BEST WAY CEMENT

Introduction

In order to meet the increased industry demand, Best way cement is producing
a considerable amount of the cement. It is believed that the demand of the
cement will continue to increase over the next few years keeping in view the
mega projects which the government intends to execute, continuing progress in
housing sector and exports of Afghanistan.
The government is investing in the cement industry in order to fulfill the
increasing demand of the cement. There are three additional cement plants
with installed capacity of over 2.1 million tons are in the final stages of
completion despite the available excess capacity in this sector.

History
Askari Cement Ltd. is successor of associated Cement Company. The first
cement plant in the area (now constituting Pakistan). The first plant was set up
by famous Bombay based Indian company (Associated Cement Company) in
1921 with rated capacity of 120 tones per day. First major expansion was made
in 1936 when a kiln of the capacity of 250 tones per day was added followed by
enhancement by 300 tones per day in 1950. In 1970 another kiln of 600 tones
daily was erected. In 1972 the company was nationalized and put under control
of State Cement Corporation of Pakistan in 1974. In 1991 name of the plant was
changed to Wah Cement Company. In 1994 the whole old structure and
machinery was scrapped prior to start the latest state of the art - FLS Dry
process Plant which was privatized by the Government of Pakistan and acquired
by Army Welfare trust (AWT) in 1996.
After acquisition, AWT Changed name of the brand to Askari Cement. The plant
installed in 1994 is the latest 3000 tones per day single production line
designed by FL Smidth of Denmark and M/s Holder Bank Consultants of
Switzerland - two renowned names of Cement world

1
Sales & Production

The sales made by the company during this year are the highest in the last 5
years. The exports to Afghanistan showed an increase of 191.69% as compared
to last year. However, the increase in domestic sales was around 9.78% if
compared to last year.
The prices of the cement remained stable during the year and the persistent
growth in the real estate sector supported its high demand as a result, the net
sales of the company were above Rs. 2 billion which is again one of the highest
for the company during the past 5 years. The increase in the net sales was
557.823 million as compared to last year thus recorded an increase of 35.18%.
During the year ended June 30th 2006 the industry as a hole showed a sign of
recovery as the demand for the cement continued to show a growing trend for
the year 2005 the industries export to Afghanistan increase by 687,997 tons
160% as compared to the last year where as the increase in the domestic
demand was 1,536,538 tons (13.99%) over the last year. thus the total demand
of the cement for the year was 13,634,548 tons (19.50%) higher then last year.
In order to meet the increased industry demand ACL produced 776,562 tons
during the year 2005-6 which is its highest production during the last 5 years.

Product unit
The product in our project is the Askari cement. The cement is basically a
commodity and there are several units on which the product can be measured
but we take one unit at which the product is manufactured and other at which
the cement is sold to the consumer.
Units
One Cement Bag = 50 kilograms
One Ton = 20 bags = 1,000 kilograms

2
Departments
Manufacturing Department
The manufacturing departments are those departments which are directly
involve in the production of cement.
Quarry Department
This department deals with mining of the maintaining and all issue which are
related to the mining.
Production Department
In this department the production of cement is started and the cement mix is
brought in it.
Service Department
The service departments are those departments which provide service to the
manufacturing departments.
Maintenance
The maintenance department is that department in which the people maintain
the performance of machine and the overhauling of the machines.
Store
The store department is that placed where the cement which is produced is
stored and then it is move to packing department from there.
Quality Control
In this department the quality of cement is controlled that why at every stage
of production the sample of that cement material is tested.
Administrative Departments
The administrative departments are those which manages the activities other
than production activities or they manage external activities
Administration
The administration department is that department which deals with
administration issues such salaries expenses etc.
Finance
In this department the finance and accounts related information are store in
the database or information system.
Management Information System Departments
In this department different databases are made for the administration
facilitation.

3
 Best way cement
Cost of Good Sold Statement
As on June 30, 2006

Rupees
1) Direct Material
Raw Material Consumed 154,482,578
2) Direct Labor
Wages 41,908,946
Prime Cost 196,391,524
3) Factory Overheads
Packing materials 148,353,750
Stores and spares 65,154,218
Fuel, gas, power and water 811,412,769
Salaries 3,675,262
Insurance 3,884,602
Repair and maintenance 2,024,827
Depreciation 346,007,956
Other expenses 12,167,619
1,392,681,003
Manufacturing Cost/Factory Cost 1,589,072,527

4) Adjustment for work in process

Opening inventory 40,317,116
Cost of work to be accounted for 1,629,389,643
Less Closing inventory (27,769,267)
Cost of goods manufactured 1,601,620,376

5) Adjustment for finished goods stock

Opening inventory 17,379,192
Cost of goods available for sale 1,618,999,568
Less Closing inventory (13,323,825)

Cost of Goods Sold 1,605,675,743

4
Inventories and Consumption of this Year (June 2006)
These are the inventories of the different stages of the work i.e. raw material
opening inventory, closing inventory, work in process opening and closing
inventory, finished goods opening and closing inventory. Note that the opening
inventories are the inventories as on July 1, 2006 and closing inventories are
the inventories as on June 30, 2006
Raw Material
The raw materials which are needed in the Askari cement are the ores from
mountains which are added to the cement mix that is considered as raw
material. The inventories and consumption of raw materials are given below
• Opening inventory Rs. 10,477,770
• Closing inventory Rs. 9,233,552
• Addition this year Rs. 153,238,360
• Consumption Rs. 154,482,578
Work in Process
The work in process opening inventories are those works which are remained in
process at the beginning of year and closing inventory are those works which
remained in process at the end of the year.
• Opening inventory Rs. 40,317,116
• Closing inventory Rs. 27,769,267
• Assign of material Rs. 154,482,578
• Assign of labor Rs. 31,908,946
• Assign of factory overhead Rs. 1,402,681,003
• Transfer to finished goods Rs. 1,601,620,376
Finished Goods
The finished goods opening and closing inventories and the transfer of good to
finished foods inventory are as under
• Opening inventory Rs. 17,379,192
• Closing inventory Rs. 13,323,825
• Transfers from work in process Rs. 1,601,620,376

5
 • Sold amount Rs. 1,605,675,743

Measuring Unit Cost

Now we shall measure the unit cost of the Askari cement. There are several
units with which the cement quantity can be measured. But we shall measure
the cost of Askari cement in two units.
• Per ton
• Per bag
In order to measure the unit cost there are several item and cost are included
in the manufacturing and managing of the work. So in order to measure it we
choose the way of calculating the total operating cost
Total Operating Cost

The total operating cost is the total cost from start of manufacturing to the
sales of the goods. The formula for the total operating cost is:
Manufacturing Cost = Prime Cost + Factory Overhead
Total Operating Cost = Manufacturing Cost + Commercial Expenses
Prime Cost

The prime cost is the combined cost of the direct material and direct labor
both combined to form prime cost. Now we shall calculate the prime cost of
the Askari cement.
The formula of the prime cost is:
Prime cost = Direct material + Direct labor

Direct material

Direct materials are all materials that form an integral part of the finished
product and that can be included directly in the cost of the product. In Askari
cement the materials which are directly used in the production of the cement
are gypsum, clay, and slate. These are the raw material which is the input for
Askari cement.

6
Now we shall conclude the direct material consumed this year.

Computation of Direct Material Consumed

Opening Inventory 10,477,770

Addition during year
• Lime Stone 119,690,313
• Gypsum 14,317,203
• Others 19,230,844 153,238,360

Less: Closing Stock of Raw Material (9,233,552)

Raw Material Consumed 154,482,578

Direct Material Assigned To Production This Year = Rs. 154,482,578

Direct material per unit
Now we shall calculate the direct material in terms of two types of unit per ton
of cement and per bag of cement.
Per Ton
Production during this year = 776,562 tons
Direct material consumed = Rs. 154,482,578

Cost of Direct material per ton = Direct Material Cost

Production in tons
= 154,482,578
776,562
= Rs. 200 per ton
Per bag
20 bags of cement = 1 ton
1 bag of cement = 1/20
Cost of direct material per bag = 200 x 1/20
= Rs. 10 per bag

7
 Direct labor

Direct labor is the labor applied directly to the materials comprising the
finished product. The cost of wages paid to skilled workers and assignable to
the particular unit produced is termed as direct labor.
In Askari cement the direct labor are those which directly work in cement mill,
raw mill or stacker, and kiln the total direct labor cost is given below.
• Number of working days in year = 300 days
• Number of shifts = 3 shifts per day
• 1st shift = 600 workers
• 2nd shift = 340 workers
• 3rd shift or night shift = 150 workers
• Total number of labors = 600 + 340 + 150 = 1090 workers
• Working hours per worker per day = 8 hours
• working hours of labors per year = 8 x 300 x 1090 = 2,616,000
hours
• workers on kiln = 130 labors
• workers on cement mill = 440 labors
• workers on raw mill = 520 labors
• Average production per month = 60,500 tons
• Average production per day = 2,180 tons
• Kiln workers wage = Rs. 140 per worker/day
• Raw mill = Rs. 110 per worker/day
• Cement mill = Rs. 130 per worker/day

Computation Of Direct Labor this Year (2006)

Labor Computation Amount Direct labor/hour
Direct labor
Raw mill 300 days x 520 labors x Rs.110 Rs. 17,160,000 110/8 = Rs.13.75
Kiln workers 300 days x 130 labors x Rs.140 Rs. 5,460,000 140/8 = Rs.17.50
Cement mill 300 days x 440 labors x Rs.130 Rs. 17,160,000 130/8 = Rs.16.25

8
Total Rs. 39,780,000 Avg: Rs. 17.00 /hour

Labor rate per hour

Now we shall find out the production per labor
Production per day = 2,180 tons
Number of labors per day = 1090
Tons per labor produced = 2180 = 2 tons per day
1090
Number of hours per worker = 8 hours per day
Tons per hour labor produced = 2 = 0.25 tons/hour
8

Labor units per hour = 0.25 tons or 5 bags of cement

Labor hours per ton = 4 hours
One hour rate = Rs. 17.00
One ton labor = 17.00 x 4 = Rs. 68
On bag labor = 190/20 = Rs. 3.4
Prime Cost
As we find out the direct material and direct labor so we can calculate the
prime cost incurred in the manufacturing of Askari cement during year.

Prime cost = direct material + direct labor

Prime cost = 154,482,578 + 39,780,000
= Rs. 194,262,578
Factory Overheads
Factory overheads also called manufacturing overhead or factory burden. It is
the cost of indirect material, indirect labor and al other manufacturing cost
that cannot be charged to the specific units, jobs, or products. In a simple way
it includes all the manufacturing cost except direct material and direct labor.
In Best way cement there are different material and labors and other
overheads other then directly related to manufacturing are:
• Indirect material

9
 • Indirect labor
• Other indirect cost

Factory Overheads
Indirect Materials
• Packing materials 148,353,750
• Stores and spares 65,154,218
Indirect Labor
• Salaries 3,675,262
Other Indirect Costs
• Fuel, gas, power, and
811,412,769
water
3,884,602
• Insurance
2,024,827
• Repair and maintenance
346,007,956
• Depreciation
12,167,619
• Other expenses
Total 1,392,681,003

Calculating factory overhead rate

Total actual factory overheads = Rs. 1,392,681,003

Estimated factory overhead = Rs. 1,250,000,000
Number of units = 776,562 tons
Overhead rate = estimated FOH
Number of units
= 1,250,000,000
776,562
= Rs. 1,610 per ton
= 1610/20 = Rs. 81 per bag
Factory overhead rate = 1610 per ton or Rs. 81 per bag

10
 Calculating Manufacturing Cost

Now as we have find out all the components of the manufacturing cost now we
calculate total manufacturing cost.
Total manufacturing cost = prime cost + factory overheads
= 194,262,578 + 1,250,000,000
= Rs. 1,444,262,578

Calculating cost of unit manufactured

Now we shall calculate the cost of tons which are manufactured this year.
Total manufacturing cost = 1,444,262,578
Add: work in process opening inventory = 40,317,116
Less: work in process Closing inventory = 27,769,267
Cost of unit manufactured = 1,456,810,427

Cost of unit manufactured as on cost of goods sold with actual factory overhead
Cost of units manufactured (from CGS Statement) = 1,589,072,527

Manufacturing Unit cost

Tons , bag
Direct material = 200 , 10
Direct labor = 68 , 3.4
Factory overhead = 1610 , 81
Manufacturing cost /unit = 1878 , 94.4

11
 Commercial expenses

There are two types of commercial expenses which incur in the distribution of
the product and selling of the product. The expenses are
• Marketing expenses
• Administrative expenses

Marketing expenses

The marketing expense start when product is ready to sale as this expense
incurred in communicating the product to customers. In Askari cement the
marketing expenses are:

Marketing And Selling Expense

Salaries wages and benefits 3,071,676

Rent, rates, taxes 162,759
Subscription 839,735
Postage, telegram and telephone 371,692
Vehicle running expense 412,226
Stationary and printing 175,284
Advertisements 2,654,660
Other expenses 374,009
Total 8,062,041
Administrative expense

Administrative expenses are hose expenses which are incurred in controlling

the organization and management. The Askari cement administrative expenses
are:

Administrative Expenses
Salaries wages and benefits 7,974,472

12
 Rent, rates and taxes 1,702,899
Postage, telegram, and telephone 641,160
Vehicle running expense 340,077
Legal and professional charges 1,465,643
Stationary and printing 403,320
Subscription 17,600
Advertisement 394,809
Auditors’ remuneration 145,000
Depreciation 754,319
Other expenses 1,085,185
Total 14,924,484

Commercial expenses
Commercial expenses = marketing expense + administrative expense
= 8,062,041 + 14,924,484
= 22,986,525

Total Operating Cost

As the commercial expense occurs after the manufacturing expense and actual
factory overhead so we the total operating cost of the Askari cement is:
Total operating cost = total manufacturing cost + commercial expenses
= 1,589,072,532 (as on CGS) + 22,986,525
= Rs. 1,612,059,058
Total operating cost/ unit = 1,612,059,058/776562 = Rs. 2,077/ton or Rs.
104/bag

13