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 IJRFM Volume 5, Issue 7 (July, 2015) (ISSN 2231-5985)
International Journal of Research in Finance and Marketing (IMPACT FACTOR – 5.230)
International Journal of Research in Finance & Marketing
Email id: [email protected]
Dr. B Vijay1
Professor Dept of Commerce
Gulbarga University, Gulbarga
Sangashetty Shetkar2
Research Scholar
Gulbarga University, Gulbarga
Cost management is the most important in all manufacturing industries. Even Sugar industry also
requires effective cost management techniques to reduce the cost of manufacturing. We use
following techniques of cost management. i.e. Just in Time Approach, Material Requirement
Planning (MRP), Enterprise Resource Planning,(ERP),Activity Based Costing, Activity Based
Management (ABC,ABM), Total Quality Management (TQM),Value Chain Analysis, Target Costing,
and Life Cycle Costing with the help of the above techniques. We study how to minimize the cost of
production and what are the best ways to apply these techniques to achieve targeted goal of sugar
Key words: Cost Management, MRP, ERP, ABC, ABM, TQM, and Target Costing
Cost and profit are co-related and they are interdependent. If the cost of production is
less, profit will automatically increase and if cost of production is more, profit will decrease.
Here It is common economic rule that we should not reduce the cost. It’s better to control cost.
By using good cost management techniques such as, MRP, ERP, ABC, ABM, TQM, Target Costing
and Budgetary control.
Brumbay (2008) said, we should take care of the cost and the profit which will take care
of itself. The aim should be that cost should be controlled not reduced unscientifically it will lead
to lowe the quality of product. The standard of cost of production will set. Then actual cost of
production will be compared with standard and the variance can be eliminated by effective cost
Basic need of any business organization is to have incurred reasonable costs and same
way effective utilization of available resources to achieve the set standard target .First we need
to set standards then maintain accordingly.
Review of Literature:
Nowadays all the sugar manufacturing industries are looking for the best way to control
cost with modern cost management techniques. One of the basic objectives of sugar industry is
to achieve cost control.
Sikka (2003) he had an opinion that the effect of cost accounting is measured primarily with the
extent to which it has been able to bring about a control over manufacturing and other cost.
According to Anthon (200 cost management is defined as it is a broad set of cost accounting
methods with the goal of improving business cost efficiency by reducing costs or at least
restricting their rate of growth, ultimately enhancing the efficiency of specific areas such as
departments, divisions or product lines within their operation.
Lockeper (2002) defines cost control as a practice of comparing the cost of business activity
with the original cost in order to ascertain its cost as it is planned. It is understood cost
IJRFM Volume 5, Issue 7 (July, 2015) (ISSN 2231-5985)
International Journal of Research in Finance and Marketing (IMPACT FACTOR – 5.230)
International Journal of Research in Finance & Marketing
Email id: [email protected]
accountant by himself does not control the expenses. He merely guides the control expenses.
The expenses can only be controlled by the person who incurs it.
Statement of the Problem:
The rising cost of production of the sugar industry is noticed and it is a problem that how the
best cost control techniques are used to reduce the cost. Neighboring countries, where cost of
manufacturing is relatively low as compared to what is happening in India. The use of effective
cost control system needs to overcome the situation and for which a systematic study is needed.
Objectives of the Study:
1. To study what are the cost management techniques used in sugar industry.
2. To study the relationship between cost controls and profit growth of sugar industry.
3. To study the requirements for implementing effective cost management techniques
used in sugar industry.
Research Methodology:
The study is based on secondary data which is collected from books, annual report, websites,
journals, and research articles.
Limitation of the Study:
1. The study is only limited to sugar manufacturing industry
2. Modern cost management techniques used in sugar manufacturing industry are
considered such as Target Costing, Life Cycle Costing (LCC),Just in Time Purchase
(JIT),Material Resource Planning,(MRP), Enterprise Resources Planning
Need of the study
The study is very helpful to give suggestion which is very suitable for cost management
techniques in sugar manufacturing industry to control cost and to increase revenue.
The present study throws light on the application of cost management techniques which
are used in sugar industry.
Modern sugar industries use the following cost management techniques.
1. Target Costing.
2. Life Cycle Costing.
3. Just in Time Approach.
4. Material Requirement Planning (MRP).
5. Enterprise Recourse Planning (ERP).
6. Activity Based Costing (ABC) and Activity Based Management (ABM).
7. Total Quality Management (TQM).
8. Value Chain Analysis.
1. Target costing:
Target costing is practiced in more than 80% percent companies in Japan and more than
60% companies in processing industries. Japanese companies were experiencing
shortage of resources and skills required for the development of new concept tools and
techniques which are required to achieve parity with the toughest western terms of
quality, cost and productivity. A range of specialized tools including functional analysis,
IJRFM Volume 5, Issue 7 (July, 2015) (ISSN 2231-5985)
International Journal of Research in Finance and Marketing (IMPACT FACTOR – 5.230)
International Journal of Research in Finance & Marketing
Email id: [email protected]
value engineering, value analysis and concurrent engineering were introduced to
support target costing.
Definition of Target Costing: “A structured approach to determine the cost at which a
proposed product with specified function and quality must be produced to generate a
desired level of profitability at its anticipated selling price”.
Main features of target costing:
a. It is an integral part of the design and introduction of a new product. It is a part of an
overall profit management process rather than simply a tool for cost management.
b. In Any given product a target selling price is determined by using varians analysis
and sales forecasting techniques. It should be a reflection of the competitive
c. Target selling price is the establishment of target production volumes which give the
relationship between price and volume.
Steps in target costing
1. Life cycle costing:
It is totally different from traditional cost accounting system. It reports profitability on a
calendar basis i.e. monthly, quarterly and annually. It involves tracing cost and revenues
on a product by product base over several calendar periods. Life cycle of a product vary
from product to product from a few months to several years in case of cameras,
photocopying machinery etc. The usefulness is more than 100 years. In case of black and
white TVand VCR it was for few years.
Features of life cycle costing:
a. The products have specific lives and part through the cycle of development.
Introduction, growth, maturity, decline and deletion at varying speeds.
b. Cost revenue and profit are predictable course through the product life cycle. Profit
appears at growth stage and after stabilizing during the maturity stage than decline.
c. It requires research and development emphasis in the development stage and cost
control emphasis in the decline phase.
Set target selling price
based on customer
Establish profit margin based
on long term profit
objectives & projected
Determine target or
(allowable) cost per unit
(target selling price less
required profit).
Estimate the
current cost of the
new products
Establish cost reduction
target for each
component and
production activity using
value engineering and
value analysis
IJRFM Volume 5, Issue 7 (July, 2015) (ISSN 2231-5985)
International Journal of Research in Finance and Marketing (IMPACT FACTOR – 5.230)
International Journal of Research in Finance & Marketing
Email id: [email protected]
d. It provides an overall framework for considering total incremental cost over the
entire life span of a product.
2. Just in time approach:
Its approach is a collection of ideas that streamlines a company’s production process
activities to such an extent that wastage of all kinds viz of time, material and labour is
systematically driven out of the process. A company must ensure that it receives
products spare parts/materials from its suppliers on the exact data and at the exact time
when these are needed for this reason purchasing staff must investigate and evaluate
every suppliers, eliminate those who could not keep up with the delivery.
Features of just in time approach:
a. Deliveries should be sent straight to the production floor for immediate use in
manufacturing products so that there is no time to inspect incoming parts for
b. The engineering staff must visit supplier’s site and examine their process guide to
bring up to a higher standard of product.
c. It will focus on eliminating all waste from a system. This can be a wastes of assets
excessive inventory. It can also be a waste of time in the case of assets. It may
include unused assets for long period of time. WIP inventory held in production
queue it can also be waste of materials unnecessary level of obsolete inventory.JIT
system vastly reduce all these types of waste.
d. It will reduce various kinds of waste of time so that the entire production process
can concentrate on the time spent in actual producing products.
e. JIT will charge cost drives to activities that accumulate cost. It will lead to direct
active role in reducing unuseful activities.
3. Material Requirement planning (MRP):
Material Requirement Planning is a computerized production scheduling system which
takes forward the schedule of final product requirements and translates it progressively
into the no of sub assets, components and raw materials required at each stage of the
manufacturing cycle. It is a management information system providing a basis for
production decision when, what is manufactured has a composite structure and when
lead items are important features. The ability of the system to deliver what is required
in the correct place at correct time will be dependent on the quality of information
which is put into the computer model.
Features of MRP:
a. Find out final product namely what would be produced and at what time.
b. Calculate the required units of production of sub assemblies.
c. Determine inventories, work in progress, batch sizes and manufacturing and
packing lead times.
d. It is detailed forecast of the inventory position highlighted period by period usually
used to plan a future time period of manufacturing operation like a month, quarter
or even year into the future.
4. Enterprise Resource Planning (ERP):
It is latest high end solution which information technology has lent to business
application. It combines all computerized departments together with the help of single
integrated software program that runs off a single database so that various departments
can more easily share information and communicate with each other. Today companies
in India have gone in for implementing of ERP.60% percent companies implemented
ERP to give competitive advantage.
Features of ERP:
IJRFM Volume 5, Issue 7 (July, 2015) (ISSN 2231-5985)
International Journal of Research in Finance and Marketing (IMPACT FACTOR – 5.230)
International Journal of Research in Finance & Marketing
Email id: [email protected]
a. It is a wide integrated information system covering all functional areas like
manufacturing, selling and distribution, payables, receivables, inventory, accounts,
and human resource purchases etc.
b. It solves the information gap across organization.
c. It is a solution for the best project management.
d. It stimulates introduction of the latest technologies like Electronic Fund Transfer
(EFT), Electronic Data Interchange (EDI), Internet Video Conferencing-Commerce
e. It solve the most of business problems like material shortages, productivity
enhancements, customer service, cash management, inventory problems, quality
problems, and prompt delivery.
5. Activity Based Costing (ABC):
ABC is mere modern absorption costing method and was introduced between the years
1960s and the 1980s to produce mere accurate product cost. It is an accounting
methodology that asigns costs to activities rather than products or services. This enables
resources overhead costs to be more accurately assigned to products and services that
consume them.
Features of ABC:
a. ABC is must where production overheads are high in relation to direct costs.
b. ABC is needed Where there is great diversity in the product range.
c. The products which use very different amount of the overhead resources.
d. Implementation of ABC is to improve product costing where a belief exist that
existing methods under cost some products and overcast others.
e. It is suitable to identify non-value added activity in production process.
6. Activity Based Cost Management(ABCM):
It is disciple that focuses on the efficient and effective management of activities as the
route to continuously improving the value received by customer and the profit received
by providing the value.ABM utilizes cost information which gathers through ABC
through various analysis. It manages activities rather than resources which ABC
supplies the information and ABCM uses this information in various analysis designed to
yield continuous improvement. The ABCM currently being used for variety of business
application such as activity based budgeting,benchmarking,cost reduction, performance
measures and business process re-engineering.ABM is much broader concept it refers to
the management philosophy that focuses on the planning execution and measurement of
activities as the key to competitive advantage.
7. Total Quality Management
By focusing on the management accounting function we will devise a process through
which quality improvement methods might be used to highlight problems areas and
facilitate their solution on initial understanding of the difference between the quality
control, quality assurance and quality management.
Quality Control: It is concerned with the past and deals with data obtained from
previous production which allows action to be taken to stop the production of defective
Quality Assurance: It deals with present and concerns the putting in place of system to
prevent defects from occurring.
Quality Management: It deals with future and manages people in a process of
continuous improvement to the products and services offered by the organization.
Features of TQM:
IJRFM Volume 5, Issue 7 (July, 2015) (ISSN 2231-5985)
International Journal of Research in Finance and Marketing (IMPACT FACTOR – 5.230)
International Journal of Research in Finance & Marketing
Email id: [email protected]
a. Application of the new management accounting practice is to the professional
services and environment remains rare.
b. It is a systematic process implemented to identify and adopt solution to prioritized
opportunities for improvement.
c. It will highlight the need for a customer oriented approach to management reporting
eliminating some of over more traditions reporting practices.
d. TQM culture is to be developed so that quality improvement becomes a normal part
of everyone’s job and a clear commitment from the top must be provided.
e. TQM is a process, not programme it is never ending search for ways to do the job
f. There is always room for improvement however small……..?.
g. TQM may not be appropriate for service based industries because it ignores the
culture of organization. TQS is suitable for service sector (Total Quality Service).
8. Value Chain Analysis :
It was suggested by Michael Porter (1985) to depict how customer value accumulates
along a chain of activities that leads to an end product or service. It is the internal
processes or activities a company performs to design, produce, market deliver and
support its product. The value chain for any firm is the value creating activities all the
way from basic raw material sources from component suppliers through the ultimate
end use to product delivered into the final consumers hands.
Features of VCA:
a. It will require a team effort. Management Accountant of today has to collaborate
with engineering production, marketing distribution, and service professionals to
focus on the strength, weakness, opportunities and threats identified in the value
chain analysis results.
b. Enhances the firm value and demonstrates the value of the finance staff to the firms
growth and survival.
c. Value chain analysis is neither an exact science nor it is easy more art than
preparing precise accounting reports.
Relationship between cost control and profit growth of sugar industry:
The relationship between cost control and profit is interdependent. We take care of cost, it will
take care of profit. So effective cost control is must for sugar industry. The application of cost
control is must to enhance the profitability of the organization.
The cost control should have following steps:
1. Setting up the targets.
2. Measurement of the actual.
3. Comparison of actual with targets to ascertain variances.
4. Analysis of variants to their course.
5. Taking such correct action is necessary to eliminate the variations.
Requirement for implementing cost management techniques used in sugar
It is team work and support from top level management to lower level management. Is
required the following point should be remembered to implement cost management
techniques in sugar industry.
1. Establish good cost accounting department.
2. Select which cost management techniques are suitable for sugar industry such as Target
Costing, Life Cycle Costing, Just in Time Approach, Material Requirement Planning (MRP),
IJRFM Volume 5, Issue 7 (July, 2015) (ISSN 2231-5985)
International Journal of Research in Finance and Marketing (IMPACT FACTOR – 5.230)
International Journal of Research in Finance & Marketing
Email id: [email protected]
Enterprise Resources Planning (ERP), Activity Based Costing (ABC), Activity Based
Management (ABM), Total Quality Management (TQM), and Value Chain Analysis.
3. Each technique has its limitation. We should select most useful and easy way to apply
techniques of cost management.
4. Proper training should be given to the staff to educate about techniques implementation in
5. First training should be given to management body. These techniques will reduce the cost
and directly increase the profit.
6. At a time all techniques of cost management should not be implemented. The things should
be used on trial and error base.Initialy one or two techniques should be practiced.
7. Profit is backbone of organization. It can be achieved by decreasing cost as well as
increasing selling price later is not held good in long run being competitive we should
control cost then reduce.
1. The effective cost control should only be possible by using modern cost management
techniques such as Target Costing, Life Cycle Costing, Just in Time Approach, Material
Requirement Planning (MRP), Enterprise Resource Planning (ERP),Activity Based
Costing (ABC), Activity Based Management (ABM),Total Quality Management (TQM),and
Value Chain Analysis.
2. Success of using modern cost management techniques only possible when management
team and staff will give proper training about how these techniques will work.
3. These techniques are used in production stage to ultimate consumption stage.
4. These techniques are implemented step by step.
5. For effective implementation of these techniques there should be proper data collection,
analysis and administration at all level of the industry is must.
6. To competitive advantage, one should need to follow modern cost management
techniques in manufacturing industry with good management and responsibility
accounting system.
7. With JIT approach, we can remarkabl decrease in wastages and losses in production
8. Target costing is more useful when majority of product cost is locked during the product
design stage.
9. Where new product is launched Product Life Cycle Costing is holds good. It provides an
overall framework for considering total incremental costs over the entire life span of a
10. Success of MRP (Material Resource Planning) it requires stick on to the latest production
and purchasing schedules and worker should be educated in this regard.
11. Where automatic quality control is required in production process then ERP should be
12. Where belief exist that existing methods under cost some products and over cost others.
Then ABC and ABM (Activity Based Costing, Activity Based Cost Management)
techniques will implemented.
13. TQM is the best technique where continues improvement which enhances the
satisfaction of customer requirement for sugar industry. It is must so all the sugar
industry needs to follow TQM. (Total Quality Management).
14. Value Chain Analysis completes overcome to traditional management accounting. It will
use internal and external data.It will also use appropriate cost drivers for all major value
creating process.
IJRFM Volume 5, Issue 7 (July, 2015) (ISSN 2231-5985)
International Journal of Research in Finance and Marketing (IMPACT FACTOR – 5.230)
International Journal of Research in Finance & Marketing
Email id: [email protected]
Implementation of cost management techniques is a positive impact on organization.
Profitability and the element of material, labour, overhead and employee attitude could be
controlled with instrument like responsibility accounting, data collection and data reporting.
The management should educate the employees how cost management techniques are helpful
to reduce cost and how targeted revenue can ultimately be achieved. To lead outstanding
performance by eliminating waste and reducing costs it is the perfect way to excellence and
these techniques are not only used in production process. Some of the cost management
techniques can be used in service sector also such as TQS (Total Quality Services).
1. Sikka, T.K. (2003), “Fundamental of Cost Accounting” India, Viva Books Private Ltd. 5th
Edition .
2. Lucey, T. (2000), “Management Accounting”, DP Publishers, 4th Edition.
3. “Cost Management” ICAI study material for CA-Final course.
4. Williams.(2000), “Cases in Management Accounting and Control System”
5. Bose.R.K.Sugar and Khandsare Industry in Haryana a Study of Cost Structure and
Profitability, PhD thesis K,U.K
7. Just in Time WWW

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