Cost Accounting

Topic:

Production Process of Honda Motorcycle

Submitted to:

Mam Sadia Bint-a-Raza

Submitted by:

Mubeen Tahir (08020920-038)

Mehjabeen Malik (08020920-015)

Rabia Arshad (08020920-023)

Usama Asghar (08020920-098)

Ayaz Bhutta (08020920-087)

Date: 22-01-2010

University Of Gujrat

Hafiz Hyatt Campus

Honda Motor Company Limited is perhaps best known as an automaker. It is the third largest
automaker in Japan but the company has its roots in motorcycles, and is the world's top
motorcycle manufacturer.

History:

The 'Honda Motor Company' was founded on in 1948, by Soichiro Honda (1906—1991), a
mechanic and engineer/inventor who began as a blacksmith, working at his father, Gihei Honda's
bicycle repair shop. In 1938, at the age of 32, Soichiro Honda was working at an auto repair-shop
in Tokyo, called Art Shokai, where he began using his self-taught mechanical and engineering
skills. Honda briefly studied mechanical engineering and design at Hamamatsu Technical High
School, where Honda perfected his new design for the piston ring.

During the Japanese reconstruction period of the early 1940s, Soichiro Honda began designing
motor-driven bicycles. Honda built his first motor-scooter, known simply as the "A-Type," in
1947.

Honda started to make an international name for itself with the introduction of the CB models.
Started by a CB72 (250cc) and the CB77 (305cc). The first series used the old press steel frames
and the better road handling came with the introduction of the steel tubular frames in the CB92.
The CB77 (super hawk) was excellent, reliable motorcycle which outperformed many similar
English models

One year later he started the 'Honda Motor Company' and began building small-displacement
'tiddler' style motor-scooters. Honda introduced his first motorcycle in 1949; the 'Dream D-Type'
with a 3 horsepower, 98cc engine. Hondas were also sold under the "Benly" name, with "Honda"
appearing on the engine case
Honda started building bigger engine bikes with the first model CB450 in 1965. The black
bomber / black hawk were an attack to the dominating English bikes in this area. Although the
CB450 didn't match the British motorcycles (yet) the competition had begun.

.Starting in the 1980s Honda developed a series of V-four engines which setup the model line of
Honda VFs ranging between 400cc and 1000cc. But due to mechanical problems the VF line
never really got going.

The Fire blade (also a CBR model) was a new chapter for Honda and motorcycle fans
worldwide. The introduction of the CBR900RR (893cc) in 1992 was a huge improvement from
what was then out on the market. This came largely because of the engine capacity in a smaller
light frame. The bike was redesigned a few times but only regained its original success with the
2000 model fire blade CBR929RR (929cc). Two years later the power was increased once again
to 954cc

The Manufacturing Process:

According to the need of the company for manufacturing of motorcycles the material is
requisitioned and a purchase order is sent to the suppliers by the purchase department and the
Honda industry purchases the material from outside the country as well as within country
through local costing. Raw materials which consist of parts and components arrive at the
manufacturing plant by truck or rail and the transportation charges are paid by the Honda
industry. The material is being received by the receiving department and the slips are made by
that department after matching the purchase order with the material list provided by the supplier.
Then there is the work of inspection department that works on when it receives the order from
receiving department to inspect the material. The defected materials and parts are returned to the
places from where they come after inspection. Different materials are sent to the different
departments for the further procedure.

The manufacturing process is completed in three major steps which are

 Paint Shop.
 Engine Assembling.
 Frame Assembling.
Paint Shop:

The raw materials which consist of parts in the case of motorcycle are sent to the paint
shop for painting.

Powder Coating:

Plastic and metal parts and components are painted in the paint department using a
process known as powder-coating (this is the same process by which automobiles are painted).
A powder-coating apparatus works like a large spray-painter, dispersing paint through a
pressurized system evenly across the metal frame.

Charged Particles:

First of all the parts are negatively charged with the help of the electrons then the
positively charged particles in the form of color are sprayed to these charged parts. As we know
that the positive and negative charged particles attract each other so these charged particles
attract each other in the form of paint and thus the parts are painted. The numbers of the
negatively charged particles are equal to the number of the positive charged particles so we can
see smooth paints on the parts of the motorcycle. And this is the reason that the paints are not
spoiled by sun and
rain. The parts which
are painted in the a
single unit of
motorcycle are

 Fuel Tank.
 Side Cover set.
 Swing Arm.
 Hub Front.
 Panel Front.
 Magnet Front.
 Top Bridge.
 Handle Cover.
These are the painted body parts of motorcycle
  Clutch Plate.
 Main Stand.
 Side Stand.
 Muffler Stand.
 Battery Stand.
 Step Bar.
 Meter Bracket.
 Head Top Cover.
 Head Right Cover.
 Tappit Covers set.

Labor Force:

There are 18 labors which are working in this department and we are giving hour wise
wages to our labors. We are offering Rs.25/- per hour to our each labor.

Direct Labor:

There are 10 people who are working in this department in the production process.

Labor Cost:

One labor cost = Rs25/-per hour

For 10 Labors = Rs250/-per hour

If the labors will work for one month and 8 hours in a day then the cost will be Rs60000/-.

Indirect Labor:

The remaining 8 are working as indirect labors. These 6 people includes

 3 Supervisors.
 2 Sweepers.
 3 people which are working on moving trail from one channel to another for the shifting
of materials.
Labor Cost:

One labor cost = Rs25/-per hour

For 8 Labors = Rs200/-per hour

If the labors will work for one month and 8 hours in a day then the cost will be Rs48000/-.

Material:

The above 21 parts which are mentioned above used as the material of this portion.

Direct Material:

The materials which are using in this department as a direct material and their costs are:

Theses are the cost for one unit:

 Fuel Tank. Rs850/-

 Side Cover set. Rs750/-
 Swing Arm. Rs460/-
 Hub Front. Rs140/-
 Panel Front. Rs50/-
 Magnet Front. Rs200/-
 Top Bridge. Rs175/-
 Handle Cover. Rs50/-
 Clutch Plate. Rs325/-
 Main Stand. Rs250/-
 Side Stand. Rs150/-
 Muffler Stand. Rs75/-
 Battery Stand. Rs70/-
 Step Bar. Rs125/-
 Meter Bracket. Rs200/-
 Head Top Cover. Rs40/-
 Head Right Cover. Rs85/-
 Tappit Covers set. Rs100/-
 Total cost for direct material= Rs3887/-

If we are going to produce 150 units then the cost will be Rs583050/-

Indirect Material:

The indirect material and their cost are

Theses are the cost for one unit:

 Paint Color Rs400/-

 Alumininum Alloy Rs135/-

Total cost for the indirect material = Rs535/-

If we are going to produce 150 units then the cost will be Rs50250/-

Factory Over Head:

 Factory Supplies. Rs8000/-

 Repairs and Maintenance. Rs3500/-
 Electric Power. Rs6000/-
 Fuel. Rs4500/-
 Depreciation Machinery. Rs2000/-
 Insurance. (Fire) Rs3000/-
 Water Rs1000/-

Factory Over Head = Rs28000/-

Cost for this department:

If we are going to produce 150 units and our labors work 8 hours in a day and they are
able to produce 150 units in one month then the cost for this department will be

Direct Material Rs583050/-

Direct Labor Rs60000/-

Factory Over Head

Indirect Material Rs80250/-

Indirect Labor Rs48000/-

Factory Supplies. Rs8000/-

Repairs and Maintenance. Rs3500/-

Electric Power. Rs6000/-

Fuel. Rs4500/-

Depreciation Machinery. Rs2000/-

Insurance. (Fire) Rs3000/-

Water Rs1000/-

Total Factory over head Rs156250/-

Total Cost for this department Rs799300/- (for 150 units)

Cost of Production Report:

Honda
Paint department

Cost of production report

Quantity schedule:

Units started in process 150

Units completed and transferred out 130

Units still in process(all material-1/2 of labor and foh) 20 150

Cost charged to the department:

Cost added by department: Total cost Unit cost

Material 60000 400

Labor 583050 4164.6428

FOH. 156250 1116.07142

Total cost to be accounted for: 799300 5680.71422

Cost accounted for as follows:

Transferred to the next department (130*5680.71422) = 738492.8578

Work in process-ending inventory

Material (20*400) 8000

Labor(20*4164.6428*1/2) 41646.428

FOH(20*1116.07142*1/2) 11160.7142 60807.1422

Total cost accounted for: 799300

Additional computations:

Equivalent production: materials=130+(20*100%)=150

Labor=130+(20*1/2)=140

Factory overheads=130+(20*1/2)=140

Unit costs:

Material: 60000/150=400

Labor: 583050/140=4164.6428

FOH: 156250/140=1116.07142
Engine Assembling:

Engine is the most important part

of the motorcycle. All working of the
motorcycle depends upon this part. There
are 17 steps which take place in
assembling of the engine. The parts of the
engine which are purchased in the form of
raw material are sent to the engine
assembling room.

Piston Connection:

The first step in the assembling of

engine is connecting the piston with push
rod. A cylindrical piston, made of aluminum alloy (preferred because it is lightweight and
conducts heat well), is an essential component of the engine.

Valve Lifter:

In second step, It is fitted with piston rings made of cast iron. Then the valve lifter is
placed below the piston and the push rod and spark lead is installed.

Inlet and Combustion Chamber:

In third step, the inlet part is established in the combustion chamber which is fitted with
the piston. The cooling fan is also placed which helps the piston to remain cool at time when the
motorcycle is driven more by the driver.

Crankcase:

Crankcase is plugged then the oil pump is installed with the engine mountain belt and oil
passage way is placed in the engine on the crankcase which circulates the oil in the whole engine
which helps the engine to be work more smoothly and efficiently. The crankshaft and crankcase
are made of aluminum.

Timing Gear with the Piston:

The one of the important step in the assembling of the engine is the establishment of
timing gear with the piston through engine mountain belt hole. Crankshaft and Camshaft gear is
placed on the crankcase.. The engine also contains a cylinder barrel, typically made of cast iron
or light alloy.

Exhaust Port:

The exhaust port is placed at the mouth of combustion chamber which throws all the heat
out from the engine. Finally the rocker arm is placed and the screws are placed in the rocker arm.
These are the steps which are taken place in the assembling of the engine.

Labor Force:

There are 20 labors which are working in this department and we are giving hour wise
wages to our labors. We are offering Rs.25/- per hour to our each labor.

Direct Labor:

There are 15 people who are working in this department in the production process.

Labor Cost:

One labor cost = Rs25/-per hour

For 15 Labors = Rs375/-per hour

If the labors will work for one month and 8 hours in a day then the cost will be Rs90000/-.

Indirect Labor:

The remaining 5 are working as indirect labors. These 5 people includes

  1 Supervisors.
 2 Sweepers.
 2 The people who are working on the rolling machine for shifting of material

Labor Cost:

One labor cost = Rs25/-per hour

For 5 Labors = Rs125/-per hour

If the labors will work for one month and 8 hours in a day then the cost will be Rs30000/-.

Material:

The above 21 parts which are mentioned above used as the material of this portion.

 Cylinder head Rs525/-

 Rocker Arm Rs325/-
 Exhaust Port Rs150
 Combustion Chamber Rs640/-
 Piston Rs1200/-
 Cooling Fan Rs200/-
 Push Rod Rs670/-
 Valva Lifter Rs325/-
 Engine Mmountain Bolt Hole Rs100/-
 Timing Gear Rs325/-
 Crank Shaft Rs400/-
 Nonwritten valva Rs50/-
 Mounting Lug Rs450/-
 Oil Pump Rs1000/-
 CrankCase Rs550/-
 Oil Pessageway Rs220/-
 Camshaft Gear Rs1500/-
 Spark Plug Lead Rs25/-
 Inlet Port Rs150/-
  Oil Feed Pipe Rs120/-
 Screw and Lok Nut tappet adjuster Rs75/-

Total cost for direct material = Rs 9000/-

If we are going to produce 150 units then the cost will be Rs1350000/-

Indirect Material:

The indirect material and cost for this are

 Nut Bolt Rs100/-
 Screws Rs100/-

Total cost for indirect material= Rs200/-

If we are going to produce 150 units then the cost will be Rs30000/-

Factory Over Head:

 Factory Supplies. Rs9000/-

 Repairs and Maintenance. Rs2500/-
 Electric Power. Rs6000/-
 Fuel. Rs4200/-
 Depreciation Machinery. Rs2000/-
 Insurance. (Fire) Rs7000/-
 Water Rs1000/-

Factory Over Head = Rs31700/-

Cost for this department:

If we are going to produce 150 units and our labors work 8 hours in a day and they are
able to produce 150 units in one month then the cost for this department will be

Direct Material Rs1350000/-

Direct Labor Rs90000/-

Factory Over Head

Indirect Material Rs30000/-

Indirect Labor Rs30000/-

Factory Supplies. Rs9000/-

Repairs and Maintenance. Rs2500/-

Electric Power. Rs6000/-

Fuel. Rs4200/-

Depreciation Machinery. Rs2000/-

Insurance. (Fire) Rs7000/-

Water Rs1000/-

Factory Over Head = Rs91700/-

Total Cost for this department Rs1531700/- (for 150 units)

Cost of Production Report:

Honda

Engine department

Cost of production report

Quantity schedule:

Units received from previous dept. 130

Units completed and transferred out 90

Units still in process(all material-1/2 of labor and FOH)30

Units lost in process 10 130

Cost charged to the department:

Total cost Unit cost

Cost from prceeding department: 738492.8578 5680.714291

Cost added by department:

Material 1350,000 11250

Labor 90000 857.1428571

FOH 91700 873.3333333

Total cost to be accounted for 2270192.858 18661.19048

473.3928576

19134.58334

Cost accounted for as follows:

Transferred to the next department 90*19134.58334=1722112.501

Work in process-ending inventory

Adjusted cost from preceding department: 30*(5680.714291+473.3928576)=184623.2145

Material =30*11250*100%= 337500

Labor=30*857.1428571*1/2= 12857.14286

FOH.=30*873.3333333*1/2= 13100

Total cost accounted for 363457.1429 2270192.857

Additional computations:

Equivalent production units: Materials=90+(30*100%)=120

 Labor=90+(30*1/2)=105

Factory overheads=90+(30*1/2)=105

Unit costs:

Material 1350,000/120=11250

Labor 90000/105=857.1428571

FOH 91700/105=873.3333333

Loss adjustment:
unit lost*unit cost of previous dept/available number of units

10*5680.714291/120=473.3928576

Frame Assembling:

This is the last step in the manufacturing process of motorcycle. In this

process the framing of the motorcycle takes place and all the parts of the motorcycle are
combined by labor energy. The framing consists of 12 steps.

The motorcycle frame is composed almost completely of metal, as are the wheels. The frame may be
overlaid with plastic. The tires are composed of rubber. The seat is made from a synthetic
substance, such as polyurethane. The power system consists of a four-stroke engine, a carburetor
to transform incoming fuel into vapor, a choke to control the air-fuel ratio, transmission, and
drum brakes. The
transmission system
contains a clutch, consisting
of steel ball flyweights and
metal plates, a crankshaft,
gears, pulleys, rubber belts
or metal chains, and a
sprocket. The electrical
system contains a battery,
ignition wires and coils, diodes, spark plugs, head-lamps and taillights, turn signals and a horn.
Wheels, brakes, wiring cables, foot pegs, exhaust pipes, seats, saddlebags, lights, radios, and
hundreds of other parts are installed on the motorcycle frame.

Labor Force:

There are 60 labors which are working in this department and we are giving hour wise
wages to our labors. We are offering Rs.25/- per hour to our each labor.

Direct Labor:

There are 45 people who are working in this department in the production process.

Labor Cost:

One labor cost = Rs25/-per hour

For 45 Labors = Rs1125/-per hour

If the labors will work for one month and 8 hours in a day then the cost will be Rs270000/-.

Indirect Labor:

The remaining 15 are working as indirect labors. These 5 people includes

 6 Supervisors.
 4 Sweepers.
 5 The people who are working on the rolling machine for shifting of material.

Labor Cost:

One labor cost = Rs25/-per hour

For 5 Labors = Rs125/-per hour

If the labors will work for one month and 8 hours in a day then the cost will be Rs30000/-.

Material:
There materials for this department are

 Tires Rs850/-
 Four-stroke engine Rs10000/-
 Carburetor Rs30/-
 Choke Rs150/-
 Air-fuel ratio Rs75/-
 Drum Brakes. Rs650/-
 Clutch. Rs150/-
 Crankshaft. Rs400/-
 Gears. Rs350/-
 Pulleys. Rs250/-
 Sprocket. Rs125/-
 Rubber belts. Rs100
 Metal chains. Rs800/-
 Battery Rs320/-
 Ignition wires. Rs80/-
 Coils. Rs225/-
 Diodes. Rs175/-
 Spark plugs. Rs40/-
 Head-lamps. Rs60/-
 Taillights. Rs320/-
 Turn signals. Rs80/-
 Horn. Rs120/-
 Brakes. Rs125/-
 Wiring cables. Rs425/-
 Foot pegs. Rs200/-
 Exhaust pipes. Rs150/-
 Seats. Rs600/-

Total Cost of the direct material= Rs16850/-

If we are going to produce 150 units then the cost will be Rs2527500/-
Indirect Material:

The indirect material and cost for this are

 Seat and Paper Cover Rs50/-

If we are going to produce 150 units then the cost will be Rs7500/-

Factory Over Head:

 Factory Supplies. Rs12000/-

 Repairs and Maintenance. Rs2500/-
 Electric Power. Rs8000/-
 Fuel. Rs4500/-
 Depreciation Machinery. Rs2000/-
 Insurance. (Fire) Rs9000/-
 Water Rs1000/-

Factory Over Head = Rs39000/-

Cost for this department:

If we are going to produce 150 units and our labors work 8 hours in a day and they are
able to produce 150 units in one month then the cost for this department will be

Direct Material Rs2527500/-

Direct Labor Rs270000/-

Factory Over Head

Indirect Material Rs7500/-

Indirect Labor Rs30000/-

Factory Supplies. Rs12000/-

Repairs and Maintenance. Rs2500/-

Electric Power. Rs8000/-

Fuel. Rs4500/-

Depreciation Machinery. Rs2000/-

Insurance. (Fire) Rs9000/-

Water Rs1000/-

Factory over head Rs76500

Total Cost for this department Rs2874000/- (for 150 units)

Cost of Production Report:

HONDA
Assembling department

Cost of production report

Quantity schedule:

Units received from previous dept. 90

Units completed and transferred out 45

Units still in process (all material,2/3 of conversion cost) 35

Units lost in process (1/2 of material and conversion cost) 10 90

Cost charged to the department:

Total cost Unit cost

Transferred to the next department 1722112.501 19134.58334

Cost added by department:

Material 2527500 29735.29412

Labor 270000 3681.985545

FOH 76500 1043.229238

Total cost to be accounted for: 4596112.501 53595.09224

Cost accounted for as follows:

Transferred to the next department (45*53595.09224) =2411779.151

Loss adjustment = 363632.3779

Work in process-ending inventory:

Adjusted cost from preceding dept. (35*19134.58334) =669710.4169

Material (35*100%*29735.29412) =1040735.294

Labor (35*2/3*3681.985545) =85912.99605

FOH (35*2/3*1043.229238) =24342.01555

Total cost accounting for =1150990.306 4596112.501

Additional computations:

Equivalent production:

Materials=45+ (35*100%) + (10*1/2)=85

Labor=45+ (35*2/3) + (10*1/2)=73.33

Factory over heads=45+ (35*2/3) +(10*1/2)=73.33

Loss adjustment:

Loss from previous dept. (10*19134.58334) =191345.8334

Material (10*1/2*29735.29412) =148676.4706

Labor (10*1/2*3681.985545) =18409.92773

FOH (10*1/2*1043.229238) =5216.14619

Total Loss adjustment =363632.3779

Pre-Delivery Inspection (PDI):

 At the end of the assembly line, the pre-delivery inspection takes place in which
inspectors undertake a visual inspection of the motorcycle's painted finish and fit of parts. The
inspectors also feel the motorcycles with gloved hands to detect any bumps or defects in the
finish. Each motorcycle is tested on a dynamometer. Inspectors accelerate the motorcycle from
0-60 mph. During the acceleration, the "dyno" tests for acceleration and braking, shifting, wheel
alignment, headlight and taillight alignment and function, horn function, and exhaust emissions.
After the dyno test, a final inspection is made of the completed motorcycle.

Store Room:

After inspection the finished goods are sent to the store room and then from there these
are shipped to the customers from where these are demanded.

Cost of Good Sold Statement:

Number of unit = 150

Honda

Cost of Good Sold Statement

Opening balance of raw material = 1525000/-

Purchases =225000/-

Local purchases =450000/-

Transportation in =150000/-

Net purchases =825000/-

Material available for use =2350000/-

Closing balance of raw material =714000/-

Direct Material Consumed =1636000/-

Direct Labor =100042.50/-

Factory Over Head =93957.50/-

Indirect Material (Paint) =10000/-

Indirect Labor =75044.50/-

Light and Power =69938/-

Machinery Deep. =60017.5/-

Total Production Cost =2045000/-

Opening balance of raw material =590000/-

Closing balance of raw material =945000/-

Opening balance of finished goods= 65891000

Closing balance of finished goods = 640000

COGs = 7941000

Per unit Cost:

Total number of unit produced = 150

COGs =7941000/-

Per Unit Cost =7941000/150

=52940/-

References:

http://www.honda.com

www.madehow.com/Volume-4/Motorcycle.html
We also visited metro industry to get information.