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A. Research Methodology
To know how the costing calculation is done in order to carry out the
per unit cost of the finished product.
To know how the final cost of products arises after including all the
expenses which are incurred in Hazira plant during production of the
products.
As calculation is done automatically in SAP system so how that
calculation is done that has been shown in the report.
In Sensitivity Analysis to know how the % rise in cost differs at
different levels during general condition as well as in present
condition.
S.K.P.I.M.C.S 1
COSTING STRUCTURE & SENSITIVITY ANALYSIS
S.K.P.I.M.C.S 2
COSTING STRUCTURE & SENSITIVITY ANALYSIS
Almost all oil and natural gas are found deep underground in tiny
holes in rocks. Millions of years ago a sea covered much of what is now dry
land. In prehistoric times, tiny plants and animals lived in the sea. When
these creatures died, they sank to the bottom of the sea, and got buried in
layers of mud and sand. As the ages passed, this organic material sank
deeper and deeper. The earth's crust changed its shape, and put intense
pressure and heat on what was once only plants and tiny animals. Heat
from the earth's interior and the weight of the overlying rocks gradually
changed the energy-containing substances in the accumulated plants into
hydrocarbon liquids and gases. As millions of years passed, these deposits
turned into chemicals that are now called ‘hydrocarbons’.
Much of the oil and gas production now comes from underneath the
sea-bed. As the technology for extraction continues to advance, production
becomes possible from deeper and deeper waters. But the supplies are
limited. Every drop of oil burnt adds to the monumental environment
problems already created by pumping gases like carbon dioxide into the
S.K.P.I.M.C.S 3
COSTING STRUCTURE & SENSITIVITY ANALYSIS
S.K.P.I.M.C.S 4
COSTING STRUCTURE & SENSITIVITY ANALYSIS
To find oil and natural gas, companies drill through the earth to the
deposits deep below the surface. The oil and natural gas are then pumped
from below the ground by oil rigs. They then usually travel through pipelines.
The origin of the oil industry in India can be traced back to the last part
of the 19th century when petroleum was discovered in Digboi in north-east
India. Thereafter large numbers of oil fields have been discovered both
inland and off-shore. This has led to the setting up of refineries to process
the oil and gas for use in various sectors.
S.K.P.I.M.C.S 5
COSTING STRUCTURE & SENSITIVITY ANALYSIS
1. INTRODUCTION TO ONGC
The Oil and Natural Gas Corporation Ltd, popularly known to the
people as ONGC is today the Numero Uno among the ‘Navratna’ Public
Sector Companies of India. It was set up in 1956 and has made significant
contribution in industrial and economic growth of the country. ONGC is a
leader in India engaged mainly in exploration, development and production
of Crude oil, Natural gas and some Value Added Products.
Now ONGC is India’s largest producer of Crude oil, Natural gas and
LPG. It also produces other value added products such as NGL, C2-C3,
Aromatic Rich Naphtha and Kerosene.
S.K.P.I.M.C.S 6
COSTING STRUCTURE & SENSITIVITY ANALYSIS
A. History
1947 - 1960
During the pre-independence period, the Assam Oil Company
in the northeastern and Attock Oil company in northwestern part of the
undivided India were the only oil companies producing oil in the country,
with minimal exploration input. The major part of Indian sedimentary basins
was deemed to be unfit for development of oil and gas resources.
S.K.P.I.M.C.S 7
COSTING STRUCTURE & SENSITIVITY ANALYSIS
Soon, after the formation of the Oil and Natural Gas Directorate, it
became apparent that it would not be possible for the Directorate with its
limited financial and administrative powers as subordinate office of the
Government, to function efficiently. So in August, 1956, the Directorate was
raised to the status of a commission with enhanced powers, although it
continued to be under the government. In October 1959, the Commission
was converted into a statutory body by an act of the Indian Parliament,
which enhanced powers of the commission further. The main functions of
the Oil and Natural Gas Commission subject to the provisions of the Act,
were "to plan, promote, organize and implement programmes for
development of Petroleum Resources and the production and sale of
S.K.P.I.M.C.S 8
COSTING STRUCTURE & SENSITIVITY ANALYSIS
1961 - 1990
Since its inception, ONGC has been instrumental in transforming the
country's limited upstream sector into a large viable playing field, with its
activities spread throughout India and significantly in overseas territories. In
the inland areas, ONGC not only found new resources in Assam but also
established new oil province in Cambay basin (Gujarat), while adding new
petroliferous areas in the Assam-Arakan Fold Belt and East coast basins
(both inland and offshore).
ONGC went offshore in early 70's and discovered a giant oil field in
the form of Bombay High, now known as Mumbai High. This discovery,
along with subsequent discoveries of huge oil and gas fields in Western
offshore changed the oil scenario of the country. Subsequently, over 5
billion tones of hydrocarbons, which were present in the country, were
discovered. The most important contribution of ONGC, however, is its self-
reliance and development of core competence in E&P activities at a globally
competitive level.
After 1990
The liberalized economic policy, adopted by the Government of India
in July 1991, sought to deregulate and de-license the core sectors (including
petroleum sector) with partial disinvestments of government equity in Public
Sector Undertakings and other measures. As a consequence thereof,
S.K.P.I.M.C.S 9
COSTING STRUCTURE & SENSITIVITY ANALYSIS
After the conversion of business of the erstwhile Oil & Natural Gas
Commission to that of Oil & Natural Gas Corporation Limited in 1993, the
Government disinvested 2 per cent of its shares through competitive
bidding. Subsequently, ONGC expanded its equity by another 2 per cent by
offering shares to its employees.
In the year 2002-03, after taking over MRPL from the A V Birla Group,
ONGC diversified into the downstream sector. ONGC will soon be entering
into the retailing business. ONGC has also entered the global field through
its subsidiary, ONGC Videsh Ltd. (OVL). ONGC has made major
investments in Vietnam, Sakhalin and Sudan and earned its first
hydrocarbon revenue from its investment in Vietnam.
S.K.P.I.M.C.S 10
COSTING STRUCTURE & SENSITIVITY ANALYSIS
B. Organizational Structure
S.K.P.I.M.C.S 11
COSTING STRUCTURE & SENSITIVITY ANALYSIS
C. Board of Directors
S.K.P.I.M.C.S 12
COSTING STRUCTURE & SENSITIVITY ANALYSIS
A. Assets/Plants:
B. Basins:
S.K.P.I.M.C.S 13
COSTING STRUCTURE & SENSITIVITY ANALYSIS
C. Regions:
D. Institutes:
S.K.P.I.M.C.S 14
COSTING STRUCTURE & SENSITIVITY ANALYSIS
Management
9. Institute of Biotechnology & Jorhat
Geotectonics Studies
10. 10. School of Maintenance Vadodara
Practices
11. 11. Regional Training Institutes Navi
Mumbai,
Chennai,
Sivasagar &
Vadodara.
E. Services:
S.K.P.I.M.C.S 15
COSTING STRUCTURE & SENSITIVITY ANALYSIS
S.K.P.I.M.C.S 16
COSTING STRUCTURE & SENSITIVITY ANALYSIS
E. OBJECTIVES
Vision
To be a World-class Oil and Gas Company integrated in energy business
with dominant Indian leadership and global presence.
World Class
Mission
S.K.P.I.M.C.S 17
COSTING STRUCTURE & SENSITIVITY ANALYSIS
Global Ranking
• Is Asia’s best Oil & Gas Company, as per a recent survey conducted
by US-based magazine ‘Global Finance’.
• Ranks as the 2nd biggest E&P company (and 1st in terms of profits),
as per the Platts Energy Business Technology (EBT) Survey 2004.
• Is placed at the top of all Indian Corporate listed in Forbes 400 Global
Corporate (rank 133rd) and Financial Times Global 500 (rank 326th),
by Market Capitalization.
.
• ONGC ranks among the top 10 Oil and Gas companies in world in
terms of market capitalization.
• ONGC has been ranked 273rd in the Forbes 2000-World’s biggest and
most powerful companies as measured by composite ranking for
sales, profits, assets and market value.
F. FINANCIAL DETAILS
S.K.P.I.M.C.S 18
COSTING STRUCTURE & SENSITIVITY ANALYSIS
Financials
ONGC : Share Holding Pattern (% )
1.52% 2.59%
6.19%
Govt of India
3.54%
GAIL
9.61%
IOCL
Public
2.40%
FIIs, NRIs
Pvt
Corporate
FIIs, Banks
74.15%
S.K.P.I.M.C.S 19
COSTING STRUCTURE & SENSITIVITY ANALYSIS
S.K.P.I.M.C.S 20
COSTING STRUCTURE & SENSITIVITY ANALYSIS
S.K.P.I.M.C.S 21
COSTING STRUCTURE & SENSITIVITY ANALYSIS
units plants built with state of the art technology at a cost of Rs. 1300 crores
and process of growth is continued. It has gas processing capacity of 41
MMSCMD (Million Metric Standard Cubic Meter per Day). The whole Plant
is completely automated where no one can find a single person working in
the field area. This fully automated plant is maintained and inspected
regularly with the responsible group of people.
PRODUCTS
7. HEAVY CUT
8. SULPHUR
CUSTOMERS OF ONGC
1. KRIBHCO 2. ESSAR
3. GAIL 4. IOCL
5. HPCL 6. BPCL
7. RELIANCE INDIA LTD
DESPATCH OF PRODUCTS
1. RAIL
S.K.P.I.M.C.S 22
COSTING STRUCTURE & SENSITIVITY ANALYSIS
2. ROAD
3. PIPELINE
4. SHIP
PRODUCTS DISPATCHED
4. SULPHUR – ROAD
COMPETITORS OF ONGC
1. ESSAR OIL
S.K.P.I.M.C.S 23
COSTING STRUCTURE & SENSITIVITY ANALYSIS
2. BPCL
3. HPCL
4. RIL
5. GPCL
6. IPCL
MAIN PLANT
1. GAS TRUNKLINES
AUXILLIARY PLANT
CO-GENERATION PLANT
S.K.P.I.M.C.S 24
COSTING STRUCTURE & SENSITIVITY ANALYSIS
A. FINANCIAL HIGHLIGHTS
S.K.P.I.M.C.S 25
COSTING STRUCTURE & SENSITIVITY ANALYSIS
S.K.P.I.M.C.S 26
COSTING STRUCTURE & SENSITIVITY ANALYSIS
INTRODUCTION
S.K.P.I.M.C.S 27
COSTING STRUCTURE & SENSITIVITY ANALYSIS
ONGC Hazira plant follows cost centre accounting method for the
purpose of costing of products and reporting of cost data to management
and various other external and internal agencies. Cost centre accounting
is a method for applying resource costs to an organization. The
accounting system identifies each of the organizational parts of the
traditional functional structure and applies the identifiable costs to that
part of the structure.
6. Certain terms
S.K.P.I.M.C.S 28
COSTING STRUCTURE & SENSITIVITY ANALYSIS
In ONGC Hazira plant, the costing system is run on ERP system called
SAP. Entire costing calculations are done by this ERP system only. Thus
cost in Hazira plant and SAP system go hand to hand and it is difficult to
understand the costing system of Hazira plant if we make an attempt to
understand it in isolation without taking into the SAP system. Therefore,
to understand the cost system of the Hazira plant certain terms must be
understood.
These terms are used by the costing system of SAP. Some more
important terms have been explained here below:
1. Cost object:
S.K.P.I.M.C.S 29
COSTING STRUCTURE & SENSITIVITY ANALYSIS
Entire ONGC Hazira plant has been divided in around 61 cost centres. A
cost centre can be defined as a unit with reference to which cost is
incurred. The list of cost centres of Hazira plant is given as follows:
S.K.P.I.M.C.S 30
COSTING STRUCTURE & SENSITIVITY ANALYSIS
S.K.P.I.M.C.S 31
COSTING STRUCTURE & SENSITIVITY ANALYSIS
From the list, it can be seen that there are 7 broad categories of cost
centres in Hazira plant namely:
All the major plants of ONGC Hazira plant have been identified with a
separate cost centre. For example, gas sweetening unit (GSU) plant has
been identified with cost centre MUMHPPl102. Similarly, LPG unit has
been identified with cost centre MUMHPPl103 and the like.
Whenever costs are incurred for any of the plants, these costs are
booked in respective plant’s cost centres.
For the purpose of running the plant, various utilities like water, steam,
power, inert gas etc are required. ONGC Hazira plant has its own utility
plants to generate/produce and consume these utilities. Like, for power
and steam generation, Hazira plant has its own captive power plant
which generates power sufficient to run the plant on its own.
Each of such utility plants too, has been identified with separate cost
centres. For example, MUMHPUT204 represents inert gas plant;
similarly, water utility plant has been given code MUMHPUT 202.
S.K.P.I.M.C.S 32
COSTING STRUCTURE & SENSITIVITY ANALYSIS
Finance & accounts section has been given cost centre code
MUMHPSP902. Again, material management section’s cost centre is
MUMHPSP904 and the like.
S.K.P.I.M.C.S 33
COSTING STRUCTURE & SENSITIVITY ANALYSIS
Hazira plant produces various products like gas, LPG, ARN, SKO, and
HSD. These products are dispatched to customers through various
modes of transportations. Mainly dispatches are through pipeline, rail and
road. Gas is dispatched to GAIL through pipeline, while other liquid
products are dispatched through rail, road and as well as through
pipelines.
Secondary cost centres are those cost centres in which no direct cost is
booked. They receive cost from primary cost centres (i.e. the cost
centres in which direct costs are booked). The purpose of secondary cost
centres is to ensure proper allocation of cost to appropriate products and
activities.
S.K.P.I.M.C.S 34
COSTING STRUCTURE & SENSITIVITY ANALYSIS
Project group section of Hazira plant has been identified with a separate
cost centre called MUMHPSP910. Costs of project group section are
initially booked in this cost centre.
The flow of cost of the project group cost centre can be understood
through the following diagram:
S.K.P.I.M.C.S 35
COSTING STRUCTURE & SENSITIVITY ANALYSIS
The basis for location of cost of project group cost centre is as under:
S.K.P.I.M.C.S 36
COSTING STRUCTURE & SENSITIVITY ANALYSIS
All such expenditure which is initially booked in any of the 60 cost centres
mentioned above. However, since these expenses are non-allocable,
before the allocation of cost starts, they are taken out from the primary
cost centres and transferred to the cost centre MUMHPGEEXP.
In the SAP system of Hazira plant, details like its description and
specification, its location, the date of its commissioning, etc of equipment
is maintained. This detail is called “equipment master”. Each of such
equipment has been given a unique number by which it is identified.
Further, each such equipment has been attached to a cost centre
depending upon its location & use.
S.K.P.I.M.C.S 37
COSTING STRUCTURE & SENSITIVITY ANALYSIS
S.K.P.I.M.C.S 38
COSTING STRUCTURE & SENSITIVITY ANALYSIS
When an oil well is drilled, huge cost is incurred in its drilling. To keep a
separate record of cost incurred for such well, separate internal order is
created in SAP for each well drilled. All the costs incurred in drilling of
that well is initially booked in that particular internal order. Then if it is
found that the there exists oil or gas in that well, all the cost of the
internal order is transferred to the capital asset i.e. Oil or gas well.
S.K.P.I.M.C.S 39
COSTING STRUCTURE & SENSITIVITY ANALYSIS
However, if it is found that there is no oil or gas in the well drilled, all
the cost booked in the internal order is transferred to cost centre which
gets allocated further depending upon the mapping in SAP. However,
since no drilling activity takes place in Hazira plant, internal orders are
not used costing system of Hazira plant.
In SAP SKF means “the basis for allocation of cost” from one cost object
to other and finally to finished products. From the above discussion, it is
clear that costs are initially booked in cost objects like cost centres, pm
orders, WBS and internal orders. In order to allocate these costs booked,
it is required to define some basis so that cost booked can be allocated
to products. For example, as explained above, the cost of project group
cost centre MUMHPSP910 is allocated to secondary cost centres
MUMHPECXP1 & MUMHPECXP2 on the basis of number of persons of
project group sections engaged in revenue projects and in capital
projects. Thus SKF for allocating cost of MUMHPSP910 is manpower. At
the end of each period, when allocation of cost takes place, it is
determined that how many employees of project group cost centres were
engaged in revenue projects and how many were engaged in capital
projects. These numbers are fed in SAP system and on the basis of SKF
fed, SAP makes automatic calculations and allocation of cost takes
place.
S.K.P.I.M.C.S 40
COSTING STRUCTURE & SENSITIVITY ANALYSIS
through these mode of transports. Thus SKF for these transport cost
centres is dispatch quantity. These dispatch quantities are fed in SAP
system at the end of every period on the basis of which allocation of cost
booked in transportation cost centres takes place.
Again for some of the cost centres, basis has been fixed permanently,
depending upon past experience and records. For example, it has been
determined that waste water treatment plant of Hazira plant processes
waste water coming out of various other plants in the following
proportion:
3. Activity type:
For the purpose of allocation of some of the cost centres, SAP system
uses utility called activity. It is assumed that some cost centres are
engaged in rendering services to other cost centres. Thus these cost
centres generate activities which are consumed by other cost centres.
S.K.P.I.M.C.S 41
COSTING STRUCTURE & SENSITIVITY ANALYSIS
7.Cost cycles:
This is one of the important parts of costing system in SAP. A cost cycle
is a small computer programme which facilitates allocation of cost initially
booked in different cost objects like cost centres, pm orders, WBS etc to
final products. In this computer programme, mapping is done which
defines how cost will flow from one cost object to other and finally to
finished products and the basis of such flow.
At the end of the period, when this computer programme (i.e. Cost cycle)
is executed and SAP system, on the basis of mapping done in that
programme and the inputs provided, automatically makes all the complex
calculations and provides final output in the form of product costs.
S.K.P.I.M.C.S 42
COSTING STRUCTURE & SENSITIVITY ANALYSIS
For the purpose of allocation of costs in Hazira, the following cost cycles
are executed:
Each of these cost cycles have been explained hereunder one by one:
S.K.P.I.M.C.S 43
COSTING STRUCTURE & SENSITIVITY ANALYSIS
In SAP, any expenditure can be booked only when some cost object is
specified at the time of booking of such expenditure. Therefore, to book
the above mentioned non- allocable expenditure cost object (normally a
cost centre) has to be specified. For this reason, it becomes necessary to
take this expenditure out of the costing activities before allocation begins.
For the purpose of separating this expenditure, a cost cycle called
“distribution cost cycle” is executed. This cost cycle takes out from all the
cost centres the non-allocable cost elements and put them in cost centre
MUMHPGEEXP. No further allocation of these cost elements from
MUMHPGEEXP takes place in any of the cost cycles which are executed
after distribution cost cycle.
S.K.P.I.M.C.S 44
COSTING STRUCTURE & SENSITIVITY ANALYSIS
As mentioned above, there are several support cost centres which render
services to other cost centres. For example, finance & accounts section
(cost centre MUMHPSP902) renders services to all the other cost
centres. Similarly, human resources & employee relations section (cost
centre MUMHPSP903) too renders services to all other cost centres.
These cost centres known as administrative support cost centres.
Cost of these cost centres is allocated to all the other cost centres which
are receiving services of these support cost centres.
The cost of maintenance cost centres of Hazira plant does not straight
away get allocated to the cost centres who receive their services. The
cost of these maintenance cost centres is routed through plant
maintenance orders. In other words, first the cost of maintenance cost
centres will get allocated to plant maintenance orders then from plant
maintenance orders, the cost will get allocated to other cost centres
which are maintained by these maintenance cost centres.
The flow diagram here below shows the flow of cost of maintenance cost
centres:
S.K.P.I.M.C.S 45
COSTING STRUCTURE & SENSITIVITY ANALYSIS
MAINTENANC
E COST
CENTRE
PM Order PM Order
PM Order
2 3
1
Cost Cost
Cost
Centre 2 Centre 3
Centre1
S.K.P.I.M.C.S 46
COSTING STRUCTURE & SENSITIVITY ANALYSIS
out, the scheduled date as well as actual date of start of maintenance job,
the scheduled as well as actual date of completion, the time (in hours) taken
for the job and the cost (stores, spares, or any other expenditure) incurred
for the maintenance job.
It has been stated above that in every plant maintenance order, the
time (in hours) taken for completion of the job is booked. For allocation of
cost booked in maintenance cost centre, this time forms basis.
S.K.P.I.M.C.S 47
COSTING STRUCTURE & SENSITIVITY ANALYSIS
Suppose, during the month of April 06, the cost centre MUMHPMT101
(mechanical process maintenance cost centre), carried out 10 maintenance
jobs at various locations in the plant. These jobs are as under:
It should be noted here that in real situation far more than 10 plant
maintenance orders are prepared by a maintenance section during a month.
However, for the sake ok convenience and simplicity, we have assumed
that only 10 plant maintenance orders were created by the maintenance
section during a month.
S.K.P.I.M.C.S 48
COSTING STRUCTURE & SENSITIVITY ANALYSIS
From the above list, it can be seen that the work done by
MUMHPMT101 during the month is only 41 hours. Thus 9 hours remained
idle. However, it should be noted that in a company like ONGC, a
maintenance section is not always engaged in maintenance work only.
There are several other works which the people of a maintenance cost
centre have to perform like, attending meetings, trainings, preparation of
files for various purposes like approvals, sanctions for expenditure,
preparation of miscellaneous reports etc,
Now, for 41 hours we have 10 different pm orders but for rest of the 09
hours we don’t have any pm orders.
S.K.P.I.M.C.S 49
COSTING STRUCTURE & SENSITIVITY ANALYSIS
For this purpose, there is a facility in SAP which, at the end of the
period automatically creates a pm order which shows these remaining hours
of normal capacity of that cost centres.
Thus we assume that at the end of the period, SAP generated one
more pm order (no. 10012917) with 09 hours.
Now, we assume that during the month of April, the cost booked in the
cost centre MUMHPMT101 was as follows:
(i) Expenditure: Rs. 500000/-
(i) Depreciation of the assets used by the cost centre: 50000/-
S.K.P.I.M.C.S 50
COSTING STRUCTURE & SENSITIVITY ANALYSIS
It may be noted here that the past pm order (no. 10012917) here is
the one which is automatically generated by SAP system in case there is an
underutilization of normal capacity of the cost centre. The cost centre
MUMHPSP901 which is presumed to be the cost centre where services
have been rendered by this pm order. Is a general cost centre cost of which
flows to all the plants and utility cost centres in suitable proportion. By
picking up this general cost centre, SAP system ensures that the cost of
unutilized (or utilized in general work) hours of maintenance cost centre gets
spread over to all the cost centres fairly.
S.K.P.I.M.C.S 51
COSTING STRUCTURE & SENSITIVITY ANALYSIS
In the above example, the cost shown in column “i” of the table above
will flow to respective cost centres appearing in column “b”.
The term WBS has been explained in the start at point no. 1.3. In
ONGC, when cost is incurred for a capital project which is expected to be
completed over a period of time, it is not directly booked in the account
pertaining to capital work in progress. There is a separate series of
accounts in which cost is first booked. Further, the cost booked under these
accounts is not booked with reference to a cost centre, but it is booked with
reference to a WBS. Then at the end of the period, the cost booked under
these WBSs is transferred to accounts related to capital work in progress or
in case the capital project is complete, to the final fixed asset.
For this transfer of cost to capital work in progress /final fixed asset,
the cost cycle for allocation of cost from WBS to capital WIP / final fixed
asset is executed.
S.K.P.I.M.C.S 52
COSTING STRUCTURE & SENSITIVITY ANALYSIS
This is a sample cost cycle in which the cost of operation support cost
centres like cost centre MUMHPSP930 (corrosion monitoring section),
MUMHPSP931 (condition monitoring section) etc, gets allocated to all other
plants & utility cost centres.
Under this cycle only, cost of certain utility cost centres like
MUMHPUT101 (co-gen power plant), MUMHPUT105 (gas turbine i & ii),
MUMHPUT106 (gas turbine iii), MUMHPUT103 (mp boiler), MUMHPUT106
(Hitachi boiler) flows to final cost centres of these utilities like
MUMHPUT102 (power utility cost centre) & MUMHPT 104 (steam utility cost
centre).
8.7 Cost cycle for allocation of utility & plant cost centres cost to
finished products:
S.K.P.I.M.C.S 53
COSTING STRUCTURE & SENSITIVITY ANALYSIS
S.K.P.I.M.C.S 54
These standards have been fed in SAP system for every finished product
which is produced in Hazira. In SAP terminology, it is called “recipe”. This
recipe in fact, forms the basis for allocation of cost of plant and utility cost
centres to finished products. This recipe is revised every time when
there is a major change in the production process which results in
change in the input requirements of finished products. Every day, the
production people make a process order for production of each of
finished products. At the end of the day, the actual quantity of finished
products produced is confirmed in that process order. This process order
is linked to the recipe. Through this link, it calculates the total inputs
required for production of the quantity of finished product confirmed at
the end of the day. And finally at the end of the period for which cost is to
be ascertained, SAP system sums up all the inputs required as well as
the out put of finished products for allocation of cost. It may please be
noted here that the actual system in SAP is complex. For the sake of
convenience, certain steps have been eliminated in the example below.
Process Qty of LPG Qty of LPG actually
order no Process order description planned produced
Metric tonne Metric tonne
1100054052 LPG through LPG plant 200 218
1100054053 LPG through LPG plant 225 215
1100054054 LPG through LPG plant 225 223
1100054055 LPG through LPG plant 220 222
1100054056 LPG through LPG plant 230 232
1100054057 LPG through LPG plant 210 200
1100054058 LPG through LPG plant 250 240
1100054059 LPG through LPG plant 215 215
1100054060 LPG through LPG plant 220 210
1100054061 LPG through LPG plant 235 233
1100054062 LPG through LPG plant 210 207
1100054063 LPG through LPG plant 220 224
1100054064 LPG through LPG plant 200 198
1100054065 LPG through LPG plant 225 230
1100054066 LPG through LPG plant 225 220
1100054067 LPG through LPG plant 220 220
1100054068 LPG through LPG plant 230 226
1100054069 LPG through LPG plant 210 206
1100054070 LPG through LPG plant 250 241
1100054071 LPG through LPG plant 215 214
1100054072 LPG through LPG plant 220 223
1100054073 LPG through LPG plant 235 233
1100054074 LPG through LPG plant 210 201
1100054075 LPG through LPG plant 220 212
1100054076 LPG through LPG plant 200 196
1100054077 LPG through LPG plant 225 214
1100054078 LPG through LPG plant 225 222
1100054079 LPG through LPG plant 220 214
1100054080 LPG through LPG plant 230 228
1100054081 LPG through LPG plant 210 203
1100054082 LPG through LPG plant 250 245
6880 6785
8.7.2 Example of calculation of cost of LPG produced from LPG plant:
Now, when the total quantity of LPG produced and per unit cost of
inputs required for production of LPG are available, we can calculate the
cost of production of LPG. This calculation is shown in the table below:
Total input
Qty of input
consumptio
required to LPG Cost of per Cost of LPG
Input n in
produce one produced unit of input produced
production
unit of LPG
of LPG
(a) (b) (c) (d)=(bxc) (e) (f)=(dxe)
125 1,696,
Gas 2 6785 13570 .00 250
1 36,
Power 4 6785 27140 .33 187
0 15,
Steam 3.5 6785 23747.5 .67 832
De-mineralized 0 5,
water 1 6785 6785 .75 089
0 42,
Inert gas plant 7 6785 47495 .90 746
0 8,
Cooling water 2 6785 13570 .60 142
1,804,
245
Conclusion:
From the above discussion, it is clear that ONGC, Hazira plant has
sound system of costing. Through this project, an attempt has been made to
describe the costing method of the plant is a simple manner. The system is
yet more complex than what has been described here. Incorporating and
explaining all of its complexities and explaining them in this project was not
possible as almost all of its costing system is handled by SAP system which
involves great amount of back ground calculations on the basis of
programming designed therein.
9. EXPLAINATION OF CALCULATION
Each of the segments of this cost cycle has been briefly described
here below:
SEGMENT 1:HPLOGISEXP: LOGISTICS EXPENSE:
In this segment, the cost booked in cost centre MUMHPSP923
(TRANSPORT-BASE OFFICE) gets allocated to all the other cost centres in
proportion to the expenditure booked in the receiver cost centres.
The receiver cost centres in this segment are all the cost centres
except the support cost centres.
SEGMENT 4: HPENGSEREX: HAZIRA PROJECT GROUP EXPENSES:
Under this segment, the cost of cost centre MUMHPSP910 (Hazira
project group cost centre) is allocated to two secondary cost centres
namely, MUMHPECXP1 & MUMHPECXP2.
Finally, the last two columns under heading “cost in various cost
centres after cycle C2HPOO” shows the cost in various cost centres after
execution of cost cycle C2HPOO. From these columns it can be observed
that after execution of cycle C2HPOO, cost in some of the cost centres
(mainly support cost centres) will to other cost centres (mainly operations
related cost centres). This way, the cost of support cost centres will become
zero.
It can be seen that after execution of cost cycle C2HPOO, the cost of
following cost centres will become zero:
MUMHPSP901 PROJECT HEAD'S OFFICE
MUMHPSP902 F&A
MUMHPSP903 P&A/LEGAL/IR
MUMHPSP904 MM
MUMHPSP914 SHE
MUMHPSP915 PLANT TRAINING
MUMHPSP916 MEDICAL
MUMHPSP917 SECURITY & VIGILANCE
MUMHPSP919 TOWNSHIP
MUMHPSP929 HAZIRA INFO COM
MUMHPSP910 PROJECT GROUP
MUMHPSP923 TRANSPORT-BASE OFFIC
MUMHPMT901 MAINT_COMMON
MUMHPMT902 HAZIRA MAINTN CIVIL
SECOND COST CYCLE C4HPAO – HAZIRA OPERATION COST CYCLE – I
Under the second cost cycle C4HPAO, cost of some more cost
centres gets allocated to other cost centres who receive their services. The
sender cost centres in this cost cycle mainly are operation support cost
centres like, chemistry section, corrosion monitoring section, condition
monitoring section etc.
Like the first cycle, this cycle too has various segments, each one of
them has been explained briefly here below:
SEGMENT 1: HPPRODOPSUP: HEAD OPERATION OFFICE:
In this segment cost of cost centre MUMHPSP912 – head operation
office gets allocated to all the plants & utility cost centres in proportion to the
costs initially booked in the receiver cost centres.
The ratio mentioned above has been fed in this segment of the cost
cycle and sap system follows this ratio for allocation of cost of WWTP to
these plant cost centres.
SEGMENT 4: HPPPPEMEXP: PLANNING, PRODUCTION EVACUATION
COST:
The cost centre MUMHPSP927 – product planning and evacuation
which is engaged in marketing of various products which are produced in
Hazira plant, is allocated to transportation cost centres on the basis of
quantity of products dispatched through various mode of transportation viz,
rail, pipeline and road.
MUMHPTP301 DESPATCH-PIPELINE
MUMHPTP321 DESPATCH-RAIL
MUMHPTP341 DESPATCH-ROAD
Thus, it is obvious that the cost of co-gen office should flow to these
above mentioned cost centres only.
MUMHPTP301 DESPATCH-PIPELINE
MUMHPTP321 DESPATCH-RAIL
MUMHPTP341 DESPATCH-ROAD
COST
CENTRE COST CENTRE NAME BASIS OF ALLOCATION
MUMHPTP910 PRODUCT STORAGE OFFI DISPACTH QUANITY OF VARIOUS PRODUCTS
DISPACTH QUANITY OF VARIOUS PRODUCTS
MUMHPTP301 DESPATCH-PIPELINE THROUGH PIPELINE
DISPACTH QUANITY OF VARIOUS PRODUCTS
MUMHPTP341 DESPATCH-ROAD THROUGH ROAD
DISPACTH QUANITY OF VARIOUS PRODUCTS
MUMHPTP321 DESPATCH-RAIL THROUGH RAIL
And the receiver cost centres in these all the four segments are the
product related cost centres as under:
The main objective of this cost cycle is to transfer the cost of various
cost centres related to power generation and steam generation in to single
cost centres pertaining to power & steam so that cost of generation of power
& steam can be calculated.
However, ultimately only one power cost and one steam cost is
calculated for the purpose of product costing. For this purpose, it is required
to transfer the cost booked in different cost centres of gas turbines to a
single cost centre of power. Similarly, it is required to transfer the cost of
different cost centres relating various boilers to a single cost centre of
steam.
Therefore under this cost centre, 100% cost of one cost centre flows
to another as under.
COST FLOWS FROM COST FLOWS TO
MUMHPUT101 COGEN POWER PLANT ELECTICITY
MUMHPUT105 HAZIRA TURBINE I&II MUMHPUT102 DISTRIBUTION
MUMHPUT108 HAZIRA TURBINE III SYST
Thus it is clear that cost finally comes to one cost centre i.e.
MUMHPUT102 (FOR POWER) and MUMHPUT104 (FOR STEAM) from
where single rate for cost of power generation and steam generation can be
calculated.
From these cost centres, the cost gets allocated to finished products
through process orders (already explained in earlier sections
above).Detailed calculations of how cost gets allocated to finished products
is shown in next few pages.
11.SENSITIVITY ANALYSIS
12.Improvement Opportunities
13.Bibliography
1. www.ongcindia.com
2. www.ongc.net
3. www.ongctsg.com