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Its a initiative to analyze budget 2010 in India from a common people point of view. As more than 70% of our visitor are form India, so we have taken this initiative. Also as our next highest visitor is from USA we are considering of covering upcoming USA federal budget.

Please note that at this date, budget is on proposal stage, will confirm after budget discussion in parliament of India.

1.The following Table will give you an idea how the proposed Tax rates for the year 10-11 would save the income of an individual.

The above figures can be arrived by the considering the following slab rates and Deductions U/S 80 are not considered above.

2. Additional Savings For an Individual and HUF Under section 80CCF-Apart from the above savings there is an additional saving which can be made by an individual for Rs.20000 under new section 80CCF in the Income-tax Act to provide that subscription during the financial year 2010-11 made to long-term infrastructure bonds .
3. Very Important- Now Iwill try to present the budget changes in regard with different categories of classes on the basis of their INCOME , their Basic needs and how it will affect.
The finance minister has done a marvelous job of giving in one hand and taking away on the other.

a. Category -I Whose Income is Less than 1.6 lakhs

b. Category- II- Whose Income Is above 1.6 lakhs and less than 5 lakhs

c. Category-III- Whose Income is above 5 lakhs .

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STANDARD COSTING (PART 01)

Introduction
Standard Costing is a technique of determining the cost as well the price of a product. This technique was developed in the year 1914. Before this technique comes to force to determine the price of a product, only one method was used, i.e. Absorption Costing. Till date, many techniques were evolved to determine the price of a product. But still today 90% organisations are adopting Absorption Costing as a method of price determination.

Definition
There are two terms which should be very clearly understood before defining a Standard Costing.  These are,

1. Costing: - Costing means application of a method which helps in determining the cost of product. Costs can be categorised in different ways. These are
• Element wise: - Material, Labour, Expense.
• Function wise: - Production, Administration, R&D, Quality Control, S&D, Etc.
• Behaviour wise: - Variable Cost, Fixed Cost, semi-Variable Costs.

2. Standard: - Standard is the globally accepted Measurement or Dimension or Yardstick or Scale. These yardsticks generally cannot be changed. Examples are Litter, Meter, Hour, Rupee, Numbers etc.

By combining the above two terms we can define Standard Costing as a method of estimating the cost of a product by applying the Standard Yardsticks which are previously globally accepted.   

Generally in Costing, Standard is expressed in per unit basis. In a manufacturing concern a production standard is carefully set through different experiences, like Machinery manufacturers specification about the quantity & quality production or input consumption or labour requirement, trial runs, prior period work study, motion study, simo chart etc. Once the standard is set, then a cost sheet is prepared using such standard. Such cost sheet is called Standard Cost Sheet. One must be clear itself that standard & budgets are two different terms. Standards are globally accepted bench mark which cannot be changed according to ones expectation or demand of the product in the market whereas budget means once expectation. Budget can be varied according to demand or other variable which are the driving factor for determining the price or cost of the product in the market.  

Example 01
   Standard Cost Sheet for Producing one unit of a product X
   Qty.                   Rate                                  Total   
Material A       40kg Rs. 50/-                        Rs. 2000/-
Labour            5 hrs Rs. 20/-                        Rs.100/-
V. Ohd            10hrs Rs. 5/-                         Rs.  50/-
F. Ohd            10hrs Rs. 8/-                         Rs.80/-  

 
Standard Cost Per unit of Product   X = Rs.  2,230/-
Standard Capacity  =  30,000 LHR.

Suppose Budgeted Sale in 6th Month = 6,500 units.

Determine the budgeted price of product X for 6th month.

Solution
Standard output of Product X at Standard Capacity 

=  30000/5  = 6000 units.
Total Standard Cost     = 6000*Rs2230          

= Standard output * Standard Cost.
= Rs. 1,33,80,000/-

 Budgeted Cost Sheet for the 6th month
 Qty.                  Rate                                              Total
Material A       6,500 units Rs. 2000/-              Rs.1,30,00,000/-
Labour            6,500 units Rs. 100/-                Rs.6,50,000/-
V. Ohd            6,500 units Rs. 50/-                  Rs.3,25,000/-
F. Ohd            6,500 units Rs. 80/-                  Rs.5,20,000/-  

Total Budgeted Cost of Product X    = Rs. 1,44,95,000/-

Or

Total Budgeted Cost of Product X for 6,500 units 

 = 6,500 units * Rs. 2,230/-
 = Budgeted output * Standard cost
 = Rs. 1,44,95,000/-

Conclusion
Therefore from the above example we find that Standard cost is a pre-set cost which is not changed according to the change in output in 6th year. Perhaps we determined the Budgeted cost of Product X for 6th month by using Standard cost per unit. Setting a standard is a very costly & time consuming matter. While setting a standard, one should consider all the relevant factors related to such production or service process. Therefore unless and until whole production or service process is changed we should not change the Standard.

Cost Control under Standard Costing
CIMA defines Standard Costing as a Control technique which compares Standard Cost & Revenues with Actual results to obtain variances. Later on, with the result of these variances, one can improve the performance in production process & can attain the optimum level of production. From above explanation we find that there is a close relation between the Standard cost & Budgetary Control. Both compares the Expected result & Actual result from a production run. But the significant difference among them is, in Standard Costing we compare the cost at unit level but in Budgetary Control we compare the total cost.
In later parts we will discuss more about different types of variances involved in a production or service process and there applicability in cost determination.

                                                 Continued ....on 04.03.2010

continued from 15.02.2010

LABOUR -part II

Intro : continuing from where we left. Here mainly labour turnover, payroll specific issues, and overtime issues are highlighted. Because these are the main avenue where control must be tight and if not leakage of potentiality and productive man hour may happen. With is article we sum up the article on labour. Judge your knowledge in this new mode of learning. We feel question answer form is the most effective to get into the subject , in which you have already have some knowledge.

Q1. Some of the non-monetary incentives are obligatory on the employers, so he/she has to provide these benefits to all employees.
(a) True
(b) False

NOTE: Non-monetary incentives are those incentives which are provided free or employees may contribute partially. Some examples of this benefit are Health and safety benefits, Housing facility etc.

Q2. Which of the following statement correctly defines the Labour Turnover?
(a) Ratio of number of workers leaving the organization to the number of workers joining it.
(b) Labour turnover is the ratio of the number of persons leaving in a period to the average number employed.
(c) Ratio of number of workers joining the company to the number of workers in the company.
(d) None of the above

NOTE: Causes of Labour turnover: Personal cause, Avoidable cause and Unavoidable cause.
Example of Personal Cause: Death, Family problem, retirement etc
Avoidable Cause:  Poor wages, bad working conditions, odd hours to work, etc
 Unavoidable Cause: Disablement, marriage or pregnancy in the case of female workers.

Q3. The higher the labour turnover, the better it is for the company.
(a) True
(b) False

NOTE: It is a common feature that employee joins and leaves the concern. But labour turnover should be least so that cost can be minimized.

Q4. How many methods are there to calculate the labour turnover of a company?
(a) Two
(b) Three
(c) Four
(d) Five

NOTE: Three methods of labour turnover is
•    Separation Rate Method:
Labour turnover = Separation during a given period/ Average number of workers during the period.

•    Net Labour Turnover Rate Method or Replacement Method:
Labour turnover = Number of replacements during a given period/Average working force during the period * 100

•    Labour Flux Method :
Labour turnover = (Number of separation during a period) + (Number of new employees during a given period)/ Average number of workforce during the given period * 100


Q5. Which of the following costs are considered to be the preventive cost of labour turnover?
(a) Cost of training
(b) Cost of labour welfare activities
(c) Cost of providing medical services
(d) Waste, scrap and defectives arising due to lack of experience of workers.

NOTE: Preventive costs of labour turnover are incurred to keep the employees satisfied and encourage them to be part of the concern.

Q6. Normal idle time occurs due to unavoidable causes.
(a) True
(b) False

NOTE: Idle time means the time during which the worker was idle. Example of normal idle time is the time lost between gate and place of work. This is unavoidable cause.

Q7. Normal idle time can be charged to Costing Profit and Loss Account.
(a) True
(b) False

NOTE: Normal idle time can be charged as overhead and abnormal idle time can be charged to Costing Profit & Loss Account.

Q8. To which of the following head is the normal cost of overtime is allocated?
(a) Production Order
(b) Miscellaneous expenses
(c) Costing Profit and Loss Account
(d) Company’s essential expenses account

NOTE: Overtime means when worker works more than his normal working hours. Overtime is consisting of 2 elements: normal cost and extra payment or premium. The premium is known as Overtime cost. The normal cost is allocated to the production order on which the worker is working.

Q9. Ironically, overtime results in decrease in productivity.
(a) True
(b) False

NOTE: Due to late hours working, workers can loose efficiency, this reduces the output and this can also effect on the health of workers.

Q10. Companies can fix overtime working hours as per their requirements.
(a) True
(b) False

NOTE: Overtime arises only when there is abnormal conditions and customer’s request are unusual. So companies cannot fix overtime working hours .      

Q11. Which of the following are the methods of treating the charges of ‘holiday pay’?
(a) Charge to the output of the year
(b) Charge to the direct labour cost
(c) Charge to the miscellaneous expenses
(d) Charge to the cost profit and loss account.

NOTE: Employees are entitled to certain holidays. And holiday pay is estimated in advance for the year as a whole after taking into account the normal holidays in a year. This cost is unproductive cost and treated as a part of production cost. So there is 2 methods of charging these overheads
•    Can be treated as overhead and charged to the output of the year.
•    Charged to the direct labour cost to cover inflated cost.

Q12. If a trainee does some productive work during the course of training, it will be credited to the concerned department.
(a) True
(b) False

NOTE: The training section can be credited with any productive work done by the trainees and the corresponding amount is debited to the concerned production order.

While undergoing training, if a trainee does some productive work the corresponding amount is debited to the concerned production order.

Q13. Which of the following departments prepares the payroll?
(a) Cost centre
(b) HR department
(c) Cost department
(d) Accounts department

NOTE: Payroll is a periodic statement which shows:
•    Gross wages earned by each worker
•    Deductions from gross wages
•    Net wages payable to each employee
The cost department checks the particulars and calculates the payroll.

Q14. Unpaid wages not paid for a long time, can be transferred to which of the following accounts?
(a) Net Profit account
(b) Cash account
(c) Gross profit account
(d) Costing profit & loss account

NOTE:
•    Unpaid wages are recorded and the amount is sent to cashier.
•    After verifying all the facts, cashier can make the payment
•    It should not be paid to dummy workers
•    If then also no body claim for wages for a long time, it can be taken back into the cash account.



Q15.Bulk of the Labour Cost in a production department is direct.
(a) True
(b) False

NOTE: Most of the labour is engaged directly in converting raw material into finished goods. So the bulk of labour cost in production department is direct.


16. If Overtime occurred due to unavoidable circumstances, the cost of overtime will be passed on to which of the following?
(a) The customer’s account whose job is being done
(b) General overhead cost
(c) Concerned department whose job is being done
(d) The costing profit & loss account

NOTE:
•    The customer’s account whose job is being done – only in the case of customer request
•    General overhead cost – in the case of general pressure of work.
•    Concerned department whose job is being done – incase the delay of work.
•    The costing profit & loss account – incase of unavoidable circumstances like earthquake, fire, breakdown of plant.

Q17. The calculation of Labour Cost of the job done is calculated with the help of Time Booking.
(a) True
(b) False

NOTE:
•    Time booking is the recording of time spent by the workers on the different jobs or work orders carried out by him during his period of attendance in the factory for the purpose of cost analysis and cost apportionment.
•    Labour cost means the wage payment made to labour for its productive work.
•    Time booking gives the data of productive work done in the particular time.  So it becomes easy to calculate the labour cost with the help of Time Booking.


Q18. When a cost is identified with and charged to single costing unit, it is said to be Direct Labour Cost.
(a) True
(b) False

NOTE:
•    Direct labour cost is easily identified with a specific job, contract or work order.
•    Direct labour cost is directly related with the product or process, so it will be charged to single costing unit.

IMPORTANT NOTE: Study in labour cost is not only important for students of CA or COSTING , it is equally important for a CS students. As a company secretary, why should we learn “LABOUR COST”?
A Company Secretary plays a vital role of advising company regarding laws. In this case a Company Secretary may have to provides  advices  regarding Labour and Industrial Law. Before advising to company regarding these, a CS should know how to compute and analyze different component of   LABOUR COST.

Answers :

Part I    1. a, 2. c.d, 3. b, 4. a.b.d, 5. b, 6.b,7.b, 8. a, 9. a, 10. b, 11. a, 12. b, 13. a, 14. a. c , 15. a.c.d, 16. b, 17. b, 18. a, 19. a, 20. a, Part ii: 1. a, 2. b, 3. b, 4. b, 5. b.c, 6. a, 7. b, 8. a, 9. a, 10. b, 11. a.b, 12. a, 13. c, 14. b, 15. a, 16. d, 17. a, 18. a

For any specific query your can ask to our education division, post a mail to: support@angelesia.com with subject line EDUCATION.

Query can be made by members only.To get free membership click here.

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