INTRODUCTION TO COST CONTROL AND COSTREDUCTION

In production, research, retail, and accounting, a cost is the value of money that has been used
up to produce something or deliver a service, and hence is not available for use anymore. In
business, the cost may be one of acquisition, in which case the amount of money expended to
acquire it is counted as cost. In this case, money is the input that is gone in order to acquire
the thing. This acquisition cost may be the sum of the cost of production as incurred by the
original producer, and further costs of transaction as incurred by the acquirer over and above
the price paid to the producer. Usually, the price also includes a mark-up for profit over the
cost of production. The literal meaning of cost is the amount paid or required in payment or
purchase or for the production or upkeep of something it is an amount of resources to given
up in exchange of some goods and services. cost is generally measured in monetary terms.
The cost does not mean same thing under all circumstances. cost is always undertrained with
reference to some object such as material, labour , job , process etc. Business costs include all
the expenses which are incurred to carry our business. The concept of business costs is similar
to the actual or real costs. Business costs “include all the payments and contractual obligations
made by the firm together with the book cost of depreciation on plant and equipment”

 COST CONTROL
Cost control is the practice of managing and /or reducing business expenses. Cost control
starts by the business identifying what their cost are and evaluate whether those cost are reaso
nableanaffordable, thereafter if necessary, they can look for ways to cut costs through
methods such as cutting back, moving to a less expensive plan or changing services providers.
To be profitable companies must not only earn revenues, but also control costs. If the costs
are too high, profit margin will be low making it difficult for a company to succeed against its
competitors.
Cost control in an integral part of any business venture. No firm will stay in the business if it
does not employ prudent means of checking its costs by ensuring that they don‘t over surpass
the estimated costs projections. If costs are not checked properly the outcome can be
negative to smooth running of the business. Effective control depends upon allocation
responsibility to competent manager and supervisors for each activity or functions, providing
them with operating statement on time, with details of the standard, actual expenses and the

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 various, together with recommendation. Cost Control Cost control is concerned with an
element of marginal cost which involves the determination of unit cost, measurement and
correction of the performance of subordinates to make sure that the objective of the
enterprises and the means to obtain them are accomplished effectively and economically Cost
control is the regulation of cost of operating a business and is concerned with keeping costs
within acceptable limits. These will usually be specified as a standard cost or target cost limits
in formal operational plan

 COST REDUCTION

The process of looking for, finding and removing unwarranted expenses from a business to
increase profits without having a negative impact on product quality. Many business
managers will engage in periodic cost reduction drives in order to make their company's
operation more efficient and to boost profits.

Cost reduction exercises are planned campaigns to cut the expenditure. It is a continuous
process with the object of getting a more or less permanent benefit. Cost reduction should
not confuse with Cost Control. Cost Control is the regulation of costs of operating a business
is concerned with keeping expenditure within acceptable limits. The major assumption in cost
Control is that unless costs exceed the budget or standard by an excessive amount the control
of cost is satisfactory. Cost Control is a routine exercise, which almost concurrently carried
out for attainment of operational efficiency. Cost Reduction brings real and preventive
savings by continuous and planned research.

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 OBJECTIVES

 To understand the basic concept of cost, cost control, and cost reduction.

 To understand the cost volume profit analysis of the firm

 To establish the effect of the cost control practices on the profitability to the organization
through calculation of profit volume ratio

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SCOPE OF THE STUDY

 The main scope of cost control and cost reduction in the manufacturing company
o These are the cost reduction scope where in the manufacturing we control the cost or
reduce the cost
 Product design
 Rationalization of organisation
 Factory layout and plant and equipment
 Production plan, programme and method
 These are the cost control scope where in the manufacturing we control the cost
o The study assessed the cost control system of Sanvijay rolling engineering ltd under the
researcher would try to present the company’s performance towards cost control system
o The problem which affects the company’s profitability and possible suggestion that
would be carried the problem of the organisation.

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 COMPANY PROFILE

GENERAL PROFILE:-

Sanvijay Rolling & Engineering Limited (SREL)

1.1 Name of the borrower
PAN NO. AACCS0217J
1.2 Constitution Limited Company (Closely Held, Unlisted)
1.3 Date of incorporation 1987
1.4 Sector / (public / private/ jt.) Private
1.5 Group / House Sanvijay (Not Recognised)
Manufacture of :
1] Structural Steel Long Products Of Mild Steel, High Tensile Steel
And Closed Chemistry Steel To Be Used Mainly In Transmission,
Nature of industry /
1.6 Line Tower (Tlt) For Power & Telecommunication Engineering
activity
Projects, Infrastructure Projects , And Housing Etc , And
2] Manufacturing Of Steel Billets O Different Chemistry (both Ms &
Alloy Grade)
1.7 Location
Regd. Office 9, Imamwada Road, Napur.
Controlling office 9, Imamwada Road, Napur.
Branch office Shop no. 312/ A, shyamsquare ,pandri, Raipur.

1] Unit 1 , Plot Nos. B-203, B- 204 ,B-205, And B-206 In The

BUTIBORI INDUSTRIAL AREA DISTRICT – NAGPUR.
2] Unit 2 , Plot No. B-202, In The BUTIBORI INDUSTRIAL AREA,
DISTRICT- NAGPUR
3] Unit 3, Plot No. S-88/1 &S- 88/2, In The HingnaIndustrial Area
District – Nagpur .
factory (existing) 4] Unit 4 , Plot No. Plot No. -6 In The Hingna Industrial Area District-
Nagpur
5] Unit 5, Plot No. -16, In The Industrial Area District – Nagpur.
6] Unit 6, Plot No. 41 & 43 In The Hingna Industrial Area District –
Nagpur

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DIRECTORS:-

%
Other directorship/
Name Age Designation DIN Share
partnerships
holding
Director :
Sunrise Structural
&Engineering Pvt. Ltd
Shri Sanjay Agrawal 50 Director 00308722 19.50
Grace industries limited.
Proprietorship
Prakash Traders
Director :
Sunrise Structural &
Shri Ajay Agrawal 36 Director 00084840 19.03
Engineering Pvt. Ltd
Grace industries ltd
Shri Suyash Bajoria 21 Director 06805605 -
Shri Jignesh Kurani 29 Director 06905130 -
Smt Kavita Agrawal 49 Director 00085004 19.50 -

DEFAULT DETAILS:-

 The company and its directors has not defaulted in payments of interest and loan amount in any bank/
financial institution. Its name is not appearing in any list of the RBI

Asset classification Standard

CARE BBB+ or long term loan, carrying moderate degree of safety or
timely servicing of Debt with moderate credit risk.
External credit rating
CARE A 3 + or short term facilities carrying moderate degree of
By CARE
safety.
(As per CARE Rating dated 31.3.2016, valid upto 31.3.2017)

BRIEF HISTORY:-

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Establishment :Sanvijay rolling & engineering limited (SREL) is a public ltd company (closely held by
promoters) it is into manufacturing o along steel product such as angles , channels , beams etc. it
manufactures more than 200 types of section in various size range wise. It is only company in India which
manufactures all kind of long steel product required or transmission tower. Company has very good presence
in manufacturing o structural steel to be used mainly in TLT or power, infrastructure and trading o steel. It
also has steel billets manufacturing facility at butibori, Nagpur .it is able to manufacture steel billets of
chemistry and alloy grade also.

Sanvijay is promoted by Late Shri. Puranlalji Agrawal it is controlled and managed by his two sons Shri
Sanjay Agrawal director and Shri Ajay Agrawal director. Directors are assisted by team and professionals.

Group has also interest in steel trading (prakash traders pvt ltd.) TLT manufacturing sunrise structural pt.
ltd.), sponge iron and power generation activity (grace industries limited.) TLT manufacturing , fabrication
and galvanizing activity (Sanvijay infrastructure pvt. ltd) steel trading and activities in sunrise structural pt.
ltd. is minimal. Company is concentrating more on activities of SREL, Grace Industries ltd, and newly
commissioned tower manufacturing company Sanvijay infrastructures [Link]. (SPIL)

OWNERSHIP:-

SREL is closely held public limited company 92.31% of total shares are held by promoters and their family
members and balance 7.69% are held by friend and relatives.

BUSINESS:-
Company manufactures long steel structural such as Angles, channels, and beams & flats etc..of different
size, length, and dimensions.

Products are made from MS Billets, HT Billets and controlled chemistry Billets. TATA , SAIL, RINL,
JINDAL , M/S Prakash industries , adhunik Steel , Bhushan Steel etc.. are major producers of these Billets.
Purchase are made either by advance payments or against cash , as practice prevailing in the market.

PRESENT MARKET STATUS:-

Company is market leader in their products segment and perhaps has the largest manufacturing facility in
India in private sector. The market is fragmented and hence, it is not possible to assess exact market share.

Company has good standing in the market. it is due to its commitment to supply , quality o product,
availability of all types of long products under one roof and necessary material handling infrastructure
available with company.

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Tower generally requires long product p 80 to 100 types , size and dimension company can produce 12 type
of steel simultaneously in its 6 manufacturing units , which no other competitors can do it gives company
inbuilt competitive edge over their competitors. One more advantage, company enjoys is its large capacity.
Due to this reason the company is preferred choice of buyers.

NATURE OF INDUSTRY:-
The long steel product manufacturing is basically a processing activity. Billets, blooms o steel are processed
into structural steel. Cost of raw material and expenses or manufacturing decides selling price. No major
technology is involved and there are no entry barriers. Company manufactures long steel product structure
made of mild steel, high tensile steel and controlled chemistry steels. Over a period, company has developed
in – house expertise and is now manufacturing these items which are being used in assembly of transmission
line tower, heavy engineering and wind mills.

One tower structure requires up to 80-100 types of steel structural products of different size and dimension.
Because of high degree of precision, quality and range of the product, company is able to charge premium
on its product.

Main user industry is transmission line tower (TLT) manufacture or power sector. Their operating cycle is
between 4.50 months to 6 months. Longer operating cycle is due to nature of the work i.e. selection on site,
survey, execution, charging o the line, certification from the nodal agency and receipt of payment. Steel

costs approximately 50% of their total cost 50% goes to steel and aluminium wires, registers, transformer
civil work, labour etc...These various item services are rendered by different agency often resulting in delay

of the project. Delay is also occurred due to different terrains like valleys, mountains, forests etc… all these
factors contribute to higher operating cycle for long steel product manufactures like SREL

Company with range of products, superior technology and ability to supply goods within short time are able
to retain and manage clients and funds. Key to growth and profitability is low production cost with profile of
good consumers.

DOMENSTIC SCENARIO:-

Domestic demand or TLT is very high. However, company is engaged is these work are acing liquidity
issues due to delay in commissioning o new power plant, delay in allotment o TLT line work by power grid
corporation of India and delay in various approvals and clearances from various government departments.
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However, long term industrial scenario is very bright. The company being largest player in the sector having
multiple manufacturing capabilities is well placed to take the benefits.

DEMAND AND SUPPLY:-

Global Market:

Products are not supplied to overseas market. However, some of the customers are purchasing from us and
executing overseas projects.

DEMAND \ GROWTH DRIVERS:-

Government Policies:

These policies of government are very conductive for overall development of industries infrastructure and
housing. Due to sanctioning of many projects for power and housing demand or transmission tower and steel
in other will increase.

MAJOR CONSTRAINTS AND COMPETITION:-

The major constraints are increasing prices of energy and cost of production. Considering large size of
market, many small players have entered. However, markets of such a big size, that there is space or
everybody, due to large volume and execution capacity, profitability would be maintained or at least or 8-10
years. There will be competition from new and existing players. But as small players manufacture only few
types of section in small quantity, their cost of production s always more than company. Company is able to
face competition because of volume, quantity and less cost of overhead.

FUTURE OUTLOOK/ POTENTIAL:-

With opening of power sector and rural orientation or growth, supply of power and demand o it will be
increasing. Lot of infrastructure development is taking place. Already installed power and telecom towers

are becoming due or replacement. Company being one of the largest players with raw material
manufacturing facility also is in better position to encase opportunity.

Products & Services

 ANGLES

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 STRUCTURAL STEEL RANGE  
MS/HT EQUAL ANGLE
25 X 25mm Any thickness from

Up to 3 mm to 25 mm
250 X 250mm and more also

  MS/HT EQUAL ANGLE

45 X 30 mm 3 to 6 mm 125 X 75 mm 5 to 10 mm

75 X 50 mm 6 to 10 mm 150 X 75 mm 8 to 12 mm

90 X 60 mm 6 to 12 mm 150 X 90 mm 8 to 12 mm

100 X 75 mm 6 to 12 mm 150 X 115 mm 8 to 12 mm

 BROAD FLANGE BEAMS

BROAD FLANGE BEAMS  

   
Section Kg/mtr Section Kg/mtr

116 X 100 mm 23 150 X 150 mm 34.6

152 X 152 mm 37.1 200 X 200 mm 40

 JOISTS / BEAMS

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   JOISTS / BEAMS  
  Section Kg/mtr Section Kg/mtr  
100 X 50 mm 8.9 125 X 70 mm 13.4
150 X 75 mm 15 175 X 85 mm 19.5
200 X 100 mm 25.4 250 X 125 mm 37.3
300 X 140 mm 46.1 350 X 140 mm 52.4
400 X 140 mm 61.6 450 X 150 mm 72.4
500 X 180 mm 86.9 600 X 210 mm 124

 FLATS

  FLATS  
   
Section Remarks

25 mm to 300 mm Any Thickness

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  SQUARES

  SQUARES  
  Section Remarks  

6 mm to 150 mm Any thickness

 ROUNDS

ROUNDS  
   
Section

6 mm to 150 mm

 BILLETS

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 BILLETS  
  Section Length Grade Remarks  
100 X 100 MM
125 X 125 MM
150 X 150 MM
160 X 160 MM
200 X 200 MM
High Tensile Steel, As Per Indian
200 X 250 MM 9M TO 12M
Mild Steel Standard.
200 X 300 MM
200 X 400 MM
230 X 250 MM
250 X 300 MM
300 X 300 MM

 SS Product

GRADES UNDER REGULAR PRODUCTION

 300 SERIES
AISI 302, AISI 303, AISI 304, AISI 304L, 304Cu, 304 LER, 308 LER, AISI 310, AISI 316,
 
AISI 316L, AISI 316 Ti, 316 LER, AISI 317, AISI 321, AISI 347
 200 SERIES
 AISI 201, AISI 202
 400 SERIES
 AISI 403, AISI 410, AISI 416, AISI 420, AISI 420 A, AISI 430, AISI 430F, AISI 446,

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 DUPLEX
 ASTM A182 F51,
 HIGH ALLOY SS & TOOL STEEL
( WILL BE STARTED AFTER INSTALLATION OF H/T FURNACE):-H11 , H13, O1,
 EN 36C, EN 52, ASTM A564-630 (17-4 PH), AISI 420 B, AISI 431, BLADE QUALITY,
1.4028, 1.4057
 DIN GRADES
1.4301, 1.4307, 1.4401, 1.4404, 1.4541, 1.4571, 1.4001, 1.4021,1.4104, 1.4362, 1.4462
 

 ROLLED PRODUCT

ROLLED PRODUCT  

( WILL BE STARTED AFTER INSTALLATION OF H/T FURNACE):-H11 ,

  H13, O1, EN 36C, EN 52, ASTM A564-630 (17-4 PH), AISI 420 B, AISI 431,
BLADE QUALITY, 1.4028, 1.4057
  FIRST PHASE BY END FEB 2015
FOR 85, 90, 95, 100, 105, 110, 115, 120 & 125 130, 135, 140 & 145, 150 & 160 MM
 
DIA & RCS.
  SECOND PHASE BY END MAY 2015
  FOR 34, 36, 38, 40 , 42, 45, 48, 50 & 52 56,60, 63, 65, 70, 75 & 80 MM DIA & RCS.
  THIRD PHASE BY END AUG 2015
FOR 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26,27, 28 & 29, 30 &
 
32 MM DIA & RCS.
  HIGH ALLOY SS & TOOL STEEL
  ( WILL BE STARTED AFTER INSTALLATION OF H/T FURNACE):-H11 ,
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 H13, O1, EN 36C, EN 52, ASTM A564-630 (17-4 PH), AISI 420 B, AISI 431,
BLADE QUALITY, 1.4028, 1.4057
  DIN GRADES
  1.4301, 1.4307, 1.4401, 1.4404, 1.4541, 1.4571, 1.4001, 1.4021,1.4104, 1.4362, 1.4462

Products of Sanvijay are the backbone of its industrial development. Some of the diversified sectors
where its product are used includes

 Transmission Line Towers

 Communication Towers
 Wind Mill Towers
 Ship Building
 Railways
 Industrial Infrastructural Projects &
 Other Nation Building Infrastructures like Bridges, Electrification Project etc

 CLIENTS OF SANVIJAY ROLLING AND ENGINEERING LTD

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Infrastructure - Install Machines

Rolling Mills Details  

30 / 28"Rolling Mill  

Induction Furnace (IF)  

Argon Oxygen Decarburisation (AOD)  

Ladle Refining Furnace (LRF)  

Cored Wire Injection  

Continuous Casting Unit - I  

Continuous Casting Unit - II  

Ingot Casting (Starting from 1st February 2015)

 

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THEROTICAL REVIEW

COST –
An amount that has to be paid or given up in order to get something. In business, cost is
usually a monetary valuation of: - effort, material, resources, time and utilities consumed,
risks incurred, and opportunity forgone in production and delivery of a good or service. All
expenses are costs, but not all costs (such as those incurred in acquisition of an income-
generating asset) are [Link] generalized in the field of economics, cost is a metric
that is totalling up as a result of a process or as a differential for the result of a decision
.Hence, cost is the metric used in the standard modelling paradigm applied to economic
processes. Costs are often further described based on their timing or their applicability.
The term 'cost' is most widely used as the 'money cost' of production which relates to the
money expenditure of a firm on: Money costs therefore relate to money outlays by a firm or
factors of a production which enable the firm to produce and sell a product.
Costs are means of communication. Ideas of the top management are given the practical
shape. As the activities of various department heads are coordinated at the much needed for
the very success of an organization. Cost is necessary to future to motivate the staff
associated, to coordinate the activities of different departments and to control the performance
of various persons operating at different levels. Costs may be divided into two basic classes.
Capital and operating costs. Capital cost is directed towards proposed expenditure for new
projects and often require special financing. The operating costs are directed towards
achieving short-term operational goals of the organization for instance, production or profit
goals in a business firm. Operating costs may be sub-divided into various departmental of
functional costs. A process by which business decisions are analysed. The benefits of a given
situation or business-related action are summed and then the costs associated with taking that
action are subtracted. Some consultants or analysts also build the model to put a dollar value
on intangible items, such as the benefits and costs associated with living in a certain town.
Most analysts will also factor opportunity cost into such equations.
Cost is essential in every walk of our life – national, domestic and Business. A cost is
prepared to have effective utilization of funds and for the realization of objective as efficiently
as possible. Costing is a powerful tool to the management for performing its functions i.e.,
formulatio plans, coordination activities and controlling operations etc., efficiently. For
efficient and effective management planning and control are two highly essential functions.
Costing and cost control provide a set of basic techniques for planning and control.
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 Cost Control Techniques
This refers to the various methods applied in controlling cost by various organisation. The
techniques are evolved by the account department with cost and management section at the
core of implementation. It includes the following; budgetary control, standard costing and
material control

Cost Control
Techniques

Budgetary
Standard costing Material control
control

Budgetary Control
Budgetary control is a system whereby the budgets are used as a means of planning and
controlling costs. Budgeting is laid down as to what is attained and how it is to be attained
while control ensures that the objectives are realised and actual results do not deviate from the
planned course more than necessary. Budgetary control system is a system of controlling
costs which include the preparation of budgets, co-coordinating the department and
establishing responsibilities, comparing actual performance with the budgeted and acting
upon results to achieve maximum profitability. ACCA Study Text (n.d.) defines budgetary
control as the establishment of budgets relating to the responsibilities of executives to the
requirement of a policy and the continuous comparison of actual with budgeted results, either

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to secure by individual action the objective of that policy or to provide a basis of revision.
From this definition, it is clear that budgetary control operates through different budgets.

Standard Costing

The technique of standard costing is applied in order to overcome the various limitation of
historical costing. Historical costing which refers to the ascertainment of costs after they have
been incurred provides the management with an account of what has occurred. Standard
costing technique involves the preparation and use of standard costs, their comparison with
actual costs and the analysis of the deviations to their causes so as to provide for corrective
action (Sikka, 2003). Lucey (1996) defines standard costing as a technique of cost accounting
which examines the standard cost of each product or service with actual cost to decide the
competence of the operation, so that any remedial action may be taken immediately. ACCA
Study Text (n.d.) defines standard costing as the readiness and use of standard costs, their
similarity with actual costs and the analysis of variances to show their causes and points of
incidence. Basically, standard costing is a technique of cost control under which cost data for
activity are predetermined on the basis of normal levels of operation. The efficiency and costs
incurred at actual performance are compared with pre-determined standards and deviation or
variance, if any is ascertained, an analysis of variance is made with reference to their causes
with a view to fix the responsibility of the particular executive. A report on such analysis is
submitted to the management to enable to take corrective measures to ensure that actual costs
are consistence with standard costs in future.

Material Control

In an average manufacturing concern, the cost of material constitutes a large proportion of

the total product cost and as such there should be a proper system of material control to ensure
economy in the cost of production. Material control is a system which ensures the provision
of the required quantity of material of the required quality at the required time with the
minimum amount of capital investment

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STEPS IN COST CONTROL

Sikka (2003) believed that efficient organisation and operations of cost control system
involves the following steps:

 Setting up the targets

 Measurement of the actual;
 Comparison of actual with targets to ascertain variances;
 Analysis of variance to their causes;

 COST CONTROL APPLICATION

A complex business requires frequent information about the operation in order to plan for the
future, to control present activities and to examine the past effectiveness of the manager,
employees, and related business segment (Cooper et al., 2000). To achieve, management runs
the activities of its people in the operation of the business according to pre-determined goals
and objectives. Cooper et al. (2000) also stated that, behavioural management deals with the
attitude and actions of employee behaviour which ultimately impacts on success. Behavioural
management involves certain issues and assumption not applicable to accountings control
function. On the hand, performance evaluation measure outcomes of employee’s action by
comparing the actual result of the business outcome to predetermine the standard of success.
In this way management identifies the strength, it needs to maximize and the weakness it
seeks to rectify. 1.7 Benefits of Cost Control Cost control work should enhance the efficiency
of management and if necessary, should result in action being taken to reduce the cost for
profit purposes and to prevent fraud and efficiency (Dury, 1985). Some of these benefits are
as follows:

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 A simple control can be expressed over all operation from the purchase of goods to account
for sales
 An efficient cost control with reveal possible sources of economy and result in a rational
utilization of material and labour.
 Cost control makes policy decisions by management very easy.
 It ensures adequate production and prevent over stocking of material.

 AREAS COVERED BY COST REDUCTION: -

Following are the critical areas of application of various cost reduction Techniques:

 DESIGN: -

The design function offers management the greatest potential for cost reduction as the impact
of any economies or cost reduction effected at this stage shall be felt throughout the
manufacturing life of a product. In other words application of value analysis method at the
designing stage itself would go a long way in maximizing the profits. But this does not mean
that the design cost reduction should be restricted solely to new products only. In fact, it
should include critical analysis for all products within the product range of the organization.

 ORGANIZATION: -

A considerable amount of cost reduction can be affected by improvement in organization.

The organization can be improved by taking following steps: -

a) Defining each stage of responsibility. It should be ensured that there is no overlapping of

duties and responsibilities.
b) There should be well defined channels of communication between various management
levels.
c) Delegation of responsibility should be encouraged to ensure quick and effective decision
making.
d) Efforts should be made to implement management by objective, ie, individual objective
must be in line with organizational objectives.
e) Cooperation and close relationship between the various executives should be encouraged.
f) Encouragement in the form of incentive etc, should be offered to the employees for coming
up with suggestions leading to cost reduction.
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 PRODUCTION PLANNING AND CONTROL: -

Production planning and control function is a very large area for cost reduction scrutiny. It
covers planning, inventory control, material handling and usage, and production offering
considerable scope of savings. The four principal components of cost are material, labour,

22
 Overheads and capital. An efficient cost reduction plan should aim at reducing the per unit
costs on these counts by examining the following points-

a) Whether wastage of manpower and material is kept to the minimum.

b) Whether any scope is there for reducing idle capacity and increase in
Productivity.
c) Whether efficient system of inventory, inspection and stock taking is there.
d) Whether the incidence of stock losses due to pilferage, deterioration, obsolescence and
other causes are at minimum.
e) Whether the storage, location and other associated costs are kept to minimum and best
method of production has been adopted.
f) Whether production schedule can be improved to match delivery schedule.
g) Whether there is any scope for reduction in indirect materials and
Labour costs.
h) Whether there is any scope for reduction in overhead costs.

 FACTORY LAYOUT AND EQUIPMENT: -

An effective arrangement of plant and machinery is a fundamental requirement. A successful

plant layout shall contain following features-

a) Optimum use of space.

b) Effective built in flexibility.
c) Efficient control of work flows with least disturbances.
d) Minimum material handling.
e) Minimum waste.
f) Work satisfaction and enhanced productivity.

 UTILITY SERVICES: -

utility services include power, water, steam, repair and maintenance and transport etc. the
following points of consideration can lead to effective cost reduction-

a) Whether the utilities are supplied at economic costs or whether there is Scope for any
further increase in utilization.
b) Whether the proper system for preventive and curative maintenance is there.
c) Whether wastage and other losses in distribution have been kept to minimum.
d) Whether work flow and loading factor has received due attention.
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 MARKETING: -

The marketing function may not lead itself so easily to Cost reduction as other business
functions. But a number of techniques do exist for reducing such costs and these can result in
substantial savings for business. This function includes selling function and distribution
function. The marketing function covers salesman salaries and their sales offence expenses
and administration, marketing research, advertising and after Sales service. The distribution
function includes the method of disposition of products, i.e., wholesale, (retail of direct), the
method and location of warehousing, the packing and transport. There can be considerable
scope for comprehensive reorganization of existing methods and substantial reductions in
costs. Following points may attract attention in his connection.

a) Whether there is optimum utilization of salesmen s working time.

b) Whether rearrangement of territories can bring about cost reduction;
c) Whether channels of distribution are efficient and economical;
d) Whether there is an effective system of sales promotion;
e) Whether market research is adequate;
f) Whether any alternative media of advertisement can lead to cost
Reduction; and
g) Whether the method of distribution chosen is most efficient in terms of Factory and
warehouse locations, distribution and customer locations
So on;
 FINANCE: -

The effective employment of capital in a business is of paramount importance. For example,

the investment in the right machinery at the right time can yield significant cost advantages.
Following points are relevant in this connection:

a) Whether the methods of funding capital expenditure are cost effective.

b) Whether capital is secured at economical cost; and
c) Whether the capital is economically employed so as to give the maximum return.

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 MAJOR DIFFICULTIES IN COST REDUCTION:-

Resistance by the employees of the organization to pressure to reduce costs usually because
the nature and the purpose of the campaign has not been properly explained to them and they
feel threatened by the change. They may be confirmed to small area of the business {e.g. to
one department} with the result that costs are reduced in one cost centre only to reappear as

an extra cost in another cost center. Efforts to cut material and Labor cost may erode
confidence in established system for estimating material usage and labour productivity
standards. Cost reductions are campaigns are often introduced as a rushed, desperate
measure instead of a carefully organized exercise.

Cost Reduction Programme may demand attention of a number of experts from different
fields. A cost Reduction committee may be formed with representative of major departments
or divisions like marketing, production planning, purchases, etc. A cost or management
accountants acts in the capacity of an interpretation and advisor The committee studies
principle phases programmed for Cost Reduction. It decides the areas of potential savings and
determines the priorities and allocates assignments to appropriate staff. Cost Reduction is
possible with the help of unit cost reduction by curtailing expenditure and by increasing the
productivity.

25
LITERATURE REVIEW

The literature review covers the work done in India and Jordan relating to different aspects of
cost accounting and is relevant for this study. Due attention has been given to ensure that
latest information are incorporated. For the purpose of systematic presentation, literature
review has been divided into different sections like cost and costing techniques. Cost
estimation and ascertainment, cost accounting practices in different countries and cost control
techniques. Proper care has been taken in accepting the study, that it should be thoroughly
researched one

Nowadays managements of companies are becoming increasingly cost conscious and are
constantly searching for new ways of controlling cost and eliminating wastages. One of the
objectives of cost accounting is to achieve cost control. It is not enough if costs are worked
out and presented regularly to the management, the effectiveness of cost accounting is judged
primarily from the extent to which it has been able to bring about a control over the
manufacturing and other costs, Sikka (2003).

CIMA in its terminologies of cost accountancy defined cost control “as the guidance and
regulation by executive action of the costs of operating an undertaking,
particularly where such action is guided by cost accounting”

COST REDUCTION -

Low production costs has become one of the primary ways that organizations compete in a
global economy, hence, cost reduction must continually be in the minds of managers of
organization (McWatters, Morse, & Zimmerman, 2001). Cost reduction is a planned approach
to reduce expenditure. It is a continuous process of examining critically all elements of cost
and each aspect of the business with a view to improving business efficiency. cost reduction is
a corrective function. Cost reduction is the process of cutting down costs incurred by an
organization for the purpose of making profit. It starts when cost control ends and considers
that no cost is at its optimum level. According to Adeniyi (2001), cost reduction starts with an
assumption that current cost levels or planned cost levels are too high despite the fact that cost
control may be good and organization experiencing high efficiency levels

26
(A) RESEARCH METHODOLOGY

- DEFINITION-

Research is an endeavour / attempt to discover, develop and verify knowledge. It is an

intellectual process that has developed over hundreds of years ever changing in purpose and
form and always researching to truth.”

ABOUT THE STUDY-

Parameters Descriptions

Type of research Descriptive

Source of data secondary data

collection
Primary data Questionnaire

Secondary data Research paper, company website

etc…

This chapter focused on the researcher‘s scope of methodological procedures employed in the
study. These included; research design, study locality target population, sample size and
sampling procedure, data collection instruments, pilot study and data analysis techniques.
Research design

The study adopted a descriptive survey study design. This study method was appropriate
because it explored and described the relationship between variables in their natural setting
without manipulating them. The design aimed at obtaining information that could be
analysed, patterns extracted and comparison made for the purpose of clarification and
provision of basis for making decisions .Descriptive survey study design has been defined as
systematic gathering of information from respondent for the purpose of understanding or
predicting some aspects of behaviour of the population of interest. Both qualitative and
quantitative data was obtained for comparison purposes.

27
 (B) RESEARCH METHODOLOGY IN APPLICATION

- STATEMENT OF PROBLEM

Some of the problems which the research tries to offer suggested solution to include:

1. to identify the factors militating against the suciess of the cost reduction exercise in a
manufacturing companies

2. to evaluate how business organization can use control in increasing profit maximization

3. to know the effect of cost control and cost reduction on the overall performance of business
organizations.

4. to identify the strategies for solving competitive business economic problem.

5. Evaluation of the techniques involve in solving these problems, and how these techniques
can be applies.

6. To evaluate the operation costing system chosen by companies and how effective it is.

RESEARCH DESIGN

The study adopted a descriptive survey study design. This study method was appropriate
because it explored and described the relationship between variables in their natural setting
without manipulating them. The design aimed at obtaining information that could be
analysed, pattern extracted and comparison made for the purpose of clarification and
provision of basis for making decisions. Descriptive survey study design has been defined as
systematic gathering of information from respondent for the purpose of understanding or
predicting some aspects of behaviour of the population of interest. Both qualitative and
quantitative data was obtained for comparison purposes.

DATA COLLECTION

The main objective of the study is to determine and analyze the financial position and Cost
reduction of the SANVIJAY ROLLING AND ENGINEERING LTD . For this purpose, the
information was collected by two ways:

28
 1. Primary Data:

Primary data is that which is not published but it is very useful data. So the information was
collected by discussion held with the executives of accounts and finance department.

2. Secondary Data:

Secondary data consist of the information that already exists or someone has collected it for
specific purpose. This data was collected by:

A) The company profile was collected from website of SANVIJAY ROLLING AND
ENGINEERING LTD ,

B) The other analytical information was collected from annual report and books and
discussion with finance manager.

SAMPLES & SAMPLES USE

The study focused on all aspects of cost reduction in a manufacturing company . In order to
carry out an in-depth and comprehensive study, 74respondents were randomly selected. These
respondents cut across all the cadres of the company’s employees in production, sales,
purchasing, accounts and stores departments

SAMPLING SIZE

3 YEARS OF DATA

 LIMITATION OF THE STUDY

1) The planned respondents would have not an interested to give information

The constraint enforced that researcher to give more emphasis on secondary data
2) The finance would be allocated to conduct the research work would not sufficient and by
itself would have its own impact on collecting data.
3) The factory distance from the city additional cost incur to transportation at these time collect
the data much difficult

29
DATA ANALYSIS OF COST CONTROL & COST REDUCTION

All the data is represented in Ms- excel according to the study done. Various tools of Ms-
excel have been used for depicting the data graphically, which makes easy to analyse and
compared.

COST - VOLUME – PROFIT ANALYSIS

Cost-Volume-Profit analysis is analysis of three variables i.e., cost, volume and profit Which
explores the relationship existing amongst costs, revenue, activity levels and the resulting
profit. CVP analysis requires that all the company's costs, including manufacturing, selling,
and administrative costs, be identified as variable or fixed.

Cost-volume-profit analysis, or CVP, is something companies use to figure out how changes
in costs and volume affect their operating expenses and net income. CVP works by comparing
different relationships, such as the cost of operating and producing goods, the amount of
goods sold, and profits generated from the sale of those goods. By breaking down costs into
fixed versus variable, CVP analysis gives companies strong insight into the profitability of
their products or services.

USES -

Many companies and accounting professionals use cost-volume-profit analysis to make

informed decisions about the products or services they sell. In this regard, CVP analysis plays
a larger role in managerial accounting than in financing accounting. Managerial accounting
focuses on helping managers -- or those tasked with running businesses -- make smart, cost-
effective moves. Financial accounting, by contrast, focuses more on painting an economic
picture of a company so that outside parties, such as banks or investors, can determine how
financially healthy it is.

IMPORTANT

The CVP analysis is very much useful to management as it provides an insight into the effects
and inter-relationship of factors, which influence the profits of the firm.

In Cost-Volume-Profit Analysis, where it simplifies calculation of net income and,

especially, break-even analysis. Given the contribution margin, a manager can easily
compute breakeven and target income sales, and make better decisions about whether to add

30
 or subtract a product line, about how to price a product or service, and about how to structure
sales commissions or bonuses

  COST REDUCTION  

YEAR COST REDUCTION % CHANGE

2016 352386 22%

2017 8004063 45%

2018 11635459 45%

COST REDUCTION

50% 45% 45%

45%
40%
35%
COST REDUCTION
30%
22%
25%
20%
15%
10%
5%
0%
2016 2017 2018

INTERPRETATION

In the above graph we easily says that the company is reducing the cost year by year in the
year 2016 – 22% In 2017- 45%n and In 2018- 45% We see in the year 2017 and 2018 the
reduction percentage were constant i.e. 45%

31
  COST CONTROL  

YEAR COST CONTROL %CHANGE

2016-17 2890456 27%

2017-18 3678903 27%

2018-19 5098734 39%

COST CONTROL
39%
40%

35%
27% 27%
30%

25% COST CONTROL

20%

15%

10%

5%

0%
2016 2017 2018

INTERPRETATION

The cost control is important aspect in every manufacturing company. controlling a cost
means controlling cost of production and maximizing a profit in the year 2016 – the control
percentage were 27% and in the next year 27% its where constant and in 2018 – the 39%

32
 YEAR TOTAL FIXED VARIABLE TOTAL SALES PROFIT
UNIT COST COST COST

2016 2112 409612 27990007 205594636 32986555 4586936

2017 2112 761998 66,43,4899 761998 86,86,58,82 19668985

2018 3992 1240589 149390912 1240589 16,86,89,660 18058159

PARTICULAR 2016 2017 2018

TOTAL FIXED COST 409612 761998 1240589

VARIABLE COST PER TON 70734.33 31455.9 38,090

SALES PRICE PER TON 46 48 50

BREAK EVEN POINT 15.50523 10.89813 7.851357

BREAK EVEN SALE 27042.05 32397.67 108439.4

VOLUME

33
MARGIN OF SAFETY

%CHANGE 60% 85% 99%

PARICULAR 2016 2017 2018

PROFIT 1350020 5202497 3637842

P/V RATIO 15.14722589 23.52014684 11.44038585

MARGIN OF 89126.55093 221193.2194 317982.4567

SAFETY

MARGIN OF SAFETY = ACTUAL SALES - BREAK EVEN SALE

34
GRAPH AND INTERPRETATION

MARGIN OF SAFETY
99%
100% 85%
90%
80%
70% 60%
60%
Axis Title 50% MARGIN OF SAFETY
40%
30%
20%
10%
0%
2016 2017 2018
Axis Title

INTERPRETATION

The above graph shows the margin of safety year by year as we seen in the above graph in
the initial year 2016-17 the margin of safety is low and it is drastically increasing in the next
year which is2017-18 and also in the next year 2018-19

35
GRAPH AND INTERPRETATION

CVP ANALYSIS OF 2016-17

35000000
32986555
30000000 27990007

25000000

20000000

Axis Title 15000000

10000000

5000000
2112 409612 4586936
0 0
2016

INTERPRETATION

as we seen that cvp analysis (cost- volume profit analysis) is calculate separately year by year
the above graph is shown cvp analysis of the year 2016-2017 which is represented by line
graph aslso the 2112 is the unit produced and the 409612 is fixed cost and the highest amount
is 205594636 represent the total cost also 32986555 is sales and the 4586936 is the profit.

36
YEAR 2017

GRAPH AND INTERPRETATION

CVP ANALYSIS OF 2017-18

20000000 19668985
18000000
16000000
14000000
12000000
10000000
Axis Title
8000000
6000000
4000000
2000000 2017
2112761998
0 0 0 0
2017

INTERPRETATION

as we seen that cvp analysis (cost- volume profit analysis) is calculate separately year by year
the above graph is shown cvp analysis of the year 2016-2017 which is represented by line
graph also the 2112 is the unit produced and the 761998 is fixed cost and the highest amount
is 19668985 represent the profit.

37
YEAR 2018

GRAPH AND INTERPRETATION

CVP ANALYSIS OF 2018-19

160000000 149390912
140000000
120000000
100000000
80000000
Axis Title
60000000
40000000
20000000 3992 1240589 18058159
0 0 0
2018

INTERPRETATION

as we seen that cvp analysis (cost- volume profit analysis) is calculate separately year by year
the above graph is shown cvp analysis of the year 2016-2017 which is represented by line
graph aslso the 3992is the unit produced and the 1240589 is fixed cost and the highest
amount is 149390912 represent the variable cost and the 18058159 is the profit

38
 RATIOS

 P/V RATIO (PROFIT VOLUME RATIO)

Profit-Volume Ratio expresses the relationship between contribution and sales. Higher the
P/V ratio, more will be the profit and lower the P/V ratio lesser will be the profit. The P/V
ratio shows the rate at which profit increases with volume. The cost accountant will compare
the P/V ratio of different product lines to find the most profitable items for the company to
produce. A product line may have a larger contribution per unit, but be shown to be less
profitable when the P/V ratio is applied

 USES OF P/V RATIO

To compute the variable costs for any volume of sales.

To determine break-even point and the level of output required to earn a desired profit.

 To decide more profitable sales-mix.

IMPROVIING THE PROFIT/VOLUME RATIO

PARTICUL
AR 2016-17 2017-18 2018-19
SALES 32986555 86865882 168689660
CONTRIBUTI
ON 4996548 20430983 19298748
15.14722 23.52014 11.440385
P/V RATIO 59 68 85

A company may be able to improve the P/V ratio for a specific product by increasing its
selling price and/or reducing its variable costs. For example, it may be able to source raw
materials more cheaply or produce the item more efficiently, reducing labour costs. The

39
 company may improve its overall P/V ratio by changing its product mix, making more of
product A and less of product B in the example above. However, other factors must be taken
into account, for example the volume and price point that the market will stand.

GRAPH AND INTERPRETATION

P/V RATIO
23.52
25

20
15.15
P/V RATIO
15 11.44

10

0
2016-17 2017-18 2018-19

INTERPRETATION

In the above graph x-axis shows the sales of the company and y- axis represents the year
Contribution and sales are the elements which help to calculate the profit volume ratio (p/v)

From the above data we can see that as the p/v ratio increases the in the year 2016-2017 to
2017-18 and in decrease in 2018-19 it determine the relation between sales and contribution
as the p/v ratio increases the profit of the firm also increases and p/v ratio decreases the profit
also decreases there is the direct relationship between the p/v ratio and profit of the business.

40
 CONTRIBUTION MARGIN RATIO

The contribution margin ratio is the difference between a company's sales and variable
expenses, expressed as a percentage. The contribution margin, sometimes used as a ratio, is
the difference between a company's total sales revenue and variable costs. In other words,
the contribution margin equals the amount that sales exceed variable costs. This is the sales
amount that can be used to, or contributed to, pay off fixed costs.

WHY IT IS IMPORTANT

It is the measure of the profit margin that focuses on the proportion of sales revenue which is
left after the deduction of variable costs associated with the product. Contribution margin is
an important cost accounting concept. It is helpful in many making many important business
decisions.

This ratio indicates the percentage of each sales dollar that is available to cover a company's
fixed expenses and profit. The ratio is calculated by dividing the contribution margin (sales
minus all variable expenses) by sales.

HOW DO COMPANIES USE IT?

Analysing the contribution margin helps managers make several types of decisions, from
whether to add or subtract a product line to how to price a product or service to how to
structure sales commissions. The most common use is to compare products and determine
which to keep and which to get rid of. If a product’s contribution margin is negative, the
company is losing money with each unit it produces, and it should either drop the product or
increase prices. If a product has a positive contribution margin, it’s probably worth keeping.
According to Knight, this is true even if the product’s “conventionally calculated profit is
negative,” because “if the product has a positive contribution margin, it contributes to fixed.”
costs and profit

41
 PARTICULA
R 2016-17 2017-18 2018-19

SALES 32986555 86865882 168689660

CONTRIBUTI
ON 4996548 20430983 19298748
CONTRIBUTI
ON MARGIN 0.151472 0.235201 0.1144038
RATIO 26 47 59

CONTRIBUTION MARGIN RATIO = CONTRIBUTION / SALES

OR

SALES - VARIABLE EXPENSES) ÷ SALES = CONTRIBUTION MARGIN RATIO

42
GRAPH AND INTERPRETATION

CONTRIBUTION MARGIN RATIO

24%
25%

20%
15%
CONTRIBUTION MARGIN
15% 11% RATIO

10%

5%

0%
2016-17 2017-18 2018-19

INTERPRETATION

In the above graph x-axis shows the sales of the company and y- axis represents the year
Contribution and sales are the elements which help to calculate the contribution margin ratio
The contribution margin ratio is the difference between a company's sales and variable
expenses, expressed as a percentage. The total margin generated by an entity represents the
total earnings available to pay for fixed expenses and generate a profit.

From the above data we can see that this ratio indicates company will be able to determine
the percentage of each unit sale that helps to cover your profit and variable costs by
working out the contribution margin ratio.

43
VARIABLE EXPENSES RATIO

The variable cost ratio, which can alternatively be calculated as contribution margin , is one
factor in determining profitability A high ratio result shows that a company can make profits
on relatively low sales since it doesn't have many fixed costs to cover.
A low ratio reveals that a company has high fixed costs to cover and must hit a high break-
even sales level before it makes any profits.
The variable cost ratio, which can alternatively be calculated as contribution margin, is one
factor in determining profitability. It indicates whether a company is achieving, or
maintaining, the desirable balance where revenues are rising faster than expenses.

The variable cost ratio quantifies the relationship between a company's sales and the specific
costs of production associated with those revenues. It is a useful evaluation metric for a
company's management in determining necessary break-even or minimum profit margins,
making profit projections and in identifying the optimal sales price for its products.

PARTICULAR 2016-17 2017-18 2018-19

SALES 3298655 86865 1686896
  5 882 60
2799000 66434 1493909
VARIABLE COST 7 899 12
VARIABLE EXPENSES
RATIO 0.848527 0.7647 0.885596
  74 9853 141
If a company has high variable costs in relation to net sales, it likely doesn't have many fixed
costs to cover each month, and can stay profitable with a relatively low amount of sales.
Conversely, companies with high fixed costs will have a lower ratio result, meaning they have
to earn a good amount of revenue just to cover fixed costs and stay in business, before seeing
any profits from sales

44
VARIABLE EXPENSES RATIO = VARIABLE COST / SALES

GRAPH AND INTERPRETATION

VARIABLE EXPENSES RATIO

89%
90%
88%
85%
86%
84%
VARIABLE EXPENSES RATIO
82%
80%
76%
78%
76%
74%
72%
70%
2016-17 2017-18 2018-19

INTERPRETATION

In the above graph x-axis shows the sales of the company and y- axis represents the year
variable cost and sales are the elements which help to calculate the variable expenses ratio
From the above data we can see that A high ratio result shows that a company can make
profits on relatively low sales since it doesn't have many fixed costs to cover. A low ratio
reveals that a company has high fixed costs to cover and must hit a high break-even sales
level before it makes any profit. As the variable expenses ratio decrease in 2017-18 and
increase in2018-19 it determines the relation between sales and variable cost.

45
 PROFIT MARGIN RATIO

 In other words, the profit margin ratio shows what percentage of sales are left over after all
expenses are paid by the business.

Creditors and investors use this ratio to measure how effectively a company can convert sales
into net income.

Investors want to make sure profits are high enough to distribute dividends while creditors
want to make sure the company has enough profits to pay back its loans

The profit margin ratio, also called the return on sales ratio or gross profit ratio, is a
profitability ratio that measures the amount of net income earned with each dollar of sales
generated by comparing the net income and net sales of a company. In other words, the profit
margin ratio shows what percentage of sales are left over after all expenses are paid by the
business.

PARTICULA
R 2016-17 2017-18 2018-19

SALES 32986555 86865882 168689660

NET INCOME 1350020 5202497 3637842

PROFIT
MARGIN
RATIO 0.040926371 0.059891 0.0215653

PROFIT MARGIN RATIO = NET INCOME / NET SALES

46
GRAPH AND INTERPRETATION

PROFIT MARGIN RATIO

6%
6%

5% 4%
4% PROFIT MARGIN RATIO
3% 2%
2%

1%

0%
2016-17 2017-18 2018-19

INTERPRETATION

In the above graph x-axis shows the sales of the company and y- axis represents the year’s
net- income and sales are the elements which help to calculate the profit margin ratio as we
can see in the above graph in the year 2016-2017 the profit margin ratio is 0.040936371 and it
is increasing in 2017-18 and it is drastically decrease in 2018-19 by 0.021565293

47
INVENTORY MANAGEMENT

An effective management of inventory helps in reducing costs which further keeps accounts
and finances in check.

An inventory management system can help you manage your business’s inventory and
stock items, keeping track of exactly where your assets are and what they’re worth. The
system also analyses your business’s inventory needs and can even automate your ordering.
Inventory management systems are important for many industries including retail, food and
beverage, manufacturing, health care and more. A well-run system helps you understand
your assets and maximize their potential, thus improving your business operations and
increasing profits.

In simple terms, inventory management is a set of all those processes which you utilize to
oversee and organize your goods or materials in your facility.A component of supply chain
management, inventory management supervises the flow of goods from manufacturers to
warehouses and from these facilities to point of sale. It involves a retailer seeking to acquire
and maintain a proper merchandise assortment while managing orders, logistics, returns, and
related costs are kept in check.

WHY YOU NEED INVENTORY MANAGEMENT?

It is crucial for an organization today to understand its inventory to achieve both efficient and
fast operations, that too, at an affordable cost. An effective management of inventory helps in
reducing costs which further keeps accounts and finances in check. From a customer’s point
of view, it helps you to provide better customer services through fast delivery and low
shipping charges, hence, meeting customer expectations. Here’s how inventory management
solution can help you achieve these benefits:

48
 BENEFITS:

1. Tracking Inventory
2. Control your costs
3. Improve your delivery
4. Manage planning and forecasting
5. Reduce the time for managing inventory

INVENTORY MANAGEMENT IS ESSENTIAL TO A BUSINESS CONCERN

 Inventory management helps in maintaining a trade-off between carrying costs and ordering

costs which results into minimizing the total cost of inventory. Inventory
management facilitates maintaining adequate inventory for smooth production and sales
operations.

INVENTORY TURNOVER RATIO

Inventory turnover measures how fast a company sells inventory and how analysts compare it to
industry averages. A low turnover implies weak sales and possibly excess inventory, also known as
overstocking. It may indicate a problem with the goods being offered for sale or be a result of too
little marketing.

A high ratio implies either strong sales or insufficient inventory. The former is desirable while
the latter could lead to lost business. Sometimes a low inventory turnover rate is a good thing,
such as when prices are expected to rise (inventory pre-positioned to meet fast-rising demand)
or when shortages are anticipated.

The speed at which a company can sell inventory is a critical measure of business
performance Retailers that move inventory out faster tend to outperform. The longer an item
is held, the higher its holding cost will be, and the fewer reason consumers will have to return
to the shop for new items.

A good example can be seen in the fast fashion business (H&M, Zara, for example). Such
companies limit runs and replace depleted inventory quickly with new items. Slow-selling
items equate to higher holding costs compared to the faster-selling inventory. There is also the
opportunity cost of low inventory turnover; an item that takes a long time to sell prevents the
placement of newer items that may sell more readily.

49
  
 
2017-
PARTICULAR 2016-17 18 2018-19
OPENING  
STOCK OF  
INVENTORY 339187 540769
  7 8 5632226
 
CLOSINVENTOR  
Y 540769 563222
  8 6 8872157
COST OF GOODS  
SOLD(COGS)  
  409612 761998 1240589
 
 
AVERAGE 609572 822381
INVENTORY 6 1 10068304.5
INVENTORY  
TURNOVER  
RATIO 0.06719 0.09265 0.12321727
  7 8 1

COST OF GOODS SOLD/ AVERAGE INVENTORY

50
GRAPH AND INTERPRETATION

INVENTORY TURNOVER RATIO

14%
12%

12%

9%
10%

INVENTORY TURNOVER
8% RATIO
7%

6%

4%

2%

0%
2016-17 2017-18 2018-19

INTERPRETATION

In the above graph we can see that the y-axis shows the year also in 2016-2017 – 0.06719659
, 2017 –2018 - 0.092657528 , and in the year 2018-2019 – 0.123217271 , We can easily says
that the inventory turnover ratio is increasing year by year An increasing turnover ratio
indicates the company’s product is in demand.

51
 AVERAGE DAYS NEED TO SALE THE INVENTORY

Days Sales in Inventory (DSI), sometimes known as inventory days or days in inventory, is a
measurement of the average number of days or time required for a business to convert
its inventory into sales. The days sales in inventory value is calculated by dividing the
inventory balance (including work-in-progress) by the amount of cost of goods sold. This
number is then multiplied by the number of days in a year, quarter, or month.

PARTICULAR 201617 2017-18 2018-19

COGS 409612 761998 1240589

AVERAGE INVENTORY 6095726 8223811 10068305

AVERAGE DAYS NEEDED

TO SALE INVENTORY 5431.823 3939.237 2962.247

AVERAGE DAYS = AVERAGE INVENTORY / COGS * 365 DAYS

GRAPH AND INTERPRETATION

52
 AVERAGE DAYS NEEDED TO SALE INVENTORY
6000 5431.82

5000
3939.24
4000 AVERAGE DAYS NEEDED TO
2962.25 SALE INVENTORY
3000

2000

1000

0
2016-17 2017-18 2018-19

INTERPRETATION

The above graph shows the average days needed to sale inventory also the y-axis shows
number of year we can easily says on the basis of the above graph that the average days
needed to sale inventory is decreasing year by year

53
DAYS INVENTORY OUTSTANDING

Days Inventory Outstanding (DIO), also known as Days Sales of Inventory (DSI), is an
efficiency metric used to measure the average number of days a company holds inventory
before selling it.
This ratio is industry specific and should be used to compare competitors and over time.
Companies that create large machinery (such as Airplane manufacturers) are likely to have a
higher DIO than a small retailer.
A declining ratio over time can indicate that a company is able to sell inventory at a quicker
pace. An increasing ratio, generally a bad sign, can indicate a company held on to its
outstanding inventory for a longer rate than usual. DIO plays a crucial component in the Cash
Conversion Cycle (CCC), which is used to determine how long cash is tied up in working
capital.

PARTICULAR 2016-17 2017-18 2018-19

COST OF GOODS
SOLD(COGS)
  409612 761998 1240589
CLOSING STOCKOF
INVENTORY
  5407698 5632226 8872157

COST OF AVERAGE INVENTORY/ COST OF GOODS SOLD

54
GRAPH AND INTERPRETATION

DAYS INVENTORY OUTSTANDING(DIO)

4818.73
5000
4500
4000
3500
2697.86 2610.32 DAYS INVENTORY
3000 OUTSTANDING(DIO)
2500
2000
1500
1000
500
0
2016-17 2017-18 2018-19

INTERPRETATION

the above graph shows the (DIO) means days inventory outstanding, also called as (DIS)
days sale of inventory

we can see that the days inventory outstanding is decreasing year by year which means the
days it takes to turn inventory into cash also decreases.

55
STOCK COVER (DAYS OF SUPPLY)

PARTICULAR 2016-17 2017-18 2018-19

STOCK 5431.823 3939.237 2962.247

COVER

STOCK COVER = 365/ INVENTORY TURNOVER RATIO

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GRAPH AND INTERPRETATION

STOCK COVER

6000 5431.82

5000
3939.24
4000 STOCK COVER
2962.25
3000

2000

1000

0
2016-17 2017-18 2018-19

INTERPRETATION

The above graph shows the stock cover in the year 2016-17 is highest as compared to other
years it is comparatively decrease year by year from 2016-17 to 2018-19

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 FINDINGS

1) In the above project named as cost control and cost reduction of Sanvijay rolling and
engineering ltd in the above graph we easily says that the company is reducing the cost
year by year in the year 2016 – 22%

In 2017- 45%n and

In 2018- 45%

2) The cost control is important aspect in every manufacturing company. controlling a cost means
controlling cost of production and maximizing a profit in the year 2016 – the control
percentage were 27% and in the next year 27% its where constant and in 2018 – the 39% We
see in the year 2017 and 2018 the reduction percentage were constant i.e. 45%
3) we find the cvp analysis ( cost volume profit analysis ) of the company from the year
2016-2017 to 2018-19
4) Also in this study find the ratios which shows the company’s profitability are as follows

 CONTRIBUTION MARGIN RATIO

The contribution margin ratio is the difference between a company's sales and variable
expenses, expressed as a percentage. The contribution margin, sometimes used as a ratio, is
the difference between a company's total sales revenue and variable costs

 PROFIT MARGIN RATIO

In other words, the profit margin ratio shows what percentage of sales are left over after all
expenses are paid by the business From the above data we can see that as the p/v ratio
increases the in the year 2016-2017 to 2017-18 and in decrease in 2018-19 it determine the
relation between sales and contribution as the p/v ratio increases the profit of the firm also
increases and p/v ratio decreases the profit also decreases there is the direct relationship
between the p/v ratio and profit of the business.

 VARIABLE EXPENSES RATIO

The variable cost ratio quantifies the relationship between a company's sales and the specific
costs of production associated with those revenues. It is a useful evaluation metric for a
company's management in determining necessary break-even or minimum profit margins,
making profit projections and in identifying the optimal sales price for its products.

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5) inventory management

An effective management of inventory helps in reducing costs which further keeps accounts
and finances in check’s the business.

 In inventory we find EOQ i.e. economic order quantity

6) Also here, we study how to cost control and reduce the cost in the manufacturing company

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SUGGESTIONS

Planning has become the primary function of management most of the planning relates to
individual and individual proposals. Costs are nothing but his expressions, largely in financial
terms, cost control has, therefore become and essential tool of management for controlling
and maximizing profits

 Time tables for all stages of costing follow

 Reports, statements, forms and other record to be maintained
 Continuous comparison of actual performance with coasted performance.
 Company needs to improve the inventory management

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CONCLUSION

 The two techniques cost control and cost reduction are used by many manufacturing concerns
to diminish the cost of production
 Cost Reduction has a larger scope than cost control as cost reduction is applicable for all the
industries, but cost control is applicable only to the industries where pre- optimisation of the
cost which is not yet incurred is possible.
 Cost Control works as a road map for the organization to incur costs as per the set standard.
On the other hand, cost reduction challenges the established standards by decreasing the costs
and increasing the profit.

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BIBLIOGRAPHY

1) Cost accounting jawahar Lal.

3) Manufacturing planning and control Vollmen Berry.

4) Financial Management S.M. Inamdar.

5) CWA module (Cost and management accounting)

6) [Link]

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ANNEXURE

COST SHEET (2018-19)

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COST SHEET OF (2016-17)

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