Cost Accounting Presentation

1. COST ANALYSIS OF COCA COLA
PRESENTED BY;
BILAWAL SALEEM
DANISH JAMES

2. INTRODUCTION
In this project we will discuss about the establishment of
new business or a new product. We will have brief analysis
of cost occurring in producing a specific product of a
company. In this regard we will be able to have brief proper
cost analysis of that product.

3. ELEMENT OF COST
Specific function (or a group of functions) which is considered
a specific entity for the purpose of estimating, controlling, and
reporting costs.
Material
Labor
FOH

4. Material
 Direct: Potato’s, Masalas, Packets
 Indirect: Machinery, Gas, Oil
 Labor
Direct: Salary, Wages, Benefits
 Indirect: Salary of supervisor, Training and
employee welfare
 FOH
 Rent, Taxes, Promotion, Communication
expenses

5. HYPOTHETICAL DATA FOR COKE 500ML BOTTLE
NOTE : SALE PRICE OF 500ML BOTTLE OF COKE IS 50 RS.
No Description Amount
1 Opening Stock 10,000
2 Closing Stock 8,000
3 Net. Purchases 9,000
4 Direct Labor 1,000
5 FOH 3,000
6 OP work in progress 40,000
7 Closing work in progress 20,000
8 Op Finished Goods 30,000
9 Closing Finished Good 15,000

6.  CGS Statement clearly shows that company bearing
cost of 50,000 in the manufacturing process.
Add: OP Stock 10,000
Purchases 9,000
Less: Closing Stock (8,000)
Material in Use 11,000
Direct Labor 1,000
Prime Cost 12,000
F.O.H 3,000
Total Factory overhead 15,000
Add: OP Work in Progress 40,000
Less: Closing work in Progress (20,000) 20,000
Cost of Goods to be Manufactured 35,000
Add: OP finished goods 50,000
Less: Closing Finished goods (35,000) 15,000
Cost of goods Sold 50,000

7. UNIT COST
Unit costs include all fixed costs, or overhead costs, and all variable costs,
or direct material costs and direct labor costs, involved in production.
By using the Formula, we found the unit cost which is Rs. 25.
Unit Cost =
𝐓𝐨𝐭𝐚𝐥 𝐜𝐨𝐬𝐭 𝐢𝐧𝐜𝐮𝐫𝐫𝐞𝐝
𝐔𝐧𝐢𝐭𝐬 𝐏𝐫𝐨𝐝𝐮𝐜𝐞𝐝
Unit Cost =
𝟓𝟎,𝟎𝟎𝟎
𝟐,𝟎𝟎𝟎
Unit Cost = 25 Rs.

8. ECONOMIC ORDER QUANTITY
 In corporate finance, economic order quantity (EOQ) is the order quantity that
minimizes the total holding costs and ordering costs.
 For company, after applying the appropriate formula, EOQ come as 1,267
units.
EOQ =
2(Required Units)(Order cost)
unit cost x carrying cost)
EOQ=
𝟐 𝟐𝟎𝟎𝟎 (𝟏𝟎𝟎𝟎)
𝟐.𝟓
EOQ=
𝟒𝟎𝟎𝟎𝟎𝟎𝟎
𝟐.𝟓
EOQ = 1267 units.

9. INVENTORY OPTIMIZATION
A fully automated demand forecasting and inventory optimization
system to attain key inventory optimization metrics.
 Reorder point
The reorder point (ROP) is the level of inventory which triggers an
action to replenish that particular inventory stock. It is a minimum
amount of an item which a firm holds in stock, such that, when stock
falls to this amount, the item be reordered
Reorder point = Max. Consumption x lead time
= 2,000 x 6
=12000 units

10.  Maximum level
Maximum level is that level of stock, which is not normally allowed to be
exceeded.
Maximum Level = Order level – minimum consumption x lead time
= 12000 – 1800 x 6
= 12000 – 10800
= 1200 units.
 Minimum Level:
Minimum level or safety stock level is the level of inventory, below
which the stock of materials should not be fall.
Minimum Level = Order level – average consumption x lead time
= 12000 – 1900 x 3
= 12,000 – 5700
= 6,300 units.

11.  Danger Level
Danger level is a level of fixed usually below the minimum level.
When the stock reaches danger level, an urgent action for purchase is
initiated.
Danger Level = Average consumption x emergency time
= 1900 x 1
= 1900 units.

12. MARGINAL COSTING INCOME STATEMENT
 After the creation of CGS
statement and calculation of
EOQ, order level, minimum
level etc., now we need to
calculate the profit earned by
the company through income
statement. We will use the
marginal costing technique to
calculate the profit earned by
the company.
Description Amount (Rs)
Sales
(50x18
00)
90,000
Less: Variable Cost
Rent, rates, and taxes 7,000
Sales, promotion 2,000
Advertising 3,000
Technical Services 1,000
other Expense
500
(13,500)
Contribution Margin 76,500
Less: Op &admin. Expense
Rent, rates, and taxes 8,500
Product Transportation 9,000
Salaries, wages and Benefits 13,500
Inventory maintenance Expense 4,500
Research & Development
3,000
(38,500)
Net. Profit 38000

13. BREAK-EVEN ANALYSIS
 Break-even point of a company is the point where
revenue becomes equal to the cost.
 Company doesn’t generate any profitability. At this
point, fixed cost of the company is equal to Contribution
margin.
 Two methods to calculate:
1. Break-even sales in Rs.
2. Break-even sales in units.

14. BREAK-EVEN SALES IN UNIT
Break Even =
𝐅𝐢𝐱𝐞𝐝 𝑪𝒐𝒔𝒕
𝐂𝐌 𝐏𝐞𝐫 𝑼𝒏𝒊𝒕
To Find CM per unit:
CM Per Unit = Sales Price per Unit – VC per Unit
CM Per Unit = 50 – 7.5
= 42.5
Now
Break Even =
38,500
42.5
Break Even = 905.88 units.

15.  Tabular Form
Sales (50 x 905.88) 45,294
Less: VC (7.5 x 905.88) (16794.1)
Contribution Margin 38,500
Less: FC (38,500)
Net. Profit 0

16. BREAK-EVEN SALES IN RUPEES
Break even sales = 50 x 905.88
= 45,294
 Tabular Form
Sales (50 x 905.88) 45,294
Less: VC (7.5 x 905.88) (16794.1)
Contribution Margin 38,500
Less: FC (38,500)
Net. Profit 0

17. TARGETED PROFIT
 We assumed that our company wants to earn targeted
profit of 1,00,000
 To earn that profit how many no. units we need to sell to
earn that amount of profit.
Targeted CM – Fixed Cost = Targeted Profit
Targeted CM – 38,500 = 100,000
Targeted CM = 100,000 + 38,500
Targeted CM = 1,38,500

18. Best for target profit in units =
𝐓𝐚𝐫𝐠𝐞𝐭𝐞𝐝 𝑪𝑴
𝐂𝐌 𝐏𝐞𝐫 𝑼𝒏𝒊𝒕
=
1,38,500
42.5
= 3258.8 units
 Tabular Form
Sales (50 x 3259) 1,62,950
Less: VC (7.5 x 3259) (24442.5)
Contribution Margin 138507.5
Less: FC (38,500)
Net. Profit 100,000
 Hence, its been proved that we need 3259 units to sell to earn the
required profitability which is 100,000.

19. CONCLUSION
we have selected product Coke 500ml and then we have
evaluated the costs of it. We have calculated the Cost of
Goods sold statement to find the total cost incurred on
production. Then we also found the EOQ of
manufacturing firm. Then we decided to find the most
important thing Break-even point of company which
helped us knowing that if the company will only be having
sales of 45,294 then with the same cost then there will be
no profit for the company. On the other hand we also
learnt how to find the targeted profit which was 100,000 in
a specific period then we should do sale of at least 3259
units with same cost. That would help us to earn profit of
100,000