A STUDY ON COST REDUCTION AND CONTROL

CHAPTER -1 INTRODUCTION
PROBLEM STATEMENT
The main stressing problem of the organisation is to control the unnecessary cost of
production and avoid abnormal losses of the organisation.
The problem selected to analysis is To study the effectiveness of cost reduction and control
system at the effectiveness of the cost reduction and control system is analyzed
simultaneously. The variation of cost is also analyzed with their effects on the overall
working of the unit.
The cost reduction and control system are also seems to be very difficult for easy
functioning of the company.
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A STUDY ON COST REDUCTION AND CONTROL
INDUSTRY PROFILE
The Indian textile industry has a great legacy, which is perhaps sun matched in the
history of Indias industrial development. Indias textile industry evolved and developed
at a very early stage and its manufacturing technology was amongst the best. !rior to
colonization, Indias manually operated textile machines were among the best in the
world, and served as a model for production of the first textile machines in newly
industrialized "ritain and #ermany. Indian textiles were sought after for their finesse,
$uality and design. %ccording to &houta'(uan, the &hinese observer preference was
given to the Indian weaving for its and delicacy !restige trade textiles such as !atola
from !atan and %hmedabad, coast were sought after by the )alaysian royalty and
wealthy traders of the !hilippines.
Textiles have historically formed an important component of Indias exports. )arco
!olos records show that Indian textiles used to be exported to &hina and *outh'+ast
%sia. Textiles have also comprised a significant portion of the !ortuguese trade with
India. These included embroidered bedspreads, wall hangings and $uits of embroidered
wild silk on a cotton or ,ute ground. % *tudy of !roductivity and -inancial +fficiency of
Textile Industry of India . The attractiveness of the fast dyed, multi'colored Indian prints
on cotton /chintz0 in +urope led to the formation of the 1ondon +ast India &ompany in
2344, followed by 5utch and -rench counterparts. "y the late 2344s there was
overwhelming demand for their governments to ban the import of these cottons from
India.
The legacy of the Indian textile industry stemmed from its wealth in natural resources
silk, cotton and ,ute. The textile industry stemmed from its wealth in natural resources
silk, cotton and ,ute, the technology used was superior and the skills of the weavers gave
the finished product a most beautiful and ethnic look. The Indian textile industry with
such a great pedigree could have gone only on way from here. "ut same did not happen.
Overview of the Go!" Te#tie M"r$et
The end of the $uota regime, which marks the phasing out of the )-% from 6anuary
2, .447, has ushered a new phase of l8global opportunity for the Textile 9 &lothing
*ector. The removal of $uotas could witness the :orld Trade in Textile, which is at
present ;* < =>7 billion to surge to over ;* < 374 billion by .424. The expected future
&%#? is expected to be @A with Textiles %ccounting for 7.@A and &lothing being the
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A STUDY ON COST REDUCTION AND CONTROL
real driver of growth with an expected &%#? of % *tudy of !roductivity and -inancial
+fficiency of Textile Industry of India >.3A. Bence, there lies a distinct opportunities for
countries possessing competitive advantages resulting from labor, technology, and raw
materials, rather than for those arising from favorable trade agreements.
Ch"%&i%& Sh"re' i% (or) Tr")e
:orld trade in textiles and clothing amounted to ;* < =>7 billion in .44=, of which
textiles accounted for C=A and clothing around 7DA. 5eveloped countries accounted for
little over one'third of world exports in textile and clothing in .44. with developing
countries contributing to the remaining two'thirds. The scene was completely opposite in
2>>4 with the share of developed countries amounting to 7.A and that of developing
countries around C@A. In other words, in the period from % *tudy of !roductivity and
-inancial +fficiency of Textile Industry of India 2>>4 to .44., there has been a shift in
worked textiles and clothing trade from developed to developing countries. >.3A. Bence,
there lies a distinct opportunities for countries possessing competitive advantages
resulting from labour, technology, and raw materials, rather than for those arising from
favourable trade agreements.
Sh"re i% (or) Tr")e !* Re&io%
The transition period, starting from 2>>7, has seen an increase in the share of %sias
exports to the world in textiles rather than clothing. The share of %sia in textile exports
rose from C..3A in 2>>7 to CC.=A in .44=, while its share in clothing exports has
remained stagnant at around CCA. :estern +urope has seen a decline in share in both
textile and clothing exports in the transition period. En the other hand Forth %merican
textile exports have risen from 7.DA in 2>>7 to D.@A in .44= and fallen slightly I clothing
exports, from C.@A to =.=A in .44=. % *tudy of !roductivity and -inancial +fficiency of
Textile Industry of India
Trade in textile and clothing was dominated by the developed countries in the )-%
period with the +uropean ;nion /270 accounting for about C>A of total textile exports
and C.A of clothing exports in 2>@4. +;, ;*%, &anada, 6apan and *witzerland
accounted for 3>A of total textile exports in 2>@4. 5eveloped countries dominance in
clothing exports was relatively less with ;*% and +; together accounting for around
C7A of total exports in 2>@4. Bowever, developed countries share in both textiles and
clothing exports declined in the >4s and stood at
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A STUDY ON COST REDUCTION AND CONTROL
2 around CDA and .@A respectively, in .44.. The decline in the share of developed
countries was driven by a sharp decline in the share of +;, in both textile and clothing
exports. 1eading exports amongst the developing countries, as per :T
I%)i"% Te#tie I%)+'tr* , Pre'e%t S-e%"rio
The Indian Textile Industry is a vertically integrated industry which covers a large
gamut of activities ranging from production of its own raw material namely, cotton, ,ute, silk
and wool to providing to the consumers high value added products such as fabrics and
garments. India also produces large varieties of synthetic and manmade fibers such as %
*tudy of !roductivity and -inancial +fficiency of Textile Industry of India filament and spun
yarns from polyester, viscose, nylon and acrylic which are used to manufacture fabric and
garments. The textile sector plays a significant role in Indian economy by contributing to the
#ross 5omestic product, generating employment and earning foreign exchange. %n estimated
=7 million people are directly employed in the Indian Textile Industry, which contributes to
CA of #5! and .2A of total export earnings. India is globally a significant player in the
textile sector and is globally the
G Third largest producer of cotton and cellulose fibreHyarn.
G *econd largest producer of cotton yarn.
G 1argest producer of ,ute, second largest producer of silk.
G -ifth largest producer of synthetic fibreHyarn. &otton is one of the ma,or corps cultivated in
India. India has the largest cotton acreage in the world and cotton is the dominant fibre in
Indian Textile Industry. %bout D7A of the total yarn and about 73A of the total fabric
produced in India was cotton in .44C'47. %lmost all cotton used in India is grown locally and
a tiny amount is imported. &otton textiles account for .H=rd of Indias textile exports
5uring the last five decades, the production of cotton in India increased from =4 lakh bales
of 2D4 kgs each in 2>74'72 to an estimated % *tudy of !roductivity and -inancial +fficiency
of Textile Industry of India .2= lakh bales /2D4 kg each0 in .44C'47. There has also been a
rise in area under cultivation from 7@.> lakh hectres in 2>74'72 to an estimated @>.D lakh
hectres in .44C'.44C.
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Pro-e'' of Go!"i."tio%
The characteristics of garment production like low sunk costs and relative absence of
advanced technology and skills, have always induced apparel firms in the advanced capitalist
countries to shift labour intensive operations to peripheral economies. *tudies supportive of
the IFew International 5ivision of 1abour hypothesis, in fact, view the process of
globalization as a movement from high wage cost region to low wage cost ones. This process
has its origins in the 2>74s when manufacturers began to shift production to 6apan to take
advantage of the lower wages prevailing there. This sourcing of garments from 6apan with
still lower wage levels followed the earlier movement of ;* garment production from the
northern part of the country to the less unionized and lower waged southern regions.
*ubse$uent to the economic boom in 6apan during this period accompanied by rise in wage
rates, manufacturers began to shift production to Bong (ong. -rom Bong (ong, capital
migrated to *outh (orea and Taiwan to tap the benefit from the lower wages prevalent in
those economies.
% *tudy of !roductivity and -inancial +fficiency of Textile Industry of India The
period thus witnessed a trend towards movement of 6apanese apparel capital to offshore
locations like neighboring *outh (orea. The 2>@4s witnessed the incorporation of other
%sian countries with relatively low wage levels like &hina, Thailand, Indonesia, *ri 1anka,
!akistan, India and "angladesh into the world garment trade. "etween 2>D7 and 2>>4, the
share of Ithird world in the total output of global textiles has increased from 2@.3 percent to
.3.2 percent, and that of clothing from 22.D percent to .4.C percent. En the other hand,
garment sector has become a growth pole for economies at lower levels of development like
"angladesh, &hina, *ri 1anka, Indonesia, India and Thailand.
%s the leading sector of globalization, the garment industry continues to increase its
share in world trade fro manufactured commodities. :orld garment trade has in fact grown
faster than trade in manufactured good as a whole. %ccompanying this global expansion,
there have also been changes in the organization of production with important implications
for garment production in peripheral economies.
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1/0 COMPANY PROFILE
The National Textile Corporation Limited (NTC) is a Central Public Sector nterprise
under the !inistr" o# Textiles $hich $as incorporated in %pril 1&'( #or mana)in) the a##airs
o# sic* textile underta*in)s+ in the pri,ate sector+ ta*en o,er b" the -o,ernment. Startin)
$ith 1' mills in 1&'(+ this number )raduall" rose to 1/3 b" 1&02103. 2n the "ear 1&04 all
these units $ere nationali3ed under the Sic* Textile 4nderta*in) (Nationali3ation) %ct 1&04.
The number o# units increased to 11& b" 1&&5 as NTC too* o,er more mills under its control
throu)h S$adeshi Cotton !ills Compan" Ltd. (%c5uisition and Trans#er o# 4nderta*in)s) %ct+
1&(' and Textile 4nderta*in)s (Nationali3ation) %ct+ 1&&5.
These 11& mills $ere controlled b" NTC(6oldin) Compan")Ltd $ith the help o# &
subsidiar" Corporations+ $ith an authori3ed capital o# 7s 1/ crores $hich $as raised #rom
time to time and $hich is no$ 7s 5/// crores and the paid up share capital o# the
corporation is 7s 3/'2.1' crores as on 31./3.2//(. 8297 sanctioned rehabilitation schemes
#or NTC in 2//2:2//5+ $hich $ere modi#ied in 2//' (!7S1/') and 2//( (!S1/(). %ll the &
subsidiaries o# the compan" ha,e been mer)ed $ith the 6oldin) Compan" on /1./4.2//'+
ma*in) it a sin)le entit"+ economisin) the scale o# operation. Till no$+ 0' un,iable mills ha,e
been closed. 4/ mills ha,e been identi#ied as ,iable. ;# these+ 22 mills are bein) modernised
b" NTC. Till no$+ 10 mills ha,e been modernised as per the details belo$+ and the
remainin) #i,e mills are at di##erent sta)es o# moderni3ation. ;ut o# these+ 10 mills+ ( mills
ha,e )ot 2S; certi#ication. 1' mills ha,e been o##ered #or <oint ,enture.

N"tio%" Te#tie Cor1or"tio% H"''"%
The National Textile Corporation Limited (NTC) is a Central Public Sector nterprise
under the !inistr" o# Textiles $hich $as incorporated in %pril 1&'( #or mana)in) the a##airs
o# sic* textile underta*in)s in the pri,ate sector+ ta*en o,er b" the -o,ernment.

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Startin) $ith 1' mills in 1&'(+ this number )raduall" rose to 1/3 b" 1&02103. 2n the
"ear 1&04 all these units $ere nationali3ed under the Sic* Textile 4nderta*in)s
(Nationali3ation) %ct 1&04. The number o# units increased to 11& b" 1&&5. These 11& mills
$ere controlled b" NTC Ltd $ith the help o# & subsidiar" Corporations+ $ith an authori3ed
capital o# 1/ crore (4S=1.(1 million) $hich $as raised #rom time to time and $hich is no$
about 0+/// crore (4S=1.20 billion) and the paid up share capital o# the corporation is about
4+/// crore (4S= 020 million).
Loo*in) to the reduced number o# mills and in line $ith the contemporar" industr">s
trend all & subsidiar" companies ha,e been mer)ed $ith NTC 6ead o##ice+ located at Ne$
?elhi+ ma*in) it into a sin)le Compan" $ith e##ect #rom /1./4.2//'.
NTC has so #ar closed 0( mills and has trans#erred 2 mills in the State o# Pondicherr" to the
State -o,ernment.
NTC is to moderni3e all its mills b" itsel# throu)h )eneration o# #unds #rom the sale o#
its surplus assets and 5 mills are put in @oint ,enture $ith corporates. NTC has put up 3
Composite Textile -reen#ield 4nits in %hmedabad (-u<arat)+ %chalpur (!aharashtra) and
one is an SA area o# 6assan (Barnata*a).











N"t+re of !+'i%e'' -"rrie)
The first step the company purchases the raw material i.e. cotton from the farmers
then it mixes it with different $uality of cotton according to the $uality of yarn they needed.
The next step is cleaning the minor part and spraying the water to it. Then it kept one day in
cool place. Fext step it goes to the ma,or cleaning part it goes to all the cleaning of the
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A STUDY ON COST REDUCTION AND CONTROL
cotton. The next process is carding here the cotton will become smoothly and white. Fext
goes to the simple method in this method cotton becomes big layers and it makes the group.
The next process is procedure is rolling and grilling here the big layers are rolled and it is
separated from the group and comes in the form of loose thread and next process is drafting
and twisting and the thread becomes strong and it comes layer by layer in the form of thin
yarn. The next is nothing here if thread goes into two parts the machine will ,oin it and it is
called noting process. -inally after all these process the raw material is converted into the
finished goods which are in the form of yarn
2ISION AND MISSION3
2ISION
To be a :orld &lass +co'-riendly Integrated Textile &ompany, catering primarily to
the clothing needs of the Fation.
MISSION
The Erganization shall dedicate its effects to involve all its employees towards achievingJ
Bighest standards in $uality
Bighest productivity at lowest costs
?eduction of losses 9
Kero accidents
COMPANY GOAL
1eadership in $uality.
&onsistent growth
?easonable profit
*atisfied customer.
Bappy community
2ALUES
%t Few )inerva mills, we cherish the following valuesJ
&oncern for +nvironment
?espect for dignity and potential of all the employees
%im for excellence in every area
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Transparency in every operation
&ontinued emphasis on Training and 5evelopment
Bard work coupled with best rewards
"etter work culture through better people orientation
Bigh emphasis on Technology and &ommunication.
4EY GOALS
1/ Profit"!iit*
To achieve the minimum /return on investment as measured in terms of profit before
tax on capital employed0
5/ Growth
To achieve a group turnover in excess of 244 crores per annum by year .422 L .42.
0/ C+'to6er7' o*"t*
To ensure that customers become and remain our loyal friends and our most effective spokes
men and advertisement.
4EY BUSINESS FACTORS
Bighly competitive, wide spread market.
&ontinuous changes in customers needs, which is fashion led.
1abor oriented hence high 1abor -orce
Too many controls by #overnment and trade.
Bigh variable raw materials with fluctuations in price.
%ppropriate technology to meet global competition.
SUCCESSI2E FACTORS OF THE COMPANY
!roduct MualityJ %s re$uired by the customer delivery on time
!roductivity J Improvement and real growth
&ost of manufactureJ ?eduction in cost high realization.
-inanceJ +conomically managed funds and shorter cycle time
%ppropriate TechnologyJ To have an edge in market.
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&ustomer relation and satisfaction.
*upplier performanceJ &onsistency in supply and delivery.
+ffective support service.
*killed and satisfied employees with empowerment.
&ommunity support
Bo"r) of Dire-tor'
Or&"%i."tio%" Ch"rt of NTC
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A STUDY ON COST REDUCTION AND CONTROL
A(ARDS
*.
F
E
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I*E
&+?TI-I&%TI
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on
T;P
?heinland
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A STUDY ON COST REDUCTION AND CONTROL
2C.42..4
4@
=
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" unit
I*E >442J.44@
24.4=..4
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4>.4=..4
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Intertek
*ystems
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C
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I*E >442J.44@
43.4C..4
4>
47.4C..4
2.
"*I
)anagement
*ystems, Few
5elhi
7
%lgappa Textile
)ills, Trichur,
(erala
I*E >442J.44@
.C.47..4
4>
.=.47..4
2.
"*I
)anagement
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5elhi
3
!odar )ills,
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24.43..4
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24.43..4
2.
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Italy
D
Tata )ills,
)umbai
I*E >442J.44@
.=.43..4
4>
...43..4
2.
("*
&ertification
*ervices
!vt.1td.,
-aridabad
@
&ambodia )ills,
Endipudur,
&oimbatore
I*E >442J.444
I*E >442J.44@
.=.4C..4
4@
.4.C..42
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...4C..4
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> "urhanpur Tapti
)ills, "urhanpur,
I*E >442J.44@ .3.22..4
4>
.3.22..4
2.
?IF% *p%,
Italy
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A STUDY ON COST REDUCTION AND CONTROL
).!
24
?angavilas #ng.
*pg.9 :vg.)ills,
!eelamedu,&oimb
atore
I*E >442J.44@
2C.4...4
22
2=.4...4
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!vt. 1td.,
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22
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I*E >442J.44@
22.4=..4
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22.=..42
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2.
India ;nited )ills
Fo.7, )umbai
I*E >442J.44@
22.4=..4
22
22.=..42
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Italy
2=
Few "hopal
Textile )ills,
&handbadh,
"hopal
I*E >442J.44@
.C.43..4
22
.=.43..4
2C
!&
)anagement
*ystems, Few
5elhi
2C
(erala 1akshmi
)ills, Thrissur,
(erala
I*E >442J.44@
.C.43..4
22
.=.43..4
2C
T;P India
&ertification
"ody
27
-inlay )ills,
%chalpur
I*E >442J.44@
2@.22..4
22
2D.22..4
2C
!.&.)anagem
ent *ystem
!vt.1td.
23
Pi,aya )ohini
)ills,
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m, (erala
I*E .442J.44@
2@.22..4
22
2@.22..4
2C
?IF%
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*.p.%,
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Ice
s
%rati &otton )ills,
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I*E >442J.44@
22....42
.
24....42
7
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*ystem, ;(
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A STUDY ON COST REDUCTION AND CONTROL
Products
The ma<or products produced b" national textile corporation are as #ollo$s
1. Coolen to$els
2. Darns
3. 8ed spreads
4. 8ed sheets
5. Cotton cloths
'. Pillo$ co,er
1/8 OB9ECTI2E OF THE STUDY
To analyze the existing costing system in F%TIEF%1 T+NTI1+ &E?!E?%TIEF
1td.
To analysis of cost sheet and to preparation of cost sheet.
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A STUDY ON COST REDUCTION AND CONTROL
To analyze the cost volume profit of national textile corporation
To suggest the managers to the effective cost control techni$ues
%nalyse balance sheet and profitability ratio to find out the efficiency of the
organisation.
SCOPE OF THE STUDY
The study was mainly concentrated cost reduction and cost control system adopted by
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A STUDY ON COST REDUCTION AND CONTROL
the company. The companies cost control will influence more on the level of cost
management of the company.
The study of cost has important role understand the efficient system of the company.
The studies is also standard costing analysis which is adopted by the company for cost
control which will give a clear picture about the effectiveness and in selection of
appropriate cost control system.
The study also includes "reak even analysis and preparation of cost sheet of the
company.
This study covers the areas of cost control aspects of the company.
This study also covered budgeting aspects of the organisation
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A STUDY ON COST REDUCTION AND CONTROL
1/: METHODOLOGY
The methodology is used in studying the problem here it is used to study the &ost
%ccounting and &ontrol at F%TIEF%1 T+NTI1+ &E?!E?%TIEF in this report indicated
the types of cost control and cost reduction system were used.
LOCATION OF THE STUDY
The study was conducted at F%TIEF%1 T+NTI1+ &E?!E?%TIEF
DURATION OF THE STUDY
5uration of the study is of 43 weeks.
DATA COLLECTION METHOD
In order to fulfill the ob,ectives of the study the data has been collected from
Q *econdary 5ata
Se-o%)"r* D"t"
The secondary data was collected from the magazines, ,ournals, Internet and other
publication to understand the relevant concept of cost accounting.
-or gathering secondary data various other source were used, they are'
Q 5ifferent accounting records of the company.
Q Internets and other publication.
Q The statement of cost sheet of the company.
1/; LIMITATION OF THE STUDY
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%s this study is undertaken to fulfill the academic re$uirement. It is bound to have certain
limitations. )ost prominent among them are as followsJ
% detailed study could not be carried out because of lack of information.
Fon'co'operation from some head of the departments has restricted the study to some
extent.
It is a general study of the cost sheet of few years.
The study is primarily based on secondary data.
&ost accounting is the classifying, recording and appropriate allocation of expenditure for the
determination of the costs of products of services, and for the presentation of suitably
arranged data for the purposes of control and guidance of management. It includes the
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ascertainment of the cost of every order, ,ob, contrast, process, service or unit as maybe
appropriate.
)+%FIF#J
%ccording to :eldon, cost accounting is the application of accounting and costing
principles, methods and techni$ues in the ascertainment of costs and the analysis of saving or
excess cost incurred as compared with previous experience or with standards. Thus, cost
accounting relates to the collection, classification, and ascertainment of cost and its
accounting and control relating to the various elements of cost.
It establishes budgets and standard costs and actual cost of operation, processes, departments
or products and the analysis of variances, profitability and social use of funds.
CHAPTER -5 RE2IE( OF LITERATURE
S/No/ Tite Fi%)i%&' So+r-e <A+thor'
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2. &ost &ontrol %
*trategic #uide
Industries is always complex and is has
become further complicated due to
international competition fast changing
technology and information 9
communication. The author has dealt
with sub,ect in simple style. The four
ma,or headings Kero based budgeting,
)angement by ob,ectives, %ctivity
"ased costing, and Everhead value
analysis The management not to get
obsessed with cutting cost and get
distracted with the main focus of
customer retention.
*. %runa,atesam
The Bindu Tuesday
Fov .4 .442.
.. (eeping pro,ects
under &ost
&ontrol
+xamining the various approaches to
estimating and costing. %nalysing data
and budget information. -orecasting
pro,ect schedule cost for completion.
6ohn )cmanus
6une .443
=. %ctivity "ased
&osting /% Tool
of cost control0
+nterprises were able to improve their
efficiency and reduce the cost without
sacrificing the value for the customer.
The main reason for such low adoption
rate of %"& is because of difficulties
and complexities associated with the
system.
%shok (umar
!anigrahi
C. &hanging
!aradigms of
&ost )anagement
Fumerous innovative cost control
practise have been evolved during the
last two decades primarily to e$uip and
assist mangers to better serve the needs
of the customers and mage the firms
business processes that are used to
create customer value.
)ano,!illai The
accounting :orld
)arch .44>
7. 1ife &ycle &osting the looks at a products entire ?. *ridhar and 5.
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&osting /%sset
)anagement0
value chain from a cost perspective. It
tracks 9 evaluates costing from the
research and development phase of a
products life, though to the decline and
eventual conclusion of a products life.
*rinivas
The accounting
:orld )arch .44>
3. )arginal &osting
L !ossible
Bazards and
!itfalls
%ll business decisions should be based
on strategic relevance with proper
analysis of data in relation to all
external factors.
T. *. (. )enon
The accounting
:orld %pril .442
3. )arginal &osting
L a dynamic
approach
The non incorporation of the period
concept in marginal costing may lead
to many inaccuracies. The author
proposes to convert fixed cost also as
functions of output and form a break
even function by dividing fixed cost
functions by contribution function.
1. (ailasam,
The accounting
:orld %ug .44.
D. % &ost L "enefit
%pproach, &ost'
benefit analysis
&ost Lbenefit analysis is a conceptual,
systematic framework for evaluating
alternative means of satisfying a
specified set of ob,ectives. The
highlights of this analysis are to
postulation of alternative means, the
determination of costs and benefits
1eonard +ugene
"erry,
#eorgia,.44=
@. *ales growth
versus cast
control
This research instigates the moderating
effect of sales growth and casts
contract on the value relevance of
coming and book value. The results
elemonstrate that the market responds
differently to the revenue and casts
component of carryings.
The general ob,ective of this research
its to assets the summary measures
presented in the financial statement.
5r. ?aymcnamara
*eptember .443
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A STUDY ON COST REDUCTION AND CONTROL
10
Product Cost
stimationE
Techni5ue
Classi#icatio
n and
!ethodolo)"
7e,ie$
This paper pro,ides a detailed
re,ie$ o# the state o# the art in
product cost estimation co,erin)
,arious techni5ues and
methodolo)ies de,eloped o,er the
"ears. The o,erall $or* is
cate)ori3ed into 5ualitati,e and
5uantitati,e techni5ues. The
5ualitati,e techni5ues are #urther
%dnan Nia3i+ @ian S.
?ai+ Sta,roula
8alabani and La*mal
Sene,iratne !arch 21+
2//5F 7e,ised
September 1/+ 2//5
[Type text] Page 22
>. The four pillars
often effective
cost system
?evenue costs products are a basic and
well know e$uation in business.
-urther casts play an important rate in
product pricing that responsibility has
to be fixed at over all level and near
rowed to lower level more should be a
chain of responsibility.
%tuel (umar
?a,put -ebruary
.442
24. &ost reduction in
warehousing
The embraces all elements form the
time of manufacture of product to its
receipt by ultimate consumer. %t times
management would prefer to incur
extra cost in one activity so that a
benefit is derived in another activity.
!. 6eer
The management
accountant *ep
.442
22. &osting in Indian
Industries
Indian companies can smoothly switch
from a traditional costing system to an
%"& system at low risk and with
minimal investment. Is also provides
the conceptual framework of %"&.
). *uresh "abu
#.
!urushothamachari
A STUDY ON COST REDUCTION AND CONTROL
subdi,ided into intuiti,e and
analo)ical techni5ues+ and the
5uantitati,e ones into parametric
and anal"tical techni5ues. ach o#
the techni5ues is then described
and discussed+ in detail+ $ith
#urther subdi,isions. The paper also
si)ni#ies the importance o# cost
estimation in the earl" phases o#
the desi)n c"cle and+ as such+
brie#l" discusses the current trends
and #uture directions in the area.
7esearch $or* carried out in the
#ield $ith re#erence to speci#ic
applications is also re,ie$ed. The
paper pro,ides a comprehensi,e
literature re,ie$ in the #ield and
should be use#ul to researchers
and practitioners interested in this
#ield.
18 Co't re)+-tio% "
iter"t+re review
The practice o# mana)in) and:or
reducin) business expenses. Cost
controls starts b" the businesses
identi#"in) $hat their costs are and
e,aluate $hether those costs are
reasonable and a##ordable. Then+ i#
necessar"+ the" can loo* #or $a"s
to cut costs throu)h methods such
as cuttin) bac*+ mo,in) to a less
expensi,e plan or chan)in) ser,ice
pro,iders. The cost1control process
see*s to mana)e expenses ran)in)
#rom phone+ internet and utilit" bills
to emplo"ee pa"roll and outside
pro#essional ser,ices.
in,estopedia
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A STUDY ON COST REDUCTION AND CONTROL
1: &ost ?eduction
Epportunities
Product de,elopment
determines (/G o# product
cost. The concept:architecture
phase alone determines '/G o#
costH See ho$ ?esi)n
?etermines Cost
Ne$ article on ?esi)nin) Lo$1
Cost Products sho$s the top 5
desi)n strate)ies to lo$er costE
brea*throu)h concepts+
desi)nin) out 5ualit" costs+
eliminatin) chan)e orders+
,endor1partnerships+ and
desi)nin) to minimi3e part cost
and material o,erhead.
1; %ctivities
*upportive to
1ow &ost
!roduct
5evelopment
Co1locatin) n)ineerin) $ith
!anu#acturin) ensures the best
team$or*F a,oid
distant o##shorin)
2# outsourcin)+ choose local
,endors $hich ensures earl"
and acti,e ,endor participation
in product de,elopment teams
Pre1select Iendor:Partners $ho
$ill help de,elop
productsF a,oid lo$1biddin) so
that ,endors $ill help $ith
desi)n
2mplement standardi3ation and
)ood product port#olio plannin)
?r. ?a,id !. %nderson+
P..+ #%S!+ C!C
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A STUDY ON COST REDUCTION AND CONTROL
#or the best #ocus
Total cost measurements (J()
to 5uanti#" all costs a##ected b"
desi)n
Correctin) Counterproducti,e
Policies. Ne$ ,entures and
startups $ill be able to
implement these principles ri)ht
a$a". stablished companies
ma" ha,e to #irst
correct counterproducti,e
policies+ b" prioriti3in) port#olio
plannin)+ scrutini3in) hi)h1
o,erhead sales+ emphasi3in)
thorou)h up1#ront $or*+
5uanti#"in) all costs+ and
a,oidin) time1drainin) attempts
to reduce cost a#ter desi)n+
)oin) #or the lo$1bidder+
or mo,in) production o##shore.
See #ull article on
counterproducti,e policies.
1=
Cost Control+
!onitorin)
and
%ccountin)
5uring the execution of a pro,ect,
procedures for pro,ect control and
record keeping become
indispensable tools to managers and
other participants in the
construction process. These tools
serve the dual purpose of recording
the financial transactions that occur
as well as giving managers an
indication of the progress and
Cited in Aoll+ Peter 9.+
K?atabase Structures #or
Pro<ect
!ana)ement+K Proceedin
)s o# the Se,enth
Con#erence on lectronic
Computation+ %SC+
1&0&
[Type text] Page 25
A STUDY ON COST REDUCTION AND CONTROL
problems associated with a pro,ect.
The problems of pro,ect control are
aptly summed up in an old
definition of a pro,ect as Rany
collection of vaguely related
activities that are ninety percent
complete, over budget and
late.R S2T The task of pro,ect control
systems is to give a fair indication
of the existence and the extent of
such problems.
In this chapter, we consider the
problems associated with resource
utilization, accounting, monitoring
and control during a pro,ect. In this
discussion, we emphasize the
pro,ect management uses of
accounting information.
Interpretation of pro,ect accounts is
generally not straightforward until a
pro,ect is completed, and then it is
too late to influence pro,ect
management. +ven after completion
of a pro,ect, the accounting results
may be confusing. Bence, managers
need to know how to interpret
accounting information for the
purpose of pro,ect management. In
the process of considering
management problems, however,
we shall discuss some of the
common accounting systems and
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A STUDY ON COST REDUCTION AND CONTROL
conventions, although our purpose
is not to provide a comprehensive
survey of accounting procedures.
The limited ob,ective of pro,ect
control deserves emphasis. !ro,ect
control procedures are primarily
intended to identify deviations from
the pro,ect plan rather than to
suggest possible areas for cost
savings. This characteristic reflects
the advanced stage at which pro,ect
control becomes important. The
time at which ma,or cost savings
can be achieved is during planning
and design for the pro,ect. 5uring
the actual construction, changes are
likely to delay the pro,ect and lead
to inordinate cost increases. %s a
result, the focus of pro,ect control is
on fulfilling the original design
plans or indicating deviations from
these plans, rather than on
searching for significant
improvements and cost savings. It
is only when a rescue operation is
re$uired that ma,or changes will
normally occurring in the
construction plan.
-inally, the issues associated with
integration of information will
[Type text] Page 20
A STUDY ON COST REDUCTION AND CONTROL
re$uire some discussion. !ro,ect
management activities and
functional concerns are intimately
linked, yet the techni$ues used in
many instances do not facilitate
comprehensive or integrated
consideration of pro,ect activities.
-or example, schedule information
and cost accounts are usually kept
separately. %s a result, pro,ect
managers themselves must
synthesize a comprehensive view
from the different reports on the
pro,ect plus their own field
observations. In particular,
managers are often forced to infer
the cost impacts of schedule
changes, rather than being provided
with aids for this process.
&ommunication or integration of
various types of information can
serve a number of useful purposes,
although it does re$uire special
attention in the establishment of
pro,ect control procedures.
Co%-+'io%'
The literature supports the assumption that inter'governmental cooperation can
provide &ost and $uality efficiencies .in addition to discussing the benefits of shared
services and Ether forms of cooperation, the literature provides insights into how to
[Type text] Page 2(
A STUDY ON COST REDUCTION AND CONTROL
increase the %mount of service delivery consolidationJ
Muality improvements
)ost shared services success stories assess cost savings use some of these
cases state that improvements in service delivery and $uality should be the primary
motivator in forming shared services. *haring seldom reduces $uality of the service,
and often sharing improves $uality. Muality issues are the sole motivation for some
arrangements.
!roviding high cost service improvements
There are functional service areas, such as information technology, in which local
government has made only limited investments. Traditionally, this is because the
government perceives the cost to be unpalatable to the citizenry. *ervice sharing offers
the potential for $uality improvement in areas such as this, without incurring the
skepticism of the public about expensive investments.
&ase'by'case resolution of obstacles
%lthough there are hurdles to implementation of shared services, they are situation'
specific, and should be assessed and resolved in forming an agreement. There are a great
many successful shared service arrangements. +ven the concern with loss of local control
or local delivery of the service is an infre$uently mentioned obstacle in the literature.
!ublic safety services
?eports from around the country indicate a reduction inpublic safety costs is possible.
The transfer of police, fire, and dispatch services to other units of government are
common potential efficiencies cited in the literature. !olice and fire are difficult services
to consolidate, because of the publics concerns
:ith safety /in terms of response times0 and organized labors concerns with
+mployment security.
*tate encouragement
+vidence shows that governments want to do more service sharing than they actually
accomplish. *tates are trying to encourage collaboration through grant and education
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A STUDY ON COST REDUCTION AND CONTROL
programs. *ome have tried to launch more of an outreach .4program, and others have
tried to created abases of needs to meet through *haring.
Feed for focus
*uccessful shared services re$uire planning. !robably the greatest obstacle to doing what
everybody seems to want L shared services that result in economies L is not spending the time
and detailed effort to focus on it. The fact that most sharing arrangements come from
informal networks and
&ontacts is testimony to the factgovernments do not spend enough time thinking about how
to be efficient. Theyneed to be encouraged to invest time and resources to do so.
Incentives to productive organizations
#rants, such as Few 6ersey made available to develop county offices dedicated to promoting
shared services, create incentives and the focus to evaluate more cost'effective strategies.
These state grants to counties are a good step in the direction suggested
"y the *omerset county business !artnerships proposal to fund effective sharing
organizations in order to continue their successful work.
!ositive effects of fiscal stress
-iscal and budgetary pressures also encourage cooperation between units of government.
&onversely, aid or grants, which maintain a service, are disincentives to finding alternative
service delivery arrangements. -inding the right level of government to deliver a servile, s.
/.44@0. *uburbs split on shared servicesU city as hired help gets mixed reviews. !ittsburgh
post'gazette !ittsburgh.
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A STUDY ON COST REDUCTION AND CONTROL
DATA ANALYSIS OF NATIONAL TE>TILE CORPORATIO COSTING
SYSTEM
F%TIEF%1 T+NTI1+ &E?!E?%TIEF is a manufacturing concern. It consists of
different process. F%TIEF%1 T+NTI1+ &E?!E?%TIEF 1td is one of the ma,or cloths
manufacturing with the products &otton Oarn. !P H !& Oarn ,#reige fabric ,:ider width
fabric Fon'wovens company in India. These include products with a high degree of
specialization which demand a high level of accuracy.
!rocess costing of F%TIEF%1 T+NTI1+ &E?!E?%TIEF has prepared four types of cost
statements they areJ
*tandard &ost *tatement
)onthly &ost *tatement
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A STUDY ON COST REDUCTION AND CONTROL
%d,usted &ost *tatement
%nnual &ost *tatement
DATA ANALYSIS
T"!e 1 M"?or Ee6e%t of Co't of Pro)+-tio%
S
No
Co't' Per-e%t"&e
5@1@-11
2 5irect )aterial D4.34
. 5irect +xpenses .2.4>
= -actory &ost D.D4
C %dministrative
&ost
4.34
Tot" 1@@
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A STUDY ON COST REDUCTION AND CONTROL


A%"*'i'
&ost of production in .424'22 include more of material cost D4.34Adirect expenses
ac$uired .2.4>A,factory cost are D.D4A, and administrative overheads is the least amount
that was only 4.34A.
T"!e 5 M"?or Ee6e%t of Co't of Pro)+-tio% for the *e"r 5@11-15
Sl No Costs Percenta)e
2/11112
1 ?irect !aterial 03.54
2 ?irect xpenses 2/./2
3 9actor" Cost 5.&
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A STUDY ON COST REDUCTION AND CONTROL
4 %dministrati,e Cost /.55
Total 1//

A%"*'i'
&ost of production in .422'2. include more of material cost D=.7CA direct expenses
.4.4.A factory cost 7.>4A and administrative overheads cost was o.77A
T"!e 0 M"?or Ee6e%t of Co't of Pro)+-tio% for the *e"r 5@15-10
[Type text] Page 34
A STUDY ON COST REDUCTION AND CONTROL
[Type text] Page 35
Sl No Costs Percenta)e
2/12113
1 ?irect !aterial 04.05
2 ?irect xpenses 1&.1&
3 9actor" Cost 5.5'
4 %dministrati,e Cost /.51
Total 1//
A STUDY ON COST REDUCTION AND CONTROL
A%"*'i'
&ost of production in .42.'2= includes more of material cost DC.D7Adirect expenses
ac$uired 2>.2> A, factory cost are 7.73A, and administrative overheads is the least amount
that was only 4.72A.
T"!e 8 M"?or Ee6e%t of Co't of Pro)+-tio% for the *e"r 5@10-18
[Type text] Page 3'
Sl No Costs Percenta)e
13114
1 ?irect !aterial 0'.&'
2 ?irect xpenses 1(.'4
3 9actor" Cost 4
4 %dministrati,e Cost /.4
Total 1//
A STUDY ON COST REDUCTION AND CONTROL
Analysis and interpenetration: &ost of production in .42='2C' include more of material cost
D3.>3A direct expenses ac$uired 2@.3CA, factory cost are CA, and administrative overheads
is the least amount that was only 4.C4A
T"!e : Co61"r"tive M"?or Ee6e%t of Co't of Pro)+-tio%
[Type text] Page 30
A STUDY ON COST REDUCTION AND CONTROL
S
No
Co't' Per-e%t"&e
5@1@-11
Per-e%t"&e
5@11-15
Per-e%t"&e
5@15-10
Per-e%t"&e
10-18
2 5irect )aterial D4.34 D=.7C DC.D7 D3.>3
. 5irect +xpenses .2.4> .4.4. 2>.2> 2@.3C
= -actory &ost D.D4 7.>4 7.73 C.44
C %dministrative
&ost
4.34 4.77 4.72 4.C4
Tot" 1@@ 1@@ 1@@ 1@@
A%"*'i'
&ost of production in .424'22 include more of material cost D4.34Adirect expenses
ac$uired .2.4>A,factory cost are D.D4A, and administrative overheads is the least amount
that was only 4.34A table 7. &ost of production in .422'2. include more of material cost
D=.7CA direct expenses .4.4.A factory cost 7.>4A and administrative overheads cost was
o.77A ma,or element cost of production. &ost of production in .42='2C' include more of
material cost D3.>3A direct expenses ac$uired 2@.3CA, factory cost are CA, and
administrative overheads is the least amount that was only 4.C4A.
I%ter1ret"tio%/
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A STUDY ON COST REDUCTION AND CONTROL
-rom the above observation I can say that the production cost of the organisation is
increasing year by year due to changes in the price of the raw materials, inflation, and
economic factors. This leads to increase the overall cost of production.
TABLE 5 COST OF PRODUCTION OF NATIONAL TE>TILE CORPORATION
*e"r Co't of Pro)+-tio% R'
.422'2. 34D422=3>
.42.'2= D..C..D7.
.42='2C 2227CC7D23

COST ACCOUTING OF NATIONAL TE>TILE CORPORATION
NATIONAL TE>TILE CORPORATION is leading manufacturer cloths follows process
costing, ,ob costing and labor costing. % report on the working of costing department of
national textile corporation and the main functions of costing department are as followsJ
[Type text] Page 3&
A STUDY ON COST REDUCTION AND CONTROL
2. &omputation of works cost and allocation to finished goods products along with
details of cost
.. *tock valuation.
=. ?aw materials cost is analyzed by making comparison between actual vs. standard.
C. )aintenance of statutory cost records under sec .4>/20 of the companies act to
facilitate conduct of cost audit.
7. *ending of monthly annual return to statutory body like annual survey of industries
and other statistical organization.
3. !reparation of budget and budgetary control preparation of management information
report in turn to help in controlling the functions of factory. &omparisons of certain
reports are done, the report likeJ
"udget vHs actual L work cost statement, work cost actual vHs month work cost
statement on monthly basis.
D. -urther product contribution statement which helps in taking decision on production
and selling of finished goods on priority.
COSTING SYSTEM ADOPTED BY NATIONAL TE>TILE CORPORATION/
There is several methods cost accounting system. "ased on the size and nature of our
industry, we have the following costing system. *tandard costing is a techni$ue which is
used as tool for taking vital managerial decisions besides maintaining the cost accounts to
meet the statutory re$uirement of cost audit, statutory audit etcV
*tandard cost if a product may be classified intoU two ma,or groupsJ
2. *tandard material cost.
.. *tandard overhead.
1/ St"%)"r) M"teri" Co't
%t the beginning of the financial year, standard prices for raw materials are fixed in
consultation with material department, taking into account the prevailing actual prices, the
expected trend in the price front and applicable levels to arrive at the landed cost of each raw
[Type text] Page 4/
A STUDY ON COST REDUCTION AND CONTROL
material. The modal credit available on the inputs is deducted from the landed cost and
standard material price not of modal are arrival at. "y applying this rate standard raw material
cost of various. etc., is calculated.
"ased on the technical specification issued by technical department, the standard
material rates are applied on standard weight of each material component to arrive at standard
raw material cost. % model of the raw material cost sheet is enclosed vide. Ence the standard
rates are fixed. ;sually they remain constant unless the actual landed cost varied beyond
percentage. Thus the variations in the raw material price on day'to'day basis are reflected
only in price variance account for consideration while preparing the periodical !rofit and
1oss account.
5/ St"%)"r) Overhe")
%t the time of preparation of budget cost centre'wise. +lement'wise overheads are
collected. *tandard overheads are collected from budget approved by the board.
a. %ll production cost centers wages are treated as direct wages.
b. +ach element of overhead is classified based on nature of expenses into variable and
fixed and also by functions intoJ
I. )anufacturing.
II. )arketing.
III. %dministration and are absorbed to product as detailed below.
St"%)"r) Co'ti%&
F%TIEF%1 T+NTI1+ &E?!E?%TIEF follows the techni$ue of standard costing
for controlling cost. In standard costing first the standards are set and then compare the
standard costs with the actual costs to find the differences between the two. The difference
between standard cost and actual cost is known as variance. *tandard cost is useful for
analyzing causes for variations with a view to maintain maximum efficiency of production.
St"%)"r) Co'ti%& Pro-e)+re i% NATIONAL TE>TILE CORPORATION 3
2. *etting of standard costs for different size of types which is used in pumps, engines,
alternators and compressors, which demand a high level of accuracy.
.. %scertaining the actual costs i.e., %ctual consumption. %ctual cost cant be derived
[Type text] Page 41
A STUDY ON COST REDUCTION AND CONTROL
because operation is a continuous process. %ctual raw material cost is based on
reconciliation. %ctual raw materials cost can be ascertained by taking into
consideration the opening work'in'progress in the shop floor and issue of raw
materials to the shop floor and closing work'in'progress at the end of the month. This
can be symbolically represented asJ
%ctual ?aw )aterial cost W Epening work'in'progress X Issue to shop floor L &losing
work'in'progress
2. &omparing *tandard with actual costs to determine the difference between the two
known as Pariances.
.. %nalyzing variances for ascertaining reasons thereof.
=. ?eporting of these variances and analysis thereof to management for appropriate
action, where necessary.
The main advantages, has come across in standard costing areJ
+ffective cost control is absorbed. It is exercised comparing actual
performance with standard and taking action on the basis of variances so
rendered.
*tandard &osting helps in planning which installs the management a habit of
thinking in advance.
The standard has provided incentives and motives to with grated effort.
*tandard cost has proved a valuable aid to management in determining price
and formulating production policies.
*tandard costing is less experience, simple and more concessive to
F%TIEF%1 T+NTI1+ &E?!E?%TIEF.
It helps in eliminating wastesU such as raw materials wastage, idle time, lost
machines hours are reduced.
It helps in valuation of stocks because the stock is valued at standard cost.
This ensures a uniform pricing of stocks in the form of raw materials, work in
progress, and finished goods.
*tandard costing is economical and simple.
Ee6e%t' of Pro)+-t Co't
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A STUDY ON COST REDUCTION AND CONTROL
Traditionally, product costs are divided into three elements. They are direct material,
direct labor and overhead.
Dire-t M"teri"3 5irect material is a material that can be directly identified with each
unit of finished product and economically traceable to specific units of output. The term
direct material is denoted by certain other names also such as process material, prime cost
material
F%TIEF%1 T+NTI1+ &E?!E?%TIEF is basically a raw material the ma,or raw material
like 9ibber+ machine tools+ harness C;TT;N C;;LN+ d"in) colorin) materials and man"
supportin) materials.
F"-tor* Overhe")
-actory overhead also called manufacturing overhead or factory burden may be define
as the cost of indirect material, indirect labor and indirect expenses. These are incurred in the
factory included in these are expenses relating to production management. *uch as rent,
insurance, power and depreciation so on.
A)6i%i'tr"tio% Overhe")
%dministration over head includes cost of planning and controlling the general
policies and operations of business enterprise. These pertain to management of business and
include office rent lighting and heating, postage, telephone, fuse and other charges data entry
charges accounting audit fees etc.
Sei%& "%) Di'tri!+tio% of E#1e%'e'3
*elling and distribution overheads usually when the factory costs end such expenses
are generally incurred when the product is in saleable condition. It covers the cost of making
sales and delivering products. That cost includes advertising, salesmen salaries and
commissions, transportation etc. The main disad,anta)es F%TIEF%1 T+NTI1+
&E?!E?%TIEF has come across in adoptin) standard costin) areE %ctual position in
certain cases $ill not be *no$n because the #irm operation is a continuous process.
T"!e 0 B+)&ete) Co't Sheet for the Ye"r 5@11-15

[Type text] Page 43
A STUDY ON COST REDUCTION AND CONTROL
T"!e 8 A-t+" Co't Sheet for the Ye"r 5@15-10
Particulars Rs. Rs.
Direct Materials:
Opening Stock 2'/3/5(
Add: Purchases 4&(3455
05('513
Less: Closing Stock 5134(4(
[Type text] Page 44
Particulars Rs. Cr Rs.cr
Direct Materials:
Opening Stock 4134(4(
Add: Purchases 5033&'2
&('((1/
Less: Closing Stock 5&/5/03
3&'3030
Direct Wages 12('315
Direct Expenses 3'(('3
Prie Cost !"#$%#!
Add: &actor' O(erheads
)ndirect Wages 05&5&/
Rent &(2((5
Po*er+ ,uel - Water 1/13'1'
Repairs and Maintenance (42403
Contri.ution to Pro(ident &unds 120/'42
Eplo'ee Wel,are Expenses 1//4&1/
Work Cost ##/%010#
Add: O,,ice - Adinistrati(e Expenses
Rates - 2axes 21(45&
)nsurance &(1520
Adinistrati(e expenses 5(1(21
3ank Charges 2/545'5
Audit &ee 31'25/
Cost o, Production #!"/!"!0
Add: Selling - Distri.ution Expenses
2ra(elling Expenses 015(22
3ad De.ts '5(0(5
Cost o, 4oods Sold #51616"1
Sales 601/!"/5
Pro,it "16!0$5
A STUDY ON COST REDUCTION AND CONTROL
2451''5
Direct Wages 25/&(3&
Direct Expenses ''(500
Prie Cost !"011$#
Add: &actor' O(erheads
)ndirect Wages 1/&52&
Rent (54'(3
Po*er+ ,uel - Water 1/04532
Repairs and Maintenance 1'&52((
Contri.ution to Pro(ident &unds 1/''&12
Eplo'ee Wel,are Expenses 512'//
Work Cost #1%/0"6!
Add: O,,ice - Adinistrati(e
Expenses
Rates - 2axes 153110/
)nsurance 15&2'33
Adinistrati(e expenses ''3'''
3ank Charges 4'&'22
Audit &ee 205///
Cost o, Production #!//!5#"
Add: Selling - Distri.ution
Expenses
2ra(elling Expenses 0/5'31
3ad De.ts 4/5111
Cost o, 4oods Sold #"!!"/!$
Sales 6616%"5"
Pro,it !/506#$
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Table 5 Actual Cost Sheet for the Year 2013-14
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Particulars Rs. Rs.
Direct Materials:
Opening Stock 2(205'1
Add: Purchases 32&&14&
'12'01/
Less: Closing Stock 5'/3/5(
523'52
Direct Wages 240'000
Direct Expenses (&/5'5
Prie Cost 0$%1%%/
Add: &actor' O(erheads
)ndirect Wages 5(1/5'
Rent '42415
Po*er+ ,uel - Water 4/&(/2
Repairs and Maintenance 3(52/4
Contri.ution to Pro(ident &unds 205/31
Eplo'ee Wel,are Expenses 33034&
Lease Rent 155031
Work Cost ""55!$6
Add: O,,ice - Adinistrati(e
Expenses
Rates - 2axes 500'&(
)nsurance 2&232&2
Adinistrati(e expenses 11'0'&/
3ank Charges '/'4&/
Audit &ee 40////
Cost o, Production
#6/665!6
Add: Selling - Distri.ution
Expenses
2ra(elling Expenses 2('4&0
3ad De.ts 2/11/2'
Cost o, 4oods Sold #/56165!
Sales 61105"10
Pro,it !0+#5+06$
A STUDY ON COST REDUCTION AND CONTROL
Table 6 the overall cost statement
Particulars 61#17## 61#67#0 61#07#/
Prie cost 3(&/&&4 5'3//(1 5'1(&15
Work cost ''005(2 1/&43'25 114&3/31
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Cost o, production 12422052 1544501' 15'45'53
Cost o, goods sold 1402/205 1'55'45( 10/2/2'/
Sales 2//30'/3 22/2&'0' 23/45'40
Pro,it 531032( 540321( '/253(0



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COST 2OLUME PROFIT ANALYSIS ABREA4 E2EN CHART
ANALYSISB/
The break even chart is a graphic relationship between costs, volume and profits. It
shows not only the "+! but also the effects of costs and revenue at varying levels of sales.
The break even chart can also call as cost volume profit graph.
Bre"$ Eve% A%"*'i'
"reak even analysis show the relationship between the cost and profit with sales
volume , which e$uates total revenue with related costs and results in neither profit nor loss is
called the break even volume or breakeven point. In other words it is the point where there is
no loss no profit.
Bre"$ Eve% Poi%t
The breakeven point can be defined as the point can be defined as the point or sales level at
which profit are zero and there is no less. That is breakeven point is that point at which total
cost are e$ual to total sales revenue. %t the breakeven point profit zero, contribution /sales'
variable cost0 is e$ual to the fixed cost.
If the actual volume of sales is higher than the break even volume there will be a profit
beyond the breakeven point. %ll the marginal contribution represents income.
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Bre"$ Eve% Ch"rt
The break even chart is a graphical representation of sales volume and sales. If shows
not only the "+! but also the effects of cost and revenue at varying levels of sales.
4se o# C1I1P %nal"sis
To earn a budgeted profit, what should be the volume of sales
To know what will be the "+! under various situation of changing sales mix, price
and cost.
To know what are the most and least profitable products.
To know what is the minimum level sales re$uired to avoid the losses.
To understand what is the impact on profit when sales mix is changed.
To know what will be impact of expansion plan on &P! relationship.
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2"ri"!e Co't3
&ost which trends to follow the level of activity. Be cost varies directly with output.
There are also called direct cost. +xampleJ 5irect labour, direct materials, direct expenses.
Fi#e) Co't3
The cost which accurse in relation to the passage of time and unaffected by
fluctuations in the levels of activity. +xampleJ ?ent and rates, salaries of works manager,
administration manager, sales manager etc.
Se6i-2"ri"!e Co't3
These costs contain partly and partly variable elements. These costs are thus partly
affected by fluctuation in the levels of activity. +xampleJ Formal maintenance of building
and plants salary of supervisor depreciation on plan and machinery, service department
wages, etc.
T"!e = C"-+"tio% of BEP for three Ye"r' Ai% +%it' < R'/B
!articulars .422'2. .42.'2= .42='2C
*ales 2>4.73D= .44=D34= ..4.>3D3
Pariable cost 73C4D2= 327=>=4 @C>2>34
&ontribution 2==@7744 2=@@=3D= 2=7=DD23
-ixed cost 7>.C2>4 7DC72D4 C7=.4>2
!rofit C3>4@D3 7=2D=.@ 7CD=.2@
"+! in units. /-&Hcontribution0N 244 CC .23 C2.=@ ==.CD
In amount for 74444 units ..4@444 .43>444 23D=@D3



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A%"*'i'3
The no profit no loss point is called as "+! /"reak +ven !oint0. The "+! forn
F%TIEF%1 T+NTI1+ &E?!E?%TIEF., are shown in the table and chart and it is
explained below.
F%TIEF%1 T+NTI1+ &E?!E?%TIEF produce number of units ?s. 2>4.73D= in
.422'2. The &ompany has the capacity to achieve the "+! at ?s...4@444. "ut the company
crossed the break'even point and made profit of ?s. C3>4@D3.
F%TIEF%1 T+NTI1+ &E?!E?%TIEF produced units of towels bedspreads, nylon
clothes worth ?s. .44=D34= in .42.'2=. The company has the capacity to achieve the "+! in
of towels bedspreads, nylon clothes. The "+! of towels bedspreads, nylon clothes is at
?s..43>444. "ut the company crossed the break'even point and made profit of ?s. 7=2D=.@.
F%TIEF%1 T+NTI1+ &E?!E?%TIEF produced units of yarns towels bed sheets
and oworth ?s...4.>3D3 in .42='2C. The company has the capacity to achieve the "+! in
Indicators, of towels bedspreads, nylon clothes. The "+! is ?s.23D=@D3. "ut the company
crossed the break'even point and made profit of ?s. 7CD=.2@.
I%ter1ret"tio%3 "+! of F%TIEF%1 T+NTI1+ &E?!E?%TIEF have higher fluctuation
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A STUDY ON COST REDUCTION AND CONTROL
level where as in .422'2. the "+! was at ?s...4@444, in .42.'2= the "+! was decreased
even though the performance was excellent.
TO 4NO( OPERATING LE2ERAGE
Lever"&e
The emplo"ment o# an asset or source o# #unds #or $hich the #irm has to pa" the #ixed
cost or #ixed return ma" be termed as le,era)e. Conse5uentl"+ the earnin)s a,ailable
to the share holders has also the ris*s are a##ected. 2ts earnin)s less than ,ariable
cost exceeds #ixed return re5uirement+ the le,era)e is called #a,orable+ $hen the" do
not+ and the result is un#a,orable le,era)e.
The term leverage generally refers to circumstances, which brings about an increase
in income instability /irregularity0. In business, leverage is the means of increasing profits. It
may be favorable or unfavorable. The favorable leverage increases profit available to the
e$uity shareholders where as unfavorable leverage reduces profit to the e$uity shareholders.
De&ree of O1er"ti%& Lever"&e
Eperating leverage may be defined as the firms ability to use fixed operating costs to
magnify the effects of changes in sales on its earnings before interest and taxes. Eperating
leverage occurs any time a firm has fixed costs that must be met regardless of volume. :e
employ assets with fixed cost in the hope that volume will produce revenues more than
sufficient to cover all fixed and variable costs.
The degree of operating leverage may be defined as a percentage change in the
earnings before interest and tax /+"IT0 relative to percentage change in the sales.
I%ter1ret"tio%
The bellow table @ and chart demonstrates that in the year .424'22 the 5egree of
Eperating 1everage was ..37 times, which implies for a given changes in sales the +"IT is
74C7D3C.
In the year .422'2. the 5E1 was ...@ times implies that for a given changes in
sales the +"IT also changes. +ven as compare to the year .424'22, operating risk is reduced
by 4.=D times
In the year .42='2C the 5E1 was ..4D times that mean there is minor decreases of
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4..2 times of operating risk and there .
5egree of operating leverage, degree of implies that involvement of operating risk,
financial risk and combined risk. %nd operating leverage cause with fluctuation in +!* for a
given changes in sales. If a company employs a high level of operating leverage even a small
change in the level of sales will a dramatic effect on +!*.
The F%TIEF%1 T+NTI1+ &E?!E?%TIEF was enlarged its sales and at the
same time it has increased cost of production year by year. &onse$uently +"IT and +!* are
diverse, but still shareholders are getting sufficient profit.
T"!e C De&ree of O1er"ti%& Lever"&e

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!articulars .422'2. .42.'2= .424'22
*ales 2>4.73D= .44=D34= ..4.>3D3
Pariable cost 73C4D2= 327=>=4 @C>2>34
&ontribution 2==@7744 2=@@=3D= 2=7=DD23
-ixed cost 7>.C2>4 7DC72D4 C7=.4>2
!rofit C3>4@D3 7=2D=.@ 7CD=.2@
+"IT 74C7D3C 343C2DD 37C=2C=
5E1/contributionH+"IT0 ..37 ...@ ..4D
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R"tio A%"*'i'
5ebt e$uity ?atio
5ebt He$uity N 244
C"-+"tio% of )e!t'
==4>3>744
2.4444444
..D7J2
The companys total debts to e$uity ratio is ..D7J2 national textile corporation is
government oriented company and that company is running with more own capital than
borrowings the total borrowing is only = crores and the rest of the capital is own fund the
company is not maintaining the proper capital structure becos the company is liable to pay all
the profits to the owners of the company, and the company must complete this obligation.
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5ebt +$uity ?atio
==4>3>74 2.4444444 ..D7J2
A STUDY ON COST REDUCTION AND CONTROL
C+rre%t r"tio
&urrent assets
'''''''''''''''''''''
&urrent liabilities
.743272
''''''''''''''''''''''''''''''''''
2D==D.4
2.CCJ2
&urrent assets &urrent liabilites ?atio
.743272 2D==D.4 2.CC J2
I%ter1ret"tio% J FT&s current ratio is 2.CCJ2 is the standard of the current ratio is .J2
company has to maintian in the proportion of .J2 because the the comapnies liabilities little
bit high this may cause to the adverse situations in future.
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D+i-$ R"tio
Muick assets
'''''''''''''''''''''''''''''''''
Muick liabilities
2D.2322
''''''''''''''''''''''''
2D==D.4
4.>>J2
Interpreation J $uick ratio of the company is 4.>>J2 comapnysratio is very near to the
standard value it is $uite satisfactory
D+i-$ A''et' D+i-$ Li"!iitie' R"tio
1=51;11 1=00=5@ @/EE31
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A!'o+te iF+i) r"tio
A!'+te iF+i) "''et'
-------------------------------------------
C+rre%t i"!iitie'
A!'o+te iF+i) "''et'G -"'hH !"%$ "%) M"r$et"!e 'e-+ritie'
CC243C
''''''''''''''''''''''''''''
2D==D.4
4..7CJ2
%bsolute li$uid assets &urrent liabilities ?atio
CC243C 2D==.D4 4..7CJ2
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Interpretation J FT&s absolute li$uid ratio is 4..7CJ2 one and there is no marketable
securities in the company.
FINDINGS
The firm cost of production was decrease over years due to change of fluctions in
sales.
5irect material covers the most of the part in cost./D4A0
Eperating leverage of the firm dramatically decrease.
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!roduction and sales increases a year and year.
&ompany following general accounting system
&ompany issuing standard costing and process costing methods to analyse the costing
systems
The company sales is increases every year
&ost of production is also increasing every year
Muick ratio of the company is $uiet satisfactory
&ompany has to increase the stability of borrowing
&ompany must meet current ratios standard to main item is the optimum capital
structure .
SUGGESTION AND RECOMONDTIONS
The following are some of the recommendation to improve the cost accounting
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system in F%TIEF%1 T+NTI1+ &E?!E?%TIEF
The company should increase their sales to ac$uire increased level of market share in
the domestic market. This may help in achieving goals of the organization.
The material price variance should be calculated at the time of materials purchase
rather than when materials are used. This is beneficial from the viewpoint of
performance measurement and corrective action.
It can adopt 6ust'in'time approach which not only make stores activities effective, but
also eliminate unnecessary activities involved in the stores. This will help in control
of costs.
%ttempts should be made to reduce production costs with the help of ?esearch and
5evelopment department.
)anagers must adopt ,ust in time and and other techni$ues to avoiod unecessary
costs.
CONCLUSION
-rom the study undertaken in F%TIEF%1 T+NTI1+ &E?!E?%TIEF 1td, it can be
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concluded that cost accounting system is essential in every manufacturing company. &ost
accounting provides information of the nature of cost data to managerial personnel for
efficient performance of their functions. %s such, cost accounting is the foundation of the
management information system. It is a means to achieve its defined goals.
In the modern world of competitive economy, one of managers important functions
is the management of cost. % manufacturer who produces the product cheaper than another is
more efficient and better chances of progress and expansion as compared to another whose
costs are higher.
%s there is huge competition in apparels and textile industry, F%TIEF%1 T+NTI1+
&E?!E?%TIEF should reduce its cost. It is reducing the cost of production from the past =
years by increasing the efficiency of workers and replacing old machines. 5ue to this
companys profit has increased to ?s. 34.7=@D in the year .42='2C as against ?s. 7CD=.2@ in
the year.42.'2=
To achieve and maintain a competitive advantage in todays global market place,
many companies are heavily investing in new technology. In addition to new technology,
many organizations are implementing new cost management systems to better meet the needs
of management in an economy that continually grows more competitive.
)embers use the information generated under cost accounting system by management
at different levels. Thus, different sets of information could be developed under cost
accounting and supplied to different persons responsible for activities in the organizations. It
is used for the purpose of analysis and decision'making.
To conclude, cost accounting system provides the service to aid the managers in
achievement of the goals and targets laid by the management and its effectiveness is
evaluated from time to time.
BIBLOGRAPHY
?eferences "ooks
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'I ) !andey
'*hashi ( #upta
? ( *harma
'(han 9 6ain
&ost management and cost strategy
The accounting instructor is one of the authors, &atherine
*tenzel, who has taught undergraduate and )"% level
courses in financial and management accounting since the
mid'2>@4s.
.. (ohlers 5ictionary for %ccountants, 3th ed. /+nglewood &liffs,
F6J !rentice'Ball &ollege 5ivision, 2>>40, 7.@L7.>.
=. ?obert *. (aplan and ?obin &ooper,&ost 9 +ffectJ ;sing
Integrated &ost *ystems to 5rive !rofitability and !erformance
/"ostonJ Barvard "usiness *chool !ress, 2>>@0, viiiLix. Id., .CL.D.
7. &6 )cFair,5efining and *haping the -uture of &ost )anagement, 6ournal of
&ost )anagement 2C, no. 7 /.4440J=.3. (aplan and &ooper, 24.
D. "rian )askell,)aking the Fumber &ountJThe %ccountant as &hange %gent.
%nnual report of national textile corporation ltd

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%nnexure
N%T2;N%L TLT2L C;7P;7%T2;N
8alance Sheet as on 31st march 2/12113
Liabilities %mount %ssets %mount
Capital %ccount 12/+//+//// 9ixed %ssets 42(/2(0
9urniture M 9ixtures
Computer
Pheripherals
(5/04/
Computer1 So#t$are 25//20
5uipments M Spares 1224('5
9actor" 8uildin) 35501&01
3
9urniture 155/345
Loans (Liabilit") 33/&'&5//
4nsecured Loans 3&'&5//
Current Liabilities 103302/
?uties M Taxes 2/45'2 Plant M !achiner" 1/'4/543
Pro,isions 4//+///
Sundr"
Creditors

112&15(
Tools 1530'0 1/&3&////
S2 Pa"abl Sub
contract r'.5G
P9 Pa"able
Pro#it M Loss %:c
1/540321(
Current %ssets
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Closin) Stoc* 0/414/
Sundr" ?ebtors 12(/540
Cash1in1hand 24////
8an* %ccounts 2/1/'4
Prepaid (/4// 25/'151
Total 3/&10'43( Total 3/&10'43(
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