Professional Documents
Culture Documents
1 Introduction:
A bank is a financial institution licensed by a govt. Its primary activities include borrowing and
lending money. Many other financial activities were allowed over time. Financial Institutions
have historically have been distinguished by the types of services they provide. In recent years
Financial Institutions have diversified their services by creating new subsidiaries that perform
additional services or by merging with other types of financial institutions. Banking is one of the
highly leveraged businesses. Financial statements for banks present a different analytical
problem than statements for manufacturing and service companies. As a result analysis of banks
cost and financial performance requires distinct approach that recognizes a banks unique risk.
Cost is one of the important parts that an organization considers to operate their activities. In an
organization like bank cost are divided in different categories such as direct, indirect, other
overheads like selling and administrative, distribution cost etc. This Report is conducted about
cost analysis which is based on banks activities.
Everywhere in this world banking industry is playing a vital role in the economic development
As a qualification of obtaining Masters of Business Administration (MBA) degree, every
student of Leading University, Sylhet has to go through an internship program which course is
known as BUS-699. The main reason of this course is to experience the reality of the corporate
life and relate it with the knowledge get from academic curriculum with practical situation. This
course is taken which creates opportunities for every student to work different organizations
where they work different working environment and gather practical knowledge. This project
titled “Cost Analysis: A Comparative Study on Public Bank and Private Bank” is prepared
for fulfilling the requirement of the MBA.
The main function of the bank is borrowing money from the people by accepting deposits and
lending them for development of trade, commerce, industry and agriculture. A bank is thus a
dealer of money and credit. Banks act as financial intermediaries between savers and investors.
It is a 0profit seeking business concern as any others commercial or industrial organizations.
1
Cost/ expenses are an important factor for the financial organizations. In recent years the
financial organizations especially the banks are trying hard to control their cost. The study
covers the activities of bank in cost sector and will try to find the performance of banks in that
section.
In spite of limitation I also got some facility to complete my project. My University project
supervisor also helped me a lot. He gave me a guidelines how to prepare my report more
attractive and perfect.
Certain methods and techniques are utilized to collect data for the study. Collected data and information
were tabulated, processed and analyzed critically to make the Project report more informative. Only
secondary source of data were choose as effective means of collecting data relevant for the report.
2
1.5.2 Types of data used
The present study was not out of limitations. But as a MBA student it was a great opportunity
for me to know the banking activities of Bangladesh. Some constraints are appended bellow:
Limited area: This report is may be too narrow because I worked only in one part instead of
different part. My area of study was limited.
Lack of time: The time period was very short; I had only 8 weeks in my hand to complete
this report, it is very tough to go in depth of the study.
Secrecy Maintenance: Due to the Bank’s policy of maintaining secrecy I did not get the
opportunity to gather more information.
Insufficient data: There is a great lacking of numerical data about customer satisfaction
analysis banking. Some desired information could not be collected due to confidentiality of
business.
3
2.1 Definition of Costs
The term ‘cost’ means the amount of expenses incurred on or attributable to specified thing or
activity.
As per Institute of cost and work accounts (ICWA) India, Cost is ‘measurement in monetary
terms of the amount of resources used for the purpose of production of goods or rendering
services.
To get the results we make efforts. Efforts constitute cost of getting the results. It can be
expressed in terms of money; it means the amount of expenses incurred on or attributable to
some specific thing or activity. The term cost is used in this very form. In reference to
production/manufacturing of goods and services cost refers to sum total of the value of
resources used like raw material and labor and expenses incurred in producing or manufacturing
of given quantity.
2.2.1 Material
All material which becomes an integral part of finished product and which can be conveniently
assigned to specific physical unit is termed as “Direct Material”. It is also described as raw
material, process material, prime material, production material, stores material, etc. The
substance from which the product is made is known as material. It may be in a raw or
manufactured state.
1. Direct Material
2. Indirect Material
4
1. Direct material
Direct Material is that material which can be easily identified and related with specific product,
job, and process. Timber is a raw material for making furniture, cloth for making garments,
sugarcane for making sugar, and Gold/ silver for making jewellery, etc. are some examples of
direct material.
2. Indirect material
Indirect Material is that material which cannot be easily and conveniently identified and related
with a particular product, job, process, and activity.
Consumable stores, oil and waste, printing and stationery etc., are some examples of indirect
material. Indirect materials are used in the factory, the office, or the selling and distribution
department.
2.2.2 Labor
Labor is the main factor of production. For conversion of raw material into finished goods,
human resource is needed, and such human resource is termed as labor. Labor cost is the main
element of cost in a product or service.
2. Indirect labor
1. Direct labor
Labor which takes active and direct part in the production of a commodity. Direct labor is that
labor which can be easily identified and related with specific product, job, process, and activity.
Direct labor cost is easily traceable to specific products. Direct labor costs are specially and
conveniently traceable to specific products. Direct labor varies directly with the volume of
output. Direct labor is also known as process labor, productive labor, operating labor, direct
wages, manufacturing wages, etc. Cost of wages paid to carpenter for making furniture, cost of a
tailor in producing readymade garments, cost of washer in dry cleaning unit are some examples
of direct labor.
2. Indirect labor
5
Indirect labor is that labor which cannot be easily identified and related with specific product,
job, process, and activity. It includes all labor not directly engaged in converting raw material
into finished product. It may or may not vary directly with the volume of output. Labor
employed for the purpose of carrying out tasks incidental to goods or services provided is
indirect labor. Indirect labor is used in the factory, the office, or the selling and distribution
department. Wages of store-keepers, time-keepers, salary of works manager, salary of salesmen,
etc., are all examples of indirect labor cost.
2.2.3 Expenses
All cost incurred in the production of finished goods other than material cost and labor cost are
termed as expenses. Expenses are classified into two categories:
1. Direct expenses
These are expenses which are directly, easily, and wholly allocated to specific cost center or cost
units. All direct cost other than direct material and direct labor are termed as direct expenses.
Direct expenses are also termed as chargeable expenses. Some examples of the direct expenses
are hire of special machinery, cost of special designs, moulds or patterns, feed paid to architects,
surveyors and other consultants, inward carriage and freight charges on special material, Cost of
patents and royalties.
1. Cost center means a location, person, or item of equipment or group of these for which costs
may be ascertained and used for the purpose of cost control.
2. Cost object is anything for which a separate measurement of cost is desired. It may be a
product, service, project, or a customer.
2. Indirect expenses
These expenses cannot be directly, easily, and wholly allocated to specific cost center or cost
units. All indirect costs other than indirect material and indirect labor are termed as indirect
expenses. Thus, Indirect Expenses = Indirect cost – Indirect material – Indirect labor. Indirect
6
expenses are treated as part of overheads. Rent, rates and taxes of building, repair, insurance and
depreciation on fixed assets, etc., are some examples of indirect expenses.
2.3 Overhead
The term overhead has a wider meaning than the term indirect expenses. Overheads include the
cost of indirect material, indirect labor and indirect expenses. This is the aggregate sum of
indirect material, indirect labor and indirect expenses.
All indirect costs incurred in the factory for production of goods is termed as factory/works
overheads. Such costs are concerned with the running of the factory or plant. These include
indirect material, indirect labor and indirect expenses incurred in the factory. Some examples are
as follows:
Indirect materials:
Indirect wages
7
(iii) Salary and fee of factory directors and technical directors
Indirect expenses
(iv) Depreciation of factory building, plant and machinery, and their repairsand maintenance
charges.
These expenses are related to the management and administration of the business. They are
incurred for the direction and control of an undertaking.
These represent the aggregate of the cost of indirect material, indirect labor, and indirect
expenses incurred by the office and administration department of an organization. Some
examples are as follows:
Office printing and stationery, Cost of brushes, dusters etc. for cleaning office building and
equipment’s, Postage and stamps. Salary of office manager, clerks, and other employees, Salary
of administrative directors, Salaries of legal adviser, Salaries of cost accountants and financial
accountants, Salary of computer operator. Rent, insurance, rates and taxes of office building,
Office lighting, heating and cleaning, Depreciation and repair of office building, furniture, and
Equipment etc., Legal charges, Bank charges, Trade subscriptions, Telephone charges, Audit fee
etc.
8
2.3.3 Selling and Distribution Overheads
Selling and distribution overheads are incurred for the marketing of a commodity, for securing
order for the articles, dispatching goods sold or for making efforts to find and retain customers.
These expenses represent the aggregate of indirect material, indirect labor, and indirect expenses
incurred by the selling and distribution department of the organization.
These overheads have two aspects (i) procuring orders (ii) executing the order. Based upon this
concept the selling and distributions are studied separately.
Indirect costs incurred in relation to the procurement of sale orders are termed as selling
overheads. Some of the examples of selling overheads are as follows:
Indirect material
Indirect wages
Indirect expenses
(i) Advertising
9
(v) Travelling and entertainment expenses
Indirect costs incurred in relation to the execution of the sales order is termed as distribution
overheads. Some of the examples of distribution overheads are as follows:
Indirect material
(ii) oil, grease, spare parts etc. for maintaining delivery vans
Indirect wages
Indirect expenses
Classify the following items into factory, office and administration and selling and distribution
overheads:
1. Packing expenses
2. Consumable stores
3. Advertising
10
4. Cost of normal idle time
5. Audit fees
6. Traveling and entertainment expenses
7. Salary of storekeeper
8. Postage and stamps
9. Cost of sample
10. Market research expenses
Benefit Cost Analysis (BCA) is a decision-making tool used to determine the feasibility of a
project or investment, or the probability of its success. BCA allows the manager to compare the
ultimate cost(s) and benefit(s) of a proposed business activity or investment, prior to committing
time and resources.
Performing a Benefit Cost Analysis allows management to identify the best cost alternative by:
2. Comparing the initial evaluated results from a series of BCAs with competing projects, and
3. Evaluating the business's decisions to determine short-term and long-term impact and
benefits.
11
3.1 Total Operating Expenses
Operating expenses are those expenditures that a business incurs to engage in any activities not
directly associated with the production of goods or services. These expenditures are the same as
selling, general and administrative expenses.
Name Of Banks 2017 2016 2015 2014 2013
14000000000
12000000000
Name Of Banks
10000000000
Bank Asia Limited
8000000000 Standard Bank Limited
Pubali Bank Limited
6000000000
Janata Bank Limited
4000000000
2000000000
0
1 2 3 4 5
Interpretation: In this graph horizontal axis shows the year and vertical axis shows the
amount of cost .In Private banks, Total Operating Expenses are gradually increases but In standard
bank this rate is low than Bank asia and in total its lower than public bank. In Public banks, Total
Operating Expenses are too much higher than private bank.
12
3.1.1 Salary and Allowances:
12000000000
Name Of Banks
10000000000
Standard Bank
6000000000
Limited
Pubali Bank Limited
4000000000
0
1 2 3 4 5 6
Interpretation:
In Private banks, salary and allowance rate is moderate in private banks rather public banks.
In Public banks, year by year salary and allowance rate is increases.
13
3.1.2 Rent, taxes, insurance, electricity etc:
Rent means pay someone for the use of something, typically property, land or a car. Where tax
means a compulsory contribution to state revenue, levied by the government on workers. So
rent, tax, insurance, electricity all are expenses that an organization want to control it.
1200000000
1000000000
Name Of Banks
800000000
Bank Asia Limited
600000000 Standard Bank Limited
Pubali Bank Limited
400000000
Janata Bank Limited
200000000
0
1 2 3 4 5 6
Interpretation:
In Private Banks, Bank Asia ltd. Provide a large amount of rent, tax etc. than standard bank ltd
but both banks are not efficient in cost control because the cost rate is increases year to year. In
Public banks, the cost under rent, taxes etc. are also high which effect on total profit.
14
3.1.3 Legal expenses
Legal expenses mean all reasonable fees (whether of attorneys, accountants or other
professionals) costs and expenses of any kind of activities.
45000000
Legal Expenses
40000000
35000000
Name Of Banks
30000000
Bank Asia Limited
25000000 Standard Bank Limited
Pubali Bank Limited
20000000
Janata Bank Limited
15000000
10000000
5000000
0
1 2 3 4 5 6
Interpretation:
Here analysis found that bank Asia and Pubali bank are stay in a moderate level but recently
janata bank spent more and more for legal expenses and it’s harmful to operate banking
activities.
15
3.1.4 Postage, Stamp, Telecommunication etc:
Postage definition, the charge for the conveyance of a letter or other matter sent by mail, usually
prepaid by means of a stamp or stamps .Telecommunication means communication over a
distance by cable, telegraph, telephone, or broadcasting.
Postage, Stamp,
Telecommunication, etc
140000000
120000000
20000000
0
1 2 3 4 5 6
Interpretation:
From the study, found that Postage, Stamp, Telecommunication etc. costs are dramatically
increasing day by day. On the other hand, standard bank try to control this costs.
16
3.1.5 Stationery, Printing, Advertisements etc:
Stationery means writing and other office materials. Printing and advertisements are also a part
of the organization .Here integrate all expenses relating with these fields.
Year
Interpretation:
In Private Banks, the cost of Stationery, Printing, Advertisements, etc. are under control rather
public banks because in present standard bank try to decrease the cost over the year and bank
Asia also. In Public banks, spent more amounts against Stationery, Printing, Advertisements,
etc. In janata bank the cost reached in 24 billion which is too much and difficult to operate the
activities
17
3.1.6 Managing Director's / Chief Executive Salary and Fees:
Managing Director's the person who is in overall charge of the running of an organization or
business. The managing director of a company is the most important working director, and is
in charge of the way the company is managed. The fees and salary are also an important factor
for public and private organization.
0
1 2 3 4 5 6
Interpretation:
In Private Banks, Managing Director's / Chief Executive Salary and Fees are increasing highly year by
year than public banks. In Public banks, these expenses are gradually increases.
18
3.1.7 Auditors' fees:
A person appointed and authorized to examineaccounts and accounting records, compare thecha
rges with the vouchers, verify balance sheetand income items, and state the result.So in private
and public banks auditor is an important person and for his activities they bear some cost. These
are given below:
Auditors' fees
12000000
10000000
Name Of Banks
8000000
Bank Asia Limited
6000000
Standard Bank
Limited
4000000 Pubali Bank Limited
0
1 2 3 4 5 6
Interpretation:
In Private Banks, in standard bank auditors fees are increases from 4 million to 11 million in
2011-2016 and in bank Asia the rate is above 20 million to 30 million. In Public bank,
auditor’s fees are high in Janata bank which is started from 35 million and in 2016 reached in 96
million.
19
3.1.8 Depreciation and Repairs of Bank's assets:
Depreciation is an accounting method of allocating the cost of a tangible asset over its useful
life. Businesses depreciate long-term assets for both tax and accounting purposes.
to restore to a good or sound condition after decay or damage is indicate as repairs.
800000000
700000000
600000000
200000000
100000000
0
1 2 3 4 5 6
Interpretation:
In Private Banks, Depreciation and Repairs of Bank's assets costs are increased year after year.
In 2011 standard banks charges bellow 10 billion and bank Asia charges above 30 billion and its
reached near 50 billion in 2016 but it’s better than public bank because janata bank charged
depreciation and repair cost in 2011 is near 30 billion and reached 75 billion in 2016.
20
3.1.9 Charges on loan losses
Charges can include one-time fees, such as an origination fee on a loan, or interest payments, which can
amortize on a monthly or daily basis.
Interpretation
In Standard Bank, Charges on loan losses are gradually increases. In 2013 the expenses was
only 6 millions but in 2015 the expenses reached in 24 million.
In Pubali Bank,
They are tried to balance the expenses of charges on loan losses. In 2014, the loan losses were
above 3 billion but in 2015 the expenses was increased to above 4 billion. In 2016, they are
controlled the cost and turned into level of 4 million.
21
3.1.10 Other Expenses:
Other expenses are expenses that do not relate to a company's main business. As well as operating costs,
the company needs to consider other expenses including interest expense and losses from disposing of
fixed assets.
Other Expenses
2000000000
1800000000
1600000000
Name Of Banks
1400000000
Bank Asia Limited
1200000000
Standard Bank Limited
1000000000
Pubali Bank Limited
800000000 Janata Bank Limited
600000000
400000000
200000000
0
1 2 3 4 5 6
Interpretation:
Other expenses are too much in Public banks than Private banks like pubali bank bear 120 - 174 billion
costs in 2011-2016.on the other hand standard banks changes only 14 billion to 35 billion.
22
4.1 Findings:
From the analysis, here found some key findings which are given below:
From the study found that, Charges on loan losses are continuously increases but in public
Here public bank charged too much costs against depreciation and repair cost than private bank
Salary and allowances cost are lower in private banks and higher in public bank.
In auditor’s expenses, private banks are charged in medium scale but public banks provide high
Managing Director's / Chief Executive Salary and Fees are higher in private banks rather than
public banks.
From the study, comparatively found that public banks are spent more costs to operate banking activities
and it has negative impact on profit margin and also hamper to continue day to day activates. On the
other hand, private banks are spent relatively low than public banks.
23
4.2 Recommendations:
The following recommendations would improve the total activities of banks and also reduced
others costs from the organization.
1. Private Banks should increase salary and allowances because it helps to encourage the
employees and increase commitment for better work.
2. Public banks should set a moderate rate for auditor’s fees because it helps to reduce total
expenses.
3. Private Banks should decrease their losses on charges loan because its fail to collect loan
and also create others expenses.
5. Both banks can enhance its profit margin by managing the operating cost efficiently.
24
4.3 Conclusion:
Cost analysis is a comparison of costs. Costs used to prepare financial statements are not the
same as those used to control operations. Costs may be controllable or non-controllable and are
subject to time periods and constraints. The Study of Cost analysis of public and private bank
was huge and there are recommendations needs to mention firstly to minimize their total
operating expenses and also other expenses. Otherwise, they would not able to see the better
days in upcoming year. Cost analysis can be more attractive if sample size is large.Here,taking
only four banks as public and private are not enough for any analysis and cannot provide useful
information for implementation. Limited time period is one of the reasons for short analysis.
Taking more public and private banks give valuable information which will be helpful for
minimizing cost and also for making proper decision. Excess costs imposed negative impact on
profit margin and it’s harmful for any organization to continue or operate day to day operation.
25
Reference
1. Lawrence J. Gitman, Principle of managerial Finance 10th edition, Prentice Hall,
United Kingdom
2. Ronald W. Melicher, Introduction to Finance 14th edition, John Wiely and sons Inc.
United Kingdom
3. https://www. Standardbank.com.bd/index.php/home/about
4. https://www. www.jb.com.bd
5. https://www. pubalibank.com.bd/index.php/home/corporate_banking
7. http://www.yourarticlelibrary.com/accounting/financial-statements/financial-statement-
analysis-definition-and-4-objectives/53031/
8. :https://en.wikipedia.org/wiki/Financial_statement_analysis
9. http://www.investopedia.com/dictionary/
10. :http://www.eximbank.com/annual_report/Pubali_Bank_Limited_Annual_Report2015.p
df
11. https://www.jamatabank.com.bd/financial_report/Annual%20Report%202013.pdf
26