Design of a cost system at EHTL-Indian Institute of Management Banglore, Banglore.

Abstract

This study aims to design a Costing System using standard costing at ELCOT HITECH TOOLROOM LIMITED, Chennai. EHTL is a modern commercial tool room in the business of manufacturing high precision plastic and metallic components. EHTL has an annual turnover of Rs.220 lakhs and its products have a wide application in automobiles, electronic industry and consumer durable. EHTL product includes high precision moulds & dies, jigs & fixtures, press tools and pressure die casting dies. The existing costing system at EHTL do not have a concrete base for the costing. This was totally followed on thumb rule basis. The above system lead to a stage where EHTL products are expensive. This study is to find the effectiveness of the present cost system and alter the system to make the company's product competitive. The methodology adopted was that to calculate the fixed cost like depreciation, interest, manpower and variable cost like power, raw materials, lubricants, consumables and divided proportionately to all the machines according to a calculated basis, thereby arriving at a new machine hour rate and overheads. If the new costing system is implemented in our factory, it will boost the turnover by 45%. The conventional costing system is not that suitable for contemporary industrial and commercial situation. The particular product line cost may be distorted, cost management may be hindered by the difficulty of identifying cost driver relationship and cost reduction action may be misguided.