ExecutiveSummary

AgricultureisthebackboneofIndianeconomy,providingdirectemploymenttoabout70%
oftheworkingpopulationofourcountry.Itformsthebasisofmanypremierindustriesin
India,oneoftheautomobileindustry(egmanufacturesoftractors).Theinventionoftractors
drasticallytransformedtheagricultureindustry.Theyalteredthewayframinghadbeendone
forthecountlessyears,duringwhichonlyminorimprovementshavebeenmade.Thenew

machineriesenabledtheproductionofvastamountsoffoodthatledtogreattechnical
progressfrom20thcentury.
VSTTillersTractorsLimited(VTTL)wasincorporatedintheyear1967inBangalore,India.
ItwaspromotedbytheVSTgroup,awellknownbusinesshouseinSouthIndia,intechnical
collaborationandjointventurewithMitsubishiHeavyIndustriesandMitsubishiCorporation,
JapanforthemanufactureofPowerTillersandDieselEngines.Themainproductsofthe
companynamelyPowerTillersandTractorsareusedintheagriculturalsectoralloverthe
India.PowersTillersandTractorsareexportedtowholeofAfrica.TheTractorsarealso
exportedtoMiddleEast,RussiaandTurkey.ThecomponentpartsareexportedtoEurope,
KoreaandThailand.
VTTLhasinhousedesignandDevelopmentsectionforupgradingtheleveloftechnologyin
linewithcurrentrequirements.VTTLhasISO9001certificationforQualityManagement
SystemsinceJanuary1998.VTTLfollowsISO90012008Qualitysystemrequirementsto
satisfyallcustomersneeds.
Costmanagementisveryimportantforanorganization,theyhastoadoptgoodcosting
systemtorunthebusinessmostefficiently&effectively.Costmanagementisasystemthat
establisheslinkagesbetweencostsandrevenuesandrelatesthemtotheproductsorservices
tomaximizethefirmsprofits.Themainobjectiveofthesystemofcostmanagementis
optimalutilizationofresourcestoenhancetheoperatingincomeofthebusinessfirm.
Methodologyusedinthisprojectisdescriptiveresearchdesign.Inthisresearchanattempt
hasbeenmadetostudyoncostmanagement.DescriptiveResearchisdonewhenevera
researcherwantstogainabetterunderstandingofthetopic.
VTTLfollowsJobcostingsystemfordeterminationofthecostofdieselengines,tillersand
tractors.Everyengineisidentifiedwithenginenumbersatthetimeofcommencementofthe

job.Thecompanyadoptedvariousstrategiestomanageitsmaterial,labourandoverhead
costs.Thelast5yearscostinformationisusedtoprepareJobcostsheetsandanalysisand

interpretationofincreaseanddecreaseinvariouscosts,salesandnetprofitsofthe
organisation.
Thisstudyrevealsthefactsthattherewasdecreaseinproductionandsaleslastyeardueto
monsoonfailureasaresulttherewasasmallchangeinnetprofitsofthecompany.It
indicatesthatthecompanyhaddifficultyinmanagingitsshorttermobligations.
Absorptioncostingandmarginalcostingaretwodifferenttechniquesofcosting.Absorption
costingiswidelyusedforcostcontrolpurposewhereasmarginalcostingisusedfor

managerialdecisionmakingandcontrol.Statementofabsorptioncostingandmarginal
costingisalsomadetoknowthedifferencebetweennetprofits.Thedifferenceinprofitsof

absorptioncostingandmarginalcostingisduetooverandunderabsorptionofoverheadsand
differenceinstockvaluation.

AstudyonCostmanagementatVSTTillersTractorsLimited

CHAPTER1
INTRODUCTION
1.1INTRODUCTIONABOUTTHEINTERNSHIP
TheinternshiptrainingisthepartofcurriculumofMBA.Themainpurposeofstudyistoget
anexposuretocorporateenvironmentandtogetthepracticaloverallview,whichhelps
studentstounderstandmanagementbetter.Thestudentsareexpectedtoworkinthe
organizationwegetanopportunitytoobserveandunderstandthevariousfunctional
departmentsinanorganizationasawhole.Thetrainingalsomakesustounderstandthe
applicationoftheoryintopracticeandtomakeustoanalyzeorganizationinternallyand
externallyworkingenvironment.
TheInternshipstartedfrom16042014to08072014atVSTTillersTractorsLimitedto
studyaboutcostmanagement.Ilearntthestrategiesadoptedbythecompanytomanageits
materials,labourandoverheadscostsandthetypeofcostingmethoditisfollowingto
preparecostsheets.Ihavealsogottoknowthereasonsforthechangesincostsandprofitsof
thecompanyoverthelastfewyears.Thisstudyhelpsmetoknowthestructureofthe

company,itsproductsprofileandareasofoperation.Thetheoreticalconceptswhichwe
learntinclassaboutcostinganditsmethodsandtechniquesarepracticallyappliedinthe

companytofindouttheactualcostsincurred.
ThecompanyisfollowingJobcostingmethodtopreparecostsheets.Thepreparationof
marginalandabsorptioncostingisdonetoknowthedifferencesinnetprofitsandreasonsfor
itsdifferences.Italsohelpsustohaveaclearpictureofcorporateworldandorganization
culture.Thestrategiesadoptedbythecompanytomanageitscosthelpedmetohaveanidea
howtomanagecostinthecompaniesincaseifthereisanyneedtomaintainminimumcost
inthecompany.Finallythestudyhelpsustounderstandhowtheorganizationachievesits

goalindynamicenvironment.

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1.2TITLEOFTHESTUDY
AstudyonCOSTMANAGEMENTatVSTTILLERSTRACTORSLIMITED

1.3Needforthestudy
ThestudycoverscostingsystempracticeinVSTTillersTractorsLimited.However,the
analysispurelydependsonaccuracyinthedataannualreportsandcoststatements.Therefore
basisforthestudyisdatabeencollectedfromthe5yearsbalancesheets,profitandloss

accounts.

1.4Statementoftheproblem
TofindoutthedifferentcostmanagementstrategiesadoptedbyVSTTillersTractorsLimited
tocontroltheircostwithreferencetolast5yearsinformationobtainedthroughcostaudit

reports,Annualreportsandotherfinancialstatementsoftheorganization.

1.5Objectivesofthestudy

TounderstandthecostingsystematVTTL

Tofindtheactualcostincurredinvariousactivitiesofthecompany

Tostudythedifferentpracticesandstrategiesadoptedbythefirmtomanagecost.

Tounderstandtheimpactontheprofit&lossaccount

Tosuggestthebestprocedureortechniquesforcontrolofcostoftheproducts

1.6Scopeofthestudy

Thisstudyhelpsthefirmtoadaptanefficientcostingsystem

Thisstudyhelpsthecompanytoreducethecostoftheproductwhichleadstoproduce

aqualitativeproductatreasonableprice

Itprovidesnecessaryinformationtothetoplevelmanagementwhichhelpsthemto
formulatepoliciesanddecisionmakingprocess

Itprovidesguidelinestothecompanyinincreasingtheprofitabilityandefficiencyof
thecompany

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1.7METHODOLOGY
Methodologymeansscienceofmethodoritisaprocessthatisusedtoanalyzeandinterpret
theobservation.

TypeofResearch
DescriptiveResearchisusedtostudytheexistingpartstocometoconclusion.Inthis
researchanattempthasbeenmadetostudyoncostmanagement.

SourcesofData
SecondaryData
Secondarydataarethesourcesofdatawhichhavebeencollectedandcompliedthrough
statisticalstatementsandreports.Secondarysourcesareobtainedfromvariousrecords
likeannualreports,costauditreports,financialstatements,companyprofileand
www.vsttillers.com.Thetheorypartisobtainedbyreferringvarioustextbooksandother
reliablesources.

Sourcesofdatacollection

CostsheetofVSTTillersTractorsLimited

Profit&lossaccountof5years

Balancesheetof5years

Toolsandtechniques
JobcostingisusedtopreparecostsheetsandMSExcelisusedforthepreparationofgraphs.

MarginalcostingandAbsorptioncostingisusedtofindoutthedifferencebetweenchanges
inprofits.

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1.8LiteratureReview

Anderson,BankerandJanakiraman,2003Understandingcostmanagement:what
wecanlearnfromtheEmpiricalEvidencestickycosts?
FindthattheabsolutechangeinSG&Acostassociatedwithdecreasedsalesactivityis
systematicallylessthanthatassociatedwithincreasedsalesactivity(socalledsticky
costs).Theyinterpretthisasevidenceofovertcostmanagement.Wereview

theories,empiricaltestsanddataemployedinthestickycostliteratureandarguethat
stickycostbehaviorisnotsufficienttodiscriminatebetweenmanagerialand
mechanicaltheoriesofcostmanagement.Weconcludethat,usingtheempirical
specificationanddataofpriorstudies,anyobservedcostbehaviorisconsistentwith
costmanagementandfocusinsteadonwhetheradjustmentcoststhatarehypothesized
toinfluencecostmanagementdecisionsareassociatedwithstickycostbehavior.

YvonneWardandAndrewGraves,2004.05Anewcostmanagementand
accountingapproachforLeanEnterprises
Theadoptionofleanprinciplesandpracticeshasbecomewidespreadinmany
industriessincetheearly1990s.Companiesarenowbeginningtorealizethat
traditionalcostingandaccountingmethodsmayconflictwiththeleaninitiativesthey
areimplementing.Consequently,importantresearchquestionsarebeingraised.Is
newcostmanagementandaccountingapproachrequiredforcompaniesthatadopt
leanprinciplesandpractices?Ifsowhatshouldthisapproachentail?Thispaper
addressesthesequestions.

RobertL,Tichacek,PE,2005Effectivecostmanagement
Costmanagementshouldberegardedasaprocessrequiringtheintegrationof
separatedisciplinemethodologiesandtheinvolvementofmanypersonswhoareboth
partofandexternaltotheprojectteam.Thisimpliesthatcostandbenefitsbe
consideredintotalandnotlimitedtoaprojectscapitalbudget,thatorganizational
requirementsbeconsidered,andthatthesometimescompetinggoalsbetweenprojects
andcorporateentitiesbeoptimizedandaligned.Effectivecostmanagementrequires
theimplementationofmethodologiesandstepsthatarerepeatablefromprojectto
projectandcanbeintegratedwithorganizationalgoals.

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RobertReeveandDavidWarwick,2006Advancedcostmanagementsystemsin
Australia:Astudyoftheiruseandusefulness
Thisisastudyoftheextentofuse,andtheusefulness,ofeightadvancedcost
managementsystemsinawiderangeofAustralianorganizations.Dataonthe
characteristicsofthesesystemsarealsopresented,aswellastheirassociationwith

extentofuseandusefulness.Inaddition,theorganizationsareclassifiedintogroups
accordingtotheextentoftheiruseofadvancedcostmanagementsystems,andby
theirindustryclassification,andinsightsobtainedfromtheseclassificationsare

presented.

AtulyaVenkatramanan,2006

Developingastrategiccostmanagementmodel:

CombiningtheBalancedScorecardandActivityBasedCostinginthecontextof
DiabetesEducation
Thestudypresentsthedevelopmentofastrategiccostmanagementmodelthat
combinesactivitybasedcosting(ABC)withprinciplesofthebalancedscorecard
(BSC).ThepurposeofthecombinedABC/BSCmodelisprovidecostinformation
thatcouldbeusedtoevaluatestrategyimplementation,monitorpremisesunderlying
strategythatmayneedtoberevised,andprovideastrategicperspectivetooperational
decisions.WhileABCprovidesactivityspecificcostinformation,theBSC
frameworkofdifferentperformanceperspectives(oractivitydimensions)provides
structuretodatacollectionandorganization,andfacilitatesstrategicanalysis.The
modelisappliedinthehealthcarecontextofadiabetesclienteducationprogram,and
thestudyincludesalistofactivities,activitydrivers,andcostdriversfortype2
diabeteseducation.

MattiSievanen,2007Acostmanagementviewpointtomasscustomizableservices:
areviewandconsiderations
Masscustomizationhasbeenquiteapopulartopicsincetheearly90s.However,a

deeperunderstandingofservicemasscustomizationisstillmissing.Howshould
servicesbemasscustomizedandcanmethodslikemodularizationandplatformsbe
used?Furthermore,whatkindsofcostmanagementtoolsshouldbeused?Theaimof
thispaperistoreviewtheliteraturetofindoutservicescanbemasscustomizedand

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AstudyonCostmanagementatVSTTillersTractorsLimited
togivesomesuggestionsastowhatcostmanagementaccountingtoolsshouldbeused
andhowtheyshouldbeusedinthecaseofmasscustomizedservices.

FernandodosSantosFraga,JensAnema,2009Decisionmakingframeworkfor
managers:profitbyforecasting,costsandpricemanagement
Forecasting,costmanagementandpricingpoliciesaretopicswhichhavebeenwidely
investigatedovertime.Duetolackofscientificresearchabouttherelationships

betweeneachofthosesubjects,thesemethodshavebeeninvestigatedincombination
withtheiroutcomes.Thepurposeofthisworkwastodevelopaframeworkwhichcan
beusedbymanagerswhowanttomakeadecisionineitherofthesubjectsmentioned

before.

MaynardR,2010CostManagement
Theauthorpresentsacasestudytowarnthat,whenconsideringbusinessstrategy,itis
importanttorealizethatcompanyperformancedrivesitscostconsiderations.
Businessdecisionsthereforeshouldnotbedrivenbycostfactors.

ALUKOS,2010Strategiccostmanagement
ReportsonafinancialtransparencyprojectatBarclaysbank,inwhichtheauthorsare

involved.

OLABISIJayeolaSOKEFUN,A.O.OGINNI,B.O,2012Kaizencostmanagement
techniqueandprofitabilityofSmallandMediumscaleEnterprises(SMEs)inOgun
State,Nigeria
ThisstudyevaluatesthenatureofKaizencostmanagementtechniqueandhowitcan
beadoptedtoreduceandcontroloperationalcostsofSMEs.Thestudyadopted
primarydataandasampleof269respondentsconsistingofsmallandmediumscale
werepurposivelychosenfromAgroallied,confectionary,generaltradingand
transportbusinessinOgunStateNigeria.Thepopulationcomprised2,685enterprises

obtainedthroughapreliminarysurveyofSMEsinthethreesenatorialdistrictsof
OgunStatesnamelyOgunWest,OgunEast,OgunCentral.Theresultofstatistical
testofhypothesisshowsthatthereisasignificantrelationshipbetweenKaizencost
managementtechniqueandprofitabilityofSMEs
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1.9Limitationsofthestudy

Dataconsideredisonlypastyears.

Onlyfewareasofthesubjectareconsidered.

Thestudywasalsolimitedtosomecostfactors.

Timeconsumingprocess.

Muchinformationiscollectedthroughsecondarydata.

AnalysisisbasedontheopinionandattitudeoftheofficersatVTTL

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AstudyonCostmanagementatVSTTillersTractorsLimited

CHAPTER2
2.1INDUSTRYPROFILE
INTRODUCTION
ThelevelofmechanisminIndiawaslowatthetimeofindependence1947.Therefore
socialistoriented5yearsplanofthe1950sand1960saggressivelydevelopedtopromote

ruralmechanizationviaJVtieupsbetweenlocalindustrialistandinternationaltractors,
manufacturers.Despitethisaggressivenessthefirst3decadesafterindependencelocal
productionof4wheels,tractorsgrewslowly.Yetbythelate1980stractorsproductionwas

nearly140000unitsperyearandbythelate1990swithproductionapproaching270000units
peryear.IndiaovertookUStheworldslargestproducersof4wheeltractorswithover16
nationaland4multinationalcorporationsproducingtractorstoday.Despitetheseimpressive
numberFAOstatisticsestimatethatofthetotalagriculturalareainIndia,lessthan50%is
undermechanizedlandpreparationindicatinglargeopportunitiesstillexistforagricultural

mechanization.19451960wassurplustractorsandbulldozerswereimportedforland
recultivationin1940s,in1947centralandstatetractorsorganizationweresetup,developed
andpromotethesupplyanduseoftractorsinagricultureandupto1960.Thedemandwas

metentirelythroughimport.
AgricultureisthebackboneofIndianeconomy,providingdirectemploymenttoabout70%
oftheworkingpopulationofourcountry.Itformsthebasisofmanypremierindustriesin

India,oneoftheautomobileindustry(egmanufacturesoftractors).Theinventionoftractors
drasticallytransformedtheagricultureindustry.Theyalteredthewayframinghadbeendone
forthecountlessyears,duringwhichonlyminorimprovementshavebeenmade.Thenew
machineriesenabledtheproductionofvastamountsoffoodthatledtogreattechnical

progressfrom20thcentury.

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HISTORYOFTRACTORSINDUSTRYININDIA
19451960
In1947centralandstatetractorsorganizationwassetuptodevelopandpromotethesupply
oftractorsinagricultureandupto1960thedemandmeetentirelythroughpromoters.There

were8500tractorsin1951,20000in1955and37000by1960.

19601970
Localproductionbeganin1961withfivemanufacturesproducingatotalof880unitsper
year.By1965,thishadincreasedtoover5000unitsperyearandthetotalinusedhadrouse
toover52000by1970.Annualproductionhadexceeded20000unitswithover146000units

workinginthecountry.

19701980
Sixnewmanufactureswereestablishedduringthisperiodalthoughthreecompanies
(Kirloskartractors,harshatractors,PTLtractors)didnotsurvive.EscortsLTDbeganlocal
manufactureofFordtractorsin1971,reaching71000by1980.Creditfacilitiesforfarmers
continuedtoimproveandtractormarketexpandedrapidlywiththetotalinusepassingthe
behalfmillionmarkby1980.

19811990
Afurtherfivemanufacturesbeganduringthisperiod,butonlyone(Mahindra7Mahindra)of
thesesurvivedintheincreasinglycompetitionmarketplace.Annualproductionexceeded

75000unitsby1985andreached140000unitsin1990whenthetotalinusewasabout1.2
million,thenIndianextexportuptothemid1970sbecomeanexportedin1980smainlythe
countrieslikeAfrica.

19911997
Since1992ithasnotbeennecessarytoobtainanindividuallicensefortractormanufacturein
India.By1997annualproductionexceeded255000unitsandthenationaltractorparkhad
passed2millionmarks.Indiaemergedasoneoftheworldleader4wheeledtractors

production.
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THEINDUSTRYTODAY
Tractormanufacturingishighlycompetitivewithrapidadvancesbeingmadeintechnical
designandqualitywithincreasedattentiontosixteencompaniesthatbeganoperationbefore
1990.Sixareconsideredmajormanufacturer(EitherEscortsLTD,HMT,Mahindra,PTLand
TAFE).
Mahindrahaveemergedasthelargestmanufacturer.Producing6800unitsin1997followed
byTafeescortsltdandPunjabtractorwith49000,48000and40000unitsrespectively.The
arrangedsizeoftractorsinthecountryiscurrently35hpwhichfollowingtrendsinother
partsoftheworldseemslikelytoincreasesteadilytoaround45hpby2020.Bythenthetotal
tractorpopulationmayhaveincreasedfromthepresent2millionwithannualproductionup
to320000.

Industrystructureanddevelopments
TheIndianeconomygrewataround8.5%during201011asagainst8%recordedin2009
10.Withvariousmeasuresadoptedbythegovernmentandnormalmonsoontheagriculture
andalliedsectorpostedahealthy5.6%growthcomparedtoanegligiblegrowthduring2009

10.Thegovernmentsstrategytoimprovecreditavailabilityandinterestsubventionto
farmershasspurredthegrowthinthissector.
Theagriculturalsectorcontributesaround17%totheGDPandengagesover70%ofthe
countriesworkforce.Largepartsofthissectorareunorganizedwithlimitedbankfinanceand
lowfarmtechnology.However,withthehighersupportforfoodgrains,realizationhas
improvedforfarmerscontributingtotheoverallgrowth.Thecontributionofgovernments
schemessuchastheNationalRuralEmploymentGuaranteeAct(NREGA).
ThepowertillersectorinIndiahasevolvedovertheyearsandisatpresentinanintermediate
stageofdevelopmenthascomparedtoChina.Howeveritislargelydependentongovernment
subsidiesandisgrowingaround20%pa.Theindustryiswitnessingintensecompetitionfrom
Chinesebrandtillersthatareincreasingtheirpresenceinthedomesticmarketandposinga
majorchallengeinthissegment.
TheIndiantractormarketwhichisthelargestintheworldisexpectedtotheincreaseata
CAGRof67%by201415.Withtheraiseinruralincomesandthegovernmentsfocuson
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AstudyonCostmanagementatVSTTillersTractorsLimited
increasingmechanization,improvementinyieldsisexpected.Duringtheyearunderreview
thedomestictractorindustrysold482237unitscomparedto402935unitsinthepreceding
previousyearwithover12majorplayerscateringtovarioussegmentsfrom25HPtoabove

55HP.YourcompanycommandsasignificantmarketshareinMaharashtra,Gujaratand
Tamilnaduinthebelow20HPtractorsegmentandthesalesareexpectedtogrowinother

statesinthecomingyears.

PowerTillers
BycomparisonwithotherpartsofSouthEastAsiandemandforpowertillersinIndiahas
beenslowtotakeoff.Howeverthepopulationintheyear2012wasaround66000unitswith
anaveragesizeof10hpisexpectedtorisesteadyingtoaround300000unitsby2020withan
annualproductionof50000units.

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2.2COMPANYPROFILE
Nameofthecompany:VSTTillersTractorsLimited
Natureofthebusiness:Manufactureofpowertillersandtractors
Industrysector:Mediumscale
Location:VSTtillerstractorslimited,Mahadevapurapost,WhitefieldRd.Bangalore48

BACKGROUNDANDINCEPTIONOFTHECOMPANY
VSTTillersTractorsLTDlocatedatBangalorewasincorporatedintheyear1967andwas
promotedbytheVSTgroupofcompaniesarespectableindustrialhouseinsouthIndia.The
factorylocatedona20acreplotandwassetupintheyear1970alongwithMitsubishiheavy
industriesLTD.AndMitsubishiCorporationofJapanasjointventurepartnersforthe

manufactureofpowertillersintheyear1985.Thecompanyenteredintoatechnical
collaborationwithMitsubishiagriculturalmachinerycompanyforthemanufactureofsmall

tractors.ThecompanylaunchedtheMitsubishiMT180Dtractorwhichisacompactand
whendriveunitwithrotaryattachmentandfittedwithafuelefficient18.5hpengine,at
presentthecompanyismanufacturingandmarketingpowertillerstractorsdieselenginesand
componentpartsofdieselengines.
Apartfrommeetingthecapitalneedsformanufactureoftillersandtractorsengineare
markedasprimemovers,forotherapplicationslikegeneratorsairconditioningforbusesand
formarine.
Thecompanyhasastrongdealershipnetworkalloverthecountry(India)numberingmore
than150formarketingitsproducts.Sparepartsandrenderingaftersalesservices.Ithas
regionalofficerin6locationstofacilitatetherequirementsofdealers.Presentlyithasa
workforceofover600personalcomprisingofexecutives,staff,skilled,andunskilled
workmenthetotalturnoverofthecompanyexceedsRs.1350millionandhasbeen
consistentlydeclaringdividends.
ThecompanyhasanestablishedunitaccreditedwithTS16949certificationcomponents
divisionatMysore,Karnatakaemployingaround130peopleformachinerycrankshafts.
Connectingrodsandcrankcases,thisdivisionexportscrankshaftsandconnectingrodsto
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AstudyonCostmanagementatVSTTillersTractorsLimited
Japan,Korea,GermanyandUKbesidesseveralhighspeedmachineryequipmentssuchasa3
coordinatemeasuringmachineprofittesterroundnesstester.Microhardnesstesteretcis
availabletomaintainthequalityofthecomponents.
VTTLhasinhousedesignandDevelopmentsectionforupgradingtheleveloftechnologyin
linewithcurrentrequirements.VTTLhasISO9001certificationforQualityManagement

SystemsinceJanuary1998.VTTLfollowsISO90012008Qualitysystemrequirementsto
satisfyallcustomersneeds.

NATUREOFTHEBUSINESSCARRIED
VSTgroupmanufactureandsellTillersandTractorsacrossthecountryaswellasother

countrieslikeEurope,MiddleEastAsia&Africa.Otherbusinesslinesareasshown;

VSTGROUP
AUTOMOTIVE

VSTMotorsLTD(Madras)dealersofTatavehicle

Indiagarage(Madras)dealersinMahindraandMahindra,jeepMitsubishi,shakthi

powertillerstractorsanddieselengines.

VSTservicestationPVTLTD(Vellore,Salem,Trichyandcuddalore)repairsand

servicesofautomotivevehicles

Indiagarage(Bangalore)dealersinMahindraandMahindrajeepsandpetroleum
products

Southernmotors(Bangalore)dealersinHindustanmotorspassengerscars

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AstudyonCostmanagementatVSTTillersTractorsLimited

Indiagarageservicestation(Bangalore)dealersinMahindrashaktitillerstractors
dieselenginesandpetroleumproducts

Automobilesservicecentre(Bangalore)repairsandservicesofcarsandjeeps

MANUFACTURER

VSTtillerstractorsLtd(Bangalore)manufactureofMitsubishishaktipowertillers

tractorsanddieselengines

VSTAutoancillariesPvtLtd(Bangalore)machineryoftractorcomponents

Tresties(Bangalore,Shimogha,Bellary)retreatingofwires

OTHERS

GovernmentinvestmentandfinancialcompanyLtd(Bangalore,madras,Pondicherry)
hirepurchasesandleasingbusiness

K.STransport(Bangalore,madras,)transportationofgoods

VSTandsons(Bangalore)civilconstructionactivity,VSTinternationalexportand
importmaking

2.3PROMOTERS
NAME
VKSurendra
VVPravindra
RSubramanian
VRamachandran
VPMahendra
BCSIyengar
MKBannerjee
KKRai
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TECHNOLOGY

DESIGNATION
Chairman
Deputymanagingdirector
Director
Director
ManagingDirector
ExecutiveDirector
Director
Director
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2.4VISION,MISSIONANDQUALITYPOLICY
VISION
VTTLbelievesthatthefoundationofitsbusinessistoprovideexcellenceinitsproducts
through:

Highquality&reliability

Economical&competitiveprices

Efficientservicestothesatisfactionofthecustomers

Inordertoachievethesegoals&attainmarketleadership,itshallbetheobjectiveofevery
employeetostrivetobe

Thebestinthefield

MISSION
EnableallthoseworkingforVSTtogivetheirbesttoensuretheirallroundgrowthaswellas
thatoftheorganization.

QUALITYPOLICY
Tostriveforexcellenceby:

Supplyingqualityproductswithhighreliabilityatcompetitiveprice

Providingefficientandpromptaftersaleservice

Achievinghighdegreeofcustomersatisfactionthroughcontinuousimprovement

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process

Minimizingproductcostwhilemaintaininghighqualityandreliability

2.5PRODUCTSPROFILE
Theproductprofileofthecompanyincludes:
MitsubishiShaktiVWH120PowerTiller
VSTShakti130DIPowerTiller
RotaryTiller
EuroTracVST180DTractor(ExportModel)
MitsubishiShaktiMT180DTractor
DIESELENGINES
AD8V
K3C
130DI
VWH120

PRODUCTSTILLERS
VSTShakti130DIpowertillerVSTShaktiVWH120PowerTiller

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TRACTORS
VSTShaktiMT180DTractorwithRotaryEuroTracVST180DTractor

PADDYTRANSPLANTER

PRODUCTSENGINES
AD8V

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VWH120

130DI

ComparativeSpecificationsofallTillerModelsataglance

VSTShakti

MODEL:

Mitsubishi

VST130DI/CT85
Tiller

VWH120/CT85
Tiller

VSTShakti130DIVWH120

ENGINE:

Horizontal

TYPE

Shakti MitsubishiShakti
AD8V/CT85Tiller

AD8V

4 Horizontal

4 Inclined

stroke/singlecylinder stroke/singlecylinder stroke/singlecylinder

Dieselengine/O.H.V Dieselengine/O.H.V Dieselengine/O.H.V
Directinjectiontype

Combustion:

95(3.74)

Bore(mm(in)):
Stroke(mm(in)):
Displacement

(cu

95(3.74)
673.4(41.1)

Pre

combustion Swirl

chambertype

chamber

92(3.62)

80(3.15)

95(3.74)

90(3.54)

631(38.5)

452(27.6)

21:01

20:01

3.0/1900

5.1/1100

mm(cuin)):
CompressionRatio:18:01
MaxTorque(kg
m/rpm):

4.2/1900

combustion

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AstudyonCostmanagementatVSTTillersTractorsLimited
Output/Rated

13.0/2400

8.0/3000

9.0/2200

(HP/RPM)
Specific

fuel 195

190

235

120

119

115

consumption
(gm/hphr)
DryWeight(kg):
ROTARYTILLER:
Type:

Forward:
Reverse:
Rotary:

Side

drive

drive

rotary Side

drive

rotary

transmission

transmission

transmission

6speeds

6speeds

6speeds

2speeds

2speeds

2speeds

2speeds(optional4

2speeds(optional4

2speeds(optional4

speeds)

speeds)

speeds)

540

540

16

16

150

150

TillingWidth(mm):600
NoofTimes:

rotary Side

18

TillingDepth(mm)150

2.6AREAOFOPERATION
OvertheyearVSTtillerstractorsLtd,hasestablishedanextensiveandefficientcountrywide
salesandaftersaleservicenetworkbackedbyeasyavailabilityofsparepartsperiodic
trainingprogrammersfordealers&customeraretakenuptokeepthemconstantlyupdated

onimprovementinitsproducts.Itsoperationsarecarriedoutnotonlywithinthecountrybut
alsooutsidethecountry.Ithaswiderangeofnetworksinforeigncountriessomeofthemare

listedinatable.

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AstudyonCostmanagementatVSTTillersTractorsLimited
NATIONAL
Karnataka
TamilNadu
AndhraPradesh
Punjab
Gujarat
Assam

INTERNATIONAL
Africa
Zambia
Middleeast
Germany
Korea
Australia

2.7INFRASTRUCTURALFACILITIES

Transportationfacility
Thecompanyishavingagoodtransportationfacility.Thisishelpfulforcompanyin
safetytransportationatanytime.

Workenvironmentandwelfarefacility
CongenialworkenvironmenthasbeenprovidedbyVSTtillerstractorsLtd.To

achieveproductionconformitythisincludesprotectionagainstabnormalsoundsas
wellassafetyorprotectiveequipment.Thecompanyishavingagoodcanteenand

ambulancesfacilitywhichprovidetoworkersatanytime.

2.8COMPETITORSINFORMATION
VSTTillersTractorsLTDisfacingintensecompetitionwithsomeofthehealthy

competitors:

Mahindra&Mahindra

EscortsLtd

HMT

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Mahindra&
Company

Sales
TotalCost
NetProfit

HMT

VST

Mahindra

EscortsLtd

481.66

40441.16

3893.88

159.57

439.70

32819.17

3769.44

223.67

48.57

3352.82

69.60

82.20

2.9SWOTANALYSIS

STRENGTH

THREATS

SWOT

WEAKNESS

OPPORTUNITY

STRENGTH

Itcoverstheagriculturalbasedpurposeontheirmanufacturingproducts

Itmanufacturesqualitybasedproducts

Itscomponentsaredurableinnature

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WEAKNESS

Nodirectadvertisement

Lackofdistributionnetworkascomparedtocompetitors

Smallscalewhenviewedwithrespectivetotheirleaders

OPPORTUNITIES

Increaseddemandforagriculturalproducts

SeekingforforeigncompanyjointventurewithVST

Exportpotential

Productinnovation

THREATS

Increasingnumberofnewentrantsintothemarket

Changeincustomerpreference

Lowshareinglobalmarket

Competitionofsimilarproductsfromothercompanies

2.10FUTUREGROWTHANDPROSPECTUS

Increasingcontactsandspreadingtheworldthroughnetworking.

Lookingtoemployfurtheradditionaltillersancaterforincreasingtrade,steppingup
localadvertisingandpromotionthiscouldincludepress,butashetsanddirectmail,
establishingaretailoutlet(maybeinternetbasedonly)forsupplyoftillers.

Newaestheticfortractorforhigherpowercategory.

Newlightweightengineof11HPforpowertiller.

2.11FINANCIALSTATEMENTS

BalanceSheet

ProfitandLossaccount

Cashflowstatement

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Astudyon

CostmanagementatVSTTillersTractorsLimited

BalanceSheetofVTTLfortheyear201213(inRS
crores)
201213

Sourcesoffunds
Equitysharecapital
Reserves
Revaluationreserves
Networth
Debt
TotalLiabilities

Applicationoffunds
GrossBlock
Less:Depreciation
NetBlock
CapitalWIP
Investments
Inventories
Sundrydebtors
Cash&Bank
Loans&advances
Fixeddeposits
Totalcurrentassets
Totalcurrentliabilities&provisions
Netcurrentassets
Miscellaneousexp
Totalassets

8.64
235.74
0
244.38
0
244.38

113.55
36.20
77.35
14.17
4.15
82.86
97.30
32.92
27.08
0
240.16
91.46
148.70
0
244.37

Page 23
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ProfitandLossstatementofVTTLfortheyear201213(Rsincrores)
Particulars

Income
Salesturnover
Exciseduty
Netsales
Otherincome
Stockadjustments
TotalIncome

Expenditure
Rawmaterials
Power&fuelcost
Employeecost
Manufacturingexpenses
Selling&adminexpenses
Miscellaneousexp
Totalexpenses
Operatingprofit
PBDIT
Interest
PBDT
Depreciation
Extraordinaryitems
Postextraordinaryitems
Tax
NetProfit

CMR INSTITUTE OF TECHNOLOGY

201213

481.66
0
481.66
2.10
30.20
513.96

365.51
2.52
28.11
0
0
43.56
439.70
72.16
74.26
1.28
72.98
3.35
0
69.63
21.05
48.57

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CostmanagementatVSTTillersTractorsLimited
CashflowstatementofVTTLfortheyear201213(Rsincrores)
Particulars
Netprofitbeforetax
Netcashfromoperatingactivities
Netcashfrominvestingactivities
Netcashfromfinancingactivities
Netincreaseordecreaseincash
Openingcash
Closingcash

CMR INSTITUTE OF TECHNOLOGY

201213
69.62
49.91
10.91
26.26
12.74
19.85
32.59

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AstudyonCostmanagementatVSTTillersTractorsLimited

CHAPTER3
THEORITICALBACKGROUNDOFTHESTUDY
MEANINGOFCOST
Costisdefinedastheamountofexpenditurewhetheractualornotionalincurredonor
attributabletoagiventhingortoascertainthecostofagiventhing.
Thefirstpartofthesentencespeaksofcostastheobjectiveortheendproductwhichfinally
resultsfromaprocessofcostingandthesecondpartastheprocessitselfi.e.the

ascertainmentofcost.

ElementsofCost
Diagramshowingelementsofcost

MATERIAL

EXPENS
ES

LABOU
R

COST

COST

DIRECT
MATERIA
L

INDIRECT
MATERIAL

DIREC
T
LABOU
R

INDIRECT
LABOUR

DIREC
T
EXPENS
ES

INDIRECT
EXPENSE
S

OVERHEAD

PRIME COST
TECHNOLO
GY

PRODUCTION
OVERHEAD

CMR INSTITUTE OF

ADMINISTRATIVE
OVERHEAD

SELLING &

DISTRIBUTION
OVERHEAD

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MaterialCost
AccordingtoCIMA,London,materialcostisthecostofcommoditiessuppliedtoan
undertaking.Itincludesthecostofprocurement,freightinwards,taxes,insurance
andotherexpensesrelatingtothematerial.
Itmaybe
Directmaterials
Directmaterialcostisthatwhichcanbeconvenientlyidentifiedwithandallocatedto
costunits.Directmaterialsgenerallybecomeapartofthefinishedproduct.
Forexample:cottonusedinatextilemill.
Indirectmaterials
Thesearethosematerialswhichcannotbeconvenientlyidentifiedwithindividual
costunits.Indirectmaterialsarethoseitemswhichdonotphysicallybecomeapartof
thefinishedproducts.
Forexample:coal,lubricatingoilandgrease,soapetc.

LabourCost
Labourcostisthemonetaryvalueofhumaneffortinvolvedconvertingthematerials
intofinishedgoodsandultimatelysellingthemtothecustomers.Itincludes
remunerationlikesalary,bonus,commission,PF,ESI,gratuity,idletimeetc.
Itmaybe:
Directlabour
Directlabourcostconsistsofwagespaidtoworkersdirectlyengagedinconverting
rawmaterialsintofinishedproducts.Thesewagescanbeconvenientlyidentifiedwith
aparticularproduct,joborprocess.
Indirectlabour
Indirectlabourisnotdirectlyengagedintheproductionoperationsbutonlytoassist
orhelpinproductionoperations.

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Expenses
CIMAdefinesexpensesasthecostofservicesprovidedtoanundertakingandthe
notionalcostoftheuseofownedassets.Inotherwords,allcostsotherthanmaterial

andlabouraretermedasexpenses.
Itmaybe
Directexpenses
AccordingtoCIMA,UK,directexpensesarethoseexpenseswhichcanbeidentified
withandallocatedtocostcentresorunits.
Indirectexpenses
Allindirectcosts,otherthanindirectmaterialsandindirectlabourcosts,aretermedas

indirectexpenses.

Primecost
Thisistheaggregateofdirectmaterialcost,directlabourcostanddirectexpenses.
Primecost=Directmaterial+Directlabour+Directexpenses

Overheads
Thisistheaggregateofindirectmaterialcost,indirectlabourcostandindirect
expenses.Overheadisalsoknownasoncost.Thus,
Overhead=Indirectmaterial+Indirectlabour+Indirectexpenses
Overheadsaredividedinto;
Productionoverhead
Thesearethoseoverheadswhichareconcernedwiththeproductionfunction.It
includesindirectmaterials,indirectwagesandindirectexpensesinproducinggoods

orservices.
Officeandadministrationoverhead
Thisisdirectexpenditureincurredingeneraladministrativefunction,i.e.,in
formulatingpolicies,planningandcontrollingthefunctions,directingandmotivating

thepersonnelofanorganisationintheattainmentofitsobjectives.
Sellinganddistributionoverhead
Sellingoverheadisthecostofpromotingsalesandretainingcustomers.
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Examples:advertisement,samplesandfreegifts,salariesofsalesmen,etc.
Distributioncostincludesallexpenditureincurredfromthetimetheproductis
completeduntilitreachesitsdestination.
Examples:carriageoutwards,warehousingetc.

Costcentre
AcostcentreisdefinedbyCIMAofUKasalocation,person,oritemofequipment(or

groupofthese)forwhichcostsmaybeascertainedandusedforthepurposeofcontrol.

Types

Personalcostcentrewhichconsistsofapersonorgroupofpersons

Impersonalcostcentrewhichconsistsofalocationoranitemofequipmentor

groupofthese
Fromfunctionalpointofview

Productioncostcentrethisisthatcostcentrewhereactualproductiontakesplace.
Examplesaremeltingshop,machinedepartment,weldingdepartment,finishingshop
etc.

Servicecostcentrethisisthatcostcentrewhichareancillarytoandrenderservices
toproductioncostcentre.
Examplesarepowerhouse,storesdepartment,repairshop,canteenetc.

CostUnit
AcostunitisdefinedbyCIMAasaunitofproduct,serviceortimeinrelationtowhichcost
maybeascertainedorexpressed.
Inshort,costunitisunitofmeasurementofcost.
Examplesareatonneofsugar,ametreofclothetc.

Definitionofcosting
AccordingtoCIMA,London,Costingisthetechniqueandprocessesofascertainingcost.

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Installationofacostingsystem
Theinstallationofacostingsystemrequiresthefollowingstepstobetaken:

Preliminaryinvestigationsshouldbemaderelatingtothetechnicalaspectsofthe
business.Forinstance,thenatureoftheproductandmethodsofproductionwill
determinethetypeofcostingsystemtobeapplied.

Theorganisationstructureofthebusinessshouldbestudiedtoascertainthescopeof
authorityofeachexecutive.Theexistingorganisationshouldhedisturbedtothe
minimumasmaybeadvisableafterfullconsideration.

Themethodsofpurchase,storageandissueofmaterialsshouldbeexaminedand
modifiedaspertherequirements.

Theexistingmethodsofremuneratinglabourshouldbeexaminedforthepurposeof
introducinganyincentiveplans.

Formsandaccountingrecordsshouldbesodesignedsoastoinvolveminimum
clericallabourandexpenditure.

Thesizeandlayoutofthefactoryshouldbestudied.

Thecostingsystemshouldbeeffectiveincostcontrolandcostreduction.

Costingsystemshouldbesimpleandeasytooperate.Unnecessarydetailsshouldbe
avoided.

Theinstallationandoperationofthesystemshouldbeeconomical.

Thesystemshouldbeintroducedgradually.

Methodsofcosting

Jobcosting
Thismethodissuitablewhenitisrequiredtofindoutthecostofajoboraspecific
orderorabatchoffinishedproducts.Herethecostunitcanbetakenasaunitof
productorabatchofproductsoraspecificorderorcontract.Thismethodapplies
whereworkisundertakentocustomerspecialrequirements.

Objectivesofjobcosting
Costofeachjobisascertainedseparately.Thishelpsinfindingouttheprofit
orlossoneachindividualjob.

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Itenablesthemanagementtoknowthosejobswhicharemoreprofitableand
thosewhichareunprofitable.

Itprovidesabasisfordeterminingthecostofsimilarjobsundertakenin

future.Itthushelpsinfutureproductionplanning.
Ithelpsthemanagementincontrollingcostsbycomparingtheactualcosts
withtheestimatedcosts.

Processcosting
Thisisemployedinindustrieswhereacontinuousprocessofmanufacturingiscarried

out.Theascertainmentofcostisdoneforaspecificperiodoftimeforeachprocess.
Forexample;cement,sugar,textilesetc.

Contractcosting
Thisisavariationofjobcostingthereforeprinciplesofjobcostingapplytothis
method.Thedifferencebetweenjobandcontractisthatjobissmallandcontractis
big.

Batchcosting
Thisisalsoavariationofjobcostingwherethecostofabatchoragroupofidentical
productsareascertainedandthereforeeachbatchofproductsisacostunitforwhich

costsareascertained.
Forexample;componentparts,readymadegarmentsetc.

Techniquesofcosting
Techniquesmaybeusedforspecialpurposeofcontrollingthecost;

Standardcosting
Standardcostispredeterminedastargetofperformanceandactualperformanceis
measuredagainststandard.Thedifferencebetweenstandardandactualcostare
analysedtoknowthereasonsforanyvariationssothatcorrectiveactionsmaybe

taken.

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Budgetarycontrol
Itisatechniqueappliedtocontroltotalexpenditureonmaterials,wagesand
overheadsbycomparingactualperformancewithbudgetedfigures.

Marginalcosting
Inthistechniqueseparationofcostintofixedandvariableismadebecausemarginal
costingtakesonlyvariablecostasthecostofproductsandfixedcostistreatedas

periodcostandthisperiodcostistransferredtocostingprofitandlossaccountofthe
period.

Absorptioncosting
Itisatraditionaltechniqueofcostingwherebytotalcostsarechargedtoproducts.
Thisiscontrasttomarginalcostingwhereonlyvariablecostsarechargedtoproducts.

Comparisonofmarginalandabsorptioncosting
Basis

MarginalCosting

AbsorptionCosting

Ithelpswithshortterm

Tocalculateprofit

decisionmakingintheforms

Tocalculateinventory

of;

valuationforfinancial

breakevenanalysis

statements.

Mainuse

marginofsafety
targetprofit
contributionsalesratio

Howdoesitwork?

Mainfocus

Costsareclassifiedas

Overheadsarechargedto

eitherfixedorvariable

outputthroughanoverhead

Contributiontofixedcosts

absorptionrate,oftenonthe

iscalculatedassellingprice

basisofdirectlabourhours

lessvariablecosts

ormachinehours

marginalcost

alloverheadschargedto

contribution

output
calculatingprofit
calculatinginventoryvalues

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Usefulness

conceptofcontributionis

acceptableunderIAS2,

easytounderstand

inventories

usefulnessforshortterm

appropriatefortraditional

decisionmaking,butno

industrieswhereoverheads

considerationofoverheads

arechargedtooutputonthe
basisofdirectlabourhours
ormachinehours

Limitation

alloverheadshavetobe

Itisnotasusefulinshort

recovered,otherwisealoss

termdecisionmakingas

willbemade

marginalcosting

notacceptableunderIAS2, mayprovidelessaccurate
inventories

basisforcalculationof

calculationofsellingprices

sellingpriceswhere

maybelessaccuratethan

overheadsarehighand

othercostingmethods

complexinnature.

COSTMANAGEMENT

Costmanagementisasystemthatestablisheslinkagesbetweencostsandrevenues
andrelatesthemtotheproductsorservicestomaximizethefirmsprofits.

Costmanagementidentifies,collects,measures,classifiesandreportsinformationthat
isusefultomanagersandotherusersbothinternalandexternalincostascertainment,

planning,controllinganddecisionmaking

Insimplecostmanagementisawholesomecontrolprocess.

Themainobjectiveofthesystemofcostmanagementisoptimalutilizationof

resourcestoenhancetheoperatingincomeofthebusinessfirm.

AimsofCostManagement

Todevelopasystemsuchthattheproductcostscanbeaccuratelycalculated

Toassesstheoverallperformanceofaproductthroughitslifecycle

Tofindouttheprocessoflinkingthevariousactivitiesinalogicalandrational
mannersothattheycanbeimprovedupon

Tocontrolthecostsateverystageasmuchaspossible

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Toevaluatethemeasurestobeintroducedintheprocessofcontrollingthecosts

Tolinkalltheactivitiesoftheorganizationtothebasicmanagementobjectives

Tomeasurethevariancesfromtheactuallyplannedgoals

Toresettheactivitiestowardstheorganizationalgoals

Areasofcostmanagement

Activitybasedcosting
ABCisanaturaloutgrowthoftodayscompetitiveandcomplexenvironment.The
mainprincipleofABCstatesthatactivitiescausecostsandcontrolcosts,activities
mustbecontrolled.UnderABCsystem,theactivitiesareidentified,theexpenses
relatedtoeachactivityareclubbedtogethertogetactivitywiseexpenses,acost
driverforeachactivityisselectedandfinallythecostoftheproductisworkedout.
Thecollectionoffinancialandoperationalperformanceinformationtracingthe

significanceactivitiesofthefirmtoproductcosts.

Benchmarking
Benchmarkingisthecontinuousprocessofmeasuringtheproductorservicesand
businesspracticesofacompanyagainsttoughestcompetitorsorindustryleaders.Itis

atechniquewhichwillhelpacompanytoachievethiscomparativecostefficiency.
Benchmarkingisdefinedasacontinuousinformationsharingprocess,adoptedbyan
organisationinternallyandexternallytoidentifyitsstrongorweakpointsagainstto

toughestcompetitors,toimprovetheactivitiescarriedoutandservices.

Targetcosting
Targetcostingisanewattemptinwhichcostisthedifferencebetweentheprice
expectationofthecustomerandmarginexpectationofthecorporationentities.Asa
costmanagementtoolisforreducingtheoverallcostofproductorserviceoverits

entirelifecyclewiththehelpofproductionengineeringandR&D.

TotalQualityManagement
TQMisabusinessphilosophythatseekstoinstallinallpersonnelofanorganisation
acollectiveresponsibilityformaintainingimpeccablequalitystandards.TQMaimsat

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zerodefectproduction.Itencompassesfromprocurementofproductinputsfor
manufacturingandshipmentoffinalproductstocustomers.TQMisthe

improvementsofoverallqualityoffunctionofthecompany.

BusinessProcessReengineering
BusinessProcessReengineeringwhenfullyimplemented,willreducealotofclerical
workandmaintenanceofrecords.Thus,purchasing,materialreceipts,accounts
payableproceduresanddocumentationwillbevirtuallyeliminated.Thecritical

analysisandradicalredesignofexistingbusinessprocesstoachieveimprovementsin
performancemeasure.

Justintime
JITinventorycontrolsystem,originallydevelopedinJapanandsuccessfully
implemented.Underthissystemacompanyshouldmaintainaveryminimallevelof
inventoryandrelymostlyofsupplierstoprovidepartsandcomponentsJustintime
tomeetassemblyrequirements.JITphilosophyisdedicatedtotheeliminationof
waste.JITisasystemconsistsofseriesofmanufacturingunitseachdeliveringtoone

anotherinsuccessivestageofproduction.

ToolsandtechniquesofCostManagement

Costaggregation
Individualcostsareaggregatedinmanydifferentwaysforbudgetingpurposes,

includingatthedeliverable,workpackage,summaryactivityorotherclassification
levels.

Reserveanalysis
Reservesaretimeorcostbuffersintheprojectscheduleorbudgetthathelpthe
projectcounterorrespondtouncertainties,reserveanalysismonitorsthesebuffers
andwillreduce,useoreliminatethembasedonthecurrentsituation.

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Expertjudgement
Expertjudgementisbasedupontheexperienceandtheknowledgeofsubjectmatter.
Itisusedtoassessandevaluatetheinputsandinformationwhichtheexpertscontain.

Historicalrelationship
Ahistoricalrelationshipreferstothecharacteristicsofthecurrentandpastprojects

thatcanbeusedtodevelopmodelsthataidinbudgeting.

Findinglimitreconciliation
Findinglimitreconciliationmatchestheprojectsplannedneedforfundingwiththe

organisationsabilitytoprovidethatfunding.Itcanbethoughtofaresource
levellingfoefinancesbecauseitreschedulesactivitiestomakesurethatthebudget
forthescheduledactivitiesdoesnotexceedtheavailablebudgetforthatperiod.

COSTCONTROL
Costcontrolcanbedefinedasthecomparativeanalysisofactualcostswithappropriate
standardsorbudgetstoprovideforperformanceevaluationandformulationofcorrective

measures.
Theobjectiveofcostcontrolistoperformthejobatalowercostcomparativelyorextract

betterperformanceatthesamecost.

Features

Costcontrolcreatesresponsibilitywithdefinedauthority.

Costcontrolfixestheresponsibilityofthecostsincurredtothecostcentreor

responsibilitycentre.

Itprovidesfortimelycostcontrolreportstotheorganisationindicatingthevariances
betweentheactualperformanceandthestandardsorbudgets.

Itfacilitatestheformulationofcorrectivemeasurestoreduceoreliminatethe
unfavourablevariancesifany.

Itmotivatesemployeespositivelyandencouragethemtoaccomplishthegoals

systematically

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Itprovidesamechanismforfollowupandcheckwhetherthecorrectivemeasures
undertakenarebeingappliedeffectivelyinanorganisation

Stepsincostcontrol
Step1:Identifyandfixanormorastandardortargetforthecosttobeachieved.
Step2:Selectayardstickformeasuringthestandardortarget.
Step3:Measuretheactualperformanceincosttermsbyapplyingtheyardstick.
Step4:Comparetheactualperformancewiththestandardortargetandidentifythevariances
bothpositiveandnegativeifany.
Step5:Ascertainthereasonsfortheoccurrenceofvariancesandfixtheresponsibilitytothe
correspondingcostcentre.
Step6:Takecorrectiveactiontoeliminatethecausesofvariancesinordertoachieve
maximumefficiencybybringingintheperformanceinconformitywithstandardsortargets.
Step7:Reviewthestandardsortargetsperiodicallyandrevisethemifnecessary.

Essentialsofcostcontrol

Anorganisationshouldhaveadefiniteandwelldefinedstandardsortargets

Theauthorityandresponsibilityoftheexecutivesshouldhavebeenclearlydefined
andknowntothem

Thestandardsortargetsshouldbepreferablyquantitativeandmeasurableintermsof
costs

Thereshouldbeclearfixationofresponsibilitytothecentres

Costsshouldbecollectedseparatelyforeachareaofresponsibility

Thereportingsystemshouldenablethemanagementtoapplytheprincipleof
managementbyexception,bydrawingtheirattentiontowardsbothextremegoodand
badperformances

Thereshouldbeaproperrewardingsystemwhichmotivatesworkersforbetter
performanceinfutureandamechanismthattakesnecessarystepstolimitbad
performances

Techniquesofcostcontrol
Thevarioustechniquesofcostmanagementareasfollows;

StandardCosting
Standardcostingasasystemofcostaccountingenablestheorganizationstofindout
astohowmuchshouldbethecostofaproductundertheexistingconditions.When

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actualcostiscomparedwiththestandardcostandvariancesareidentifiedthe
organisationscantakecorrectivemeasures.

Materialscontrol
Materialscontrolaimsatcreatinganefficientsystemforpurchasing,storingand
consumption.Thisinvolvesbothquantitycontrolsandfinancialcontrols.Inmaterials

controlabalancehastobestrikebetweenthemaintenanceofsufficientinventoryfor
uninterruptedproductionandkeepingtheinvestmentininventoryatthelowest
possiblelevels.

Labourcontrols
Itaimsatbringingtheefficiencyofthelabourforcewithlowestpossiblelabourcost.
Thismaybedonebyminimizingidletime,labourturnoveretc.

Overheadcontrols
Overheadcostcontrolwouldnotonlytrytominimizetheoverheadcostsincurredin

relationtoproduction,administrationandsellinganddistribution,butalsomakesan
attempttoavoidthepossibilityofoverorunderabsorptionofoverheadsandprovides
foraproperestimationofthetotalcost.

Controloncapitalexpenditure
Capitalexpenditurecontrolprovidesforthemechanismastowhatwillbethe
optimumexpendituretobemeasuredbytheorganisationinordertominimiseitscost

ofcapitalandmaximizethereturnoninvestment.

Costreportingsystem
Thereportingsystemdevelopedbytheorganizationmustbeefficientinthesensethat
itshouldreportallthekindsofabnormalities,beitfavourableorunfavourabletothe
managementimmediatelyinsuchawaythatthetopmanagementcanapplythe
principleofmanagementbyexceptionandtakenecessaryaction.

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CHAPTER4
DATAANALYSISANDINTERPRETATION
INTERPRETATIONANDINFERENCEOFMATERIALCOST
Materialisveryimportantfactorofproduction.Itincludesphysicalcommoditiesusedto
manufacturethefinalendproduct.Itisstartingpointfromtheoperationstart.Materialcost
reductionhasbecomebasicfunctionratherthanaimofmaterialmanagement.

NeedformaterialcostcontrolinVSTTillersTractorsLimited(VTTL)
MaterialcostconstitutesthelargestcomponentoftotalcostinVTTL.Ithasbeensaidthat
onepercentsavingonthecostcontrolofmaterialsequalstheprofitearnedontenpercent

increasedturnover.Thusmaterialcostcontrolhasbecomeamajorfunctionforexecutivesin
VTTL.

TABLE4.1:SHOWINGCOSTOFRAWMATERIALS(Rs.Incrores)
COSTOFRAW
YEARS

Productionquantity(000s)

MATERIALS

200809

38.190

194.8

200910

45.032

224.63

201011

54.041

286.21

201112

65.546

376.2

201213

60.468

347.28

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GRAPH4.1:TOTALCOSTOFRAWMATERIALS(Rs.InCRORES)

COSTOFRAWMATERIALS
400
350
300
250
200

COSTOFRAWMATERIALS

150
100

50
0

200809200910201011201112201213

Interpretation
Fromtheabovetableandgraph,consumptionofrawmaterialsincurredin200809wasRs.
1,94,80,00,485.In200910itwasincreasedtoRs.2,24,63,86,381andin201011it

furtherincreasedtoRs.2,86,21,71,252.Intheyear201112itwasRs3,76,20,89,643butin
theyear201213itwasdecreasedbyRs3,47,28,70,783.Wecaninterpretthatthe
consumptionofrawmaterialshasbeenincreasedyeartoyearfrom200809to201112
butnotintheyear201213.

Inference
Sincetherewashugedemandfortheproducts,thecompanyproducedmorequantitiesof
products.Asaresultofincreaseinproductionquantitiesthecostofrawmaterialsalso
increasedanddecreasedintheyear201213duetodecreaseintheproductioncapacitywith
regardtodeclineindemandfortheproducts.Itisbecausetheproductsareseasonal.There
willbemoredemandduringseasons.

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INTERPRETATIONANDINFERENCEOFLABOURCOST
Labourcostisthesecondmajorelementofcost.Underpresentconditionwithrestrictive
labourinorganisedindustryitisverydifficulttoreducelabourcost.Therefore,propercare
hastobetakenforlabourcostbecauseitisoneofthemostimportantproblemsofbusiness
enterprises.

TABLE4.2SHOWINGTOTALLABOURCOSTS(Rs.Incrores)
YEAR

Production

Sales(Rs)

LABOURCOST

38.190

274.13

18.16

45.032

344.53

20.69

54.041

425.31

25.35

65.546

529.51

28.41

60.468

481.29

28.11

quantity(000s)

200809
200910
201011
201112

201213

GRAPH4.2SHOWINGTOTALLABOURCOSTS

Totallabourcost
30
25
20
Totallabourcost

15
10
5
0
200809

200910

201011

CMR INSTITUTE OF TECHNOLOGY

201112

201213

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Interpretation
Fromthetable,totallabourcostincurredRs.18.16intheyear200809,intheyear2009
10itwasincreasedtoRs20.69andwhereasintheyear201011&201112itgradually
increasedtoRs25.35&Rs28.41respectively.Butintheyear201213itwasdecreasedto

Rs28.11.Wecaninterpretthatthetotallabourcosthasbeenincreasedyeartoyearfrom
200809to201112anddecreasedintheyear201213.

Inference
Asweobservefromthetableandgraphifthereisanincreaseinproductionquantityand
salesturnoveritisobviousthatthelabourcostwillalsoincreaseandviceversa.Majorityof
labourcostinVTTLisfixedbutsomeofthecostsarevariable.Inordertoincreasethe
production,thecompanywillhirecontractslabourers,itleadstoincreaseindirectlabourcost
whereasinordertoincreasethesales,thecompanyprovidesyearlyincrements,dearness
allowancesandunionagreementasaresultitincreasesindirectlabourcost.Hence,thereis
anincreaseintotallabourcost.

INTERPRETATIONANDINFERENCEOFOVERHEADCOST
Alldepartmentsareprovidingtheirmonthlyoverheadcosttofinancedepartmentatthe
beginningofthefinancialyear.Thefinancedepartmenthasgotasystemtomonitorthe
monthlyoverheadexpenditureofeachdepartmentwiththatofthebudgetedoverhead
statementprovidedbytheconcerndepartment.Inthiswaythevariancesareanalysedevery
monthtotakethepreventivestepstominimizetheoverheads.

TABLE4.3:TOTALPRODUCTIONANDADMINISTRATION

OVERHEADCOST(Rsincrores)
Year
200809
200910
201011
201112

201213

Productionquantity(000s)

Totalprod&adminoverheads

38.190

14.08

45.032

13.17

54.041

14.85

65.546

16.71

60.468

17.87

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GRAPH4.3:TOTALPRODUCTIONANDADMINISTRATION
OVERHEADS

Totalproductionandadministartion
overheads
18
16
14
12
Totalproductionand
administartionoverheads

10
8
6
4
2
0

200809

200910

201011

201112

201213

Interpretation
Fromthetableandgraph,totalproduction&administrationoverheadscostincurredwasRs.
14.08intheyear200809whereasintheyear200910itwasdecreasedbyRs.13.17.
Andin201011,201112and201213production&administrationcostswereincreased
toRs.14.85,Rs.16.71&Rs.17.87respectively.Wecaninterpretthatthetotaloverheadcost
hasincreasedfromyeartoyear201011to201213.

Inference
Theincreaseanddecreaseinproductionandadministrationoverheadsisduetoincreaseand

decreaseinproductionquantities.InVTTLadministrationcostsarefixedcost,hencethereis
nomuchcontrolovertheseexpensesbutcautiousefforthadbeenmadetokeepthecost
minimum.

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TABLE4.4:SELLINGANDDISTRIBUTIONOVERHEADS(RSin
crores)
Salesquantity(000S)

YEAR

SELLING&DISTRIBUTION
OVERHEADS

200809
200910
201011
201112

201213

35.178

17.23

45.652

21.14

56.703

31.11

66.737

34.04

55.175

32.58

GRAPH4.4:TOTALSELLINGANDDISTRIBUTIONOVERHEADS(Rsincrores)

Totalsellinganddistributionoverheads
35
30
25
20

Totalsellinganddistribution
overheads

15
10
5
0

200809200910201011201112201213

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Interpretation
Fromthetable,totalsellinganddistributionoverheadswasRs17.23croresintheyear2008
09andithasbeenincreasedtoRs21.14,Rs31.11andRs34.04intheyears200910,
201011and201112respectively.Butintheyear201213ithasbeendecreasedtoRs
32.58crores.

Inference
Duetohugedemandfortheproducts,thecompanyincreasedthesalesquantityasaresult
thereisanincreaseinsellinganddistributionoverheadsandduemonsoonfailurethe
productiondecreasedandsalesquantityalsodecreased,hencesellinganddistribution
overheadsdecreasedintheyear201213.

INTERPRETATION

AND

INFERENCE

OF

REPAIRS

AND

MAINTENANCECOSTS
Repairsandmaintenancecostsarethosecostsincurredtobringanassetbacktoanearlier
conditionortokeeptheassetoperatingatitspresentcondition.Bykeepingtrackof
maintenancecosts,acompanycanidentifyequipmentthatisrunningatalossandneedstobe
replaced.

TABLE4.5:REPAIRSANDMAINTENANCECOSTS(Rsinlakhs)
Particulars
Year

Production

BuildingsMachineryOthers

Totalrepairs&

quantity(000s) maintenance
costs

200809

16.89

128.12

34.28

38.190

179.3

200910

20.24

693.40

59.46

45.032

149.04

201011

37.95

110.79

86.37

54.041

235.12

201112

88.76

119.57

118.48

65.546

326.82

201213

29.58

122.12

133.04

60.468

284.75

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GRAPH4.5:REPAIRSANDMAINTENANCECOSTS

TOTALREPAIRSAND
MAINTENANCECOSTS
350
300
250
200
TOTALREPAIRSAND
MAINTENANCECOSTS

150
100
50
0

2008
09

2009
10

2010
11

2011
12

2012
13

Interpretation
Fromthegraph,therearemorefluctuationsintotalrepairsandmaintenancecostsfromyear
toyear.Ithasbeendecreasedfrom200809to200910andincreasedintheyears2010
11&201112andthereafterdecreasedintheyear201213.

Inference
InVTTLRepairsandMaintenancecostsareneitherfullyfixednorfullyvariable.Whenthere
wasdemandfortheproductsthecompanyuseditsmachineryandequipmentstothe
maximumextentasaresulttherewasachanceofrepairsandmaintenancecosts.Increasein

productionleadstoincreaseinrepairsandmaintenancecostandviceversa.

INTERPRETATIONANDINFERENCEOFLEVELOFINVENTORIES
Oneoftheobjectivesofasystemofmaterialcontrolistoensurethatthereisnounder
stockingandoverstocking.

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TABLE4.6:LEVELSOFINVENTORIES(Rsin000s)
Particulars

200809

200910

201011

201112

204102

141875

253141

314057

201098

20400

45175

96670

55214

61526

193946

143791

56929

95124

413128

418488

330841

406740

464395

675752

201213

Rawmaterials
&components

Workin
progress

Finished
goods

Total
inventory

GRAPH4.6:LEVELSOFINVENTORIES(Rsin000s)

TOTALINVENTORY
700000
600000
500000
400000

TOTALINVENTORY

300000
200000
100000
0

200809200910201011201112201213

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Interpretation
Fromthegraph,weinterpretthattherearemorefluctuationsinlevelsofinventories,in2008
09itwasRs418488anddecreasedtoRs330841intheyear200910andthereafter

increasedfrom201011to201213.

Inference
Thefluctuationsininventoriesisduetoincreaseanddecreaseinsales.Whenthereis

decreaseinsalesthecompanywillhavemoreofstockinhandwhichisnotgoodsignforthe
companybecauseitincreasesstoragecostsandincaseifthecompanyisinshortageofstock
itcannotmeetitsdemand.Soitisadvisabletothecompanytohaveenoughofstock.
INTERPRETATIONANDINFERENCEOFTOTALSALESANDNETPROFIT
Salesandnetprofitofthecompanyaredependentoneachother.Ifthecompanymakesmore
salesitincreasestheprofitsofthecompanywhichisagoodsignforthecompanyandvice

versa.

TABLE4.7:TOTALSALESANDNETPROFITOFTHECOMPANY
(Rsincrores)
YEAR

200809

200910

201011

201112

201213
CMR INSTITUTE OF
TECHNOLOGY

TOTALSALES(RS)

NETPROFIT

274.13

28.91

344.53

42.32

425.31

46.18

529.51

49.92

481.29

48.57
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GRAPH4.7:TOTALSALESANDNETPROFITSOFTHECOMPANY
(Rsincrores)
700
600
500
400
NETPROFIT
Sales

300
200
100
0

200809

200910

201011

201112

201213

Interpretation
Fromthegraph,totalsaleswasRs274.13intheyear200809andincreasedtoRs344.53,
425.31and529.51intheyear200910,201011and201112,butintheyear201213it
wasgraduallydecreasedto481.29andalsonetprofitwasRs28.91intheyear200809and

itwasincreasedintheyears200910,201011and201112butitwasdecreasedinthe
year201213.

Inference
Fromthegraphitisclearthattheincreaseordecreaseinsaleswillhaveanimpacton
increaseordecreaseinnetprofits.SincethereisseasonaldemandfortheproductsofVTTL
ifthecompanydoesnothaveenoughofproductionquantitiesduringseasonsitcannotmeet
thedemandsandmakesales,asaresultthenetprofitsofthecompanydecreases.Saleshad
beendecreasedin201213duetomonsoonfailure.Eventhoughtherewasdecreasein
sales,theprofitsofthecompanyhadnotdecreasedtolargeextent.

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COSTINGSYSTEMAPPLIEDINVSTTILLERSTRACTORS
LIMITED
Thecompanyfollowsjobcostingsystemfordeterminationofthecostofdieselengines,
tillersandtractors.Everyengineisidentifiedwithenginenumbersatthetimeof

commencementofthejob.

JOB1:DIESELENGINES
JOBCOSTSHEETFOR3YEARS
201011

PARTICULARS
Directmaterial
Directwages

201112

201213

7636281451047281072

973812028

22883448

26458805

28175031

Primecost78651159310754561031000270833
63972069

Factoryoverheads

74132247

66149705

Workscost85048366211495883501066420538
20129949

Administrationoverheads

14024532

12970125

Costofproduction87061361111636128821079390663
Add:openingstock
Less:closingstock

3718858

2609948

3084476

2609948

3084476

1990879

86082933311503990481071516557

Less:captiveconsumption
Total
Sellinganddistributionoverheads
Totalcost(A)
Sales(B)
Profit(BA)

10893188

12739306

8967703

147943

122844

114307

11041131

12862150

9082010

13884737

14544000

10867425

2843606

1681850

1785415
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JOB2:TILLERS
JOBCOSTSHEETFOR3YEARS
PARTICULARS

201011

201112

201213

174802141022312008882070599813

Directmaterial

25703192

Directwages

22618299

24979081

Primecost177372460222538191872095578894
52655214

Factoryoverheads

44516893

49672928

Workscost182637981622983360802145251822
10422054

Administrationoverheads

10627354

11649095

Costofproduction183680187023089634342156900917

Add:openingstock
Less:closingstock

58907997

47745094

51432689

47745094

51432689

323002143

Total184796477323052758391885331463

Sellinganddistributionoverheads

290009481

306175376

Totalcost(A)213797425426114512152162336766
266936721630102914042606363860

Sales(B)

Profit(BA)531392962

CMR INSTITUTE OF TECHNOLOGY

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JOB3:TRACTORS
JOBCOSTSHEETFOR3YEARS
PARTICULARS

201011

201112

201213

79353206413557443981221342289

Directmaterial

11261094

Directwages

14937371

15190188

Primecost80479315813706817691236532477
21634002

Factoryoverheads

26789774

27420862

Workscost82642716013974715431263953339
3810456

Administrationoverheads

5720059

5790367

Costofproduction83023761614031916021269743706

Add:openingstock

Less:closingstock

29013541

4252207

39273199

4252207

39273199

81164787

Total85499895013681706101227852118

Sellinganddistributionoverheads

65200950

114549424

110302306

Totalcost(A)92019990014827200341338154424

Sales(B)

104799755016503832201543509187

Profit(BA)127797650

167663186

205354763
CMR
INSTITUTE
OF

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PreparationofIncomestatementunderabsorptioncostingandmarginal
costing
StatementofAbsorptionCostfortheyear201213
PARTICULARS

201213
481.29

Sales(A)

347.28

Directmaterial

28.11

Directwages
Primecost

375.39

Factoryoverheads:
4.974

Variable(60%)

3.316

Fixed(40%)
Workscost

383.68

Administrationoverheads
0.958

Variable(10%)

8.622

Fixed(90%)
Costofproduction

393.26
10

Add:openingstock

3.12

Less:closingstock
CostofGoodssold

400.14

Sellinganddistributionoverheads
24.435

Variable(75%)

8.145

Fixed(25%)
Totalcost(B)

Profit(AB)

CMR INSTITUTE OF TECHNOLOGY

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48.57

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AstudyonCostmanagementatVSTTillersTractorsLimited

StatementofMarginalcostfortheyear201213
PARTICULARS

201213

Sales(A)

481.29

Directmaterial

347.28

Directwages

28.11

VariableFactoryoverheads

4.974

VariableAdministrationoverheads

0.958

Add:openingstock

Less:closingstock

1.872
Costofgoodssold

VariableSellinganddistributionoverheads

385.45
24.435

Totalvariablecost(B)

Contribution(AB)

409.885
71.405

LESS:Fixedoverheads
Factoryoverheads

3.316

Administrationoverheads

8.622

Sellinganddistributionoverheads

8.145
Profits

CMR INSTITUTE OF TECHNOLOGY

51.322

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TableshowingdifferenceinprofitsbetweenAbsorptioncostingand
Marginalcosting

Openingstock

Closingstock

Absorptioncosting

Marginalcosting

Difference

10

3.12

1.872

1.248

Particulars
Profitsasperabsorptioncosting
Add:openingstockundervaluedinmarginalcosting

Amount(R.s)
48.57
4
52.57

Less:closingstockundervaluedinmarginalcosting
Profitsaspermarginalcosting

1.248
51.322

Reasonsforthedifferenceinabsorptioncostingandmarginalcosting

Overandunderabsorbedoverheads
Inabsorptioncosting,fixedoverheadscanneverbeabsorbedexactlybecauseof
difficultyinforecastingcostsandvolumeofoutput.Ifthesebalancesofunderorover
absorbedarenotwrittenofftocostingprofitandlossaccount,theactualamount

incurredisnotshowninit.Inmarginalcosting,however,thefixedoverheadincurred
iswhollychargedagainstcontributionandhence,therewillbesomedifferenceinnet

profits.

Differenceinstockvaluation
Inmarginalcostingfinishedgoodsarevaluedatmarginalcostthatisvariablecost,
butinmarginalcosting,theyarevaluedattotalproductioncost.Hence,profitwill

differasdifferentamountsoffixedoverheadsareconsideredintwoaccounts.
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CHAPTER5
FINDINGS,SUGGESTIONSANDCONCLUSION
FINDINGS

ForcostmanagementVTTLisfollowingJobCostingSystem.

Theactualcostsofmaterial,labour,overheads,repairsandmaintenancecostsof5
yearsarefound.Theactualcostsofrawmaterialsare194.8,224.63,286.21,376.2
and347.28.Theactuallabourcostsare18.16,20.69,25.35,28.41and28.11.The

actualproductionandadministrationoverheadsare14.08,13.17,14.85,16.71and
17.87.Theactualselling&distributionoverheadsare17.23,21.14,31.11,34.04and
32.58.Theactualrepairandmaintenancecostsare179.3,149.04,235.12,326.82and
284.75.

ItisfoundthatthefollowingaretheStrategiesadoptedbythecompanytomanage
itsmaterialcost
Bargainingwithtwoormorevendors
Developingalternativevendorsforthesamematerial
Analysisoftheprocurementcostofmaterial(makeorbuydecision)
Businesssharingwithsuppliers

ItisfoundthatthefollowingaretheStrategiesadoptedbythecompanytomanage
itslabourcost
Productionshouldincreasesothatfixedcostperunitwillcomedown.
Replacingtheretiredemployeeswithnewemployeeswithoutaffectingthequality
oftheproductbygivingpropertraining.
Installationofadvancedmachinesforproductiontoreducethenumberofpeople
required.Forexample;MAZAKmachineusedinmachineshop.
Attractiveincentiveschemesintheorganisation.Incentiveslikeproduction
incentives,salesincentivesetc.

ItisfoundthatthefollowingaretheStrategiesadoptedbythecompanytomanage
itsoverheadscost
Sinceofficeandadministrationoverheadsarefixedcostthereisnomuchcontrol
overtheseexpensesbutcautiousefforthasbeenmadetokeepthecostminimum.

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Forexample:TheoperatingbankofVSTTillersTractorsLimitedhadbeen
changedfromCanarabank,MGRoadtoSBIbank,Mahadevapura.Ithasreduced
conveyanceexpenditure.
Almostallthepaymentstovendorshadbeenroutedthroughelectronicmode
(RTGS/NEFT).Itreducedthecostofpaperwork.Nouseofchequebooks,sothat
printingandstationerycostsarereduced.

Itisfoundthatthefluctuationsinsalesoverthelast5yearshaveanimpactonthenet
profitsofthecompany.

Itisfoundthatthereexistsadifferenceinprofitsinabsorptioncostingandmarginal
costingandreasonsforthedifferencesarefound.

Thereasonsfortheincreaseanddecreaseincosts,salesandprofitsofthecompany
arefound

Thefirmisfollowingtechniquesliketender,andmaterialwillbepurchasedby
invitingtenders.Ithelpsinavoidingwastagesinpurchaseactivity.

VTTLhavetechniqueslikeavoluntaryretirementschemeorgoldenhandshake
scheme&ithelpsinrecruitingnewemployeeswithgreaterskillswhichhelpsin
properallocationofLabourcost.

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SUGGESSIONS

Wesuggestthecompanytofollowtimeincentivemethodtoavoidthelabourcost

Thecompanyhastoincreasetheinvestmentonresearch&developmentwith
sophisticatedtechnology.Sothatitcanavoidlabourcostandotheroperationscost.

Sincethecompanyisfollowingtraditionalcostingsystem,thecostascertainedunder
traditionalcostingsystemmayleadtooverabsorptionandunderabsorptionof

overheadswhichleadstoimproperpricingmechanism.Soitadvisabletothe
companytofollowmoderncostingsystemthatisABCsystem.

Wesuggestthecompanytopreparebudgetsforthecosts,sothatitcancomparethe
budgetcostswithactualcostsandincaseifthereareanydeviationsitcanbe

removed.

Thecompanyhastofollowtheadvancedtechnologytomaintainitscostrecords.It
reducespaperworkandreducestime.

Thecompanyhastofollowvariouscostcontroltoolsandtechniquestocontrolcost
likestandardcosting,budgetarycontrol,materialcontrol,labourcontroland
overheadscontrol.

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CONCLUSION
Costmanagementhasbeenplayingavitalroleinthemoderndays.Costmanagementisvery
importantforanorganization,theyhastoadoptgoodcostingsystemtorunthebusinessmost

efficiently&effectively.Ifthereisalackofaneffectivecostcontroltechniquesinan
organizationitgivesrisetonumberofproblemssuchaslackofeffectivedecisionmaking
difficultyinpricedetermination,ineffectiveutilizationofresources,lackofpropercost
controletc.,thisaffectsalltheinterestedgroups,suchasthecompanyitself,shareholders,
creditors,employees,publicetc.So,understandingthiscostwillgivelotofadvantageslike
fixingproductprice,fixingmargin,fixingprofitableproductmix&variousmanagement

decisions.
CostmanagementistheimportantaspectthatVSTTillersTractorsLTDisverymuch
concentratingfortheefficiencyoftheorganization.ThecompanyisfollowingJobCosting

Systemwhichrecordsalltheactivitiesofeachjobandhelpstopreparecostsheet.Basedon
thesecostsheetsaproperanalysisoncostcanbemade.AfterstudyingtheJobSheetitis

beenconcludedthatJob1andJob2donthavestableprofits.Theprofitsareincreasingand
decreasingwhereasJob3showsaconsistentincreaseinprofitsfromthelast3years.The
reasonsforthechangesincosts,salesandprofitsofthecompanycanbefound.
Statementofabsorptioncostingandmarginalcostingisalsomadetoknowthedifference
betweennetprofits.Thedifferenceinprofitsofabsorptioncostingandmarginalcostingis
duetooverandunderabsorptionofoverheadsanddifferenceinstockvaluation.Marginal

costingisthecostmanagementtechniquefortheanalysisofcostandrevenueinformation
andfortheguidanceofmanagement.Thepresentationofinformationthroughmarginal
costingstatementiseasilyunderstoodbyallmanagers,eventhosewhodonothave
preliminaryknowledgeandimplicationsofthesubjectsofcostandmanagementaccounting.
Absorptioncostingandmarginalcostingaretwodifferenttechniquesofcosting.Absorption
costingiswidelyusedforcostcontrolpurposewhereasmarginalcostingisusedfor
managerialdecisionmakingandcontrol.ThroughthisfindingsIconcludethatallthe
activitiesoftheorganizationareinterrelatedtoeachotherandchangeinoneactivityleadsto
changesinallotheractivities.Hence,propercarehastobetakentomanagealltheactivities
oftheorganization.
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Bibliography
Books

CostaccountingMNArora,HimalayaPublishingHouse

CostandManagementaccountingSPJainandKLNarang,KalyaniPublishers

CostandManagementaccountingMYKhanandPKJain,McGrawHillEducation
(India)Ltd

Websites
http://www.googlescholar.com
http://www.investopedia.com/
http://www.google.co.in/
http://www.wikipedia.org/
http://www.moneycontrol.com/
http://www.nse.com/
www.vsttillers.com

Othersources

Companyannualreports

Costauditreports

Financialstatements

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managementatVSTTillersTractorsLimited

ANNEXURE
BalanceSheetofVTTLfor5years(inRScrores)
Mar09

Mar10

Mar11

Equitysharecap

5.76

8.64

Reserves

85.68

Revaluation

Mar12

Mar13

8.64

8.64

8.64

117.57

154.72

196.27

235.74

0.68

0.67

0.66

Networth

92.12

126.88

164.02

204.91

244.38

Debt

0.56

2.31

15.99

Sourcesoffunds

reserves

TotalLiabilities

92.68

129.19

164.02

220.90

244.38

Applicationoffunds
GrossBlock

69.24

79.41

83.93

90.06

113.55

Less:Depreciation

30.95

28.36

30.51

33.02

36.20

NetBlock

38.29

51.05

53.42

57.04

77.35

CapitalWIP

0.36

1.71

2.80

6.16

14.17

Investments

4.35

36.83

24.39

4.15

Inventories

51.14

44.48

54.85

65.91

82.86

Sundrydebtors

36.23

67.44

62.19

123.29

97.30

Cash&Bank

10.36

14.96

13.74

20.63

32.92

Loans&advances

8.78

9.91

17.28

24.16

27.08

Fixeddeposits

8.37

0.02

7.03

Totalcurrentassets

114.88

136.81

155.09

233.99

240.16

Totalcurrent

66.21

64.73

84.10

100.69

91.46

Netcurrentassets

48.67

72.08

70.99

133.30

148.70

Miscellaneousexp

92.68

129.19

164.04

220.89

244.37

liabilities&
provisions

Totalassets

CMR INSTITUTE OF TECHNOLOGY

Page 61

Astudyon

CostmanagementatVSTTillersTractorsLimited

ProfitandLossstatementofVTTLfor5years(Rsincrores)
Particulars

Mar09

Mar10

Mar11

Mar12

Mar13

12months

12months

12months

12months 12months

276.45

346.09

427.94

531.39

481.66

0.72

0.33

0.69

0.75

275.73

345.76

427.25

530.64

481.66

Otherincome

1.45

0.08

2.52

4.63

2.10

Stockadjustments

13.71

1.05

0.86

3.92

30.20

TotalIncome

290.89

344.63

428.91

539.19

513.96

200.68

228.23

289.88

385.90

365.51

Power&fuelcost

1.96

2.05

2.44

2.77

2.52

Employeecost

18.17

20.70

25.06

28.42

28.11

Manufacturing

1.28

0.69

1.11

1.20

21.13

24.51

36.50

1.11

2.06

1.11

43.42

43.56

Totalexpenses

244.33

278.24

356.10

461.71

439.70

Operatingprofit

45.11

66.47

70.29

72.85

72.16

PBDIT

46.56

66.39

72.81

77.48

74.26

Interest

0.81

0.97

0.97

0.86

1.28

PBDT

45.75

65.42

71.84

76.62

72.98

Depreciation

2.81

2.59

2.27

3.21

3.35

Extraordinary

1.20

0.09

1.48

0.25

44.14

62.92

71.05

73.16

69.63

Tax

15.23

19.47

24.85

23.24

21.05

NetProfit

28.91

42.33

46.19

49.93

48.57

Income
Salesturnover
Exciseduty
Netsales

Expenditure
Rawmaterials

expenses
Selling&admin
expenses
Miscellaneousexp

items
Postextraordinary
items

CMR INSTITUTE OF TECHNOLOGY

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