Cost Accounting System of Quasem Drycells Limited

Abstract

There are mainly three drycell battery manufacturers in Bangladesh. So, there is a
strong competition among these companies to better serve the market. As an industry,
drycell is facing crisis like jute industry for many reasons. Our analysis shows that
the cost accounting system of Quasem Drycells Limited serves as managerial
control tool. As an ISO Certified Company it maintains adequate sources of
documents. For the convenience of the company, it follows non integral system of
recording. The company follows mixture of Activity Based Costing System and plant
wide rate. They should follow an appropriate cost Allocation System which will be
economically feasible in decision making.

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 Cost Accounting System of Quasem Drycells Limited

Introduction

Any academic course of the study has a great value when it has practical application
in the real life. Only a lot of theoretical knowledge will be little important unless it is
applicable in the practical life. So we need proper application of our knowledge to get
some benefit from our theoretical knowledge to make it more fruitful. When we engage
ourselves in a practical field to make proper use of our knowledge, it benefits us in our
practical life. To gather real world knowledge we are assigned to visit a manufacturing
industry. So we have selected Quasem Drycells Limited which is the largest drycell
battery manufacturing & first ISO certified company in Bangladesh of its kind. The
journey started in June 14, 1980, where the company brought a new era of modern
battery manufacturing technology in Bangladesh.

Title of the Report:

The Title of the report is “Cost Accounting System of Quasem Drycells Limited”.

Objective of the Report:

The prime objective of the report is to understand the “Cost Accounting System” of
Quasem Drycells Limited as well as the methodology and process adopted in
conducting day to day business as a manufacturing organization. Besides these, the report
has been composed to obtain the following objectives:
• To bridge between theory and practice.
• To evaluate the performance of QDL in respect of the cost accounting system.
• To show the cost accounting system of QDL.
• To analyze cost accounting techniques used by QDL.
• To justify the cost accounting system.
• To determine the drawbacks of the existing system.
• To recommend some guidelines to improve the efficiency and effectiveness.

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 Cost Accounting System of Quasem Drycells Limited

Methodology Used:
Sources of Information:
Primary data
We have collected the primary information regarding the cost accounting system of QDL
by interviewing through directly communicating with the responsible executives of the
accounts department. Therefore; primary information is considered in the following
manner. We have made personal interviews and tried to extract our desired information.
Following are some of the papers we have received:
• Product wise profit & loss account; Production & sales statement; Materials used
for production.
• Schedule of unit wise direct labour and factory overhead allocation.
• Schedule of operating expenses.
• Schedule of direct labour and overhead.
• Schedule of administrative expenses.
• Schedule of selling expenses.

Secondary data:
Sources of secondary information are:
i) Annual Report, and
ii) Web site of QDL.

Limitation of the Study:

 Lack of availability of data
 Improper combination among various departments
 Time is a limitation that would mostly with stands a comprehensive study on the
topic selected.
 Up-to-date information were not available
 Don’t give the data from their source document

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 Cost Accounting System of Quasem Drycells Limited

 Unwilling to give information more because of extra harassment without their

responsibility.

COMPANY PROFILE

Quasem Group
Quasem Group is a leading Industrial & Trading House in Bangladesh. History of
Quasem Group dates back to 1950 when the Group started its business with
international trading in jute. Within a span of four decades the Group expanded its
business and industrial activities widely, which at present covers production of yarn,
weaving and finishing of fabrics, manufacturing of drycell batteries, zinc callots,
electrical bulbs and gas lighters.
The Group consists of the following industrial units:
 Quasem Drycells Limited
 Quasem Zinc Limited
 Quasem Lamps Limited
 Quasem Textile Mills Limited
 Quasem Silk Mills Limited
 Quasem Rotor Spinning Mills Limited
 Sunlite Trading & Services Limited
 Quasem Food Products Limited
 Quasem Cotton Mills Limited
 Quasem Foundation
 Quasem Power Generation Limited
 Mukul Brothers Limited

About Quasem Drycells Limited

Quasem Drycells Limited is the largest drycell battery manufacturing & first
ISO certified company in Bangladesh of its kind. The journey started in June 14, 1980,
where the company brought a new era of modern battery manufacturing technology in

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 Cost Accounting System of Quasem Drycells Limited

Bangladesh. And now it is representing as a pioneer company in teams of Dry Cell

Manufacturing, where it has successfully established its ‘SUNLITE’ brand as a leader in
the drycell industry.
Quasem Drycells Limited (QDL) is a public limited company and it is listed in
the Dhaka Stock Exchange (DSE) and the Chittagong Stock Exchange (CSE), and both
these exchanges have ranked QDL as a blue chip company by qualifying for the DSE top
20 and the CSE top 30 list in the year 2002.
QDL has established itself as a producer of quality and this image is reflected in the
price premium enjoyed by its brand, SUNLITE.
The sponsors of QDL have continually upgraded the drycell production plan and
have invested in developing capacity for the company with a vision to be a leading
industrial enterprise in Bangladesh.

Management
Quasem Drycells Limited, a concern of QUASEM GROUP, is mainly
operated by its Managing Director, Mr. Tasvir UI Islam, the youngest son of late Mr.
Abul Quasem, who was the founder Chairman of the entire Group.
Mr.Tasvir UI Islam completed H.N.D. (Business Studies) from UK & B.S. (Business
Administration) from USA. In 1980, he joined in Quasem Drycells Limited (QDL)
as a Director. Since then he has been involved in the Management of QDL till 1997 when
he was elected as the Managing Director of the Company.
The Management of QDL is operated by skilled professional executives and it
adopted ISO 9002 in the year 2001 for implementation of the Quality Management in the
organization which was updated to ISO 9001:2000 in the year 2003.
The Management is using different tools of Quality Management to improve the
efficiency of the organization and working for implementation of TQM (Total Quality
Management).

Marketing & Distribution

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 Cost Accounting System of Quasem Drycells Limited

QDL is holding 45% market share for D size UM-1 Drycell battery and 60% for AA
size UM-3 drycell battery of the total market in Bangladesh by implementing modern
marketing and effective distribution system.
Efficient marketing and promotion of the products is a key success element in the
drycell industry. For this reason the QDL Management has a dedicated team in the head
office that analyses data received from the field and also from other sources to formulate
marketing plans on an annual basis.
Quasem Drycells Ltd. (QDL) has established sales relationships with over
10,000 wholesalers and 250,000 retailers throughout Bangladesh. There are 92
distributors and 350 sales officers employed by both QDL and the distributors for
monitoring and controlling the distribution system. QDL has 150 vehicles comprising of
vans, scooters, rickshaws and others. QDL employs 35 direct sales executives who
monitor the performance of the distributors. They also provide information regarding
competition and the effectiveness of marketing strategies.

Research & Development

Quasem Drycells Limited has a laboratory with most modern equipment and
technology where a team of highly skilled & efficient workforce is engaged to improve
the product quality through extensive research & development work.

Export Packaging
Product Packaging
Large size (UM-1)/D Ammonium 12 pcs. In one 03 ply corrugated mini- carton. 12
Chloride (Paper Line) Metal Jacket corrugated mini-carton in one 05 ply corrugated
Drycells master carton or 144 pcs.

(Weight: 14.25 kg per master carton)

Pencil size (UM-3)/AA Zinc 10 pcs. In one strip, 12 strips in one corrugated
Chloride (Mercury Free), Heavy- mini-carton, 4 corrugated mini-carton in one
duty Metal Jacket Drycells. corrugated master carton or 480 pcs.

(Weight: 10.35 kg per master carton)

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 Cost Accounting System of Quasem Drycells Limited

Primary Information of Products

Products Name SUNLITE

Products Type UM-1 (R-20), UM-3 (R-6) & UM-4 (R-3)
Products Size "D", "AA " & " AAA"
Trade Name Economy, Super, Hi-Super, Heavy Duty
Chemical System Zinc - Manganese Dioxide (Zn/MnO2)
Type of Jacket Printed Metal Jacket

Specification of Products
Product’s Size Designation Nominal Capacit Weight Total Diameter
Type (As per Volt y (mAh) (gm) Height (mm)
IEC) (mm)
Max. Min. Max. Min.
UM-1 D R-20 1.5 7000 93 61.5 60.5 34.2 32.3
UM-3 AA R-6 1.5 900 18 50.5 49.5 14.5 13.5
UM-4 AAA R-3 1.5 400 7 44.5 43.3 10.5 9.5

Application of Batteries
UM-1 (R-20), "D" SIZE Cassette Player, Radio, Torch & Toy etc.
UM-3 (R-6), "AA" SIZE Clock, Camera, Toy, Walkman, Torch, Radio etc.
UM-4 (R-3), "AAA" SIZE Remote Control, Camera, Walkman, Calculator, Pager

Special Attributes

 Produced & tested by modern state-of-art technology.

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 Cost Accounting System of Quasem Drycells Limited

 Comparable to any other international brand.

 No chance of leakage.
 Ensures better protection of the appliance.
 Excellent power retention even after long storage.

Production Capacity
There are 10 production lines with world’s most exclusive technology in drycell
battery manufacturing and sufficient production capacity to meet demands of both local
and export market.
Type of Product Production Capacity per Year
UM-1 (R-20) 80 million pcs.
UM-3 (R-6) 120 million pcs.

Objectives of Quasem Drycells Limited

The following objectives have been set by the management of Quasem Drycells
Limited for achievement within the given time-frame mentioned in each specific
category.
 To increase existing service life of battery
UM-3 (R6), AA SizeAverage service life in Photoflash test (1Ω) of UM-3 Sunlite
batteries shall be increased by 5% from the present status by June 2008.
1. Average service life in Photo pulse test (1.8Ω) of UM-3 Sunlite batteries
by 5% from the present status by June 2008.
2. Average service life in Walkman (10Ω), Toy (4Ω), and Radio (75Ω) test of
UM-3 batteries shall be increased by 2% from the present status by June
2008.
UM-1 (R20), D Size

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 Cost Accounting System of Quasem Drycells Limited

1. Average service life in Torch (4Ω) test of both Paper & Paste type of UM-
1 Sunlite Hi-Super batteries shall be increased by 2% from the present
status by June 2008 while in radio (40Ω) test both types of UM-1 Sunlite
Hi-Super batteries shall be increased by 1% from the present status within
the same period.
2. Average service life in Torch (4Ω) and Radio (40Ω) test of UM-1 Sunlite
Economy batteries shall be increased by 2% from the present status by
June 2008.
 To increase productivity
1. Productivity of UM-1 & UM-3 shall be increased by 5% & 2%
respectively from the present status by June 2008.
2. Productivity of Printed Sheets shall be increased by 3% from the present
status by June 2008.
 To reduce wastage percentage
1. Wastage of UM-1 (Paper Type) & UM-3 batteries shall be reduced by 3%
& 10% respectively from the present status by June 2008.
2. Wastage of Red ink for UM-1, Varnish (untoned) and Isopropanole shall
be reduced by 2% from the present status by June 2008.

 To reduce market complaint

1. Market complaints of UM-1 & UM-3 batteries due to mishandling during
transportation should be reduced by 50% from the present status by June
2008.
2. Market complaints of UM-1 & UM-3 batteries due to manufacturing that
is factory defect should be reduced by 40% from the present status by June
2008.
 To reduce customer complaint of MPU
Number of customer complaints should be reduced by 15% from the present status by
June 2008.

 To increase sales volume

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 Cost Accounting System of Quasem Drycells Limited

Average Sales Growth of UM-1 and UM-3 batteries will be 12.84% and 15.46%
respectively from the last year’s average sales by June 2008.

Sector UM-1 UM-3

Local Market 29,210,112 Pieces 55,023,360 Pieces
Export 12,000,000 Pieces 12,000,000 Pieces

 To maintain Safety Stock and reduce rejection percentage of imported and

local materials.
Safety Stock of the materials will be maintained properly for the period of July
2007 to June 2008 so that it will not come down throughout the period.
1. Rejection & return of the materials shall be decreased by 50% from the
present status by June 2008.
 To reduce spare & maintenance cost including improving user satisfaction of
vehicle
1. Spare & maintenance cost of vehicle will be reduced by 5% from the
current status by June 2008.
2. User satisfaction will be improved by 2% from the current status by June
2008.
 To reduce breakdown time of major machines
Breakdown time of Dolly Press (Paper Type) and Metal Jacket making machines
of Unit-1 including Dolly Press and Body Maker machines of Unit-2 shall be kept
below 6%, 12%, 15% and 7.5% respectively within the target period up to June 2008.

 To upgrade software and operating install software package including

improving user satisfaction of computer
1. All of the existing Oracle based soft wares will be upgraded by using
Developer 6i and Database will be upgraded from Oracle 8.0.3 to 10g by
June 2008.
2. User satisfaction will be improved by 95% from the current status by June
2008.
3. All users’ operating system will be upgraded to Win XP by June 2008.

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 Cost Accounting System of Quasem Drycells Limited

 To increase efficiency of factory employees

Number of training programs for increasing efficiency and awareness among the
factory employees shall be increased by 10% from the last year by June 2008.

Issue Date: 01.07.2007

QUALITY POLICY

It is the policy of Quasem Drycells Limited (QDL) to manufacture and market high
quality batteries that maximize customer satisfaction. To achieve that, QDL has adopted
ISO 9001:2000 Quality Management Systems model. Acquisition of sufficient
knowledge and skills of company personnel are ensured through regular training. It is
also the policy of the company to try consistently to meet the objectives for quality and
optimise the interests of the stakeholders.

Cost Accounting – A Managerial Control Tool

Cost accounting is the accounting that provides information for management

accounting and financial accounting. Cost accounting measures and reports financial and
non- financial information relating to the cost of acquiring or utilizing resources in an

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 Cost Accounting System of Quasem Drycells Limited

organization. The objective of cost accounting is to determine the total cost and per unit
cost of product and control of cost in production. The Chartered Institute of Management
Accountants (CIMA), England, defines cost accounting as that part of management
accounting which establishes budgets and standard costs and actual costs of operations,
processes, departments or products and the analysis of variances, profitability or social
use of funds.

How Cost Accounting Facilitates Planning and Control at QDL:

Cost accounting plays a vital role in QDL. We can explain this role in QDL with the help
of following Exhibit 1:

Exhibit 1: Example of a Management Decision at QDL

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 Cost Accounting System of Quasem Drycells Limited

Planning:
Budgets Financial
Increase revenue of UM-1 Expected units sold, representation of
(Hi-Sup) by 1.5% than rates per unit and plans.
previous month. revenue

Accounting System:
Recording
Source documents transactions and
(invoices to customers classifying them
indicating sales and rate of in accounting
CONTROL:
sales and payments records.
received) Recording in
.
general subsidiary ledgers.

Performance report: Reports

Comparing actual sales comparing
units, rate per unit and budgets with
revenue to budgeted actual results.
amounts.

Let’s now see how QDL will implement its strategy. The left side of Exhibit 1
provides an overview of the planning and control decisions at QDL. The right side of
Exhibit 1 highlights how the cost accounting system is used as a managerial control tool
in facilitating decisions.

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 Cost Accounting System of Quasem Drycells Limited

Let’s consider first the planning decisions. To increase operating income of UM-
1(Hi-Super) batteries consistent with its strategy, four main alternatives were evaluated:

1. Increase per unit sales price of batteries.

2. Decrease the commission allowed to retailers.
3. Lowering quality and thus decrease cost.
4. Reducing operating expenses.

The last 3 alternatives are not feasible and not viable for the company considering
many issues such as – decision regarding decrease in sales commission will induce
retailers to sell other brands which give them more commission. Again, if quality is
compromised, then company will be benefited in the short-run but will be looser in the
long-run. Reduction in operating expenses is not possible now because this practice is in
use for last 2 years – from that time when the prices of major raw materials – zinc callot,
steel plate and carbon rod have increased by 30%-40% in international market. There is
no scope to reduce operating expenses further. So, the only way is to increase the per unit
sales price.
The management of QDL decided to increase per unit sales price of UM-1(Hi-Super)
batteries by 1.5% to Tk.13.50 for July 20XX. Management budgeted revenues from UM-
1[Hi-Super] to be Tk.6,210,000 (Tk.13.50 per price multiplied by 460,000 pieces
predicted to be sold in July 20XX).
Now consider the control decisions taken by QDL. One control decision is
communicating the new price-list to its sales representatives and customers. Another
control decision is performance evaluation such as a monthly “Attainment of Manager
Objectives” review in which actual results for a period are compared with amounts
budgeted for that period. During the month of July 20XX, QDL sold batteries, issued
invoices, and received payments. These invoices and receipts were recorded in the
accounting system.
Exhibit 2 shows us QDL’s performance report of UM-1(Hi-Super) batteries for July
20XX. This report indicates that 451,250 piece of UM-1(Hi-Super) (8,750 pieces less
than budgeted 460,000 pieces) were sold. The average rate per unit was Tk.13.35

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 Cost Accounting System of Quasem Drycells Limited

compared with Tk.13.50 budgeted rates yielding actual revenue of Tk.6,024,188. The
actual revenues are Tk.185,812 less than budgeted Tk.6,210,000.

Exhibit 2: Performance report of sale of UM-1(Hi-Super) battery for July 20XX

(all amounts are imaginary)
Actual Budgeted Difference Difference as a percentage
Result Amount of budgeted amount
Units sold 451,250 460,000 8,750 1.90% UF
Price per Tk.13.35 Tk.13.50 Tk.0.15 1.11% UF
unit
Revenues Tk.6,024,188 Tk.6,210,000 Tk.185,812 2.99% UF

The performance report in Exhibit 2 spurs investigation and more decisions. For
example, did the marketing department make sufficient efforts to convince customers
that, even with the new higher rate of Tk.13.50 per unit of UM-1(Hi-Super) battery,
purchasing this battery will better than other brand(s)?
Why was the actual average rate per unit Tk.13.35 instead of Tk.13.50?
Did economic conditions such as price hike in daily used goods and commodities
affected adversely in the average rate of per unit selling price? Answers to these questions
could prompt the management of QDL to take subsequent actions, including, for
example, motivating marketing managers to renew their efforts to promote sales of UM-
1(Hi-Super) to current and potential users.

Justification in Management Control System

A management control system is a logical integration of techniques to gather and use
information to motivate employee behaviour and to evaluate performance. The purposes
of a management control systems are:

• To clearly communicate the organizational goals.

• To ensure that managers and employees understand the specific actions required
of them to achieve organizational goals.
• To communicate results of an action across the organization.

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 Cost Accounting System of Quasem Drycells Limited

• To ensure that managers can adjust to change in the environment.

Exhibit 3 Shows us the components of Management Control System of Quasem

Drycells Limited:

What do we want to achieve?

How do we set the direction?
Are we
encouraging the
right behaviour? Set Goals,
Measures
target

Plan & Evaluate,

execute Reward

What is getting in
our way?
Monitor,
Report

How much progress

are we making?

This well designed management control system aids and co-ordinates the process of
making a bridge between management control system and each & every objectives of
QDL as specified in page number 8. It also facilitates forecasting revenue and cost-
driver levels, budgeting and measuring and evaluating performances as we have seen in
Exhibit 2.
The first and most basic component in a management control system is the
organizational goals. Why? Because, the focus of the management control system is on
internal management decision making and motivating (and then evaluating) performance
consistent with the organization’s goals. If we again recollect the objectives of the QDL

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 Cost Accounting System of Quasem Drycells Limited

as described in page number 8. We can have the following Table 1 on Organizational

Goals and Performance measures:

Table 1
Organizational Goals Performance Measures
• To increase existing service life of battery
i. UM-3(R6) AA size Average service life.
ii. UM-1(R20) D size Average service life.

• To increase productivity
1. Batteries Battery output per quantity of
i. UM-1 input
ii. UM-2
2. Printed steel sheets Battery output per quantity of
input
• To reduce wastage percentage
1. Battery Percentage (%) of wastage
i. UM-1(paper type)
ii. UM-3
2. Red ink Percentage (%) of wastage
3. Varnish Percentage (%) of wastage
4. Isopropanole Percentage (%) of wastage
• To reduce market complaint
1. UM-1 and UM-3 batteries due to mishandling Percentage (%) of carton
UM-1 and UM-3 batteries due to manufacturing. returned
And so on.

Now, for illustration, if we take the first item of the last organizational goal and
performance measure as listed in the above table, we see that the objective is to reduce
market complaint of UM-1 and UM-3 batteries due to mishandling while transit. This is
the introductory phase or starting phase of the exhibit which is – Set Goals, Measures,
and Targets. The next phase is to plan and execute that how the above goal can be

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 Cost Accounting System of Quasem Drycells Limited

achieved, The company has observed that the market complaint due to mishandling
master cartons (of 576 batteries in each carton) arise from those destination where the
batteries are sent by launches and steamers. Management’s inquiry committee found that
carrying labours throw the master cartons for not carrying about the contents in the
cartons. The cartons are made of wooden box. We know that, drycell batteries are
sensitive to throwing, due to shocks of throwing, because the charge of the batteries goes
down although outer look remains good. The company then started to use corrugated
paper cartons .These cartons cost Tk.69 plus instead of Tk.61 plus of wooden box.
Though an increase of Tk. 7 has been occurred, the company is experiencing a better
picture – which is the Third Phase of Exhibit 3 (→ Monitor, Report). With an increased
cost of carrying, the company satisfies its users and can expect better customer loyalty in
terms of repetitive purchase and in terms of satisfaction level than other competitive
brands. As the change is evaluated, it is rewarded and till now remains as a better
carrying way (4th phase of exhibit 3). Exhibit 4 shows that top managers of QDL set

Exhibit 4: Setting Goals, Objectives and Performance Measures

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 Cost Accounting System of Quasem Drycells Limited

Top level Managers set overall

goals, objectives and
performance measures

Mid level Managers coordinate

among top level and lower level
managers

Lower level managers &

supervisors execute the desired
goal set by top level
management

organization wide (overall company) goals, performance measures, and targets. Managers
review these goals on a periodic basis, usually one year. These goals provide a long-term
performance around which QDL will form its comprehensive plan for positioning itself
in the market.

Cost Accounting System in Practice in Quasem

Drycells Limited

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 Cost Accounting System of Quasem Drycells Limited

As a drycell battery manufacturer organization, Quasem Drycells Limited (QDL)

tries to adopt cost accounting to a Cost Management Approach. It keeps thorough records
by its computerized cost accounting and financial accounting system. It has very efficient
and hard-working accounts department which identifies, records, summarizes
transactions and prepares cost reports and financial reports timely with the help of
accounting software based on Oracle computer programming language.

Cost Objects
Cost objects are theoretically known as anything for which a separate measurement of
costs is desired. Examples include departments, products, activities, territories, etc. QDL
has final cost objects which are each unit of battery produced. That is, users of
information (especially management tax authority, importers, etc.) finally want to know
the cost of producing a unit of battery – may be UM-1 or UM-3.

Besides the final cost objects, there are some intermediate cost objects – production lines
of each unit of UM-1 and UM-3 drycells batteries. Those are – UM-1 (Hi-Super), UM-1
(Economy), UM-1 (Hi-Super Export), UM-1 (Super), UM-1 (Paper Line 144), UM-1
(Super Export), UM-3 (Heavy Duty), UM-3 (Green), UM-3 (Heavy Duty Export), UM-3
(Green Export), UM-3 (Hi-Super), etc.

Cost Centers and Elements of Costs

In the cost accounting system of QDL, there are four cost centers. They are –
1. Cost of Goods Sold
2. Administrative Expenses (Head Office)
3. Selling Expenses
4. Financial Expenses

Each of the above cost centers is a responsibility centre in which a manager is

accountable for costs only. Its financial responsibilities are to control and report costs.
Managers use these cost figures to monitor and assess operations. QDL evaluates the
performance of cost centers by comparing the centre’s actual costs with target or standard

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 Cost Accounting System of Quasem Drycells Limited

cost levels for the amount and type of work done. Elements of the above cost centers are
listed below:

Elements of Cost of goods sold cost centre:

i. Inventory
ii. Labour
iii. Overhead

Elements of Administrative Expenses cost centre:

The elements of “Administrative Expenses” are given in Appendix 1

Elements of Selling Expenses cost centre:

The elements of “Selling Expenses” are given in Appendix 2

Element of Financial Expenses cost centre:

It has only one element – Bank Charge & Interest.

Cost Classification and Basis of Cost Classification:

Cost classifications are needed for the development of costs data that will aid
management in achieving its objectives. These classifications in QDL are based on the
relationship of costs to:

1. The Product (Battery)

2. Volume of Production

Costs in Relation to a Product:

The process of classifying costs and expenses begin by relating costs to the operations of
business. In QDL, total operating cost consists of (1) Manufacturing costs, and (2)
Commercial Expenses.

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 Cost Accounting System of Quasem Drycells Limited

Manufacturing Costs: Manufacturing Cost, often called production cost or factory cost,
is the sum of the three cost elements – direct materials, direct labour, and factory
overhead. Direct materials and direct labour may be combined into another classification
called prime cost. Direct labour and factory overhead may be combined into another
classification called conversion cost, which represents the cost of converting direct
materials into finished products.

Direct materials are all materials that form an integral part of the finished product and
that can be identified directly in calculating the cost of producing a unit of product.
Examples include carbon rod, steel plate PVC tube, brass cap, etc. Direct labour is labour
expended to convert materials into the finished goods. In QDL, use of direct labour is
very minimal now due to technological change in production process. The direct labour
cost here includes costs of those employees’ wages who are operating the battery
production lines. Factory overhead includes all other manufacturing costs that cannot be
charged directly to units produced. Examples include factory cleaning, spare parts, repair
& maintenance of factory computers, etc.

Indirect materials are those materials needed for the completion of batteries, but the
consumption of which is so minimal or so complex to calculate uses per unit that treating
them as direct material is futile. Factory supplies, a form of indirect materials, consist of
such items as lubricating oils, grease, cleaning clothes & rags, and brushes needed to
maintain the working area and machinery in a usable and safe condition. Indirect labour
includes supervisors, clerks, general helpers, employees engaged in maintenance works,
etc.

Commercial Expenses: Commercial Expenses fall into two large classifications here –
(1) Selling Expenses, and (2) Administrative Expenses. Selling expenses begin at the
point where the factory costs end, i.e., when manufacturing has been completed and the
product is in saleable condition. These expenses include the expenses of selling and
delivery. Administrative expenses include the expenses incurred in directing and
controlling the organization. Detailed elements of selling expenses and administrative
expenses were given in appendices.

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 Cost Accounting System of Quasem Drycells Limited

Costs in Relation to Volume of Production:

In QDL some costs vary directly in relation to changes in the volume of production level
or output level, while some others remain relatively fixed in amount. The management of
QDL considers the tendency of costs varying with output to plan and control costs
successfully. There are variable costs, fixed costs, and semi-variable costs.

Variable Costs: Those costs in QDL are considered as variable costs which have these
characteristics – (1) variability of total amount in direct proportion to volume, (2)
relatively constant cost per unit of battery produced as volume changes within a relevant
range, (3) assignable, with reasonable ease and accuracy, to operating departments, and
(4) controllable by a specific department head. Variable costs include direct materials
(both raw & packing) and direct labour. Some factory overheads and manufacturing costs
are also variable.

Fixed Costs: Those costs in QDL are considered as fixed costs which have these
characteristics – (1) total amount fixed within a relevant output range, (2) decrease in per
unit cost as volume increases within a relevant range, (3) assignable to departments on
the basis of arbitrary managerial decisions, or cost allocation methods, and (4) control
responsibility resting with executive management rather than operating supervisors.
Examples of fixed costs include office rent, depreciation of machinery and vehicles (both
delivery & transport), salaries (salaried employees & salaried workers), etc.

Semi-Variable Costs: These types of costs include an amount that is fixed within a
relevant range of output and an amount that varies proportionately with output changes.
For example, electricity cost is semi-variable here. Costs of electricity used in lighting is
fixed because lights are needed when the plants are operating, regardless of the output
level, and costs of electricity used as power to operate machines are variable depending
upon the usage of the equipment.

Cost Assignment & Cost Allocation Methods in Use

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 Cost Accounting System of Quasem Drycells Limited

Cost Assignment:

Cost assignment is a general term that encompasses both of –

1. Tracing accumulated costs that have a direct relationship to a cost object, and
2. Allocating accumulated costs that have an indirect relationship to a cost object.

Cost Tracing:

Direct costs to a cost object are related to the particular cost object and can be traced
to that cost object in economically feasible (cost effective) way. For example, the cost
of carbon rod used in each battery is a direct cost of producing the battery. The cost of
carbon rod can be easily traced to or identified with the battery which is Tk.0.55 for
UM-1 batteries and Tk.0.27 for UM-3 batteries.

Cost Allocation:

Indirect costs of a cost object is related to the particular cost object but can not be
traced to the cost object in economically feasible (cost effective) way. For example,
the cost of providing medical & welfare to employees working in the factory is an
indirect cost of batteries. Medical & welfare costs are related to the cost object (each
unit of battery produced) because medical & welfare is necessary for complying with
labour law and factory law. Unlike the cost of carbon rod and tinplate, it is difficult to
trace medical & welfare costs to each unit of battery produced.

Exhibit 4 depicts direct costs and indirect costs of both forms of costs assignment – cost
tracing and cost allocation. The final cost object here is each unit of battery produced.
There are intermediary cost objects such as – each production line of UM -1 and UM-3
batteries.[UM-1(Hi-Super), UM-1(Economy), UM-1(paper line 144), UM-1(Hi-Super
Export), UM-1(Super Export), UM-3(Green), UM-3(Heavy Duty), UM-3(Hi-Super),
UM-3(Hi-Super BP), UM-3(Heavy Duty Export), UM-3(Green Export), and so on.

Exhibit 4: Cost Assignment to final cost object

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 Cost Accounting System of Quasem Drycells Limited

Type of cost
Cost
Assignment

Direct costs Cost Tracing

Example: Carbon
Cost Object
Rod, Tip, Tin plate

Cost
Allocation (Each Unit of Battery
Indirect Costs
Produced)
Example:
Allowance,
Entertainment,
Office
Maintenance.

Cost Assignment Methods used in QDL:

Cost Assignment methods to each unit of battery produced also have two parts, namely –
Cost Tracing methods and Cost Allocation methods.

A. Costs Tracing Methods/ Procedures:

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 Cost Accounting System of Quasem Drycells Limited

We all know that, direct costs include direct material and direct labour. Procedure of
getting per unit cost of materials and per unit cost of packing materials is described in
Appendix 3 (Materials Used for Production). But tracing of direct labour cost is not easy
like materials because changes in manufacturing technology have made changes in
proportion of direct labour required to produce battery. Jobs which were done manually
are now being done in automated process. Cost of direct labour has been reduced and
indirect cost related to automation has been increased. For this reason, tracing of total
direct labour amount is not possible now, and in fact, not done by QDL. Instead of doing
this, the elements of direct labour (as shown in) are allocated to two production units in
some ways. These ways are listed in the Table 2 to Table 5 below:

Table 2: 1st way of Allocation:

Particulars Basis of Allocation
• Allowance These costs are firstly allocated to production

• Carriage Inwards- Factory Units (Unit-1 which produces all of UM-1

batteries and unit-2 which produces UM-3 of all
• Daily Wages
types). Then the amount allocated to each
• Conveyance Allowance
production unit is further allocated to each type
• Entertainment
of batteries produced by that particular unit (e.g.
• Human Resource UM-1(Hi-Super), UM-1(Economy), UM-1(paper
Development line 144), UM-1(Hi-Super Export), UM-1(Super
• Insurance (Fire) Export), UM-3(Green), UM-3(Heavy Duty),
• Labour Charges UM-3(Hi-Super), UM-3(Hi-Super BP), UM-
• Office Maintenance 3(Heavy Duty Export), UM-3(Green Export),

• Product Development etc.

• Repair & Maintenance

• Wages

Table 3: 2nd way of Allocation:

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 Cost Accounting System of Quasem Drycells Limited

Particulars Basis of Allocation

• Bonus
• Earned Leave Pay
• Gratuity
• Provident fund Allocated based on salary sheet.

• Salary

Table 4: 3rd way of Allocation:

Particulars Basis of Allocation
• Meter wise (There are two meters
for two production units)
• Electric Bills

Table 5: 4th way of Allocation:

Particulars Basis of Allocation
• Medical & welfare • Unit-1 only

B. Costs Allocation Methods:

In QDL allocation of cost is required for four types of indirect costs. They are:

1. Factory Overhead
2. Administrative Expenses (Head Office)
3. Selling & Distribution Expenses, and

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 Cost Accounting System of Quasem Drycells Limited

4. Financial Expenses

Allocation of Factory Overhead:

Factory Overheads are allocated in two ways. These two ways of Factory Overhead
Allocation are listed in the following two tables:

Table 6: 1st way of Allocation:

Particulars Basis of Allocation
• Bank Charges & Interests These costs are firstly allocated to
production Units (Unit-1 which produces
(Distributors’ Loan) all of UM-1 batteries and unit-2 which
produces UM-3 of all types). Then the
• Depreciation Expenses
amount allocated to each production unit is
• Indirect Material Expenses
further allocated to each type of batteries
• ISO Certification Expenses produced by that particular unit (e.g. UM-
• Lease Rental 1(Hi-Super), UM-1(Economy), UM-
• Power 1(paper line 144), UM-1(Hi-Super Export),

• Printing & Stationary UM-1(Super Export), UM-3(Green), UM-

3(Heavy Duty), UM-3(Hi-Super), UM-
• Repair & Maintenance
3(Hi-Super BP), UM-3(Heavy Duty
• Stores & Spares (Factory) Export), UM-3(Green Export), etc.

Table 7: 2nd way of Allocation:

Particulars Basis of Allocation
• Car Maintenance
• Gardening & Plantation
• Unit-1 only
• Insurance (Car)
• Miscellaneous Expenses

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 Cost Accounting System of Quasem Drycells Limited

• Postage & Telephone

• Repair & Maintenance (Computer)

Allocation of Administrative Expenses, and Selling & Distribution Expenses:

To allocate Administrative Expenses and Selling & distribution Expenses, the following
formula is used:

Total Admin. and Selling & Dist. Expenses X Individual Production Lines
Total Quantity Sold

Here total administrative expenses are from the total shown at the last cell in Appendix 1
and total selling expenses are from the total shown at the last cell in Appendix 2.

Allocation of Financial Expenses:

Financial expenses include Bank Charge & Interest of bank accounts that QDL have.
Some of them are the following Table 8:

Table 8: Schedule of Bank Accounts

Bank Charge & Interest Agrani Bank-7620
Bank Charge & Interest Agrani Bank-10439-6
Bank Charge & Interest Citi Bank N.A.–FD A/C
Bank Charge & Interest Prime Bank-CA
Bank Charge & Interest Citi Bank N.A.-CD
Bank Charge & Interest Sonali Bank-3301433

The total of the Bank Charges & Interest is first allocated to production units and then to
individual production lines of those units and finally to each unit of battery produced by
those production lines.

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 Cost Accounting System of Quasem Drycells Limited

Method of Cost Determination of the Final Cost Object:

The final cost object is each unit of battery produced. For illustrative purpose, cost
determination method of UM-1 (Hi-Super) battery is illustrated Table 9 by using
imaginary figures:

Table 9: Determination of Cost Object*

Particulars Amount (Tk.)
Materials (Raw & Packing) 9.00

Direct Labour 0.40

Prime Costs 9.40
Add: Factory Overhead 0.90
Total Manufacturing Costs 10.30
Add: Operating Expenses:

1. Administrative Expenses 0.70

2. Selling Expenses 0.55

Total Operating Expenses 1.25
Add: Financial Expenses 0.60
Total Cost of UM-1(Hi-Super) 12.15

* Source of these amounts is in the Appendices.

Valuation of Inventory:
Inventories are valued under the following basis:
Item of Inventory Basis of Valuation
Raw Materials Weighted Average Cost
Packing Materials Weighted Average Cost
Stores and Spares Weighted Average Cost
Promotional Stock Weighted Average Cost
Work in Process Raw materials cost which includes all the
materials issued to production floor
Finished Goods Weighted Average Cost
Miscellaneous Cost Weighted Average Cost

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 Cost Accounting System of Quasem Drycells Limited

There are other methods used in the business world like “First-in, First Out (FIFO)”,
“Last-in, First Out (LIFO), etc. So, why Weighted Average Cost is used at QDL? In the
eyes of management of QDL, the following advantages they get from Weighted Average
Cost:

• It is realistic costing method useful to management in analyzing operating results

and appraising future production.
• This method minimizes clerical effort.
• It is less expensive to use.

For example, UM-1(Hi-Super) batteries in stock are from 3 batches. Per unit cost of first
batch is Tk.13.20 (25,000 pcs), of second batch Tk.13.25 (45,000 pcs) and of third batch
Tk. 13.35 (95,000 pcs). The weighted average cost of each unit of UM-1(Hi-Super) will
be –

= (Tk. 13.20 * 25,000) + ( Tk. 13.25 * 45,000) + (Tk. 13.35 * 90,000) /165,000

= Tk. 13.30 per piece.

Findings and Evaluations of Cost Accounting System of QDL

The major findings of our study in the Quasem Drycells Limited are as follows:
 The Cost Accounting System of Quasem Drycells Limited serves as
managerial control tool.
 QDL follows non-integral accounting system of recording.
 We have found that, the company follows a mixture of traditional plant wide rate
and activity based rate in allocation of indirect costs.
 They determine total cost and per unit cost of batteries produced on the basis of
product line.
 They value inventory according to Weighted Average Method.
 They follow normal costing system.

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 Cost Accounting System of Quasem Drycells Limited

 Here, some provisional accounts are maintained for controlling purpose.

Provisional account (as shown in the following table) means that these accounts
bear estimated figures at the beginning of the year.

Schedule of Unit Wise Direct Labor and Factory Overhead

 Earn Leave Pay
 Gratuity
 Bonus
 Depreciation
Schedule of Operating Expenses
Administrative Expenses Selling Expenses
 Gratuity  Bonus
 Bonus  Bonus (JSR)
 Earned Leave Pay  Advertisement Expenses
 Depreciation  Sales Promotion Expenses
 Fees & Prof. charges ( BSTI)  Depreciation
 Fees & Prof. charges ( others)  Bad Debts
 Meeting Expenses (AGM)

 Accounts other than provisional accounts are maintained by Historical costing

system.
 In the computerized accounting system (both cost accounting & financial
accounting), burden of work is very much reduced. Cash transactions – receipts &
payments, and bank transactions – receipts & payments are recorded when the
transactions occur. These are recorded in cash vouchers.
 Non-cash transactions (e.g. depreciation) are recorded in a different type of
voucher – called here as “Journal Voucher” or “JV”.
 Quasem Drycells Limited has a well-structured cost accounting system.
 Keeps proper books of Accounts as needed.
 Financial statements are prepared almost in accordance with the Bangladesh
Accounting Standard (BAS).

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 Cost Accounting System of Quasem Drycells Limited

 As an ISO Certified Company it maintains adequate sources of documents.

 Standard codes of accounts are maintained.
 Generally Accepted Accounting Principles (GAAP) is followed properly.

Recommendations:
The following recommendations are believed by us as steps to improve QDL and its
performance & reflection of performance in the financial statements:

 We have found that some administrative and overhead costs are charged to Unit-1
only, but those costs have no relation with Unit-1. Of these costs, some are truly
identifiable with respective production units in effective & efficient ways. These
identifiable costs have to be charged according to activity. The rests have to be
charged between Unit-1 and Unit-2 in some justifiable basis.
 Management of QDL is highly centralized in decision making. As a result, top
level management involves in many insignificant and immaterial matters. So, we

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 Cost Accounting System of Quasem Drycells Limited

suggest that management should be decentralized and responsibility should be

divided among different levels of management.

Conclusion:
As students of MBA level in Accounting & Information Systems of Dhaka University,
We have tried our best to observe the cost accounting system of Quasem Drycells
Limited. We have tried to make a bridge between theoretical knowledge and practice.
Drycell market is not expanding now as it expanded one or two decades ago. Being the
“market leader” as claimed in the company profile QDL enjoys price premium by its
brand. Cost Accounting System of Quasem Drycells Limited has been analysed
with keeping all the other aspects in mind ─ not only the tables & the charts. We think
this analysis will be helpful to some extent. If so happens, then our efforts will be fruitful.

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 Cost Accounting System of Quasem Drycells Limited

References:

Horngren,C. T.; S. M. Datar and G. Foster. 2000. Cost Accounting: A Managerial

Emphasis. Delhi: Prentice Hall.

Rayburn, L.G. 1996. Cost Accounting: Using a Management Approach. United States
America: Irwin.

Banerjee, B. 2006. Cost Accounting: Theory and Practice. New Delhi: Prentice Hall.

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 Cost Accounting System of Quasem Drycells Limited

Matz, A.; M.F. Usry and L.H. Hammer. 1984. Cost Accounting: Planning and
Control. United States America: South Western Publishing Company.

Cooper, D.R. and P.S. Schindler. 2006. Business Research Methods. Singapore: Mc
Graw Hill.

Horngren,C. T.; G.L. Sundem and W. O. Stratton. 2004. Introduction To Management

Accounting. New Delhi: Prentice Hall.

Garison, R.H. and E.W. Noreen. 2005. Managerial Accounting. New York:NY
Mc Graw Hill & Irwin.

Annual Report of Quasem Drycells Limited – 2005-06.

Annual Report of Quasem Drycells Limited – 2006-07.

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