41.53 =6.64 FFOH: 4% of COGM =0.04*41.53=1.97
Table 1: Cost of Production (RM Warehouse)

Equivalent Production Units

   
DM 1 CC
Units Introduced 6,000,000   6,000,000
Units Transferred 5,970,000   5,970,000
Normal Spoilage 30,000   30,000
   
6,000,000 6,000,000
       
Cost Charged
 
Cost Units Rate
DM 1 82,800,000 6,000,000 13.8
CC
46,680,000 6,000,000 7.78
   
129,480,000 21.58
 
Cost Accounting for
  Rate Total
Units
Transferred Out 5,970,000 21.58 128,832,600
Losses      
DM 1 30,000 13.8 414,000
CC 30,000 7.78 233,400
     
129,480,000
Table 2:Cost of Production (Grinding Facility)
Equivalent Production Units
   
CFPD CC
Units Introduced 5,970,000   5,970,000
Units Transferred 5,964,030   5,964,030
Normal Spoilage 5,970 5,970
 
   
5,970,000 5,970,000
       
Cost Charged

 
Cost Units Rate
CFPD 128,832,600 5,970,000 21.58
CC 53,909,100 5,970,000 9.03
   
182,741,700 30.61
 
Cost Accounting for
  Units Rate Total
Transferred Out 5,964,030 30.61 182,558,958
Losses      
CFPD 5,970 21.58 128,833
CC 5,970 9.03 53,909
     
182,741,700
Table 3:Cost of Production (Packaging Facility)
  Equivalent Production Units
  
CFPD DM 2 CC
  Units Introduced 5,964,030 6,023,670 6,023,670
Units Transferred 5,964,030 5,964,030 5,964,030
Normal Spoilage 0 59,640 59,640
 
5,964,030 6,023,670 6,032,670
       
Cost Charged
  Cost Units Rate
CFPD 182,558,958 5,964,030 30.61
DM 2 4,397,279 6,023,670 0.73
CC 49,394,094 6,023,670 8.2
   
236,350,331 39.54
 
Cost Accounting for
  Units Rate Total
Transferred Out 5,964,030 39.54 235,817,746
Losses      
CFPD 0 30.61 0
DM 2 59,640 0.73 43,537
CC 59,640 8.2 489,048
     
236,350,331
Table 4:Cost of Production (Dispatch Terminal)
Equivalent Production Units
   
CFPD CC
Units      
Introduced 5,964,030 5,964,030
5,958,066   5,958,066
Transferred out
Normal      
Spoilage 5,964 5,964
   
5,964,030 5,964,030
       
Cost Charged
 
Cost Units Rate
CFPD 235,817,746 5,964,030 39.54
CC
11,749,139 5,964,030 1.97
   
247,566,885 41.51
 
Cost Accounting for
  Units Rate Total
Transferred Out 5,958,066 41.51 247,319,320
Losses      
CFPD 5,964 39.54 235,816
CC 5,964 1.97 11,749
     
247,566,885
Table 5:Consolidated Cost of Goods Manufactured(Absorption)
Cost of Goods Manufactured 100.00% PKR 41.53 PKR 247,566,885
DM 35.00% PKR 14.54 PKR 86,648,410
Compound X 21.00% PKR 8.72 PKR 51,989,046
Compound Y 12.25% PKR 5.09 PKR 30,326,943
Packaging Rolls 1.40% PKR 0.58 PKR 3,465,936
Hard Packaging 0.28% PKR 0.12 PKR 693,187
Cartoons 0.07% PKR 0.03 PKR 173,297
DL 20.00% PKR 8.31 PKR 49,513,377
RM Warehouse 12.00% PKR 4.98 PKR 29,708,026
Grinding 4.00% PKR 1.66 PKR 9,902,675
Packaging 4.00% PKR 1.66 PKR 9,902,675
Total Manufacturing CostA 100.00% PKR 41.53 PKR 247,566,885
VFOH 5.00% PKR 2.08 PKR 12,378,344
V. IDM 0.10% PKR 0.04 PKR 247,567
V. IDL 0.15% PKR 0.06 PKR 371,350
Others 4.75% PKR 1.97 PKR 11,759,427
FFOH 40.00% PKR 16.61 PKR 99,026,754
IDM 10.00% PKR 4.15 PKR 24,756,688
IDL 8.00% PKR 3.32 PKR 19,805,351
Others 22.00% PKR 9.14 PKR 54,464,715
Opening WIP     PKR 0
Closing WIP     PKR 0
COGM     PKR 247,566,885
Opening FG     PKR 0
Closing FG     PKR 0
COGM Available for Sale      
Over & Under Applied (6,000,000-5,958,066) x 7.75 PKR 324988
 
COGM at Actual PKR 247,891,874 (41.60/unit)