MANAGEMENT ACCOUNTING

Financial Analysis of Bestway Cement

Group Members:

• Zohaib Maqbool
• Sohaib Maqbool
• Ismael Abdullah
• Umair Bhatti
1
 Scope Of Study

The study is aimed at financial analysis of Bestway

Cement by applying Absorption Costing and Marginal
Costing Techniques.

Products of Bestway Cement includes:

 Cement
 Clinker

2
 Company Introduction

 Bestway Cement is the largest cement-maker in Pakistan

certified for ISO 9001 Quality Management System and is
a public limited company incorporated in Pakistan.

 Market leaders in cement industry due to its consistently

superior quality, effective marketing strategy and customer
care.

 Bestway cement is among the few in the country which are

certified to export its cement to India.

 A total capacity of more than 8 million tons per annum.

3
 2016-2017 Highlights

 Gross Profit for the year grew by 6.5 % to Rs. 22.5 billion.

 Gross Turn over of Rs. 71.4 billion in the year ended 30th
June 2017 compared to Rs. 58.5 billion during last year, an
increase of 22 %.

4
 Absorption Costing

Assumptions:

 2016 numbers are considered as budgeted.

 2017 numbers are considered as actual.

 Both cement and clinker production are added to get the

total production for the year 2017.

 Variable non production costs are 0.

5
 Income Statement Under Absorption Costing
Particulars Rupees Rupees

Sales revenue 51,623,476,000.00

Less: Manufacturing Cost of Goods Sold
Direct Material ( cost per unit x units produced) 5,137,014,000.00
Direct Labour ( cost per unit x units produced) 1,452,219,000.00
Fixed manufacturing overheads (OH absorption rate per unit x units produced) 2,590,023,598.41
Variable manufacturing Overheads (Cost per unit x units produced 22,336,568,000.00
Total cost of production 31,515,824,598.41
Add: Opening WIP 795,489,000.00
Less: Closing WIP 2,415,219,000.00
Cost of Goods Manufactured 29,896,094,598.41
Add: Opening FG Inventory 275,449,000.00
Less: Closing FG Inventory 650,909,000.00
Cost of Goods Sold 29,520,634,598.41
Add: Under Absorbed OH 57,850,000.00
Manufacturing Cost of goods sold (CGS) 29,578,484,598.41

Gross Profit 22,044,991,401.59

Add: Other income 99,860,000
Less: Selling and distribution Expenses 1,558,903,000
Less: Administrative Expenses 2,404,652,000
Less: Other Expenses 1,229,785,000
Total Expenses 5,093,480,000

Operating Profit 16,951,511,401.59

Less: Net Finance Cost 830,715,000
Add: Share of Profit of Equity - accounted investees, net of tax 2,055,638,000 1,224,923,000

Profit Before Tax (PBT) 18,176,434,401.59

Less: Income Tax Expense 5,371,526,000

Profit After Tax (PAT) 6

12,804,908,401.59
 Marginal Costing

Assumptions:

 2017 numbers are considered as actual.

 Both cement and clinker production are added to get the total
production for the year 2017.

 Variable non production costs are 0.

7
 Income Statement Under Marginal Costing

Particulars Rupees Rupees

Sales Revenue 51,623,476,000.00

Less: Cost Of Goods Sold
Direct Material ( cost per unit x units produced) 5,137,014,000.00
Direct Labour ( cost per unit x units produced) 1,452,219,000.00
Variable manufacturing Overheads (Cost per unit x units produced 22,336,568,000.00
Total cost of production 28,925,801,000.00
Add: Opening WIP 795,489,000.00
Less: Closing WIP 2,415,219,000.00
Cost of Goods Manufactured 27,306,071,000.00
Add: Opening FG Inventory 275,449,000.00
Less: Closing FG Inventory 650,909,000.00
Cost of Goods Sold 26,930,611,000.00
Add: Variable non production cost 0.00
All Variable Costs 26,930,611,000.00

Contribution Margin 24,692,865,000.00

Add: Other income 99,860,000
Less: Selling and distribution Expenses 1,558,903,000
Less: Administrative Expenses 2,404,652,000
Less: Other Expenses 1,229,785,000
Less: All Fixed costs 2,160,142,000 7,253,622,000

Operating Profit 17,439,243,000.00

Less: Net Finance Cost 830,715,000
Add: Share of Profit of Equity - accounted investees, net of tax 2,055,638,000 1,224,923,000

Profit Before Tax (PBT) 18,664,166,000.00

Less: Income Tax Expense 5,371,526,000.00

Profit After Tax (PAT)

8
13,292,640,000.00
 Absorption Vs Marginal Costing

 Marginal costing applies only those costs to inventory that were

incurred when each individual unit was produced, while absorption
costing applies all production costs to all units produced.

 The variable cost is considered as product cost while fixed cost is

considered as period costs incase of marginal costing. Both fixed and
variable cost is considered as product cost incase of absorption costing.

 The profitability of each individual sale will appear to be higher under

marginal costing, while profitability will appear to be lower under
absorption costing.

 The measurement of profits under marginal costing uses the

contribution margin, while the gross profit is used under absorption
costing.