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COST ACCOUNTING REPORT

Cost Analysis of Habib Oil

Submitted to

Miss Mona Shamim

Submitted by

Group Members

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 ACKNOWLEDGEMENT

“Praise to be ALLAH, Lord of the worlds, the beneficent, the merciful”

First of all, we are thankful to Allah Almighty who gave us strength to work and
due to His blessings finally we are able to complete this project on time.

We would like to thank our respected teacher Miss Mona Shamim for giving us
this opportunity to work on this project. In this project we learnt a great deal about
the Process costing that we have studied.

Report by group members: -

1. Asma Iqbal (12942)

2. Ramsha Gul Shaikh (12290)
3. Shumaila Jan
4. Tamkeen Zehra
5. Yumna Khanum
6. Anusha Mirza
7. Raees Ali
8. Hassan Khan
9. Abeer Waseem
10. Ahsan Ali Siddiqui

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 INTRODUCTION

Habib Oil Mills:

Unlike many other industrial houses in Pakistan, the group has been engaged in
commerce and industry for over a century. The family business is known to have
started around 1900 when a sugar factory was setup in Ghazipur. The family shifted
their business in 1920 to Calcutta, one of the business hubs of India, under the name
of Shaikh Nabi Buxsh & Company. The family started other businesses in Calcutta
including Tallow & Soap raw material. After Partition, the family group moved to
Dacca and started industrial activities under the family name of Hassan Brothers &
Company.

Under the family name, Pak Jute Mills was established in Dacca. The mill was
equipped with 500 looms out of which 250 looms were for Hussein Cloth & 250
looms for sack/gunny bags. The mills were exporting their products to a large
number of countries. The plant was imported from Britain. It was the market leader
at that time and the shares of the company were floated on the Dacca Stock
Exchange.

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 Since its inception, the group has diversified its operations and taken under its
umbrella numerous other businesses. Today, it is continuing its heritage of
milestones by operating in following successful ventures:

 Habib Oil Mills (Pvt.) Ltd.

 Habib Quality Foods (Pvt.) Ltd.
 Habib Water (Pvt.) Ltd.
 MCR (Pvt.) Ltd. (Pizza Hut, Burger King, TGI Fridays)
 Satcomm (Pvt.) Ltd.
 Millennium Software (Pvt.) Ltd.

Products:
 Cooking oil
 Banaspati

ABOUT THE PRODUCT:

It basically manufactures 2 of the products cooking oil and Banaspati. The product
we have taken to gather all the information is “cooking oil.” The method followed by
Habib oil Mills for the manufacturing of cooking oil is process costing instead of job
order.

ELEMENTS INCORPORATED:

The expense is divided in the ratio of 90% and 10%.

90% of the expense is due to oil whereas remaining 10% is constituted by the
number of other elements involved in the manufacturing of the cooking oil.

These elements include:

 Marketing expense
 Salaries
 Packaging

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MAJOR MANUFACTURING OVERHEADS INVOLVED:
There are a several overheads involved in its manufacturing but the major ones
include:

 Marketing expense:
The most common expense associated with marketing is the cost of placing
ads in print media, such as newspapers and magazines.
 Salaries expense:
The salary given to the workers involved in the manufacturing constitutes the
major part of MOH.
PRICING STRATEGY:
The pricing is set looking towards the competitors. It is set on the level of the
competitors so that we exist in the market and give tough time to the other party. It
is set by including all the factors such as bad depts., interest, and labor resign and
inflation.

PROFIT MARGIN:
No matter how much changes occurs in prime cost, product cost, conversion cost
and factory overheads the selling price will remain constant even if the expense of
manufacturing cost increases so the company will earn less gross profit then before
but will not increase the selling price because it can affect the product sell in market
customer will prefer to choose alternate product of it.

DIFFERENCE BETWEEN COST AND RETAIL PRICE:

Manufacturer suggested retail price of the product which is the price at which
manufacturer’s recommendations that the retailer sell the product. The intention
was to help the standardize among locations where as cost is typically the expense
incurred for a product or service being sold by a company The difference between
the price paid and the cost incurred is the profit. If a customer paid $10 for
an item that cost $6 to produce and sell, the company earned $4 in profit.

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Habib Oil is Virtually Trans Fat Free (VTF), with grainy and danedar texture. It is a rich
blend of palm oil with soft oils which makes it a major dietary source of essential
vitamins. Habib cooking oil is enriched with Vitamin A, D & E.

Habib cooking oil has been part of Pakistani households for generations. It is an
epitome of good food & holds dear the tradition of sharing happiness & goodness
over family meals, with its unforgettable aroma & the same great taste that has
endeared it to the hearts of millions for decades.

RAW MATERIAL INCLUDES:

INGREDIENTS
Palm oil and soybean,sunflower,Canola oil, cottonseed oil
Vitamin A 33.0-5.0 iu/gm
Vitamin D 3.0-4.5 iu/gm
Vitamin E 60 iu/kg
ARTIFICIAL FOOD FLAVOUR

DIRECT LABOUR INCLUDES:

- Salary
- Bonuses
- Commission

ACCORDING TO COMPANY INFORMATION:

DIRECT MATERIAL:

90% of the raw material is used in the product which is RS: 720 of each product.

DIRECT LABOR:

And 10 % of the product includes in direct labor which is RS: 70 of each product.

INDIRECT COST + FACTORY OVERHEAD:

Rs: 20 is the estimated indirect cost of the product and RS: is remaining factory
overheads of the product.

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ACTUAL COST OF 5kg TIN:

Actual cost is Rs800. Actual cost is a cost where no other expenses takes place except
D/M, D/L AND FOH.

PRIME COST OF 5KG TIN OF HABIB COOKING OIL:

Prime cost = (Direct material + direct labor)

Prime cost = (720 + 70)

Prime cost = 800

PRODUCT COST OF 5KG TIN:

Product cost = (direct material + Direct labor + factory overhead)

= (720 + 70 + 50)

= 850

CONVERSION COST OF 5KG TIN OF HABIB COOKING OIL:

Conversion cost = (direct labor + factory overhead)

= (70 + 50)

= 120

TOTAL FACTORY OVERHEAD:

Total FOH includes all factory expenses like salary, rent, utility expenses, indirect
material, indirect labor etc. Total FOH of 5kg tin of Habib cooking oil is Rs 50.

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SELLING PRICE IN MARKET OF 5KG TIN OF HABIB
COOKING OIL:
Selling price = cost + profit

= 850 + 100

= 950

TOTAL UNIT PRODUCED PER YEAR:

In year 2002 total unit produced was 58 thousand tons per year and now in 2018 it
has been reached to 60 thousand tons annually.

1 ton is equal to 1,000 kilograms

60,000 tons = 60,000,000 kilograms

If we talk about 5kg tin of cooking oil then,

60,000,000 ÷ 5 = 12,000,000 units.

TOTAL MANUFACTURING COST:

Per unit cost × total number of unit produced = total manufacturing cost

850 × 12,000,000 = 10,200,000,000 total manufacturing cost of 12,000,000 units

produced annually.

COST OF GOOD SOLD AT MARKET PRICE:

Gross profit – sales = cost of goods sold

1,020,000,000,000 – 12,000,000 = 1,019,988,000,000

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ORIGINAL COST INVOLVED IN THIS PRODUCT:
Total manufacturing cost is the original cost of this product which is Pak Rs
10,200,000,000

PRICING DETAILS:
Retail price is Rs 800 including direct material, labor and factory overhead, in this
price company also includes bad depts. Interest, inflation and the market price
fluctuates Between 850 to 1050 in different locations because of delivery expense ,
transport expense etc. .But the company sells their product on standardized price
no matter if they earn less gross profit because they also have to maintain their
customers relation with the product otherwise customers will choose alternative
product so the selling price remains constant.

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DIFFERNCE BETWEEN MARKET AND THE COMPANY:

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