Cost Management Accounting Practice At Janani Tissue Papers Industries Ltd

Cost Management Accounting Practice At Janani Tissue Papers Industries Ltd

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:

Cost Management Accounting Practice
At Janani Tissue Paper Ltd:

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1. Introduction Part
1.1 Origin of the report:
The report is originated to make a study on the costing procedure and the internal control system of Janani Tissue Papers Industries Ltd as a part of the accomplishment of internship program required for the completion of BBA program of Daffodil International University. As the part of BBA curriculum this project is assigned to me by Jamal Ahmed Chowdhury Executive Director, Accounts & Finance, Janani Tissue Papers Industries Ltd and approved by the academic Supervisor Md. Arif Hassan, Assistant Professor & Associated Head of Daffodil International University, Department BA,
1.2 Objective of the report:
The objectives of the report are as follows:-
Major objective of this report is to show what are the major functions or the chain works of Costing and Budgeting section of Accounts and Finance Departments at Janani Tissue Papers Industries Ltd. After reading this report learners will know the following issues:
To have an idea about the background of Janani Tissue Papers Industries Ltd.

To get an introduction about the organizational structure & how co-ordination among different set of activities is made.

To set a general idea about operating procedures and functions of Accounts and Finance Department of JTP
To explore the specific costing procedure followed by the Janani Tissue Papers Industries Ltd.

To get idea about LC & Local purchase documentation & payment procedures;
To identify the factors which affect the costing procedure
To relate the theoretical learning with the real life situation.

How the chain works are completing.

Cost Management Accounting Practice
At Janani Tissue Paper Ltd:
1.3 Scope of the report:
Costing procedure of a Tissue paper company is vital and vast thing. It needs to update in a regular basis. Moreover, all firms try to keep this information secret in this competitive market. So the study was essentially tried to identify the costing procedure followed by JTP and what are the factors concerned with this procedure. The study was also tried to identify and analyze the various expenses incurred by the JTP in an accounting year.

1.4 Methodology of the report:
The following methodology was followed throughout the study .The study is based on both primary as well as secondary data.

Data regarding the organization profile collected in the following ways:
Primary Source
Careful observation of various activities of related section of that particular department,
Discussions with the officials of Accounting and Finance department.

Secondary Source
Organizational Brochures/ Annual Reports.

Online information.

Different JTP publications.

Other relevant written materials.

Data Collection Techniques:
Some of the primary data were collected by observing others doing their jobs.

Much of the primary data were collected by the informal interviewing of the company officials.

Most of the secondary data were collected by the review and study of relevant reports and documents.

Cost Management Accounting Practice
At Janani Tissue Paper Ltd:
A Review Of Costing Function
1.5 Organization of the study
The report is divided into five parts. The first part is the introductory chapter. The second part covers organizational part (a brief overview of Janani Tissue Papers Limited). The Third part deals with report part. The fourth part includes overall findings with concluding remarks. The last part provides Bibliography and annexure.

1.6 Limitations:
Although I received co-operation from the concerned officials, they were not always able to give me much time, as they were busy with their works. Time is an important issue in Report writing. As I have been given a specific deadline for submission, observation and learning all the functions of costing and budgeting within 3 months was really tough. Besides, all the comments made, conclusions reached and suggestions for possible improvement provided are purely based on my level of understanding, knowledge and my way of interpreting a particular statement. Because of the lack of information, I have to make some assumptions that may cause few errors or personal mistakes in the report. In spite of all these limitations, I have tried to put the best effort as far as was possible.

Cost Management Accounting Practice
At Janani Tissue Paper Ltd:

Cost Management Accounting Practice
At Janani Tissue Paper Ltd:

2.1.1 Overview:
Janani Tissue Papers Ltd. is a leading edge tissue paper company based in Dhaka, Bangladesh and is a member of the Janani Group. The history of tissue paper business of the company was started in 2015. Since the very beginning, the company was highly successful in generating increased demand for its products which eventually justified local production. It completed its registration in 2013 and started its operation in 2015. Now it has grown to become nation’s one of the leading tissue paper companies, supplying more than 25% of the country’s total need.

2.1.2 Vision:
“If there is one characteristic that has typified the BEXIMCO approach, it is the Vision to be the best of our nature and human resource; a vision to establish our group and country as a respected and valued regional presence.”
2.1.3 Mission:
“Each of our activities must benefit and add value to the common wealth of our society. We firmly believe that, in the final analysis we are accountable to each of the constituents with whom we interact, namely: our employees, our customers, our business associates, our fellow citizens and our shareholders.”
2.1.4 Goal:
Continually set the latest standards of modern technology in our industry to satisfy the needs of customers through innovative products.

Contribute to the national economy and the infrastructure development of the country.

Secure the strongest competitive position in our relevant market places through making quality product and operational excellence.

Be recognized as a respected & attractive company & an employer of first choice.

Provide extensive career opportunities through competitive pay & benefits, training & development & a congenial working environment.

Empower our employees at every level and integrate them fully into our network.

Achieve long-term financial performance.

Cost Management Accounting Practice
At Janani Tissue Paper Ltd:
Create secured investment opportunity within the country.

Enhance versatility & diversification through the penetration of new market segments.

Improve administrative & organization structure to review all business lines regularly & develop the best practice in the industry.

2.1.5 Products:
The company’s diverse product portfolio encompasses a wide variety of therapeutic categories, including antibiotics, analgesics, respiratory, cardiovascular, central nervous system, dermatology, gastrointestinal etc. JTP currently produces 235 generics in 426 strengths and dosage forms and many of the company’s brands are consistently occupying leading positions in their respective therapeutic categories.

In 2010 JTPintroduced 27 new generics in a total of 34 presentations, which include seven ophthalmic drops, three HFA asthma inhalers and also drugs in categories such as, three cardiovascular, two multivitamins, two musculoskeletal, two anti-infective, and one anti-diabetic, among others.

The three HFA-based inhalers which were launched for the first time in Bangladesh in 2010. Also introduce for first time into the market was a formulation of Paracetamol 665 mg. Napa Extend.

Cost Management Accounting Practice
At Janani Tissue Paper Ltd:

In 2010 Napa and Neoceptin R ranked 2nd and 4th respectively on the national “Top Five” list.

More over ten of JTP’s brands have annual sales in excess of BDT 100 million each.

Block Buster product:
Janani Hand towel Janani pocket tissue Janani Gold toilet paper Janani white toilet paper Janani Kitchen Towel Janani Hotel napkin 2.1.7Corporate Strategies:
The JTP believes that being in the business which deals with human health makes us more responsible. This sense of responsibility compels JTP to keep the highest standards of its products. Through these products we seek to deliver clear health benefits and higher values to the patients. With this in mind JTP has commissioned state-of-the-art manufacturing facilities with innovative new technologies. JTP use the most modern equipment for quality control and stringent quality assurance procedure and the manufacturing process conforms strictly to the current Good Manufacturing Practices.

Cost Management Accounting Practice
At Jannai Paper Industries Ltd:
Research ; Development:
From its inception till date, JTP’s research & development (R&D) capabilities continue to be one of the essential core strengths for leading the industry in both formulation R&D and API R&D. JTP’s formulation R;D capability is proven not only by the consistent quality of its products but also by its ability to introduce hi-tech, specialized niche products and dosage forms. The reverse engineering capability of JTP’s R&D team has enabled us to introduce innovative new products to serve the ailing people at home and a broad.
Cost Management Accounting Practice
At Jannai Paper Industries Ltd:
A Review Of Costing Function
Cost Management Accounting Practice
At Jannai Paper Industries Ltd:
A Review Of Costing Function
2.2 Departments of Janani Tissue Paper:

JTP operates its business through extensive departmentalization as needed for specified effectiveness of the tasks. The business activities of JTP are directed, controlled and monitored from the head office of Janani Tissue Paper Ltd.

The following major departments coordinate the activities of JTP:
Strategic Brand Management (SBM) department
Planning department
Procurement Department
Sales department
Project management & Business Development Department
? International Marketing department
? MIS department
? Multimedia department
? Finance and Accounts department
Human Resource Department (HRD)
Market Research & Statistical Cell (MRC) department
2.2.1 Brief Description of Accounts & Finance department and others.

Accounts & Finance Department
The activities of the Accounts and finance department are carried over by talented and adequate person. The functions of Accounts and Finance department are carried over five sections. Actually proper control purpose, they subdivide their functions to the several sections. The sections of Accounts and Finance department are as follows:
Financial Accounts- Strategic Business Unit (SBU)
Financial Accounts- Non- Strategic Business Unit
Tax And Payroll
Leasing And Legal Affairs
Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
Hierarchy of Accounts and Finance Department:
Chief Financing
Financial Financial Treasury Legal Tax and Pay IOC&BP
Accounts- SBU Accounts- Non (Manager) affairs roll (Manager)
(Manager) SBU (Manager) (Manager) (Manager) Accounts Accounts Accounts Accounts Accounts Accounts officer officer officer officer officer officer Asst. Asst. Asst. Asst. Asst. Asst. Accounts Accounts Accounts Accounts Accounts Accounts officer officer officer officer officer officer 4138295-16332202305050-841375
The extended form of IOC& BP is Industrial operation control & business planning. This section does the Costing and Budgeting of JTP. Previously it was known as costing and budgeting section but recently it has changed its name because of horizon of their work. Their work is not bounded to the costing and budgeting functions only. They provide information to the planning, marketing, purchasing and others departments for proper decision making. This section of accounts and finance department does the reporting to the management. They prepare different types of cost reports.

Activities of this department are as follows:
Prepare cost sheet.

Determine Manufacturing cost of a product.

Allocate Overhead to the product.

Determine Tender Cost sheet.

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
Prepare different types of budgets such as Production budget, sales budget, cash budget, master budget, purchase budget, Departmental budget etc.

Prepare different types of report such as Scrap report, COGS report, Production report, Product profitability report, biggest loser report etc.

Provide proper data to the planning department relating to costing.

Help to control inventory.

Identifies the cost centers.

Does the inventory valuation. Etc.

Financial Accounts SBU:
The major function of this section is to prepare financial report. They prepare the financial report of Janani Tissue Papers. There is a manager to monitoring the activities of this section. The major activities of these sections are as follows:
Preparation of Financial Report for External Reporting.

Preparation of Monthly Financial Report.

Preparation and publishing Quarterly Financial Report.

Financial Accounts Non SBU:
This section does the works of some supporting company of Janani Tissue Paper. These supporting companies are as follows:
Balaka Printing and Press Ltd.: Balaka Printing and press Ltd. supplies the printing materials to the JTP. For leaflet, packaging, carton and other printing materials are needed.

Pharmatek chemicals Ltd.: They provide Chemicals to the JTP. Pharmatek supplies raw materials to the JTP. There is a responsible person to control, reporting and recording all transactions relating the Pharmateck chemicals Ltd.

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
Tax and Payroll:
The Tax and Payroll section of Accounts and Finance department deals with the taxation and
Payroll services to the company. The major activities are as follows:
Salary disbursement to the employee.

Salary loan to the employee.

Provident fund related activities.

Salary Tax.

Income tax of the company.

Legal Affairs:
This section of Accounts and Finance deals with the legal issue of the JTP. The Major activities of this section are as follows:
Trade license of the company.

Value added tax related activities.

New product Copyright.

Trademark related activities.

Chemical Certificate related issue.

Land related activities.

Treasury section deals with (i) cash at banks and (ii) bills. It also looks after the cash planning and management. A review is made every week for this purpose. This department controls and monitors cash flow positions. There is a responsible person for monitoring and controlling activities of treasury sections.

2.2.2 Brief description of others departments:
Strategic Brand Management (SBM) Department the activities of SBM are:
Market research
Selection of new product
Design and testing of product (DTP)
Sample store (logistics) management
Making strategy
Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:

Procurement Department
Previously it was known as Purchase department. The procurement department deals with all the purchase of the organization such as:
Pharmaceuticals raw materials.

Packaging materials.

Office equipment.

Machinery’s etc.

Planning ; Inventory Control Department
The planning department is concerned with the production planning, raw material procurement planning etc. After getting the sales forecast from the sales department, the planning department goes through the current stock information of different raw materials. They decide when materials will be procured.Sales Department
Sales department is a marketing execution department. It supplies sales forecast to the planning department. The activities and function of Sales department is very important. The profit of the company is dependent on the sales. Sales department assigns selling responsibility to the Medical Representative.

Human Resource Department
Major Activities of HR departments are as follows:
Prepare Recruitment policy and procedure
Placement of employees
Human Resource Development planning
Organizational structure review and modification
Career planning
Hiring and firing
Job description preparation
Conducting appraisal at the end of each year
Maintaining and developing employees personal files

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
Project management ; Business Development Department
Project management ; Business Development Department began its operation from January l, 2000. It is working on market development, both domestic and international. Major functions are as follows:
New product study
New technology study
Project feasibility study
MIS Department
The MIS Department takes care of total automation of JTP. It supports the hardware and software network of the company and the factory.

Multimedia Department
Functions of the multimedia department are:
¾ Web page designing.

¾ Developing multimedia presentation for presentation programs.

¾ Making videos of conferences, meeting etc.

¾ Keeping the records of annual meeting and other meeting.

Medical Department
This department is a unique department in this industry as JTP established this first ever in order to create easy relationship through using the professional linkage with the doctors.

Training Department:
Training Department deals with the training activities of the company. JTP frequently arranges training program for employees for their development of skills.

International Marketing:
International Marketing deals with the international marketing policy and procedures. Now day by day export of JTP is growing. So this department is getting more emphasis.

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:

3.1.1 Definition of Management Accounting
Management Accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis in making informed business decisions that would allow them to be better equipped in their management and control functions. Unlike financial accountancy information, management accounting information is used within an organization “typically for decision-making” and is usually confidential and its access available only to a select few.

According to the Chartered Institute of Management Accountants (CIMA), Management Accounting is
The process of identification, measurement, accumulation, analysis, preparation, interpretation and communication of information used by management to plan, evaluate and control within an entity and to assure appropriate use of and accountability for its resources. Management accounting also comprises the preparation of financial reports for non-management groups such as shareholders, creditors, regulatory agencies and tax authorities” (CIMA Official Terminology).

The American Institute of Certified Public Accountants (AICPA) states that management accounting as practice extends to the following three areas:
Strategic Management— Advancing the role of the management accountant as a strategic partner in the organization.

Performance Management—Developing the practice of business decision-making and managing the performance of the organization.

Risk Management—Contributing to frameworks and practices for identifying, measuring, managing and reporting risks to the achievement of the objectives of the organization.

The Institute of Certified Management Accountants (ICMA), states
“A management accountant applies his or her professional knowledge and skill in the preparation and presentation of financial and other decision oriented information in such a way
Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:

as to assist management in the formulation of policies and in the planning and control of the operation of the undertaking.”
Management accounting practice helps an organization to survive in the competitive, ever-changing world, because it provides an important competitive advantage for an organization that guides managerial action, motivates behaviors, supports and creates the cultural values necessary to achieve an organization’s strategic objectives.

3.1.2 Management Accounting Techniques
Management decisions are basically based on some measures/techniques traditionally designed based on quantitative data. However, in recent past to cope with global business environment, change in business, increase in competition and complexity of decision making some advanced quantitative techniques like Activity – based Costing and Target Costing and some improved programs like Just-in-Time (JIT), Total Quality Management (TQM), Process Reengineering and Theory of Constraints (TOC) have been introduced for application. Now, both traditional and advanced management accounting techniques are shown in the following chart.

Traditional Techniques Advanced Techniques
Financial Statement Analysis Activity-Based Costing
Fund Flow Analysis Target Costing
Cash Flow Analysis Just-in-Time (JIT)
Marginal Costing Total Quality Management (TQM)
Absorption Costing Process Reengineering
Differential Costing The Theory of Constraints(TOC)
Standard Costing Opportunity Costing Budgetary Control Inter-firm Comparison Cost-Volume-Profit Analysis Management Reporting Source: This chart has been developed by the author after consulting different text books on Management Accounting.

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:

The above chart identifies the generally used management accounting techniques by classifying them as to traditional and modern techniques.3.1.3 Management Accounting Functions:
Management accounting is a financial method that helps senior managers and department heads analyze business performance. Management accounting functions relate primarily to budgeting and cost analysis, internal financial reporting and monitoring of cost controls.

Actually, Management accounting may be said to include all activities connected with collecting, processing, interpreting and presenting information to management. The management accounting satisfies the various needs of management for arriving of appropriate business decisions. They may be described as modification of data, analysis and interpretation of data, facilitating management control, formulation of business budgets, use of qualitative information, and satisfaction of informational needs of management.

Listed below are the primary tasks performed by management accountants generated by different cost accounting tools. The degree of complexity relative to these activities is dependent on the experience level and abilities –
Variance Analysis
Rate & Volume Analysis Product Profitability
Cost Analysis & Cost Benefit Analysis Cost-Volume-Profit Analysis
Life cycle cost analysis Capital Budgeting
Strategic Planning Strategic Management Advise
Internal Financial Presentation and Communication
Sales and Financial Forecasting & Annual Budgeting
Cost Allocation
Resource Allocation and Utilization
Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:

3.1.4 Relationship between Cost Accounting, Financial Accounting, Management Accounting and Financial Management
Cost Accounting is a branch of management accounting, which has been developed because of the limitations of Financial Accounting from the point of view of management control and internal reporting. Financial accounting performs admirably, the function of portraying a true and fair overall picture of the results or activities carried on by an enterprise during a period and its financial position at the end of the year. Also, on the basis of financial accounting, effective control can be exercised on the property and assets of the enterprise to ensure that they are not misused or misappropriated. To that extent financial accounting helps to assess the overall progress of a concern, its strength and weaknesses by providing the figures relating to several previous years. Data provided by Cost and Financial Accounting is further used for the management of all processes associated with the efficient acquisition and deployment of short, medium and long term financial resources. Such a process of management is known as Financial Management. The objective of Financial Management is to maximize the wealth of shareholders by taking effective Investment, Financing and Dividend decisions. Investment decisions relate to the effective deployment of scarce resources in terms of funds while the Financing decisions are concerned with acquiring optimum finance for attaining financial objectives. On the other hand, Management Accounting refers to managerial processes and technologies that are focused on adding value to organizations by attaining the effective use of resources, in dynamic and competitive contexts. Hence, Management Accounting is a distinctive form of resource management which facilitates management’s ‘decision making’ by producing information for managers within an organization.

3.1.5 Differences between Financial Accounting, Management Accounting and Cost Accounting
Primary Users External( Investors,Internal(Managers of business,
government authorities, employees)
creditors) Purpose Of InformationHelp investors, creditors, and others make investment, credit, and other decisions Help managers plan and control business operations
Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:

Delayed or historical Current and future oriented
Restrictions GAAP FASB AND SEC GAAP does not apply, but
information should be restricted
to strategic and operational needs
Nature Of Information Objective, auditable, reliable, More subjective and judgmental,
consistent and precise valid, relevant and accurate
ScopeHighly aggregated information Disaggregated information to
about the overall organization support local decisions
Behavioral Implications Concern about adequacy of Concern about how reports will
disclosure affect employees behavior
Features Must be accurate and timely Compulsory under company law Is an end in itself Usually approximate but relevant and flexible Except for few companies, it is not mandatory Is a mean to the end
Segments Of OrganizationIt is primarily concerned with reporting for the company as a whole Segment reporting is the primary emphasis.

Objective It provides information about financial performance and financial position of the business. It provides information of ascertainments of costs to control costs and for decision making about the costs.

Nature It classifies records, presents
and interprets transactions in
terms of money. It classifies records, presents
and interprets in significant
manner materials, labor and overhead costs.Recording Of DataIt records historical data. It records and presents
estimated, budgeted data. It
makes use of both historical
costs and predetermined costs.

Users Of Information External users like shareholders, creditors, financial analysts, government and its agencies, etc. Used by Internal management
at different levels.

Analysis Of Costs And Profits It shows profit/loss of the organization. It provides details of costs and
profit of each product, process, job,etc.

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
Time Period They are prepared for a definite period, usually a year. They are prepared as and when required.

Presentation Of Information A set format is used for information There are no set formats for
presenting cost information
Cost accounting information — and, more generally, accounting information — has three basic roles in organizations:
1. Financial reporting,
2. Operational control and improvement, and
3. Decision making and planning.

3.1.6 Cost Accounting Information in Decision Making:
Decision making is central to the management of an enterprise. The manager of a profit making business has to decide on the manner of implementation of the objectives of the business, at least one of which may well relate to allocating resources so as to maximize profit. All organizations, whether in the private or the public sector, take decisions, which have financial implications. Decisions will be about resources, which may be people, products, services, or long term and short term investment. Decisions will also be about activities, including whether and how to undertake them. Where the owners are different persons from the manager (for example, shareholders of a company as separate persons from the directors), the managers may face a decision where there is a potential conflict between their own interests and those of the owners. In such a situation cost considerations may be evaluated in the wider context of the responsibility of the managers to act in the best interests of the owners.

For making decision by using cost accounting information cost accountant usually follow some specific models. They use different decision model for different courses of action. Management accountants work with manager by analyzing and presenting relevant data to guide decisions.

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:

For example, if any organization wants to reduce its existing manufacturing costs it must identify the alternatives then it will analyze the alternatives by using only relevant data i.e., which can influence the decisions.

3.1.7 Cost Accounting Information in Corporate Reporting:
The main purpose of cost accounting information is to help managers in decision making. Such information is provided for the internal purpose only. There are some guided rules and regulations about the information in the reports. According to IAS 1 (Presentation of Financial Statements), paragraph 117,
” An entity shall disclose in the summary of significant accounting policies:
the measurement basis (or bases) used in preparing the financial statements, and
the other accounting policies used that are relevant to an understanding of the financial statements.”
It is important for an entity to inform users of the measurement basis or bases used in the financial statements (for example, historical cost, current cost, net realizable value, fair value or recoverable amount) because the basis on which an entity prepares the financial statements significantly affects users’ analysis. When an entity uses more than one measurement basis in the financial statements, for example when particular classes of assets are revalued, it is sufficient to provide an indication of the categories of assets and liabilities to which each measurement basis is applied. According to paragraph 125 of the same IAS,
“An entity shall disclose information about the assumptions it makes about the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year. In respect of those assets and liabilities, the notes shall include details of:
their nature, and
their carrying amount as at the end of the reporting period.

An entity presents the disclosures in paragraph 125 in a manner that helps users of financial statements to understand the judgments that management makes about the future and about other
Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:

sources of estimation uncertainty. The nature and extent of the information provided vary according to the nature of the assumption and other circumstances. Examples of the types of disclosures an entity makes are:
the nature of the assumption or other estimation uncertainty;
the sensitivity of carrying amounts to the methods, assumptions and estimates underlying their calculation, including the reasons for the sensitivity;
the expected resolution of an uncertainty and the range of reasonably possible outcomes within the next financial year in respect of the carrying amounts of the assets and liabilities affected; and
An explanation of changes made to past assumptions concerning those assets and liabilities, if the uncertainty remains unresolved.

Other IFRSs require the disclosure of some of the assumptions that would otherwise be required in accordance with paragraph 125. For example, IAS 37 requires disclosure, in specified circumstances, of major assumptions concerning future events affecting classes of provisions. IFRS 7 requires disclosure of significant assumptions the entity uses in estimating the fair values of financial assets and financial liabilities that are carried at fair value. IAS 16 requires disclosure of significant assumptions that the entity uses in estimating the fair values of revalued items of property, plant and equipment.

There are also some guidelines for reporting cost accounting information in IAS 2: Inventories. The objective of this Standard is to prescribe the accounting treatment for inventories. A primary issue in accounting for inventories is the amount of cost to be recognized as an asset and carried forward until the related revenues are recognized. This Standard provides guidance on the determination of cost and its subsequent recognition as an expense, including any write-down to net realizable value. It also provides guidance on the cost formulas that are used to assign costs to inventories.

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
3.2 Materials Management
An effective materials management is essential in order to
provide the best service to customers,
produce at maximum efficiency, and
manage inventories at predetermined levels to stabilize investments in inventories.

Successful materials management requires the development of a highly integrated and coordinated system involves
Sales Forecasting,
And Actual Sales.

The stages of material management may be enumerated as follows:
Procedures of materials acquisition
Cost of materials acquisition
Product costing and cost allocations
Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
3.2.1 Materials Acquisition Procedure
In Janani Tissue Paper Material is divided into two parts. These materials are the direct material for the product. The classification of materials is as follows:
Raw material.

Packing material.

Before going to the report part, let’s have a look that what are the steps are involved in case of purchasing raw and packing materials from local and abroad.

Both types of materials are purchased in two forms such as:
Local purchase.

Import of materials.

Local Purchase of Raw & Packing Materials:
The domestic purchase of raw material and Packing Material include following business functions;
Processing purchase order
Receiving goods, material and services
Recognizing the liability
Processing and recording cash disbursement
Processing Purchase Order
The procedure begins with need recognition. The respective department identifies its need, gets approval of the departmental head and with the approval an authorized person sends purchase requisition to purchase department to initiate purchase. In case of raw or packing materials, the planning department determines the quantity and timing of raw materials. This department informs the purchase department when to buy materials.

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:

When the purchase department got the requisition, it calls for quotation or tender. After receiving the quotation or tender, supplier has been selected. The supplier may be local or international. If the terms and conditions are in favor of both JTP and the selected supplier, the purchase order is issued by the factory.

Receiving Material, Goods and Services
Generally the goods and services are received by the user department who has issued the purchase requisition or in some cases by the authorized department. In case of Materials, Materials are received by Quality Assurance Department (QAD) in the factory. After receiving materials, MRR (Material Receiving Report) is issued for material and other than material (goods) a GRR (Goods Receiving Report) is issued by receiving department to purchase department.

Recognizing the liability
The purchase department compares the invoice/bill and MRR/ GRR/ QC with the purchase order. If everything has been complied, the amount payable to supplier is approved by the purchase department. There is a seal on the invoice named ‘Approved By’ with the signature of purchase manager. It means the purchase department is satisfied with the information mentioned in the bill.

Processing and Recording Check/ Cash Disbursement
After a certain period of time when the date becomes matured for the liability the payment is made by JTP. The matured date has been calculated in the aged payable report for each vendor. The mode of payment is usually per numbered check. In most cases the payment is made by A/C payee only check. In some cases the payment may be made by cash or by bearer check or paid in advance fully or partly.

The total process of Local Purchase has been presented briefly in below:
Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
Requisition of respective
Tender / Quotation call
Issuing order
Receiving goods / Services by
Factory/ Respective Department
Produce MRR / GRR
Receiving bills by purchase
Comply the bills with order, MRR /
GRR and approve
Sent bills to accounting
Accounts payable journal voucher/
provision voucher
Ready for payment
Accounts payable payment voucher
Issuing check
Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
Import of Raw & Packing Materials:
Another source of raw and packing material is importing from overseas market. For this purpose, purchase department must open a letter of credit at bank. It ensures the liquidity of foreign supplier. After opening a letter of credit, Purchase department maintains a file where all the related documents are kept separately for each LC and sends a copy of each document to the Finance and Accounts department for further processing of information and to prepare the cost sheet for the materials received against each LC. This file is called TC (tissue consignment) file.

Three departments are involved in the entire materials procurement process.

They carry their own responsibilities in this regard. The departments are:
Sales Department
Planning & Inventory Control Department
Procurement Department
The entire process looks like:
Sales Department Planning & Procurement Dept. Accounts
Sales Forecast Inventory control Pro forma Invoice PC, IV, BC Files
Dept. LC opening Import Procurement schedule TC File (For Raw and Packing Materials and Also spare parts for Tissue machinery)
IV File (For Infusion Raw and Packing materials and also spare parts for Infusion machinery)
BC File (For Basic Chemical)
Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
3.2.2 Materials Acquisition Cost
The cost of inventories comprises of expenditure incurred in the normal course of business in bringing the inventories to their present location and condition. As a result, the costs of purchase of inventories comprise the purchase price, import duties and other taxes (other than those subsequently recoverable by the entity from the taxing authorities), and transport, handling and other costs directly attributable to the acquisition of finished goods, materials and services. Trade discounts, rebates and other similar items are deducted in determining the costs of purchase. Actually, the focal point of this report is to put light on the cost of acquiring of raw and packing material from local and foreign sources and related accounting conduct.

In case of imported materials,
L/C Costing:
The costing procedures of the imported material’s (Raw/Packing) Landed cost. To calculate the unit cost of the imported material’s (Raw/ packing) the term L/C costing is used.

L/C opening process:
The purchase dept. first collects a form of application for the opening of letter of credit from a bank. An LCA form (in quintuplicate) is also collected. After filling up these forms, they are submitted to the bank. The L/C margin (a certain percentage of L/C amount), bank charges and commissions for opening the L/C, insurance payment (if made at that time) etc. are also made. The insurance covers all risks from the beginning of transit.

The Cost Sheet:
This is the most important report prepared on the import procurement process of raw materials. Cost sheets are prepared for individual raw and packing material items, as well as spares and capital machinery. Cost sheet is generated by the ORACLE software. It is the summary of entries
Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:

debited through the journal voucher of L/C. It is used for costing and pricing decisions. The cost
sheets include the following:
Through this cost sheet Janani Tissue paper determines per unit landed cost of imported Raw material and Packing material.

Company Name: Janani Tissue Papers Shipment No: Supplier Name: Date: L/C No: Date: Exchange rate: Invoice No: Date: CEP: Date:
Material Name MRR No MRR Date: Invoice Quantity FC Cost/ Unit Total FC Cost L/C Margin Opening Charge Document Retirement Duty, LCA, IDSC & others C & F Commission Insurance Premium Miscellaneous Expenses TOTAL COST COST PER UNIT Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
Material Costing:
In case of imported materials some important formulas are as follows:
Assessable Value= Invoice Value X Exchange Rate X 1.01(Insurance) X 1.01 (Landed Charge)
Customs Duty= Assessable Value X Customs Duty Rate (from Bill Of Entry)
Supplementary Duty= (Assessable Value + Customs Duty) X SD Rate (from Bill Of Entry)
Pre-Shipment Inspection(PSI)= (Invoice Value X Exchange Rate) X PSI rate (from Bill Of Entry)
Regulatory Duty= If CD% is greater than or equal to 25% then Assessable Value X 5%
Landed Cost = C&F Amount + CD amount +SD amount + PSI amount + RD amount + Others expenses (C&F Commission, Insurance premium, Opening Charge, Misc. Exp.)
In case of Locally Procured Materials:
In case of locally procured materials the landed cost is Purchase order rate or Invoice rate.

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
Composition Material Landed Per Tablet Per Pack
code cost Quantity Cost Quantity Cost
Raw Materials: Active: Raw material 1 Raw material 2 Excipients: Raw material 1 Raw material 2 RAW MATERIAL COST Packing Materials: Primary Packing: Packing material 1 Packing material 2 Secondary Packing: Packing material 1 Packing material 2 PACKING MATERIAL COST Total RM + PM cost Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:

3.2.3 Product costing and cost allocations
Product Costs:
Product costs include de all costs involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct materials, direct labor, and manufacturing overhead. Product costs attach to units of product as the goods are purchased or manufactured, and they remain attached as the goods go into inventory awaiting sale. Product costs are initially assigned to an inventory account on the balance sheet. When the goods are s old, the costs are released from inventory as expenses (typically called cost of good s sold) and matched against sales revenue. Product cost is also called Manufacturing costs.

Components of Product cost:
Direct Materials.

Direct Labor.

Manufacturing Overhead.

Figure 4: Product costs Classifications in JTP
Direct Materials:
Direct Materials are those materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product.

In JTP direct material classification is as follows:
Raw Material:
Packing Material:
Primary Packing
Secondary Packing
Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:

Direct Labor:
Direct labor consists of labor costs that can be easily traced to individual units of product. Direct labor is sometimes called touch labor, since direct labor workers typically touch the product while it is being made. In JTP direct labor includes labor cost of worker which is directly traceable.

Manufacturing Overhead:
Manufacturing costs that cannot be traced directly to specific units produced is manufacturing overhead. Manufacturing overhead includes indirect materials, indirect labor and costs related to the manufacturing facility.

Graphical presentation of manufacturing overhead which is used in JTP is as follows:
Figure 5: Manufacturing g overhead classification in JTP
Classification of Manufacturing costs in other way:
Prime cost:
Prime cost is the sum of direct materials cost and direct labor cost.

Conversion Cost:
Conversion cost is the sum of direct labor cost and manufacturing overhead cost. The term conversion is used to describe direct labor and manufacturing overhead because these costs are incurred to convert materials into the finished product.

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At Janani Tissue Papers Ltd:

In Janani Tissue Paper they use this conversion cost concept to report the Cost of
Goods S old and to prepare cost sheet.

Figure 6: Classification of manufacturing cost in other ways.

Non-manufacturing Costs:
Non-manufacturing costs are oft en divided i n JTP into two categories:
Selling expenses.

Administrative expenses.

Selling Expenses:
Selling costs include all costs that are incurred to secure customer orders and get the finished product to the customer.

Examples: Advertising, salary and allowances, rent expenses, printing and stationery, telephone
postage, market research & new product, sample expense, sales travel, depreciation, delivery commission, export freight, insurance, C&F expense etc.

Administrative Expenses:
Administrative costs include all executive, organizational and clerical costs associated with the general management of the organization rather than with manufacturing or selling.

Examples: Executives’ compensation, donation ; subscription, auditor’s remuneration, entertainment, telephone and postage, AG M expenses, company secretarial expenses, leg al & consultancy fee etc.

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At Janani Tissue Papers Industries Ltd:

Product cost flow:
Product cost flow is the flow of costs in a manufacturing company. Janani Tissue Paper follows this product cost flow. The graphical presentation of product cost flow is as follows:
Figure 7: Product cost flow of JTP.

Factory Overhead:
Factory Overhead is generally defined as indirect labor, indirect material and all other factory expenses that cannot conveniently be identified with nor charge d directly to specific job or products or final cost objective s. Other terms used for factory overhead are factory burden, manufacturing expense, manufacturing overhead, factory expense, and indirect manufacturing cost.

To deter mine cost of production these expenses are to be apportioned to various department and then to the cost center or cost units. The procedures are as follows:
Classification of Overhead.

Collection of Overhead.

Apportionment of Overhead.

Absorption of overhead by production units.

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Overhead can be classified into three ways. These are as follows:
Function wise: Production overhead, Administrative overhead and Selling and Distribution overhead.

Element wise: Indirect material, indirect labor and indirect expenses.

Behavior wise: Variable, fixed and semi- variable.

In Janani Tissue Paper, they use function wise classifications.

In order to make effective analysis and control of the expenses each of overhead is classified into groups. Two major benefits of these methods are:
Clearly defined.

Cover every circumstance.

Three methods for these are as follows:
Mnemonic Method.

Numerical Method.

Decimal Method.

Mnemonic Method: Under this method letter symbols are used to denote expenses heading as aids to memory. For example we can explain it in following ways:
AD for Administration.

RE for Repair.

MA for Maintenance. Etc.

Numerical Method: Where numerical codes are employed each departments or cost center is also given a code number. This number is put on all documents used for collection of overheads. For example we can explain it in following ways:
120080-0-200 Stores.

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:

120080-0-100 Entertainment.

120080-0-300 Boiler house.

120080-0-301 Stoker’s wages
120080-0-302 Water etc.

Decimal Method: This is also numerical coding method. Under this method the items falling under each groups, however, represented by decimals. For example:
1200.101 Indirect materials.

1200.102 Indirect labor.

1200.103 Entertainment.

1200.104 Repairs ; Maintenance. Etc.

Janani Tissue Paper’s practices:
In Janani Tissue Paper they use the Numerical method for recoding items. They have different types of code for every item. Through the numerical method they try to ensure proper control.

Collection of Overhead:
The collection of overhead information in Janani Tissue Paper is as follows:
Store requisitions.

Time cards/ Job cards.

Invoice or purchase voucher.

Cash book (Petty cash expenses)
Subsidiary records (Depreciation, interest etc.)
Items of overhead cost which require apportionment have to be spread over two or more departments or cost centers. Apportionment is to be done on an equitable basis. There is no single basis for apportioning all the common items of overhead. Suitable basis have to be selected by correlating the basis selected and the item of overhead.

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
Some items and bases which are used in JTP are as follows:
Items of Overhead Basis of Distribution
Rent, Insurance of Building, Depreciation of Floor Space Occupied
Building. Electricity Meter reading
Power Machine Hour
Fire Insurance Asset Value
Insurance and Depreciation of Machinery Capital Value
Supervision Number of Workers
Medical Expenses Number of Workers
Canteen Expenses Number of meals
Store-keeping Expenses Number of Requisitions
Fringe benefits Number of workers
Purchase Department expenses Number of Purchase order
Internal Transport Number of Requisitions
Other items Machine hours, Wages.

Absorption of Overhead:
Actual rates: Actual rate is computed by dividing the actual overhead for a particular period by the selected base. If a month is taken as the period for which the rate is to be computed, and the basis is the quantity produced during the month, the actual rate is arrived at by dividing the actual overhead incurred by the units actually produced.

Delay in costing products.

Involves more clerical work. Actual rates are necessary to be calculated for each accounting period.

When production is reduced owing to fall in demand, the actual rate gets inflated.

Predetermine rates: Pre- determined rate of absorption is computed at the commencement of each year. The rate is determined by dividing the estimated or budgeted manufacturing overhead by the estimated or budgeted output during the year.

Facilitates casting of products much before production.

Involves less clerical labor.

Rates are computed for different departments only once at the beginning of the year.

It gives the problem of under or over absorption.

Example: Suppose; Budgeted annual overhead 48000 and budgeted direct labor for annual 24000.

In that case the predetermined overhead rate is 2 taka per hour. I have calculated this rate by using the following formula.

Formula= Budgeted overhead cost for the year / Budgeted direct labor for the year
JTP’s Practice:
In JTP they use the pre-determined factory overhead. Cost and budget section of JTP commonly known in JTP as IOC;BP section of Accounts and Finance department determines the Predetermine overhead rate.

Methods of Overhead Absorption:
The various methods of Overhead absorption are as follows:
Production unit method.

Percentage method.

Hourly rate method.

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:

JTP’s Practices:
In JTP they determine their factory overhead rate on the basis of number of batch because Janani Tissue Paper uses the Batch costing system. On the basis of the total production of the batches JTP determines the factory overhead per unit and per batches. So we can say that they use production unit method. At the same time for some costing JTP uses the Percentage method. They use direct material percentage for many cases. For example in case of new material pricing they use percentage method. In case of preparing tender cost sheet JTP uses the percentage method. They also calculate direct labor hour and machine hour and their cost respectively. But this information is authorized to disclose. In cost of goods sold reporting they don’t disclose direct labor hour cost because of confidentiality purpose.

Basic Costing systems and JTP’s Practices:
The basis of a cost accounting system begins with the type of costs that flow into and through the inventory accounts. There are three alternatives including: pure historical costing, normal historical costing and standard costing.

Pure historical costing In a pure historical cost system, only historical costs flow
through the inventory accounts. Historical costs refer to the costs
that have been recorded.

Normal historical costing Normal historical costing uses historical costs for direct material
and direct labor, but overhead is charged, or applied to the
inventory using a predetermined overhead rate per activity

Standard costing In a standard cost system, all manufacturing costs are applied, or
charged to the inventory using standard or predetermined prices,
and quantities. The differences between the applied costs and the
actual costs are charged to variance accounts.

Cost of Production
In JTP, they use normal historical costing for determining cost of production. Also in some cases they use the standard costing method. They have standard cost sheet for every components of the manufacturing cost. They also use standard cost sheet for proper control and measure their performance. They also calculate variance from standard and actual. For doing the costing early they use predetermined factory overhead. For using normal historical costing system they determine the over applied or under applied factory overhead through cost of goods sold statement. They also do the variance analysis. They generally does the Spending variance and Idle capacity variance. They compare their budgeted and actual amount for calculation of spending variance.

Inventory valuation methods and JTP’s Practices:
JTP’s Practices:
In JTP they use Absorption costing concept for determining product cost. They charge their selling and administrative overhead to the income statement. They don’t fully use ABC costing by they try to apply concept of Activity based costing for determining product cost. Implementation of ABC is very complex country like Bangladesh. In case of allocating factory overhead they use concept of ABC as far as possible. JTP don’t use through put costing and direct costing.

The Throughput Method
The Activity Based Method
The major inventory valuation methods are discussed as follows:
The Direct or Variable Method In the direct (or variable) method, only the variable manufacturing costs are capitalized, or charged to the inventory.

The Full Absorption Method
The Full Absorption Method
The Full Absorption Method
Full absorption costing (also referred to as full costing and absorption costing) is a traditional method where all manufacturing costs are capitalized in the inventory, i.e., charged to the inventory and become assets.

Activity based costing is a relatively new type of procedure that can be used as an inventory valuation method. The technique was developed to provide more accurate product costs. This improved accuracy is accomplished by tracing costs to products through activities. In other words, costs are traced to activities (activity costing) and then these costs are traced, in a second stage, to the products that use the activities.

The throughput method was developed to complement a concept referred to as the theory of constraints. In this method only direct material costs are charged to the inventory. All other costs are expensed during the period.

systems they determine the over applied or under applied factory overhead and dispose this over
Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
Determination of Manufacturing Cost per unit:
In JTP, they determine manufacturing cost per unit through the following cost sheet:
Janani Tissue Papers Industries Ltd. Product Name: Pack size Product Code: Date: Composition Material Per Tablet Per Pack Code Quantity Cost Quantity Cost
Raw Materials: Raw material 1 Raw material 2 Total Raw material cost Packing Material: Packing material 1 Packing material 2 Total Packing material cost Total (RM+PM) cost Total Raw material cost per pack Total Packing material cost per pack Total (RM + PM) cost per pack Factory Overhead Depreciation Total Factory Cost Total Manufacturing Cost Per Pack Cost of Goods Sold:
Cost of goods sold reporting in JTP is as follows:
Particulars 2010 2009 Work-in-process(Opening) 189396879 171647779 Materials Consumed 2537648743 2259811565 Factory Overhead 894097750 591289797 Work-in-Process (Closing) (195111787) (189396879) COST OF PRODUCTION 3426031585 2833352262
Finished Goods (Opening) 554393259 358010498
FINISHED GOODS AVAILABLE 3980424844 3191362760
Finished Goods (Closing) (565049644) (554393259)
3415375200 2636969501
Cost of Physician Sample transferred to sample (97734946) (70762875)
stock 3317640254 2566206626
Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
List of Factory Overhead: A Review Of Costing Function
Particulars 2010 2009 Salary & Allowance 270910357 200123833 Repairs 66680578 57717740 Insurance Premium 10762989 3714356 Municipal tax & land revenue 1237290 1000652 Advertisement & subscription 96769 82295 Registration & Renewal 715777 645612 Travelling 2250371 1302204 Entertainment 721850 481780 Research and development 6815379 4489878 Printing & stationary 5765044 467856 Telephone & Postage 2228125 1943146 Toll Charge 76281942 38534380 Electricity, Gas & Water 40587162 19495457 Training 609919 506787 Plant certification and regulatory approval 12753618 Depreciation 392890096 254668568 Other Expenses 2790484 1904548 894097750 591289797 1270-3583305005727700-358330500
Inventory Reporting in JTP is as follows:
Finished Goods 565049644
Work-in-process 195111787
Raw Materials 769883557
Packing Materials 327253736
Laboratory Chemicals 4076834
Physician Samples 41239901
Raw & Packing Material in Transit 81193985
In JTP factory overhead is charged in Cost of goods sold and administrative and selling, marketing and distribution expenses are charged to the income statement as operating expenses. JTP follows the concept of conversion cost and does the reporting of cost of goods sold on the basis of this. In case of conversion cost direct labor and factory overhead are merged. In case of reporting inventory they fully apply International Accounting Standard (IAS) 2. JTP makes compliance with IAS/BAS 2 in case of inventory.

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
Batch costing:
Batch costing is a modification of job costing. A batch of similar products is treated as a job. Each batch receives an order number and the costs are accumulated on that basis. When production is of repetitive nature, and consists of a definite number of articles, batch costing is used. In batch costing all costs are collected according to batch order number and total costs are divided by total numbers in a batch to arrive at the unit cost of production.

Determination of EBQ:
In batch costing, determination of economic size of the batch is an important step. Economic size of a batch is determined by applying the following formula:
EBQ = . .

A= Annual demand for the product.

S= Setting up cost per batch.

C= Carrying cost per unit of production.

JTP’s Practices:
In JTP they use batch costing system. They collect all costs by batch order number. They divide total costs by total numbers in a batch to arrive at the unit cost of production. IOC;BP section of Accounts and finance department does the batch costing. This section does not determine the batch size. Batch size is determined by the Planning department of the JTP. By determining EBQ they determine economic batch sizes.

Batch Cost Sheet:
Accounts and finance department of JTP determine the batch cost sheet. To determine batch cost sheet planning department helps costing department giving adequate data. The main factor of the batch cost sheet is commercial yield. Through this they determine per unit cost. A sample batch cost sheet is in the following page
Cost Management Accounting Practice
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Batch Cost Sheet A Review Of Costing Function
Product Name: Pack Size:
Product Code: Batch Size:
Batch No: SRR (Store Received Report) Number: Material Name M. Code Unit (gm/kg) Quantity Rate Value Raw material 1 Raw material 2 Raw material Cost Packing Material 1 Packing Material 2 Packing Material Cost Total Cost (RM + PM) Per unit RM Total RM / Commercial yield Per unit PM Total PM / Commercial yield Per unit Total Cost (RM+PM) (RM+PM)/ Commercial yield Standard Yield: Commercial Yield:
Actual Yield: QC Sample:
Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
3.2.4 Contemporary cost accounting methods and techniques used by JTP:
Total quality management:
Total Quality Management refers (TQM) to the process of continuous improvement to achieve the full customer satisfaction. Rather than waiting to inspect items at the end of the production line or striving to stay within acceptable tolerance limit, TQM’s goal is eliminating all waste. In JTP, quality is maintained with great care. As it is a pharmaceutical company, it is mandatory to keep up with the quality level with the other companies. As a result, they have received GMP Clearance from Therapeutic Goods Administration (TGA) of Australia and from Gulf Central Committee for Drug Registration, Executive Board of the Health Ministers’ Council for Gulf Cooperation Council (GCC) states (representing Saudi Arabia, Kuwait, Bahrain, United Arab Emirates, Qatar and Oman). The company is also in the process of obtaining approvals from several other regulatory authorities including National Health Surveillance Agency (ANVISA) of Brazil, Medicine and Healthcare Regulatory Agency of United Kingdom (UK MHRA), US FDA etc.

Life Cycle Costing:
Life cycle costing tracks and determines the cost attributed to each product and service from its initial research and development to development to final marketing to customer. In JTP, as I discussed that this type activities is done in mainly in the Strategic Brand Management (SBM) Department. The activities of SBM are: Market research
Selection of new product
Design and testing of product (DTP)
Sample store (logistics) management
Making strategy
With the SBM departments JTP determines the Life Cycle of the products.

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
Target Costing:
Target costing is an approach which determines what a product or service should cost based on its sales price less a target profit. Basically, it is a tool for decision making. Unlike traditional costing for making up cost, it is a market driven way of examining the relationship of price and cost. In JTP, the use of Target Costing is very common to make the target for the cost of the product.

Activity-Based Costing
Activity-based costing (ABC) developed to provide more accurate ways of assigning the costs of indirect and support resources to activities, business processes, products, services, and customers(Kaplan and Atkinson, 2001:97). Activity-based costing is a method of assigning costs that calculates a more accurate product cost by identifying all of an organization’s major operating activities. The goal of ABC is not to allocate common costs to products but to measure and then price out all the resources used for activities that support the production and delivery of products and services to customers. For this why, ABC is important to activity-based management. In JTP, although the ABC system is not fully implemented, still it tries to follow the methods of this innovative costing process along with the standard costing. Just because, the y found many major cost drivers in case of manufacturing the goods, which needs a careful attention to determine manufacturing overhead. Some of the examples of such cost drivers are as follows;
• Research And Development Cost • Number Of Batch
• Direct Labour • Batch Size
• Labour Hour • Process Of Production
Types Of Product
Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
3.2.5 Factors That Affects The Costing Procedure At JTP
The Major reasons for which the price of the materials affected are identified below:
LC opening charge: The LC opening charge increases with the amount of LC opened. It will affect the actual price of the materials.

Insurance premium: For the safety of the materials it is necessary to give insurance premium for that material. Numbers of insurance companies are interest to open insurance for the firm. But this also affects the material price.

Demurrage charge: It has to be given to the port authority by the JTP in case of delaying in material receive.

Inflation: Due to inflation rate material price can also be increased which has impact on purchasing of materials. The company would have nothing to do if there is occurred high inflation in the imported country.

Exchange rate changes: material price can also be affected by the exchange rates changes. In spite of, the unchanged material price the cost of it can be increased by the change in foreign exchange rates.

C & F commissions: Clearing and forward commissions are charged by the agents which are works for the Beximco. There are number of agents who receive the goods, pay all types of duty charges to the government and bring the materials to the factory storehouse. The C & F commissions include:
Customs duty and taxes
Super urgent delivery expenses
Wharf rent and removal
Pay order commissions

Cooly wages for loading and unloading
Agency commission
All the above items of C & F commissions are added with the cost of the material.

Therefore the actual price of the material is increased.

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
Miscellaneous expenses: Besides the above factors some other costs are incurred in case of material import. These costs are also included with the material price.

Exchange Rate: Basically, 70-80 percent materials are purchased from outside of the country. So payments for the imported goods are made in dollars maximum time. So the increase in the exchange rate would increase the prices of the materials. According to the survey data the, it was found that 66 percent employee that that the exchange rates affects moderately and 33 percent employee thought that the exchange rates has less effects. The reason behind such opinions was that for the last numbers of months dollar is stable against taka. Furthermore, the payment was made in dollar maximum time. Another thing was the exchange exercised by the customs was almost fixed for number of months. So, when the exchange rates changes abruptly only then there would be a high impact over price of the materials.

Yearly increment of salary: This is one of the major issues of labor rate increasing. JTP provides salary increment every year. Therefore, the cost of direct labor is increased.

Increase in market labor rate: This is due to inflation rate of a country. The market rate of labor payment has been increasing for last two or three years. So, this has also a great impact on direct labor cost.

Other benefits of the labor: Besides the monthly payments, the labors are provided some other benefits which also affect the costing. At JTP factory, there are labor unions which deal with the management about their needs and benefits.

The reasons for increasing the overhead cost are-
Markets rates of utilities like gas,
electricity and water,
Repair and the maintenance costs,
Insurance premiums etc. are increased due to reducing the life of the machines.

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
Working on the costing procedure of Janani Tissue Papers Limitedwas an interesting issue. The following findings are made on the basis of research work:
The employees of departments of JTP are very much co-operative and interdependent to each other.

The cycle or chain of performing all functions is very well-organized.

JTP uses conversion cost concept for reporting cost of goods sold and preparing cost sheet.

JTP follows the batch costing method and collocate their factory overhead on the basis of the total production of the batches.

JTP uses pre-determined factory overhead for determining factory overhead early for costing purpose.

JTP does the variance analysis comparing actual and budgeted amount.

JTP tries to control overhead through the budgetary control.

JTP also prepares cost report for managerial purpose.

They use standard cost sheet for measuring their performance properly.

JTP doesn’t fully apply Activity based costing but they try to use the concept of ABC in allocating overhead.

JTP follows the absorption costing method to prepare cost sheet.

Major reasons for which the price of the materials is affected are-LC opening charge, Demurrage charge, Inflation, Exchange rate changes and C;F commissions, etc.

Yearly increment of salary is one of the major issues of labor rate increasing. JTP provides salary increment every year. Therefore, the cost of direct labor is increased.

The reasons for increasing the overhead cost are- Markets rates of utilities like gas, electricity and water, Repair and the maintenance costs, Insurance premiums etc. are increased due to reducing the life of the machines.

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
JTP tries to ensure better quality and better management. The staffs demonstrate their knowledge and experience with sheer professionalism. Despite these efforts some shortcomings may remain and there is always an opportunity to overcome those. Trough out my study I have found that they have some opportunity that they can take being taking proper steps. On the basis of my understanding and observation I am proposing the following recommendation to the JTP:
Cost of Goods Sold:
JTP may improve their Cost of Goods sold reporting for better understanding. Though it is not contradictory with the IAS/BAS. To make user friendly JTP may change this format.

JTP Practices Proposed Format
Work in process (opening) Raw material consumed
(+) Material consumed (+) Packing material consumed
(+) Factory overhead MATERIAL CONSUMED
(-) Work in process (closing) (+) Work in process (opening)
COST OF PRODUCTION (-) Work in process (closing)
(+) Finished goods (opening) TOTAL CONSUMPTION
(-) Finished goods (closing) COST OF PRODUCTION
(-) Cost of physician sample (+)Purchase of Finished goods
COST OF GOOD SOLD (+)Finished goods (opening)
(-)Finished goods (closing)
(-)Cost of physician sample
Factory Overhead, Selling and Administrative overhead:
Factory overhead, selling and administrative overhead is increasing year to year. The increasing trend is totally straight. Company should control the overhead properly. We know that company has no direct control over raw material prices. In the increasing raw material every company will be sufferer but company can properly control the overhead. The control of overhead is totally under the decision of the management. Management should proper analysis of the overhead cost on the basis of this analysis they should
Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
prepare budget. Company should not prepare the budget on the basis of the requirement of the department demand. Cost manager should have proper knowledge about the all departments’ functions and activities properly.

Petty Cash Expenses:
JTP distributes their goods through I & I services. I &I services gets commission for their activities. I&I service takes their expenses from daily cash collection for expenses of distribution.

With the working with the petty cash section I have shown that depot of the I&I services overstate their expenses. For these activities the overhead cost is increasing day by day. Proposed Policy: JTP should make budget for the daily expenses. Through proper budgetary control and research on that will minimize the expenses. JTP should set out daily allowance of the depot of I&I services on the basis of the proper study and observation.

Negotiation with the Insurance Company:
In JTP there are many insurance companies. JTP always does insurance of their material. The management should negotiate with them to reduce their insurance premium charges. One or two company will be allowed to do all kinds of insurance. Through this negotiation JTP will be able to reduce the expenses.

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
Janani Tissue Papers Industries Ltd. is a leading edge pharmaceutical company and is a member of the BEXIMCO Group, the largest private sector industrial conglomerate in Bangladesh. JTP is also the largest exporter of pharmaceuticals from Bangladesh, spreading its presence in many developing and developed countries across the globe. Recently, JTP has successfully made its footmark in the global market when it made its debut on the London Stock Exchange as the first Bangladeshi company to be listed in the world’s most prestigious bourse. This milestone event has widened the responsibility, accountability and transparency of the company beyond geographical border. This was an added challenge to all the accounting staffs as the listing the accountability of the organization has gained a global reach. The ever expanding export trade also indicates greater responsibility to the world. The Finance and Accounts department took the challenge and prove their mettle by the timely publication of 2005 Annual Financial Reports globally. Each and every section in the department deserves to be complemented for their endeavor. From raw material import to the bringing of smile for the society, on every level, professionalism and dedication is the key to this success.

In this report, we have tried my level best to identify management accounting techniques and procedures used by JTP. What and how JTP use cost accounting information for decision making and external financial reporting along with describing the procedure and systems of using cost accounting information. In this report, we imply our acquired knowledge from cost accounting course and try to comply with the techniques procedure and systems followed by the company.

In today’s complex yet highly competitive business environment management needs quality information for decision making purpose. JTP believes that quality and control should be ensured and these can be ensured by using proper cost accounting information. Relevant and reliable cost information can be ensured by implementing by using effective cost accounting methods. And they do the best one fit in the context of Bangladesh.

Cost Management Accounting Practice
At Janani Tissue Papers Industries Ltd:
A Review Of Costing Function
1. Managerial Accounting
Ray H. Garrison
Eric W. Noreen
2. Intermediate Accounting
Kieso, Weygandt, Warfield
10th Edition
3.”Cost Accounting: A Managerial Approach”,
Prentice Hall, Inc.; 12th Edition, 2007.

4. “International Financial Reporting Standard”;
International Accounting Standard Board; as approved at 1 January, 2008.



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