TVS Motors - ABC Costing Summer Internship

Summer Internship Presentation

“ TO DETERMINE THE COST OF CONSUMABLES FOR
MODEL „WEGO‟ AND ASSIGN BUDGET NORMS FOR
FORECASTED PRODUCTION USING TDABC
METHODOLOGY.”
in
TVS MOTOR COMPANY LIMITED

By:
Mayank Mohan
10BM60048
December 9, 2011 Summer Internship Presentation 1

Auto Industry Overview

December 9, 2011 Summer Internship Presentation

TVS Motors
• Third largest two wheeler manufacturer in the
world
• Among the top ten two wheeler manufacturers
in the world
• Flagship company of TVS group
• Employs around 40000 people
• 4 manufacturing plants ( Hosur, Mysore, Solan
and Indonesia)

TVS Motors ( Recent Performance)
• Growth of 13.1 % in sales ( 15.2 lakhs units )
• Impressive growth of 19.4% in scooters
• Profit of Rs. 88.01 Cr against 31.08 of 2009
• Launched two new products catering entirely
new segments of the market
• Doubled it share in domestic three wheeler
market with extensive sales of TVS King


Project Objectives
• To investigate and determine the cost of consumables for
model ‘WEGO’ per vehicle

model ‘WEGO’ per plant

model ‘WEGO’ per unit or fund center of a particular plant

model ‘WEGO’ per cost center or sub unit of a particular unit

• To study the process and investigate feasibility of implementing
ABC costing and Time Driven ABC costing.

Time Driven ABC system (TDABC)

• Unit Cost Estimate
cost of capacity supplied
Capacity Cost Rate (CCR )
Practical capacity of resources supplied

• Unit Time Estimate
Activity cost driver Time for activity Unit cost of capacity


Methodology
Outline of steps performed
• Find and trace the cost centers where resources are used indirectly or directly
for the manufacture of WEGO.

• Gather information about the consumption of consumables from historical
data available at the shop floor and by interviewing the personnel responsible
for ordering of consumables.

• Study and observe the process at the respective shop floor to derive method
to assign cost to WEGO model where parts for more than one model are
manufactured.

• Consolidate the data and study the consumption pattern of consumables.

• Use a suitable statistical tool to predict the future consumption at that cost
center.

• Study the feasibility of ABC and TDABC accounting for consumables at that cost
center.

Data collection

• The first step involved identifying cost centers where consumables for ‘WEGO’
were used ( 26 cost centers were identified which included one in Mysore Plant)

• The consumption pattern of consumables and historical data (for last 6 months

The questions posed to personnel were :
Q 1) What is the cost center used in SAP?
Q 2) How many people are working in every shift?
Q 3) Are there any specific consumables used for WEGO?
Q 4) How do you account for consumption of consumables for WEGO?
Q 5) How much of each consumable is used for each activity? Or What is the
consumption pattern for each consumable?

It took 4.5 weeks to gather data and consolidate it to perform analysis.


Postg Date Cost Elem. Cost element name Val.in RC Cost Ctr DocumentNo Doc. Date Material Description Quantity Material
01.11.2010 510101 CONS.OF STRS-IND-VAR 841.5 1133 120844636 01.11.2010 Silver metallic spray tin (400 ml TIN) 5 3795
01.11.2010 510102 CONS.OF STRS-IND-FIX 662.5 1133 120844636 01.11.2010 COLOUR BANIAN WASTE 25 2309
01.11.2010 510204 CONS.OF SAFETY ITEMS 134.8 1133 120844636 01.11.2010 BANIAN CLOTH GLOVES(DOUBLE KNITTED) 20 2221
01.11.2010 510204 CONS.OF SAFETY ITEMS 640.5 1133 120844636 01.11.2010 WHITE BANIAN GLOVES FULL 150 2219
01.11.2010 510204 CONS.OF SAFETY ITEMS 84.55 1133 120844636 01.11.2010 NITRYLE GLOVES 1 2228
12.11.2010 510102 CONS.OF STRS-IND-FIX 39.75 1133 120917915 12.11.2010 COLOUR BANIAN WASTE 1.5 2309
13.11.2010 510102 CONS.OF STRS-IND-FIX 56.8 1133 120933936 13.11.2010 KNITTED HAND SLEEVE 22" 4 3538
13.11.2010 510204 CONS.OF SAFETY ITEMS 98.8 1133 120933936 13.11.2010 REXIN APRON W/OUT SLEEVE 2 2207
13.11.2010 510204 CONS.OF SAFETY ITEMS 23 1133 120933936 13.11.2010 WHITE REPIRATOR 2 2248
13.11.2010 510204 CONS.OF SAFETY ITEMS 16 1133 120933936 13.11.2010 Ear plug 3M 1110 2 2244
13.11.2010 510102 CONS.OF STRS-IND-FIX 38.32 1134 120933936 13.11.2010 WHITE BOARD MARKER-PERMANENT (Reynolds) 3523
2
13.11.2010 510204 CONS.OF SAFETY ITEMS 2,536.50 1134 120933936 13.11.2010 NITRYLE GLOVES 30 2228
17.11.2010 510204 CONS.OF SAFETY ITEMS 13.48 1133 120968237 17.11.2010 BANIAN CLOTH GLOVES(DOUBLE KNITTED)2 2221
19.11.2010 510102 CONS.OF STRS-IND-FIX 17.57 1133 120986378 19.11.2010 LETTER WRITING BRUSH NO.12 - FLATE 2 2255
19.11.2010 510102 CONS.OF STRS-IND-FIX 17.57 1134 120986378 19.11.2010 LETTER WRITING BRUSH NO.12 - FLATE 2 2255
20.11.2010 510204 CONS.OF SAFETY ITEMS 36.78 1133 121001762 20.11.2010 POLYCARBONATE GOGGLES(FLYING PARTICLES) 2223
1
20.11.2010 510102 CONS.OF STRS-IND-FIX 38.32 1134 121001762 20.11.2010 WHITE BOARD MARKER-PERMANENT (Reynolds) 3523
2
20.11.2010 510204 CONS.OF SAFETY ITEMS 61.75 1134 121001762 20.11.2010 ORANGE FACE SHIELD WITH A TYPE RING 1 2242
20.11.2010 510204 CONS.OF SAFETY ITEMS 2,536.50 1134 121001762 20.11.2010 NITRYLE GLOVES 30 2228


Example of data obtained after consolidation for paint shop (1222) in Plant 1
Material Description November December J anuary F ebruary March April TOTAL
WHITE BOARD MARKER-PERMANENT (Reynolds) 57.48
Q uantity 0 0 0 0 0 0
C ost 0 0 57.48 0 0 0
C ost for WE G O 0 0 24.54437 0 0 0
WHITE BANIAN GLOVES FULL 36764.7
Q uantity
C ost 6405 7216.3 5849.9 5764.5 6191.5 5337.5
C ost for WE G O 2119.659 2925.279 2497.949 2386.91 2868.226 2340.96
Tak Rag S- 164 size- ( 45 x 90 )cm 41963.74
Q uantity
C ost 7326.99 7993.07 10657.4 2664.35 6660.89 6661.04
C ost for WE G O 2424.781 3240.159 4550.786 1103.229 3085.672 2921.448
Silver metallic spray tin (400 ml TIN) 1514.7
Q uantity
C ost 673.2 0 0 841.5 0 0
C ost for WE G O 222.7876 0 0 348.4404 0 0
STEEL WIRE BRUSH 3 ROW 745.98
Q
C ost 118.62 59.53 276.1 105.66 99.7 86.37
C ost for WE G O 39.25589 24.13174 117.8967 43.7507 46.18624 37.88079
STARCKE WATER PROOF PAPER 2000G 43886.04
Q
C ost 18577.77 13068.27 8160 0 4080 0
C ost for WE G O 6148.095 5297.498 3484.378 0 1890.069 0
Sanding sheet P-400 216U 9" x 11" 119919.08
Q
C ost 23075.7 25144.78 11623.53 15501.79 29069.32 15503.96
C ost for WE G O 7636.632 10192.97 4963.33 6418.836 13466.43 6799.84
SANDING PAD REDISH BROWN 6X8 3534.51
Q
C ost 2542 472.85 260 0 259.66 0
C ost for WE G O 841.245 191.6797 111.0219 0 120.2881 0
Sanding Disc P-400 216 U 5" No Holes 814173.69
Q
C ost 130130 152374.6 172431 92559.07 127449 139230
C ost for WE G O 43064.99 61768.26 73629.27 38325.99 59041.02 61064.51
Rinse Conditioner 47850
Q
C ost 8700 13050 6960 6090 0 13050
C ost for WE G O 2879.163 5290.092 2971.97 2521.69 0 5723.565
REXIN APRON W/OUT SLEEVE 13782.6
Q
C ost 2815.8 2815.8 2618.2 1383.2 1926.6 2223
C ost for WE G O 931.8559 1141.444 1117.99 572.7425 892.5016 974.9796
POLYTHENE BAG 42*40*300 111523.95
Q
C ost 10440 18560 27840 23943.95 16820 13920
C ost for WE G O 3454.995 7523.686 11887.88 9914.486 7791.901 6105.136
POLYCARBONATE GOGGLES(FLYING PARTICLES) 1620.3
Q
C ost 161.54 432.1 530.26 136.38 134.93 225.09
C ost for WE G O 53.45976 175.1608 226.4248 56.47095 62.50661 98.72162
PETROLEUM JELLY WHITE 3588
Q
C ost 0 0 312 780 1560 936
C ost for WE G O 0 0 133.2262 322.9751 722.6734 410.5177
December 9, 2011 Stripper Proto Strip - E200
Paint Summer Internship Presentation 232452.21 1
Q
C ost 11625.93 26573.56 106227.8 21591.02 66433.89 0

Data Analysis (cont.)
• In the cost center (1222) various parts for Moped XL Super
and Scooter Wego are painted everyday.
• There is no separate cost centers for each model and
production for parts for each day is written manually in the
register.
• Most of the consumables except paint are common which
makes it difficult to allocate costs to both the models.
• Time required for each activity was found and costs were
allocated according to time spent on each vehicle to get a
better idea of cost incurred on the vehicles.
• The ratio obtained was called Plant Utilization Factor for
the cost center.


Data Analysis
Part Name Quantity per Jig
For Wego 2.58
For XL Super (Similarly) 1.1

Speed of Conveyor : 5 meters/ minute

Pitch of Conveyor 0.9 meters
Time for one jig (Pitch/speed) 0.18 min

Time for 1 vehicle in seconds (time for 1 jig x no of jigs x 60)
Therefore, we get
Wego 27.864 seconds
XL Super 11.88 seconds

Production November December January February March April
Wego 9765 15006 12768 14000 17558 14824
XL Super (HD included) 46304 51628 40185 46465 47715 44506

November December January February March April

Ratio of assigning costs (TDABC): 0.330938 0.405371 0.427007 0.414071 0.463252 0.438587


Data consolidation and budget prediction
The assumptions made to analyze data and arrive at the budget
were :

• The amount of consumable used for any activity is constant or
varies very minutely for one vehicle.
• There is a linear relation between the consumption of
consumables and production of components from a cost
center.
• If no production takes place, there is no consumption of any
consumable.
• The wear and tear of safety items depends on the quantity of
components produced in each cost center.
• Time for each activity in a line has an average value which
remains constant over a large number of components
produced.


Budget Prediction
• ‘LINEST’ function was used to correlate cost incurred for
each month for each consumable with monthly
production.
• The quality of the function for each consumable was
determined. If the quality of function was greater than
0.91, we used the predicted value of the function
otherwise the average value of consumption for last 6
months was used.
• The quality of function was returned by the function
itself in the Co-efficient of Determination column.
• The reason for poor quality of the function was then
inquired by going back to shop floor
• Suggestions were given to ensure smooth capturing of
the cost and better budget prediction.
December 9, 2011 Summer Internship Presentation 10BM60048

A
Snapshot
of sheet
obtained
for each cost
centre


Result for Cost center 1222 (cont.)
• The cost per ‘wego’ obtained by different methods is given
below
ABC 13.73211 13.85153 13.94677 7.713527 14.19502 5.496115
TDABC 26.09364 24.93339 24.69884 13.79442 24.44623 9.647634

• Similarly, cost per Super XL by different method is given
below
ABC 13.73211 13.85153 13.94677 7.713527 14.19502 5.496115
TDABC 11.1252 10.63051 10.53051 5.881341 10.42281 4.113332

• Here, ABC is the method used by the paint shop where total
cost of consumables is divided by total number of produced
vehicles.

• As WEGO requires more time per activity, it is obvious that it
will consume more consumables which is rightly depicted by
the TDABC method where the ratio of time used for
production of both the vehicles is used to proportion costs.

Final Result
• The final deliverable consisted of a setup of 26 Excel
sheets (for each cost center) interlinked with one final
summary sheet to give information about
 Cost of consumables for TVS Factory
 Cost of consumables for each plant
 Cost of consumables for each shop in Plant 1,2 and 3
 Cost of consumables for different cost centers in each
shop
 Predicted budget for next month considering
production data of last 6 months production


Contribution to TVS
• The Cost of Consumables for ‘WEGO’ was found and
similar work could be carried for other models.
Other Recommendations:
• Making Production Posting possible in SAP for each cost
center if implementation of ABC or TDABC costing method
is planned
• Request for consumables and posting of documents not
done as per instructions. Several discrepancies in raising of
requests.
• Since consumables costing the maximum amount in each
cost center has been identified, the R&M department has
taken up initiatives to reduce 50p at cost center which
could result in savings of 15.63 lakhs per annum.


TVS Motors - ABC Costing Summer Internship

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