CHAPTER-I

INTRODUCTION

INTRODUCTION
COST:
Cost is essential in every walk of our life national, domestic and Business. A
cost is prepared to have effective utilization of funds and for the realization of objective
as efficiently as possible. Costing is a powerful tool to the management for performing its
functions i.e., formulation plans, coordination activities and controlling operations etc.,
efficiently. For efficient and effective management planning and control are tow highly
essential functions. Costing and cost control provide a set of basic techniques for
planning and control.
A cost fixes a target in terms of rupees or quantities against which the actual
performance is measured. A cost is closely related to both the management function as
well as the accounting function of an organization.
As the size of the organization increases, the need for costing is correspondingly
more because a cost is an effective tool of planning and control. Cost is helpful in
coordinating the various activities (such as production, sales, purchase etc) of the
organization with result that all the activities precede according to the objective. Costs are
means of communication. Ideas of the top management are given the practical shape. As
the activities of various department heads are coordinated at the much needed for the very
success of an organization. Cost is necessary to future to motivate the staff associated, to
coordinate the activities of different departments and to control the performance of
various persons operating at different levels.
Costs may be divided into two basic classes. Capital and operating costs. Capital
cost is directed towards proposed expenditure for new projects and often require special
financing.

The operating costs are directed towards achieving short-term operational goals of
the organization for instance, production or profit goals in a business firm. Operating
costs may be sub-divided into various departmental of functional costs.
A process by which business decisions are analyzed. The benefits of a given situation or
business-related action are summed and then the costs associated with taking that action
are subtracted. Some consultants or analysts also build the model to put a dollar value on
intangible items, such as the benefits and costs associated with living in a certain town.
Most analysts will also factor opportunity cost into such equations.
You may have been intensely creative in generating solutions to a problem, and rigorous
in your selection of the best one available. This solution may still not be worth
implementing, as you may invest a lot of time and money in solving a problem that is not
worthy of this effort.
Cost Benefit Analysis or cba is a relatively simple and widely used technique for deciding
whether to make a change. As its name suggests, to use the technique simply add up the
value of the benefits of a course of action, and subtract the costs associated with it.
Costs are either one-off, or may be ongoing. Benefits are most often received over time.
We build this effect of time into our analysis by calculating a payback period. This is the
time it takes for the benefits of a change to repay its costs. Many companies look for
payback over a specified period of time e.g. three years.
In its simple form, cost-benefit analysis is carried out using only financial costs and
financial benefits. For example, a simple cost/benefit analysis of a road scheme would
measure the cost of building the road, and subtract this from the economic benefit of
improving transport links. It would not measure either the cost of environmental damage
or the benefit of quicker and easier travel to work.

NEED OF THE STUDY:

The importance of cost reduction programs within a company cannot be overstated.

Companies that are losing money, need to increase profits, or must become more
competitive need to cut expenses in order to succeed. Knowing how to implement
effective cost reduction strategies can be the determining factor in the survival of a
business.
When a company must generate more cash as fast as possible, management will have to
decide which costs can be most effectively reduced. If the reduction is needed quickly,
expenses cut first will normally be those that are not fixed or directly tied to production.
It is not a good idea to drastically reduce expenses that produce the company product or
service without careful evaluation.
If your company understands the importance of cost reduction as a tool to increase
profitability, the company will have a much better chance of remaining profitable no
matter what stage of the economic cycle is occurring. That is because cost reduction is an
effective tool that can be responsive to a company's need. Managing expenses is just as
important as managing revenue.
Keeping the competitive edge means keeping the company razor sharp. There is no room
for laxness which dulls the ability of a company to be responsive to market trends.
Changes can occur rapidly, and a company that cannot respond with new methods, new
material usage, service efficiency changes, or technological adaptability will be quickly
outperformed by other businesses. The importance of cost reduction strategies lies in its
contribution to a company's honing of performance.

SCOPE OF THE STUDY:

Since it will not be possible to conduct a micro level study of all type industries in
Andhra Pradesh, the study is restricted to Hyundai Motors India Limited (HMIL)only.

OBJECTIVES OF STUDY
THE STUDY HAS THE FOLLOWING:
To provide the material frame work of cost and Cost Control Analysis
To describe the profit of the organization as a backdrop for undertaking a study of
Cost Benefit Analysis.
To analyze the cost system in practice in Hyundai Motors India Limited
(HMIL) with particular reference to their objectives and phases of organizational
and re-appropriation.

In addition to the analysis of the conventional cost system in practice in Hyundai

Motors India Limited (HMIL). The study aims at evaluation and modification
to the current cost system with reference to the various types of costs. The scope
in the formulation of performance cost is also studied.

SOURCES OF DATA:
The data of Hyundai Motors India Limited (HMIL) have been collected mainly
from secondary sources viz.,

Form the concerned officers of the Hyundai Motors India Limited (HMIL)

Hyundai Motors India Limited (HMIL) journals.

Accounting books, records.

Key books of concerned title.

Statistical records

Hyundai Motors India Limited (HMIL) library.

METHODOLOGY:
The proposed study is carried with the help of both primary and secondary
sources of data.

PRIMARY DATA:
The primary data is collected by interacting with the finance manager and other
concerned executives at the administrative office of the company.

SECONDARY DATA:
All the secondary data used for the study has been extracted from the annual
reports, manuals and other published material of the company.

LIMITATIONS:

Estimates are used as basis for cost plan and estimates are based mostly on
available facts and best managerial judgment

Cost control cannot reduce the managerial function to a formula. It is only a

managerial.

Tool which increase effectiveness of managerial control.

The use of cost may be to restricted use of resources. Costs an often taken as
limits.

Efforts may therefore not be made to exceed the performance beyond the cost
targets.

Frequent changes may be called for in costs due to first changing industrial
climate.

In order that a system may be successful, adequate costs education should be

imparted at least through the formative period. Sufficient training programs
should be arranged to make employees give positive response to cost activities.

The study is the limited up to the date and information provided by Hyundai
Motors India Limited (HMIL) and its annual reports.

CHAPTER-II
INDUSTRY PROFILE
&
COMPANY PROFILE

Introduction
The automobile industry is one of Indias most vibrant and growing industries. This
industry accounts for 22 per cent of the country's manufacturing gross domestic product
(GDP). The auto sector is one of the biggest job creators, both directly and indirectly. It is
estimated that every job created in an auto company leads to three to five indirect
ancillary jobs.
India's domestic market and its growth potential have been a big attraction for many
global automakers. India is presently the world's third largest exporter of two-wheelers
after China and Japan. According to a report by Standard Chartered Bank, India is likely
to overtake Thailand in global auto-export market share by the year 2020.
The next few years are projected to show solid but cautious growth due to improved
affordability, rising incomes and untapped markets. With the governments backing, and
trends in the international scenario such as the decline in prices of natural rubber, the
Indian automobile industry is slated to witness some major growth.
Market size
The cumulative foreign direct investment (FDI) inflows into the Indian automobile
industry during the period April 2000 August 2014 was recorded at US$ 10,119.68
million, as per data by Department of Industrial Policy and Promotion (DIPP).
Data from industry body Society of Indian Automobile Manufacturers (SIAM) showed
that 137,873 passenger cars were sold in July 2014 compared to 131,257 units during the
corresponding month of 2013. Among the auto makers, Maruti Suzuki, Hyundai Motor
India and Honda Cars India emerged the top three gainers with sales growth of 15.45 per
cent, 12 per cent and 11 per cent, respectively.
The three-wheeler segment posted a 24 per cent growth to 51,461 units on the back of
increased demands from the urban market. Total sales across different vehicle segments
grew 12 per cent year on year (y-o-y) to 1,586,123 units.
Scooter sales have jumped by 29 per cent in the ongoing fiscal, and now form 27 per cent
of the total two-wheeler market from just 8 per cent a decade back. The ever-rising
demand for scooters, which has far outstripped supply has prompted Honda to set up its
first dedicated scooter plant in Ahmedabad.

Tractor sales in the country is expected to grow at a compound annual growth rate
(CAGR) of 89 per cent in the next five years making India a high-potential market for
many international brands.
Investments
To match production with demand, many auto makers have started to invest heavily in
various segments in the industry in the last few months. Some of the major investments
and developments in the automobile sector in India are as follows:

Ashok Leyland plans to invest Rs 450500 crore (US$ 73.5481.71 million) in

India, by way of capital expenditure (capex) and investment during FY15. The
company is required to manage Rs 6,000 crore (US$ 980.56 million) of assets in
seven locations across the world, for which maintenance capex is needed.

Honda Motors plans to set up the world's largest scooter plant in Gujarat to roll
out 1.2 million units annually and achieve leadership position in the Indian twowheeler market. The company plans to spend around Rs 1,100 crore (US$ 179.76
million) on the new plant in Ahmedabad, and expand its range with a few more
offerings.

Yamaha Motor Co has restructured its business in India. Now, Yamaha Motor
India (YMI) will take care of its India operations. The restructuring is part of
Yamahas mid-term plan aimed at improving organisational efficiency, as per Mr
Hiroyuki Suzuki, Chief Executive and Managing Director. YMI would be
responsible for corporate planning and strategy, business planning and business
expansion, quality control, and regional control of Yamaha India Business.

Tata Motors plans to use the 'hub-and-spoke' model in which India will be the key
manufacturing base while it will have mini-hubs in overseas markets. The
company also plans to set up mini hubs in potential markets like Africa, MiddleEast and South East Asia.

Hero Cycles through its unit OPM Global has acquired a majority stake in
German bicycle company Mitteldeutsche Fahrradwerke AG (MIFA) for 15

million (US$ 19.11 million). The company plans to invest an additional 4 million
(US$ 5.09 million) as capital expenses in restructuring the acquired company.

Government Initiatives
The Government of India encourages foreign investment in the automobile sector and
allows 100 per cent FDI under the automatic route. To boost manufacturing, the
government had lowered excise duty on small cars, motorcycles, scooters and
commercial vehicles to eight per cent from 12 per cent, on sports utility vehicles to 24 per
cent from 30 per cent, on mid-segment cars to 20 per cent from 24 per cent and on largesegment cars to 24 per cent from 27 per cent.
The governments decision to resolve VAT disputes has also resulted in the top Indian
auto makers namely, Volkswagen, Bajaj Auto, Mahindra & Mahindra and Tata Motors
announcing an investment of around Rs 11,500 crore (US$ 1.87 billion) in Maharashtra.
The Automobile Mission Plan for the period 20062016, designed by the government is
aimed at accelerating and sustaining growth in this sector. Also, the well-established
Regulatory Framework under the Ministry of Shipping, Road Transport and Highways,
plays a part in providing a boost to this sector.
The Government of India-appointed SIAM and Automotive Components Manufacturers
Association (ACMA) are responsible in working for the development of the Indian
automobile industry.
Road Ahead
The future of the auto industry depends on the positive sentiments and the demand for
vehicles in the market. With the festival season coming up, the Indian auto sector will see
a rise in demand which is expected to bring in major growth. An auto dealer survey by
firm UBS suggested that the Indian auto industry, riding on trends like the upcoming
festival season and decline in fuel price, will observe a 12 per cent y-o-y growth in FY15.
Also, keeping up with international trends, there is expected to be a surge in the number
of hybrid vehicles in the Indian auto sector in the years to come.

10

The growth story for the Indian automobile industry in 2014 rode on the two-wheeler
segment and not on passenger cars or commercial vehicles, as high interest rates and a
stuttering manufacturing industry kept a check on demand.
The year also saw Competition Commission of India (CCI) levying a penalty of
Rs.2,544.65 crore ($415) on 14 car makers for their restrictive trade practices by
preventing independent repairers coming into the market. Some of the leading car makers
also had to recall some models over defective components.
When other segments like passenger cars and commercial vehicles logged negative
growth, the two-wheeler makers registered around 13 percent growth between January
and October. Riding on the two-wheeler sector's growth, the automotive industry grew
9.8 percent by volume year-on-year (YoY) between January and October.
"The two-wheeler segment is the only one that has clocked positive growth at 12.9
percent YoY (year-on-year) to reach sales of nearly 13.5 million units by October. This
can be attributed to the low cost of two wheelers

11

in India," Vijay Kakade, vice president for automotive and transportation practice at Frost
& Sullivan, told IANS.
He said the light commercial vehicle (LCV) segment has been the worst hit, with sales
reducing to approximately 330,000 units -- an 18.9 percent YoY fall over 2013.
"The passenger car, medium and heavy commercial vehicle segments contracted by 0.8
and 6.5 percent respectively during the period, compared to 2013. The reduction in sales
can be attributed to the slowdown and the high interest rates set by the RBI (Reserve
Bank of India) reducing the availability of finance options to the public," Kakade added.
"These segments have shown positive signs over the past few months, which is expected
to lead to growth in the next year."

"The year 2014 has been a year of stagnation, which is a positive sign as the decline has
stopped. The industry has shown signs of growth, albeit slower than expected, over the
past few months," Kakade remarked.
P. Balendran, vice president, General Motors India, had similar views to share with
IANS: "Of late, we have seen some movements in new entries driven by novelty factors
and some select manufacturers have been getting the benefits too."
He said the market has not shown any movement forward, despite the excise duty
reduction, while the customer sentiment has not picked up due to sticky interest rates,
which remain at high levels.
"Although fuel prices have started coming down significantly, the enquiry levels at
showrooms have come down and conversions are not taking place at all. The sales of
diesel vehicles are also tapering off because of the narrowing price gap vis-a-vis petrol,"
Balendran added.
Expecting the government to continue with a lower excise duty regime for small/midsized/big cars and sports utility vehicles (SUV) till March 2015, Balendran said the rates
should be continued till the Goods and Services Tax ( GST) is introduced -- aiding the

12

turnaround of the auto sector.

Terming 2014 a mixed bag for the automobile industry, Sumit Sawhney, chief executive
and managing director of Renault India, told that while there has been a sea change in the
consumer sentiment with a gradually improving economic climate in the country, the
optimism has still to translate into sustained sales growth.
"The industry is looking forward to the budget for pro-business policies to reignite the
automobile industry in India."
Highlights of India's automobile industry 2014:

* Overall growth was 9.8 percent by volume year-on-year (YoY) between January and
October.
* Two-wheeler sector grew 12.9 percemt
* Passenger car, medium and heavy commercial vehicle segments contracted by 0.8 and
6.5 till October
* LCV segment worst hit, with sales falling 18.9 percent YoY fall over 2013 till October
* Excise duty reduction on automobiles
* Competition Commission of India (CCI) fines 14 car-makers Rs.2,544.65 crore for
restrictive trade practices.

Auto manufacturers have been trying to cope with economical rough patch in last two
years. Trying to boost sales and implementing cost effective schemes just wasnt enough.
They also had to cut many of their employees loose to stay somewhat balanced, in some
cases. On a fashionable note, senior employees were asked to take voluntary retirement
(not sure what voluntary is doing in that sentence).

13

Tata Motors apart from giving customers attractive offers, gave 600 of their employees
early retirement offers, last month. Ashok Leyland too offered 500 of their employees
with irresistible retirement schemes, last year (pun intended).
Sales of Cars, SUVs, Vans, pick-ups, and entire commercial vehicle segment went south,
with passenger vehicle market encountering first decline in the decade. But what saved
the overall scenario was the two-wheeler market. It took 7.31% hike with motorcycle
sales going 3.91% up and scooter sales riding 23% north. Export sales figures also
contributed to somewhat saving the year with rise of 7.21%.
The downtrend left auto manufacturers with piled up inventory and stagnation. The
interim budget announced in February, gave a minor boost as all vehicles prices were
reduced marginally, but it hasnt exactly helped boost sales yet. Automakers are expecting
aid from the governments new budget by way of further tax cuts.
Sales figures of March 2014 shows 12.83% overall growth also by means of increased
two-wheeler sales. Commercial Vehicles have further dipped compared to March 2013
and passenger cars stagnating below the graph. However, overall production has
increased by 9.95% comparing March figures of both years, suggesting auto makers
confidence in ongoing fiscal to make better.
Launch of new A segment compact cars by various auto majors seems to be helpful in
this economy, for customers as well as value chain entities. Maruti Suzuki finished top on
podium with 42% share in overall car sales, followed by Hyundai with 15% share.
Society of Indian Automobile Manufacturers (SIAM) expects a 6% growth over in the
fiscal 2014-15, with boost in manufacturing sector, new investment and fresh capacities
in the industry. Vikram Kirloskar, president of SIAM says, Whichever government
comes inI am looking for stability in excise duty and some reduction in taxes. We are
an over-taxed industry.

14

15

COMPANY PROFILE
HISTORY:
Hyundai Motor India Limited (HMIL) is a wholly owned subsidiary of Hyundai Motor
Company (HMC). HMIL is the largest passenger car exporter and the second largest car
manufacturer in India. It currently markets nine car models across segments - in the A2
segment it has the Eon, Santro, i10, Grand i10 and the i20, in the A3 segment the Verna,
in the A4 segment the Elantra, in the A5 segment Sonata and in the SUV segment the
Santa Fe.
HMIL's fully integrated state-of-the-art manufacturing plant near Chennai boasts of
advanced production, quality and testing capabilities. HMIL forms a critical part of
HMC's global export hub, it touched 1.5 million in exports in March 2012. It currently
exports to more than 120 countries across EU, Africa, Middle East, Latin America and
the Asia Pacific. HMIL has been India's number one exporter for seven years in a row. To
cater to rising demand the company commissioned its second plant in February 2008
having an installed capacity of 330,000 units per annum. To support its growth and
expansion plans HMIL currently has 346 dealers and around 800 service points across
India. In its commitment to provide customers with cutting-edge global technology,
HMIL set up a modern multi-million dollar R&D facility in Hyderabad. The R&D centre
endeavors to be a center of excellence in automobile engineering.
The Company is an authorized Dealer of Hyundai Motors India Limited (HMIL)
for sale of its entire range of motor vehicles. It is also authorized to service & repair of all
Hyundai cars and also deals in spare parts of Hyundai cars.
Lakshmi Hyundai was established in the year 1998 in Himayathnagar with the
launch of Hyundais first car in India- the evergreen SANTRO. The entire business is
managed under the able leadership and guidance of the managing Director Shri K.Rama
Mohana Rao.
Soon after the Himayathnagar showroom, came up the state-of-art service
facilities at Kukatpally, Banjarahills and L.B.Nagar. These service centers are well
equipped to cater to the needs of valued customers. The management left no stone

16

unturned to review, research and implement the latest of technologies and methodologies
to improve on the sales, service on the customer satisfaction. Continuous up gradation of
the facilities at the sales and service outlets and adding to the service agenda each time,
add been sales graph go high by the yea
AWARDS:

Mr. J.S Shin, Sr Director and Plant Head, HMIL and Mr. Rakesh Srivastava, Sr VP, Sales
and Marketing, HMIL at ICOTY 2014 event.

Mr. J.S Shin, Sr Director and Plant Head, HMIL and Mr. Rakesh Srivastava, Sr VP,Sales
and Marketing, HMIL with the ICOTY Jury

Mr. J.S Shin, Sr Director and Plant Head, HMIL and Mr. Rakesh Srivastava, Sr VP, Sales
and Marketing, HMIL with the Grand

Hyundai Grand wins NDTV Car and Bike 2014 Car of the Year Award

The awards received for Best in sales in south region, Best in finance , Top
performer in 2005 and their technicians being awarded with a Gold Medal for standing
No.1 in the world at World skill Olympics held at Korea-stand testimony to the
recognition that received at the global level.
According to the popular belief, a customer walking into LAKSHMI HYUNDAI is
treated like an asset. His/her needs are assessed in the first stage and the customer is
educated subsequently about the product line, service range, allied services, etc., ample
information and time is given to the prospective buyer to make up his/her mind on which
car to buy.
Totally focused customer centric approach, unparalleled service motto, top-end
facilities, bouquet of allied services, solid after sales backup, quality assurance,

17

unconditional warranty promise and desire to excel through service are some of the
threads which blend in effectively to give birth to the fabric called LAKSHMI
HYUNDAI LAKSHMI HYUNDAIs success is just beginning and more to expect
spectacular chapters in the preamble Winning Edges.
2014

Mr. B.S Seo- MD & CEO, HMIL, Mr. Rakesh Srivastava- Sr. VP, Sales &

Marketing, HMIL receiving the coveted ICOTY 2015 for Elite i20
Mr. B.S Seo- MD & CEO, HMIL, Mr. Rakesh Srivastava- Sr. VP, Sales &

Marketing, HMIL with ICOTY 2015 Jury

Mr. J.S Shin, Sr Director and Plant Head, HMIL and Mr. Rakesh Srivastava,

Sr VP, Sales and Marketing, HMIL at ICOTY 2014 event.

Mr. J.S Shin, Sr Director and Plant Head, HMIL and Mr. Rakesh Srivastava,

Sr VP,Sales and Marketing, HMIL with the ICOTY Jury

Mr. J.S Shin, Sr Director and Plant Head, HMIL and Mr. Rakesh Srivastava,
Sr VP, Sales and Marketing, HMIL with the Grand

2013
January 8, 2013: Elantra has been awarded the 'Car of the year', 'Design of
the year' and 'Executive car of the year' by Car India and Bike India Awards.

January 9, 2013: Elantra has been awarded the 'Saloon car of the year and
Best deign & styling by Bloomberg UTV Autocar India Awards.

January 11, 2013: Elantra has been awarded the 'Car of the year' and
'Executive Sedan of the year' by CNBC TV18 Overdrive Awards.

January 24, 2013: Elantra has been awarded the Premium Sedan and
Automotive design of year by ET Zigwheels Awards 2012.

March 05, 2013: Hyundai Introduces Special Edition iTech i10.

March 20, 2013: Elantra won the 'Sedan of the year 2012' by Autobild India
and Carwale Awards - The Golden Steering Wheel Award.

August 12, 2013: Hyundai introduces Santro 'Celebration Edition'.

September 03, 2013: Launch of Hyundai Grand.

October 17, 2013: Hyundai rolls out the 5th Millionth car.

18

December 18, 2013: Hyundai Grand won the prestigious award 'Indian car
of the year 2014'.

2012

January 5, 2012: The All New Sonata Launched at the New Delhi Auto Expo
2012

January 5, 2012: Eon has been awarded the prestigious 'Entry-Level

Hatchback Of The Year' by ET Zigwheels Awards 2011

January 5, 2012: Verna has been awarded the prestigious 'Best Midsize Car
2012' and 'Best Car Manufacturer 2012' by Motor Vikatan'.

January 6, 2012: Verna has been awarded the prestigious 'Sedan Of The
Year' and HMIL has been awarded the 'Automotive Company Of The Year 2011' by
Auto Bild Carwale.

January 13, 2012: Verna has been awarded the prestigious 'Best Design and
Styling' by Bloomberg UTV Autocar Awards 2012.

January 24, 2012: Eon has been awarded the prestigious 'Micro Car Of The
Year' and 'Reader's Choice Award' by Car India and Bike India Awards 2012.

March 28, 2012: Launch of i-Gen i20.

April 17, 2012: Hyundai Motor India Ltd wins the Auto India Best Brand
Awards 2012- 'Best Customer Service' and 'Best Resale Value'.
August 13, 2012:Launch of the neo fluidic Elantra.
December 10, 2012:Elantra has been awarded the prestigious 'Saloon Car Of
The Year 2012' by BBC Top Gear Magazine Awards 2012.
LAKSHMI HYUNDAI MAN POWER:
Department
Sales
Service
Spaces
Finance &

Own
57
126
15
98

Contract
0
49
0
0

Total
57
175
15
98

HR/Administration
Total

296

49

345

RECRUITMENT PROCESS AT LAKSHMI HYUNDAI:

19

The recruitment process

involves both internal and external methods. Internal

methods namely are employee referrals, promotions, intercompany transfers.

Employee referrals;
This is the most common method of recruitment used by the organization. Last year the
organization recruited 16 employees by employee referrals.
Promotions

Posts falling vacant due to be filled will be notified within the division/office, giving
educational qualifications and experience laid down for the post and the extent to which
these will be relaxed for promotion and inviting applications from eligible employees in
lower group, who have rendered the requisite qualifying service and who have requisite
higher post.
External methods of recruitment followed by the organization are employment exchange, paper
advertisements and campus recruitment. .
Employment Exchange: All vacancies are to be notified to the Local Employment Exchange. If
employment exchanges are unable to sponsor the suitable candidates with in the prescribed time
limits, the vacancies may be advertised in the press on a local/regional advertisement the
vacancies may be advertised on India Basis. A minimum of two weeks notice is to given to the
Local Employment Exchange for sponsoring suitable candidates.
Paper advertisements:

Of the external methods this method is mostly adopted by the organization. This method
of recruitment involves advertising the requirements of personnel in two of the leading
newspapers one being in English language and other being in regional language. For
recruitments in Hyderabad, Eenadu and Deccan Chronicle are the two leading
newspapers that the requirement of personnel is advertised.
SELECTION PROCESS AT LAKSHMI HYUNDAI:

After the recruitment process next step is the selection process in employing a suitable
candidate into the organization. At Hindustan Aeronautics Limited the selection process
mainly includes test/interviews. If a candidate passes through the different rounds of
interviews/test then he is employed into the organization. The Personnel Department of
each division or the corporate office will screen the applications received and categorize

20

them to those that satisfy prescribed minimum educational qualification and experience
and those do not .
Personal Manager Interview:

This is the first round of interview for the candidate. The Personal manager checks the
knowledge of the candidate in the applied field along with his positive attitude,
communication skills and so on. On personal dissatisfaction the manager can call the
candidate for another round of interview. He prepares an evaluation report on the
candidates' performance in the interview.

Board Directors Interview:

After the personal manager interview, the next in line is the Board Directors Interview.
There are 4 directors who take the seat of interviewer. Questions about family
background, health details, academic performance and activities, likes and dislikes,
attitudes and capabilities etc. are all questioned. The interview conducted by the Board
directors can take any shape from stress interview to formal or informal interview
depending on the kind of department they are being recruited for. All the directors
prepare an evaluation report individually on the candidates performance in relation to
personality, intelligence, attitudes, skills and knowledge and so on. .
Verification of Date of Birth, Character and Antecedents

The secondary school certificate is the accepted document required for verification of
date of birth. However, if this document is not available, the candidate should produce a
RESUME. In that he/she mention all study details of them.
APPOINTMENT OF SELECTED CANIDIDATES
Candidates who are selected for appointment to post will be issued with a letter
proposing to offer the post or offering the post. If they accept appointment offer they
are to be reply in the form.
SALES TEAM PERFORMANCE BONUS POINTS

21

Universal Factors
Job

Knowledge

Sub-Factors

No. of Points

& Product Information

Total points

100

Judgment

Sales Personality

Code Of Conduct

Communication Skills
GDMS Up gradation
Accessories Selling Skills
Finance Dealing Skills

75
100
25
50

Presentation Skills
Confidence Level
Voice & Body Culture
Appearance
Selling Skills

50
50
100
50
50

Time Management
Obeying Orders
Alertness
Company Dress
Attendance Record

50
100
75
50
75

350

300

350

Hyundai Motor India Limited (HMIL) is a wholly owned subsidiary of Hyundai Motor
Company (HMC), South Korea and is the largest passenger car exporter and the second
largest car manufacturer in India. HMIL presently markets 6 models of passenger cars
across segments. The A2 segment includes the Santro, i10 and the i20, the A3 segment
includes the Accent and the Verna, the A5 segment includes the Sonata Transform and the
SUV segment includes the Santa Fe.

HMILs fully integrated state-of-the-art manufacturing plant near Chennai boasts of the
most advanced production, quality and testing capabilities in the country. To cater to
rising demand, HMIL commissioned its second plant in February 2008, which produces
an additional 300,000 units per annum, raising HMILs total production capacity to
600,000 units per annum.

22

In continuation with its commitment to providing Indian customers with cutting-edge

global technology, HMIL has set up a modern multi-million dollar research and
development facility in the cyber city of Hyderabad. It aims to become a centre of
excellence for automobile engineering and ensure quick turnaround time to changing
consumer needs.

As HMCs global export hub for compact cars, HMIL is the first automotive company in
India to achieve the export of 10 lakh cars in just over a decade. HMIL currently exports
cars to more than 110 countries across EU, Africa, Middle East, Latin America, Asia and
Australia. It has been the number one exporter of passenger car of the country for the
sixth year in a row.

To support its growth and expansion plans, HMIL currently has a 315 strong dealer
network and 640 strong service points across India, which will see further expansion in
2010.
Mr. Han Woo Park joined Hyundai Motor Company in Seoul, South Korea, in 1982 in the
finance department and ever since he has been involved with costing, auditing and the
financial operations of the company.
He joined Hyundai Motor India Limited in 2003 as the Chief Financial Officer and since
then he has played a pivotal role in HMIL as he was involved in all aspects of the
company in his capacity as a CFO.
Mr. Park has a vast experience and understanding of Hyundai Motor India Ltd and the
Indian culture and has successfully led his team for the last seven years. Mr. Park holds a
degree in Business Administration from the University of Dankook in Seoul, South
Korea.
Prior to his becoming the Managing Director of HMIL he held the position of CFO and
Senior Executive Director. Mr Park lives in Chennai with his wife. He has two children, a

23

son and a daughter. The son is studying at University of Texas, Austin and the daughter is
studying at SUNY Buffalo. Mr Park was born in South Korea on January 29, 1958.
Hyundai Motor India Engineering (HMIE) is a fully owned subsidiary of Hyundai Motor
Company, South Korea, which has set up the R&D Centre in Hyderabad. HMIE is a
centre with one of the most advanced research and development facilities which focuses
on state of the art product and design engineering and rigorous quality enhancement. The
new R&D Centre at Hyderabad in India is Hyundai Motor Companys fourth overseas
R&D

centre.

Set up with an investment of Rs. 184 crores, the new 200,000 square-foot facility R&D
Centre, is aimed at further accelerating local content development and enable Hyundai to
respond even more quickly to changing customer needs across the world. The R&D
Centre will further facilitate the development of India as Hyundais global hub for
manufacturing and engineering of small cars. The new R&D Centre in Hyderabad will
support all back-end operations like computer aided engineering (CAE), computer aided
design (CAD) and help the R & D work taking place across Hyundais car line-up. The
R&D Centre will help in developing vehicles which includes their styling, design
engineering and vehicle test & evaluation. The R&D Centre will play a pivotal role for
cars manufactured in India inorder to satisfy the specific needs of the Indian customers.
Hyundai Motor Companys other overseas R&D centres are located in the United States,
Germany, Japan & Korea.
Management Philosophy With the spirit of creative challenge, we will strive to create a
more affluent lifestyle for humanity, and contribute to the harmony and co-prosperity
with shareholders, customers, employees and other stakeholders in the automobile
industry.
The spirit of creative challenge has been a driving force in leading HMC to where it is
today.
It is the permanent key factor for HMC to actively respond to change in the management
system and seek creative and selfinnovative system. With the spirit of creative

24

challenge, we create profits, the primary objective of a private enterprise. Furthermore,

we take responsibility for the environment and society we belong to, and offer sustainable
mobility in order to implement our corporate philosophy and provide benefits to all
stakeholders including shareholders, customers, executives, employees, suppliers, and
communities.

Vision We announced "Innovation for Customers" as our midto long

term vision with five core strategies: global orientation, respect for human values,
customer satisfaction, technology innovation, and cultural creation. We desire to create an
automobile culture of putting customer first via developing humancentered and
environmentfriendly technological innovation.

Management Policy Based on a

respect for human dignity, we make efforts to meet the expectations of all stakeholders
including customers and business partners by building a constructive relationship
amongst management, labor, executives and employees. Also, we focus on
communicating our corporate values both internally and externally, and gaining
confidence from all stakeholders.

25

Mid-and Long-term Strategies We developed five midand longterm strategies: global

management, higher brand values, business innovation, environmental management, and
strengthening

product

competitiveness.

Especially,

we

selected

environmental

management as one of our strategies to meet the needs of our stakeholders and the society
we belong to. We also intend to promote sustainability development and preservation of
the environment.

26

MOST LIKED SMALL CAR IS SANTROXING

27

28

29

30

CHAPTER-III
LITERATURE REVIEW

31

Costbenefit analysis (CBA), sometimes called benefitcost analysis (BCA), is a

systematic process for calculating and comparing benefits and costs of a project, decision
or government policy (hereafter, "project"). CBA has two purposes:
1. To determine if it is a sound investment/decision (justification/feasibility),
2. To provide a basis for comparing projects. It involves comparing the total
expected cost of each option against the total expected benefits, to see whether the
benefits outweigh the costs, and by how much.
CBA is related to, but distinct from cost-effectiveness analysis. In CBA, benefits and
costs are expressed in money terms, and are adjusted for the time value of money, so that
all flows of benefits and flows of project costs over time (which tend to occur at different
points in time) are expressed on a common basis in terms of their "net present value."
Closely related, but slightly different, formal techniques include cost-effectiveness
analysis, costutility analysis, economic impact analysis, fiscal impact analysis and
Social return on investment (SROI) analysis.

Theory
Costbenefit analysis is often used by governments and others, e.g. businesses, to
evaluate the desirability of a given policy. It is an analysis of the expected balance of
benefits and costs, including an account of foregone alternatives and the status quo,
helping predict whether the benefits of a policy outweigh its costs, and by how much (i.e.
one can rank alternate policies in terms of the ratio of costs and benefit). Altering the
status quo by choosing the lowest cost-benefit ratio can improve pareto efficiency, in
which no alternative policy can improve one group's situation without damaging another.
Generally, accurate cost-benefit analysis identifies choices that increase welfare from a
utilitarian perspective. Otherwise, cost-benefit analysis offers no guarantees of increased
economic efficiency or increases of social welfare; generally positive microeconomic
theory is moot when it comes to evaluating the impact on social welfare of a policy.

32

Process
The following is a list of steps that comprise a generic cost-benefit analysis.
1. List alternative projects/programs.
2. List stakeholders.
3. Select measurement(s) and measure all cost and benefits elements.
4. Predict outcome of cost and benefits over relevant time period.
5. Convert all costs and benefits into a common currency.
6. Apply discount rate.
7. Calculate net present value of project options.
8. Perform sensitivity analysis.
9. Adopt recommended choice.

Valuation
CBA attempts to measure the positive or negative consequences of a project, which may
include:
1. Effects on users or participants
2. Effects on non-users or non-participants
3. Externality effects
4. Option value or other social benefits

33

A similar breakdown is employed in environmental analysis of total economic value.

Both costs and benefits can be diverse. Financial costs tend to be most thoroughly
represented in cost-benefit analyses due to relatively abundant market data. The net
benefits of a project may incorporate cost savings or public willingness to pay
compensation (implying the public has no legal right to the benefits of the policy) or
willingness to accept compensation (implying the public has a right to the benefits of the
policy) for the welfare change resulting from the policy. The guiding principle of
evaluating benefits is to list all (categories of) parties affected by an intervention and add
the (positive or negative) value, usually monetary, that they ascribe to its effect on their
welfare.
The actual compensation an individual would require to have their welfare unchanged by
a policy is inexact at best. Surveys (stated preference techniques) or market behavior
(revealed preference techniques) are often used to estimate the compensation associated
with a policy, however survey respondents often have strong incentives to misreport their
true preferences and market behavior does not provide any information about important
non-market welfare impacts.
One controversy is valuing a human life, e.g. when assessing road safety measures or
life-saving medicines. However, this can sometimes be avoided by using the related
technique of cost-utility analysis, in which benefits are expressed in non-monetary units
such as quality-adjusted life years. For example, road safety can be measured in terms of
cost per life saved, without formally placing a financial value on the life. However, such
non-monetary metrics have limited usefulness for evaluating policies with substantially
different outcomes. Additionally, many other benefits may accrue from the policy, and
metrics such as 'cost per life saved' may lead to a substantially different ranking of
alternatives than traditional cost-benefit analysis.
Another controversy is valuing the environment, which in the 21st century is typically
assessed by valuing ecosystem services to humans, such as air and water quality and
pollution. Monetary values may also be assigned to other intangible effects such as
business reputation, market penetration, or long-term enterprise strategy alignment.

34

Time and Discounting

CBA usually tries to put all relevant costs and benefits on a common temporal footing
using time value of money calculations. This is often done by converting the future
expected streams of costs and benefits into a present value amount using a discount rate.
Empirical studies and a technical framework suggest that in reality, people do discount
the future like this.
The choice of discount rate is subjective. A smaller rate values future generations equally
with the current generation. Larger rates (e.g. a market rate of return) reflects humans'
attraction to time inconsistencyvaluing money that they receive today more than
money they get in the future. The choice makes a large difference in assessing
interventions with long-term effects, such as those affecting climate change. One issue is
the equity premium puzzle, in which long-term returns on equities may be rather higher
than they should be. If so then arguably market rates of return should not be used to
determine a discount rate, as doing so would have the effect of undervaluing the distant
future (e.g. climate change).

Risk and uncertainty

Risk associated with project outcomes is usually handled using probability theory. This
can be factored into the discount rate (to have uncertainty increasing over time), but is
usually considered separately. Particular consideration is often given to risk aversion
the irrational preference for avoiding loss over achieving gain. Expected return
calculations does not account for the detrimental effect of uncertainty.
Uncertainty in CBA parameters (as opposed to risk of project failure etc.) can be
evaluated using a sensitivity analysis, which shows how results respond to parameter
changes. Alternatively a more formal risk analysis can be undertaken using Monte Carlo
simulations.

History

35

The concept of CBA dates back to an 1848 article by Jules Dupuit and was formalized in
subsequent works by Alfred Marshall. The Corps of Engineers initiated the use of CBA
in the US, after the Federal Navigation Act of 1936 effectively required costbenefit
analysis for proposed federal waterway infrastructure. The Flood Control Act of 1939
was instrumental in establishing CBA as federal policy. It demanded that "the benefits to
whomever they accrue in excess of the estimated costs.

Public Policy
The application for broader public policy started from the work of Otto Eckstein, who in
1958 laid out a welfare economics foundation for CBA and its application for water
resource development. Over the 1960s, CBA was applied in the US for water quality,
recreation travel and land conservation. During this period, the concept of option value
was developed to represent the non-tangible value of preserving resources such as
national parks.
CBA was later expanded to address both intangible and tangible benefits of public
policies relating to mental illness, substance abuse, college education and chemical waste
policies. In the US, the National Environmental Policy Act of 1969 first required the
application of CBA for regulatory programs, and since then, other governments have
enacted similar rules. Government guidebooks for the application of CBA to public
policies include the Canadian guide for regulatory analysis, Australian guide for
regulation and finance, US guide for health care programs, and US guide for emergency
management programs.

Transportation Investment
CBA application for transport investment started in the UK, with the M1 motorway
project in 1960. It was later applied on many projects including London Underground's
Victoria Line. Later, the New Approach to Appraisal (NATA) was introduced by the then
Department for Transport, Environment and the Regions. This presented costbenefit
results and detailed environmental impact assessments in a balanced way. NATA was first

36

applied to national road schemes in the 1998 Roads Review but subsequently rolled out
to all transport modes. As of 2011 it was a cornerstone of transport appraisal in the UK
and is maintained and developed by the Department for Transport.
The EU's 'Developing Harmonised European Approaches for Transport Costing and
Project Assessment' (HEATCO) project, part of its Sixth Framework Programme,
reviewed transport appraisal guidance across EU member states and found that
significant differences exist between countries. HEATCO's aim is to develop guidelines
to harmonise transport appraisal practice across the EU.
Transport Canada promoted the use of CBA for major transport investments with the
1994 issuance of its Guidebook.
In the US, both federal and state transport departments commonly apply CBA, using a
variety of available software tools including HERS, BCA.Net, StatBenCost, Cal-BC, and
TREDIS. Guides are available from the Federal Highway Administration, Federal
Aviation Administration,

Minnesota Department of Transportation, California

Department of Transportation (Caltrans), and the Transportation Research Board

Transportation Economics Committee.

Accuracy
The value of a costbenefit analysis depends on the accuracy of the individual cost and
benefit estimates. Comparative studies indicate that such estimates are often flawed,
preventing improvements in Pareto and Kaldor-Hicks efficiency.Causes of these
inaccuracies include:
1. Overreliance on data from past projects (often differing markedly in function or
size and the skill levels of the team members)
2. Use of subjective impressions by assessment team members
3. Inappropriate use of heuristics to derive money cost of the intangible elements

37

4. Confirmation bias among project supporters (looking for reasons to proceed)

Reference class forecasting was developed to increase accuracy in estimates of costs and
benefits.
Interest groups may attempt to include or exclude significant costs from an analysis to
influence the outcome.
In the case of the Ford Pinto (where, because of design flaws, the Pinto was liable to
burst into flames in a rear-impact collision), the company's decision was not to issue a
recall. Ford's costbenefit analysis had estimated that based on the number of cars in use
and the probable accident rate, deaths due to the design flaw would cost it about $49.5
million to settle wrongful death lawsuits versus recall costs of $137.5 million. Ford
overlooked (or considered insignificant) the costs of the negative publicity that would
result, which forced a recall and damaged sales.
In health economics, some analysts think costbenefit analysis can be an inadequate
measure because willingness-to-pay methods of determining the value of human life can
be influenced by income level. They support use of variants such as costutility analysis
and quality-adjusted life year to analyze the effects of health policies.
In environmental and occupational health regulation, it has been argued that if modern
cost-benefit analyses had been applied prospectively to decisions such as removing lead
from gasoline, building Hoover Dam in the Grand Canyon and regulating workers'
exposure to vinyl chloride, they would not have been implemented even though they are
considered to be highly successful in retrospect. The Clean Air Act has been cited in
retrospective studies as a case where benefits exceeded costs, but the knowledge of the
benefits (attributable largely to the benefits of reducing particulate pollution) was not
available until many years later.

Background

38

Cost-Benefit Analysis (CBA) estimates and totals up the equivalent money value of the
benefits and costs to the community of projects to establish whether they are worthwhile.
These projects may be dams and highways or can be training programs and health care
systems.
The idea of this economic accounting originated with Jules Dupuit, a French engineer
whose 1848 article is still worth reading. The British economist, Alfred Marshall,
formulated some of the formal concepts that are at the foundation of CBA. But the
practical development of CBA came as a result of the impetus provided by the Federal
Navigation Act of 1936. This act required that the U.S. Corps of Engineers carry out
projects for the improvement of the waterway system when the total benefits of a project
to whomsoever they accrue exceed the costs of that project. Thus, the Corps of Engineers
had create systematic methods for measuring such benefits and costs. The engineers of
the Corps did this without much, if any, assistance from the economics profession. It
wasn't until about twenty years later in the 1950's that economists tried to provide a
rigorous, consistent set of methods for measuring benefits and costs and deciding whether
a project is worthwhile. Some technical issues of CBA have not been wholly resolved
even now but the fundamental presented in the following are well established.

Principles of Cost Benefit Analysis

One of the problems of CBA is that the computation of many components of benefits and
costs is intuitively obvious but that there are others for which intuition fails to suggest
methods of measurement. Therefore some basic principles are needed as a guide.

There Must Be a Common Unit of Measurement

In order to reach a conclusion as to the desirability of a project all aspects of the project,
positive and negative, must be expressed in terms of a common unit; i.e., there must be a
"bottom line." The most convenient common unit is money. This means that all benefits
and costs of a project should be measured in terms of their equivalent money value. A
program may provide benefits which are not directly expressed in terms of dollars but

39

there is some amount of money the recipients of the benefits would consider just as good
as the project's benefits. For example, a project may provide for the elderly in an area a
free monthly visit to a doctor. The value of that benefit to an elderly recipient is the
minimum amount of money that that recipient would take instead of the medical care.
This could be less than the market value of the medical care provided. It is assumed that
more esoteric benefits such as from preserving open space or historic sites have a finite
equivalent money value to the public.
Not only do the benefits and costs of a project have to be expressed in terms of equivalent
money value, but they have to be expressed in terms of dollars of a particular time. This
is not just due to the differences in the value of dollars at different times because of
inflation. A dollar available five years from now is not as good as a dollar available now.
This is because a dollar available now can be invested and earn interest for five years and
would be worth more than a dollar in five years. If the interest rate is r then a dollar
invested for t years will grow to be (1+r) t. Therefore the amount of money that would
have to be deposited now so that it would grow to be one dollar t years in the future is
(1+r)-t. This called the discounted value or present value of a dollar available t years in
the future.
When the dollar value of benefits at some time in the future is multiplied by the
discounted value of one dollar at that time in the future the result is discounted present
value of that benefit of the project. The same thing applies to costs. The net benefit of the
projects is just the sum of the present value of the benefits less the present value of the
costs.
The choice of the appropriate interest rate to use for the discounting is a separate issue
that will be treated later in this paper.

CBA Valuations Should Represent Consumers or Producers

Valuations As Revealed by Their Actual Behavior

40

The valuation of benefits and costs should reflect preferences revealed by choices which
have been made. For example, improvements in transportation frequently involve saving
time. The question is how to measure the money value of that time saved. The value
should not be merely what transportation planners think time should be worth or even
what people say their time is worth. The value of time should be that which the public
reveals their time is worth through choices involving tradeoffs between time and money.
If people have a choice of parking close to their destination for a fee of 50 cents or
parking farther away and spending 5 minutes more walking and they always choose to
spend the money and save the time and effort then they have revealed that their time is
more valuable to them than 10 cents per minute. If they were indifferent between the two
choices they would have revealed that the value of their time to them was exactly 10
cents per minute.
The most challenging part of CBA is finding past choices which reveal the tradeoffs and
equivalencies in preferences. For example, the valuation of the benefit of cleaner air
could be established by finding how much less people paid for housing in more polluted
areas which otherwise was identical in characteristics and location to housing in less
polluted areas. Generally the value of cleaner air to people as revealed by the hard market
choices seems to be less than their rhetorical valuation of clean air.

Benefits Are Usually Measured by Market Choices

When consumers make purchases at market prices they reveal that the things they buy are
at least as beneficial to them as the money they relinquish. Consumers will increase their
consumption of any commodity up to the point where the benefit of an additional unit
(marginal benefit) is equal to the marginal cost to them of that unit, the market price.
Therefore for any consumer buying some of a commodity, the marginal benefit is equal to
the market price. The marginal benefit will decline with the amount consumed just as the
market price has to decline to get consumers to consume a greater quantity of the
commodity. The relationship between the market price and the quantity consumed is
called the demand schedule. Thus the demand schedule provides the information about
marginal benefit that is needed to place a money value on an increase in consumption.

41

Gross Benefits of an Increase in Consumption is an Area Under the

Demand Curve
The increase in benefits reulting from an increase in consumption is the sum of the
marginal benefit times each incremental increase in consumption. As the incremental
increases considered are taken as smaller and smaller the sum goes to the area under the
marginal benefit curve. But the marginal benefit curve is the same as the demand curve
so the increase in benefits is the area under the demand curve. As shown in Figure 1 the
area is over the range from the lower limit of consumption before the increase to
consumption after the increase.

Figure 1
When the increase in consumption is small compared to the total consumption the gross
benefit is adequately approximated, as is shown in a welfare analysis, by the market value
of the increased consumption; i.e., market price times the increase in consumption.

Some Measurements of Benefits Require the Valuation of Human

Life
42

It is sometimes necessary in CBA to evaluate the benefit of saving human lives. There is
considerable antipathy in the general public to the idea of placing a dollar value on
human life. Economists recognize that it is impossible to fund every project which
promises to save a human life and that some rational basis is needed to select which
projects are approved and which are turned down. The controversy is defused when it is
recognized that the benefit of such projects is in reducing the risk of death. There are
many cases in which people voluntarily accept increased risks in return for higher pay,
such as in the oil fields or mining, or for time savings in higher speed in automobile
travel. These choices can be used to estimate the personal cost people place on increased
risk and thus the value to them of reduced risk. This computation is equivalent to placing
an economic value on the expected number of lives saved.

The Analysis of a Project Should Involve a With Versus Without

Comparison
The impact of a project is the difference between what the situation in the study area
would be with and without the project. This that when a project is being evaluated the
analysis must estimate not only what the situation would be with the project but also what
it would be without the project. For example, in determining the impact of a fixed
guideway rapid transit system such as the Bay Area Rapid Transit (BART) in the San
Francisco Bay Area the number of rides that would have been taken on an expansion of
the bus system should be deducted from the rides provided by BART and likewise the
additional costs of such an expanded bus system would be deducted from the costs of
BART. In other words, the alternative to the project must be explicitly specified and
considered in the evaluation of the project. Note that the with-and-without comparison is
not the same as a before-and-after comparison.
Another example shows the importance of considering the impacts of a project and a
with-and-without comparison. Suppose an irrigation project proposes to increase cotton
production in Arizona. If the United States Department of Agriculture limits the cotton
production in the U.S. by a system of quotas then expanded cotton production in Arizona

43

might be offset by a reduction in the cotton production quota for Mississippi. Thus the
impact of the project on cotton production in the U.S. might be zero rather than being the
amount of cotton produced by the project.

Cost Benefit Analysis Involves a Particular Study Area

The impacts of a project are defined for a particular study area, be it a city, region, state,
nation or the world. In the above example concerning cotton the impact of the project
might be zero for the nation but still be a positive amount for Arizona.
The nature of the study area is usually specified by the organization sponsoring the
analysis. Many effects of a project may "net out" over one study area but not over a
smaller one. The specification of the study area may be arbitrary but it may significantly
affect the conclusions of the analysis.

Double Counting of Benefits or Costs Must be Avoided

Sometimes an impact of a project can be measured in two or more ways. For example,
when an improved highway reduces travel time and the risk of injury the value of
property in areas served by the highway will be enhanced. The increase in property
values due to the project is a very good way, at least in principle, to measure the benefits
of a project. But if the increased property values are included then it is unnecessary to
include the value of the time and lives saved by the improvement in the highway. The
property value went up because of the benefits of the time saving and the reduced risks.
To include both the increase in property values and the time saving and risk reduction
would involve double counting.

Decision Criteria for Projects

If the discounted present value of the benefits exceeds the discounted present value of the
costs then the project is worthwhile. This is equivalent to the condition that the net

44

benefit must be positive. Another equivalent condition is that the ratio of the present
value of the benefits to the present value of the costs must be greater than one.
If there are more than one mutually exclusive projects that have positive net present value
then there has to be further analysis. From the set of mutually exclusive projects the one
that should be selected is the one with the highest net present value.
If the funds required to carry out all of the projects with positive net present value are less
than the funds available this means the discount rate used in computing the present values
is too low and does not reflect the true cost of capital. The present values must be
recomputed using a higher discount rate. It may take some trial and error to find a
discount rate such that the funds required for the projects with a positive net present value
is no more than the funds available. Sometimes as an alternative to this procedure people
try to select the best projects on the basis of some measure of goodness such as the
internal rate of return or the benefit/cost ratio. This is not valid for several reasons.
The magnitude of the ratio of benefits to costs is to a degree arbritrary because some
costs such as operating costs may be deducted from benefits and thus not be included in
the cost figure. This is called netting out of operating costs. This netting out may be done
for some projects and not for others. This manipulation of the benefits and costs will not
affect the net benefits but it may change the benefit/cost ratio. However it will not raise
the benefit cost ratio which is less than one to above one. For more on this topic see
Benefit/ cost Ratio Magnitude.
A cost benefit analysis is done to determine how well, or how poorly, a planned action
will turn out. Although a cost benefit analysis can be used for almost anything, it is most
commonly done on financial questions. Since the cost benefit analysis relies on the
addition of positive factors and the subtraction of negative ones to determine a net result,
it is also known as running the numbers.
Cost Benefit Analysis

45

A cost benefit analysis finds, quantifies, and adds all the positive factors. These are the
benefits. Then it identifies, quantifies, and subtracts all the negatives, the costs. The
difference between the two indicates whether the planned action is advisable. The real
trick to doing a cost benefit analysis well is making sure you include all the costs and all
the benefits and properly quantify them.
Should we hire an additional sales person or assign overtime? Is it a good idea to
purchase the new stamping machine? Will we be better off putting our free cash flow into
securities rather than investing in additional capital equipment? Each of these questions
can be answered by doing a proper cost benefit analysis.
Example Cost Benefit Analysis
As the Production Manager, you are proposing the purchase of a $1 Million stamping
machine to increase output. Before you can present the proposal to the Vice President,
you know you need some facts to support your suggestion, so you decide to run the
numbers and do a cost benefit analysis.
You itemize the benefits. With the new machine, you can produce 100 more units per
hour. The three workers currently doing the stamping by hand can be replaced. The units
will be higher quality because they will be more uniform. You are convinced these
outweigh the costs.
There is a cost to purchase the machine and it will consume some electricity. Any other
costs would be insignificant.
You calculate the selling price of the 100 additional units per hour multiplied by the
number of production hours per month. Add to that two percent for the units that aren't
rejected because of the quality of the machine output. You also add the monthly salaries
of the three workers. That's a pretty good total benefit.
Then you calculate the monthly cost of the machine, by dividing the purchase price by 12
months per year and divide that by the 10 years the machine should last. The

46

manufacturer's specs tell you what the power consumption of the machine is and you can
get power cost numbers from accounting so you figure the cost of electricity to run the
machine and add the purchase cost to get a total cost figure.
You subtract your total cost figure from your total benefit value and your analysis shows
a healthy profit. All you have to do now is present it to the VP, right? Wrong. You've got
the right idea, but you left out a lot of detail.
Running The Numbers Means All The Numbers
Lets look at the benefits first. Don't use the selling price of the units to calculate the
value. Sales price includes many additional factors that will unnecessarily complicate
your analysis if you include them, not the least of which is profit margin. Instead, get the
activity based value of the units from accounting and use that. You remembered to add
the value of the increased quality by factoring in the average reject rate, but you may
want to reduce that a little because even the machine won't always be perfect. Finally,
when calculating the value of replacing three employees, in addition to their salaries, be
sure to add their overhead costs, the costs of their benefits, etc., which can run 75-100%
of their salary. Accounting can give you the exact number for the workers' "fully
burdened" labor rates.
In addition to properly quantifying the benefits, make sure you included all of them. For
instance, you may be able to buy feed stock for the machine in large rolls instead of the
individual sheets needed when the work is done by hand. This should lower the cost of
material, another benefit.
As for the cost of the machine, in addition to it's purchase price and any taxes you will
have to pay on it, you must add the cost of interest on the money spent to purchase it. The
company may purchase it on credit and incur interest charges, or it may buy it outright.
However, even if it buys the machine outright, you will have to include interest charges
equivalent to what the company could have collected in interest if it had not spent the
money.

47

Check with finance on the amortization period. Just because the machine may last 10
years, doesn't mean the company will keep it on the books that long. It may amortize the
purchase over as little as 4 years if it is considered capital equipment. If the cost of the
machine is not enough to qualify as capital, the full cost will be expensed in one year.
Adjust your monthly purchase cost of the machine to reflect these issues. You have the
electricity cost figured out but there are some cost you missed too.
More Costs
The typical failure of a cost benefit analysis is not including all the costs. In the case of
the stamping machine, here are some of the overlooked costs:

Floor Space
Will the machine fit in the same space currently occupied by the three workers?

Installation
What will it cost to remove the manual stampers and install the new machine?
Will you have to cut a hole in a wall to get it in or will it fit through the door? Will
you need special rollers or machinists with special skills to install it?

Operator?
Somebody has to operate the machine. Does this person need special training?
What will the operator's salary, including overhead, cost?

* Environment
Will the new machine be so noisy that you have to build soundproofing around it?
Will the new machine increase the insurance premiums for the company?

Accurate Cost Benefit Analysis

Once you have collected ALL the positive and negative factors and have quantified them
you can put them together into an accurate cost benefit analysis.

48

Some people like to total up all the positive factors (benefits), total up all the negative
factors (costs), and find the difference between the two. I prefer to group the factors
together. It makes it easier for you, and for anyone reviewing your work, to see that you
have include all the factors on both sides of the issues that make up the cost benefit
analysis. For the example above, our cost benefit analysis might look something like this:
Cost Benefit Analysis - Purchase of New Stamping Machine
(Costs shown are per month and amortized over four years)
1. Purchase of Machine .................... -$20,000
includes interest and taxes
2. Installation of Machine ..................... -3,125
including screens & removal of existing stampers
3. Increased Revenue .......................... 27,520
net value of additional 100 units per hour, 1 shift/day, 5 days/week
4. Quality Increase Revenue ..................... 358
calculated at 75% of current reject rate
5. Reduced material costs ...................... 1,128
purchase of bulk supply reduces cost by $0.82 per hundred
6. Reduced Labor Costs ....................... 18,585
3 operators salary plus labor o/h
7. New Operator ................................. -8,321
salary plus overhead. Includes training
8. Utilities ............................................ -250
power consumption increase for new machine

49

9. Insurance ......................................... -180

premiums increase
10. Square footage ...................................... 0
no additional floor space is required
Net Savings per Month ........................... $15,715
Your cost benefit analysis clearly shows the purchase of the stamping machine is
justified. The machine will save your company over $15,000 per month, almost $190,000
a year.
This is just one example of how you can use cost benefit analysis determine the
advisability of a course of action and then to support it once you propose the action.

OBJECTIVES OF COST:
The primary objective of cost controls to help the management is systematic
planning and in controlling the operations of the enterprise. The primary objective can be
met only of there is proper communication and coordination amongst different within the
organization. Thus the objectives can be stated as:

1. PLANNING:
Businesses require planning to ensure efficient and maximum use of their
resources. The first step in planning is to define the broad aims and objectives of the
business. Then, strategies to achieve the desired goals are formulated and tentative
schedule of eh proposed combinations of the various factors of production, which is the
most profitable for the defined period. Cost influences strategies that need to be followed
by the originations. It cultivates forced planning aiming managers.

2. CO-ORDINATION:
Co-ordination is managerial functions under which all factors of production and
all departmental activities are balanced and integrated achieve the objectives of the

50

organization. Costing provides the basis for individual in all department to exchange ides
on how best the organizations objectives can be realized. Executives are forced ot think
of the relationship between their department and the company as a whole. This removes
unconscious bases against other departments. It also helps to identify weaknesses in the
organization structure.

3. COMMUNICATIONS:
All people in the organization must know the objectives, policies and
performances of the organizations. They must have a clear understanding of their part in
the organizations goals. This is made possible by ensuring their participation in the
costing process.
4. CONTROLS AND PERFORMANCE EVALUTION:
Control ensures control by continuous comparison of actual performance with the
costed performance. Variances are highlighted and corrective action can be initiated.
Costs also from the basis of performance evaluation in an organization as they reflect
realistic estimates of acceptable and expected performance.

COST, COSTING AND COST CONTROL:

A cost is BLUE PRINT of a plan expressed in a quantitative terms. Costing is a
technique for formulating costs. Cost control relates to the principles, procedures, and
practice of achieving given objectives thorough costs.
From the above definitions we can differentiated the three terms as costs are the
individuals objectives of a department, etc, where as costing may be said to be the act of
building cost. Cost control embraces all and in addition includes the science of planning
the costs to effect on overall management tool for the business planning and control.

ESSENTIALS OF COST:

51

The proper organization is essential for the successful preparation, maintenance

and administration of costs. A cost committee is formed which comprises the
departmental heads of various departments. All the functional heads are entrusted with
the responsibility if ensuring proper implementation of their respective departmental
costs.
The chief executive is the overall in charge of cost system. He constitutes a cost
committee for preparing realistic costs. A cost officer is the convener of the cost
committee who co-ordinates the costs of different departments. The managers of different
departments are made responsible for their departmental costs.

COST OFFICER:
The chief executive appoints cost officer. Such cost officer also called as cost
controller or cost director. His rank should be equal to other functional managers.
The cost officer does not have the direct responsibility of preparing the costs. The
various functional managers prepare the costs. His role is that of a supervisor. The cost
officer has the specific duty of administering the cost. He is responsible for timely
completion of costing activity by various departments and for co-ordination between
them so the t there is a proper link between them. He is empowered to scrutinize the costs
prepared by different functional heads and to make changes in them. If the situation so
demands.
The cost officer works as a coordinator among different department. He
continuously monitors the actual performance of different departments. He determines
the deviations in the costs and takes necessary steps to rectify the deficiencies, if any. He
also informs the top management about the performance of different department.
The cost officer will be able to carry out his work only if is conversant with the
working of all the departments he must have technical knowledge of the business and
should also possess accounting knowledge.

52

3. COST COMMITTEE:
A cost committee is formed to assist the cost officer. The heads of the entire
important departments are made members of this committee. The committee is
responsible for preparation and execution of costs. The members of this committee put up
the case of their respective departments and help the committee to take collective
decisions, if necessary. The cost committee is responsible for reviewing the costs
prepared by various functional heads. Co ordinate all the costs and approve the final
costs, the cost officer acts as coordinator of this committee. All the functional heads are
entrusted with the responsibility of ensuring proper of ensuring proper implementation of
their respective final departmental costs.

4. COSTS CENTERS:
A cost centers is that part of the organization for which the cost is prepared. A cost
center may be a department, section of a department or any other part of the department.
Ideally, the head of every center should be a member of the cost committee. However, it
must be ensured that each cost center at least has an indirect representation in the cost
committee.
The establishment of cost centers is essential for covering all parts of the
organization becomes easy. When different centers are establishment. The cost centers are
also necessary for cost control purposes.

5. COST MANUAL:
a) A cost manual is a document that spells out the duties and responsible of the
various executives concerned it specifies among various functional areas. A cost
manual covers the following matters.
b) A cost manual clearly defines the objectives of cost control system. It also gives
the benefits and principles of this system.
c) The duties and responsibilities of various persons dealing with preparation and
exec ton of costs are also given in a cost manual. It enables the management to

53

know the persons dealing with various aspects to costs and provides clarity on
their duties and responsibilities,
d) It gives information about the sanctioning authorities of various costs. The
financial powers of different managers are given in the manual for enabling he
spending amount on various expenses.
e) A proper table for costs including the sending of performance reports is drawn so
that every work starts in time and systematic control is exercise.
f) The specimen forms and number of copies to be listed for cost repots is also
stated. Cost involved should be clearly stated.
g) The length of various cost periods and control points is clearly given.
h) The procedure to the followed in the entire system is clearly stated.
i) A method of accounting to be used for various expenditures is also stated in the
manual.
The cost manual helps in documentation the role of every employee, his duties,
responsibilities the ways of undertaking various tasks etc. thus it also in reducing
ambiguity at any point of time.

6. COST PERIOD:
A cost period is the length of time for which a cost is prepared. It depends upon a
number of factors. The choice of a cost period depends upon the following
considerations. The types of cost (long/short)

The nature of demand for the products.

The timings for the availability of the finance.

The economic situations of the cycles.

All the above mentioned factors are taken into account while fixing the period of

costs. In this costing process the financial manager has to take the financial decision on
the costs.

54

The financial manager usually responsible for organizing this cost, he must
perform the following functions.
To decide the general policies and guidelines.
To officer technical advice
To suggest changes
To receive and review individual cost estimates
To reconcile divergent views
To co-ordinate costing activities.
To approve costs with or without revisions.
To scrutinize control reports later on
To scrutinize cost repots later on
To disseminate these guide lines.

CONTINUOUS COSTING SYSTEM:

A continuous costing system is a method of having two different cost periods with
in the same cost. The purpose of having this system is to have greater control in terms of
operational activities without losing sight is to have greater control in terms of it results
in incorporating the effect of changes in the short term on the long-term targets of the
organization.

DETERMINATION OF KEY FACTOR:

The costs are prepared for all functional areas. These costs are interring dependent
and inter-related. A proper co-ordination among different costs in necessary for cost
control to be successful. The constraints on some costs may have an effect on other costs
too. A factor which influences all other costs is known as key factor or principal factor.
The key factor may not necessity remain the same. The raw materials supply may
be limited at one time but it may be easily available at another time. Similarly, other

55

factors may also improve at different times. The key factor highlights are limitations of
the enterprise. This will enable the management to improve the working of these
departments where scope for improvement exists.

REQUISITES FOR A SUCCESSFUL COST

CONTROL SYSTEM
For making a cost control system successful requisites are required.

1. CLARIFYING OBJECTIVES:
The costs are used to realize objectives of the business. The objective must be
clearly spelt out to that costs are properly prepared. In the absence of clear goals, the
costs will also be unrealistic.

2. PROPER DELEGATION OF AUTHORITY AND RESPONSIBILITY:

Cost preparation and control is done are every level of management. Even though
costs are finalized at top level but involvement of persons from lower levels of
management is essential for their success. This necessitates proper delegation of authority
and responsibility.

3. PROPER COMMUNICATION SYSTEM:

An effective system of communication is required for a successful cost control.
The flow of information regarding costs should be quick so that these are implemented.
The upward communication will help in knowing the difficulties in implementation of
costs. The performance reports of various levels will help top management in cost
control.

4. COST EDUCATION:
The employees should be educated about the benefit of costing system. They
should be the benefits of costing system they should be educating about their roles in the

56

success of this system. Cost control may not be taken only as a control device by the
employees but it should be used as a tool to improve their efficiency.

5. FLEXIBILITY:
Flexibility in costs is required to make them suitable under changed
circumstances. Costs are prepared for the future, which is always uncertain, even though
costs are prepared by considering the future possibilities but still some adjustment.
Flexibility makes the costs more appropriate and realistic.

6. MOTIVATION:
Costs are to be implemented by human beings. Their successful implementation
will depend upon the interest shown by the employees. All persons should be motivated
to improve their working so that costing is successful. A proper system of motivation
should be introduced for making this system a success.

TYPES OF COSTS:

C
S
U
H
R L
O
RO
R
T EN
GN
T
E
TT
R
CE
M
OR
C
SM
O
TC
O
S
T
S
T

N
T
E
R

57

T
Y
P
E
S
O
F
C
O
S
T
S

1. LONG -TERM COSTS:

The long-term costs prepared for a long period of five to ten years. They are
concerned with planning the operations of a firm over a considerably long period of time.
The financial controller exclusively for the top management usually prepares long-term
costs. These costs are very useful in terms of physical units (i.e. quantities) or
percentages, since accrued values may be difficult to forecast over such long-period.
Capital expenditure, research and development costs, etc, are examples of long-term
costs.

2. SHORT TERM COSTS:

Short-term costs are costs prepared for a short period of one to two year. They are
prepared for those activities the trend in which cannot be for seen easily over long
periods. These costs are very useful in case of consumer goods industries such as sugar,
cotton, textiles, etc. they are generally prepared in terms of physical units (i.e. quantities)
as well as monetary units (i.e. values) materials cost. Each cost etc, are example of shortterm cost. They are useful to lower level of management for control purpose.

3. CURRENT COSTS:
Current cost is a cost, which is established for use over a short period of time and
is related to current conditions. Thus current costs are essentially short term costs
adjusted to current (i.e., present or prevailing) condition or circumstances. They are
prepared for a very short period. Say, a quarter or a month. They related to current
activities of the costs.

4. INTERIM COSTS:

58

Interim costs are costs, which are prepared in between two cost periods. These
costs may get integrated with the cost of the following period.

CLASSIFICATION OF COSTS ACCORDING TO CONTENT:

Costs may be classified into costs in physical terms and into costs in monetary
terms.

A) COSTS IN PHYSICAL TERMS:

Costs in physical terms are cost in terms quantities only. They do not include
corresponding rupee value. Long-term costs are usually prepared in physical terms.
Examples of such costs are production costs, material cost etc

B) COSTS IN MONETARY TERMS:

Costs in monetary terms are costs that cost in terms of quantities as well as their
corresponding rupee value, sales cost, purchase cost, etc are example of such costs. Costs
such as cash cost, capital expenditure cost, etc that may not have physical quantities also
from part of costs in monetary terms.

CLASSIFICATION OF COSTS ACCORDING TO FUNCTION:

Costs can be classified into:
1. operating costs
2. financial costs
3. master costs

1) OPERATING COST:

59

These costs relate to different activities or operations of a firm. The number of

such costs depends upon the size and nature of the business, the commonly used
operating costs are:
1) Sales costs
2) Purchase costs
3) Raw material costs
4) Labor costs
5) Factory utilization cost
6) Manufacturing expenses or works overhead cost
7) Administrative and selling expenses cost etc.
The operating cost for a firm may be constructed in terms of programmers or
responsibility areas, and hence may consist of:
Programmed cost
Responsibility cost

A) PROGRAMME COST:
It consists of expected revenues and costs of various products or projects that are
Termed as the major programmers of the firm, such a cost can be prepared for
each product line or project showing revenues, cost and the relative profitability
of the various in locating areas where efforts may be required to reduce costs and
increase revenues. They are also useful in determining imbalance and
inadequacies in programmers so that corrective action may be taken in future.
B) RESPONSIBILITY COSTS:
Where the operating cost of a firm is constructed in terms of responsibility
Areas, such a cost show the plan in terms of persons responsible for achieving them. It is
used by the management as a control them. It is used by the management as a control
device to evaluate the performance of executives who are in charge of various cost

60

centers. Their performance is compared to the targets (costs), set for them and proper
action is taken for adverse results.
Responsibility areas may be classified under three broad categories:
Cost /expense center
Profit center
Investment center

2) FINANACIAL COSTS:
Financial costs are concerned with cash receipts and disbursements, working
Capital, financial position and results of business operations. The commonly used
financial costs include cash cost, working capital cost and income statement cost,
statement of retained earnings cost, costed balance sheet or position statement cost.

3) MASTER COSTS:
The master cost is the summary cost incorporating its functional costs.
All The operational and financial costs are integrated into the master cost. The cost
officer for the benefit of the top level management prepares this cost. This cost is used to
coordinate the activities of various functional departments. It is also used as an effective
control device.

CLASSIFICATION ON THE BASIS OF FLEXIBILITY:

A) FIXED COST:
According to ICMA London a fixed cost is a cost which is designed to
Remain unchanged irrespective of the level of activity actually attained it is based on a
fixed volume of activity and shows one volume of output and related cost. It is not
adjusted according to the actual level of activity attained.
A fixed cost is useful only when the actual level of activity corresponds with the
costed level of activity. But this generally does not happen as such a fixed costs is not
useful for managerial purposes.

61

B) FLEXIBILE VARIABLE SLIDING SCALE OR CONTROL TYPE COSTS:

According to ICMA London a flexible cost is a cost which is designed to Change
in accordance with the level of activity actually attained. Thus a flexible cost changes
according to the change in the level of activity. In other words it provides the costed costs
at any level of activity.Business activity cannot be accurately predicted on account of
uncertainties of
Business environment. A flexible cost contains several estimates for different assumed
circumstances instead of just one estimate, it provides for automatic adjustments with
changes in the volume of activity. Hence, a situations operating in an unpredictable
environment.

ZERO BASED COSTING:

Zero-based costing is the latest technique of costing and it has increased use as a
managerial tool. This technique was first used in America in 1962, by the former
president America, Jimmy Carter.
As the name suggests, it is starting from a scratch, the normal technique of
costing is to use previous years cost levels as a base for preparing this years cost. This
method carries previous years inefficiencies to the present year because we taken last
year because we taken last year as a guide, and decide what is to be done this year when
this much was the performance of the last year.
In zero based costing every year is taken as a new year and previous year is not
taken as a base, the cost for this year will have to be justified according to present
situation, zero is taken as a base and likely future activities are decided according to
present situations. In zero base costing a manager is to justify why he wants to spend. The
performance of spending on various activities will depend upon their justification and
priority for spending will have to be proved that an activity is essential and the amounts
asked for are really reasonable taking into account the volume of activity.

62

COST AND COST SYSTEM IN ULTRA TECH CEMENTS.

The costing process is used in the performance costing for the construction of
phase. Which includes pre-commission activities. Besides meeting the essential
requirements of managerial control. The costing exercise also covers the long-term
capital costing, which is presented in the form of annual plan.

OBJECTIVES OF THE COST SYSTEM:

To prepare annual costs in such a manner those managers at various levels in the
organization carry out periodical exercise in respect of each contact or
responsibility center for physical planning and matching resources broke up into
monthly targets or cash flows.
To introduce and operate responsible for achievement of specified targets with the
resources allocated for the purpose.
To bring about effective co-ordination of all activities of the organization of all
activities of the organization and to gear up service divisions to meet effectively
the requirement of projects.

COST PERIOD AND PHASING:

The cost period or annual costs should correspond with the financial year. The
cost should be drawn up for the ensuring financial year in the form of cost estimates
financial year in the form of Revised Estimates (R.E) in addition, the cost are to be
reviewed on monthly basis by project review teams, in the light of actual expenditure and
projections in the cost period. Costs should indicate monthly phasing of expenditure and
targets for the first and quarterly phasing for the second half of the year. At the time of
review of the cost estimates to frame revised estimates the quarterly phasing should be
broken up into monthly phasing.

63

While drawing up the actual cost in October every year, the long-term capital cost
for ongoing and new schemes should be formulated as a part of the exercise for
preparation of Annual plan. The long term capital cost should indicate for a period of six
years following the cost period project wise annual phasing of the capital expenditure and
physical schedules resource based network.

COST HEADS:
For uniform accounting, it is essential that costs are collected for each system of
the factory tough this may involve splitting up of payments against contracts which
embrace more than one system. Allocation of the cost as system wise affords a sound
basis for cost accounting, inter-firm comparisons and provides valuable inputs to data
bank. Cost provisions are related to project estimated and monitoring of actual
expenditure where as control cables for part control and instrumentation system.
Factory piping which include pipelines, for ash water mains, compressed air system and
civil works piping.
Auxiliary pumps for water treatment plant and civil works system. If there are,
any contracts not covered in the cost heads provision for such contracts should be shown
against the appropriate system head by adding code number.

5 TYPES OF COSTS IN ULTRA TECH CEMENTS:

According to the nature expenditure cost are classified as under
Direct capital outlay on works
Technical consultancy
Incident expenditure during construction
Employee cost

Other establishment expenses:

Training and recruitment
Preliminary expenses
Misc. brought-out assets
Township cost

64

BRIEF EXPLANATION TO THE NATURE OF EXPENDITURE

INCLUDED IN EACH COST INDICATED BELOW:
These comprises of salaries, wages, allowance, contribution to PF and other funds
and welfare expenses such as LIC, Medical reimbursement, canteen subsidy etc., and
provision for areas of salary/D.A.

OFFICE AND OTHER EXPENSES:

Expenses incidental to construction and capital works not traceable directly to
incidental expenditure, during contribution equipments, vehicle running expense, office
rent. Cost of drawings, traveling expenses, printing & stationery, communication
expenses, advertisement for tenders etc., are major items in this category.

TRIANING RECRUITMENT & OTHER DEFFERED REVENUE

EXPENDITURE:
The first part of the cost consist of expenses for training executives, and
non-executive trainees, rent for training halls and expenses for management development
courses. The second part consists of expenses for recruitment such as advertisement for
recruitment, interview expenses for to candidate etc., the third part combines preliminary
expenses including share registration lees and research and development expenses.

MISCELLANEOUS BOUGHT OUT PASSESS:

Vehicles, furniture and fixtures equipments, hospital and medical equipment,
miscellaneous assesses town ship figure in this cost.

REVIEW OF PROJECT COST:

MONTHLY REVIEW:

65

At monthly intervals, the costs should be reviewed by project review committee

(PRC). Project cost should report actual expenditure against cost heads. Works heads and
corporate cost by the 7th of the month following the reporting month. The monthly review
should be examined by project review team (PRT), who should record reasons for any
aviations and action proposed for expending works in the minutes of the meetings
reasons for any variations in the case of cost heads exceeding 10% of the cost estimates
revised estimates or whichever is lower Rs.5 lakhs should be analyzed and reported upon.

QUATERLY REVIEW:
PRT should conduct a quarterly cost review with a view to projecting anticipated
expenditure during the year against approved cost estimates/ revised estimates. As time is
essence of such review, only a quick estimate of anticipated expenditure for individual
cost heads involving provisions exceeding for individual cost heads involving provisions
exceeding Rs 50 lakhs in each case should be made and reported upon in minutes of PRT.
For this purpose, project cost should furnish all the relevant data to general manager
(project) and planning and systems by the 10 th of the month following the quarter project
cost committee should review the actual expenditure and assess anticipated expenditure
contract co ordination/engineers in charge the assessments of anticipated expenditure
should be furnished by the project cost committee to general manager (project) by the 30th
of the month following the quarter under review.

66

CHAPTER-IV
DATA ANALYSES AND INTERPRETATION

HYUNDAIs REVENUE COST

TABLE-I

(Rs in

corers)

SL.N
O

PARTICULAR

Coasted estimated
for the 2013-14

Sales

67

Actual for the year

2013-14

Fixed cost recovery

350.24

35.02

354.58

35.45

Variable cost recovery

247.58

24.75

211.55

21.15

Fuel price adjustment recovery

149.65

14.96

120.88

12.08

Own consumption

55.84

5.58

41.17

4.11

Total of 1

803.31

80.33

728.18

72.18

Average intensives

296.65

29.66

245.68

24.56

Other income

225.67

22.56

208.64

20.86

GRAND TOTAL (1+2+3)

1325.63

132.56

1182.50

118.25

68

1400
1200
1000
800
600
400
200
0

INTERPRETATION
The data pertaining to the generation and consumption have been obtained from the year
2013-134 and represented in table -1. The aspect included are total generation in (crores
Rs) and utilization for auxiliary consumption respectively.
During the year 2013-14 the sales, fixed costs, variable cost, own Consumption was
decreased. When the estimated coasted so sales consumption is 728.18 respectively.

69

During the year 2013-14 the average intensive are 24.56 the other Income also 20.86
respectively.
Finally with regard to the result in revenue cost of Hyundai Motors India Limited
(HMIL) totally 118.25 % in the year 2013-14 respectively.

HYUNDAIs REVENUE COST

TABLE-I

SL.N
O

PARTICULAR

(Rs in corers)

Coasted estimated
for the 2012-13

Actual for the year

2012-13

Sales
Fixed cost recovery

321.54

32.15

302.54

30.25

Variable cost recovery

198.64

19.86

158.97

15.89

Fuel price adjustment recovery

149.65

14.96

120.88

12.08

Own consumption

55.84

5.58

41.17

4.11

Total of 1

725.67

72.56

623.56

62.35

Average intensives

254.68

25.46

199.68

19.96

Other income

201.21

20.12

181.76

18.17

70

GRAND TOTAL (1+2+3)

1181.56

118.15

1005.00

100.50

1400
1200
1000
800

Coasted estimated for the

2012-13

600

Actual for the year 2012-13

400
200
0
1

INTERPRETATION
The data pertaining to the generation and consumption have been obtained from the year
2012-13 and represented in table -1. The aspect included are total generation in (crores
Rs) and utilization for auxiliary consumption respectively.

71

During the year 2012-13 the sales, fixed costs, variable cost, own Consumption was
decreased. When the estimated coasted so sales consumption is 623.56 respectively.
During the year 2012-13 the average intensive are 19.96 the other Income also 18.17
respectively.
Finally with regard to the result in revenue cost of Hyundai Motors India Limited
(HMIL) totally 100.50 % in the year 2012-13 respectively.

HYUNDAIs REVENUE COST

TABLE-I

(Rs in

corers)

SL.N
O

PARTICULAR

Coasted estimated
for the 2011-12

Actual for the year

2011-12

Sales
Fixed cost recovery

285.67

28.56

241.69

24.16

Variable cost recovery

158.94

15.89

120.84

12.08

Fuel price adjustment recovery

139.62

13.96

112.66

11.26

72

Own consumption

31.31

3.13

20.29

2.29

Total of 1

615.54

61.55

495.48

49.54

Average intensives

119.67

11.96

93.96

9.39

Other income

154.68

15.46

107.75

10.77

GRAND TOTAL (1+2+3)

889.89

88.98

697.19

69.71

1000
900
800
700
600
500
400
300
200
100
0

73

INTERPRETATION
The data pertaining to the generation and consumption have been obtained from the year
2011-12 and represented in table -1. The aspect included are total generation in (crores
Rs) and utilization for auxiliary consumption respectively.
During the year 2011-12 the sales, fixed costs, variable cost , own Consumption was
decreased. When the estimated coasted so sales consumption is 495.48 respectively.
During the year 2011-12 the average intensive are 93.96 the other Income also 107.75
respectively.
Finally with regard to the result in revenue cost of Hyundai Motors India Limited
(HMIL)totally 284.80 % in the year 2011-12 respectively.

HYUNDAIs REVENUE COST

TABLE-II

(Rs in

corers)

SL.N
O

PARTICULAR

Costed estimated
for the 2010-11

Actual for the year

2010-11

Sales
Fixed cost recovery

452.61

74

45.26

383.21

38.32

Variable cost recovery

236.67

23.66

191.60

19.16

adjustment recovery

137.84

13.78

100.47

10.04

Own consumption

42.61

4.26

27.16

2.71

Total of 1

869.73

86.97

702.44

70.24

Average intensives

102.57

10.25

86.02

8.60

Other income

116.92

11.69

97.76

9.77

GRAND TOTAL (1+2+3)

1089.22

108.92

886.22

88.62

75

1200
1000
800
600
400
200
0

INTERPRETATION
The data pertaining to the generation and consumption have been obtained from the year
2010-11 and represented in table -2. The aspect included are total generation in (crores
Rs) and utilization for auxiliary consumption respectively.
During the year 2010-11 the sales, fixed costs, variable cost, own Consumption was
decreased. When the estimated coasted so sales consumption is 702.44 respectively.
During the year 2010-11 the average intensive are decreased 86.02 the other Income also
decreased 97.76 respectively.
Finally with regard to the result in revenue cost of Hyundai Motors India Limited
(HMIL) totally increased to 886..22 in the year 2010-11 respectively.

76

HEROs REVENUE COST

TABLE-III

(Rs in

corers)

SL.N
O

PARTICULAR

Costed estimated
for the 2009-10

Sales

Actual for the year

2009-10

Fixed cost recovery

359.67

35.96

347.84

34.78

Variable cost recovery

201.64

20.16

173.84

17.38

adjustment recovery

108.64

10.86

81.05

8.10

Own consumption

18.57

1.85

11.04

1.10

Total of 1

688.52

68.85

613.77

61.37

Average intensives

85.64

8.56

69.80

6.98

Other income

81.17

8.11

62.23

6.22

GRAND TOTAL (1+2+3)

855.33

85.53

745.80

74.58

77

900
800
700
600
500
400
300
200
100
0

Costed estimated for

the 2009-10
Costed estimated for
the 2009-10 %
Actual for the year
2009-10
Actual for the year
2009-10 %

INTERPRETATION
The data pertaining to the generation and consumption have been obtained from the year
2009-10 and represented in table -3. The aspect included are total generation in (crores
Rs) and utilization for auxiliary consumption respectively.
During the year 2009-10 the sales, fixed costs, variable cost, own Consumption was
decreased. When the estimated costed so sales consumption is 613.77 respectively.
During the year 2009-10 the averages intensive are decreased 69.80 the other Income also
decreased 62.23 respectively.
Finally with regard to the result in revenue cost of Hyundai Motors India Limited
(HMIL) decreased 745.80 in the year 2009-10 respectively.

78

HYUNDAIS INDUSTRIES LIMITED

Operational Expenditure Cost for the Year 2013-14

TABLE I
Rs in corers

SL.
NO

PARTICULAR

COSTED ESTIMATED
FOR THE 2013-14
AMOUNT

1
2
3

VARIABLE COST

RS/MT

ACTUAL FOR THE

YEAR

2013-14

AMOUNT

S/MT

225.68

22.56

196.65

19.66

88.61

8.86

55.65

5.56

Deprecation

45.68

4.56

33.67

3.36

Interest on fixed capital

289.78

28.97

289.62

28.96

Total of 3

335.46

33.54

323.29

32.32

GRAND TOTAL (1+2+3)

649.75

64.97

575.59

57.55

OPERATIVE
MAINTENANCE COST
FINANCE CHARGES

79

700
600

COSTED ESTIMATED

COSTED ESTIMATED

ACTUAL FOR THE

YEAR
2013-14
AMOUNT

ACTUAL FOR THE

YEAR
2013-14
S/MT

500
400
300
200
100
0
VARIABLE COST

INTERPRETATION
Observed from the above table that the operational expenditure cost of Hyundai Motors
India Limited (HMIL) in the year 2013-14. Maintenance, employee cost, stationary &
general expenses, rebate and share of other expenses is all are fluctuating with the
expenses of the year 2013-14. However the total operating maintenance costs are 28.54
% increasing respectively.
In finance charges depreciation and interest on fixed capital, has been included
The total finance charges recording decreasing of 575.79 in the year 2013-14
respectively.
The overall costs results of Hyundai Motors India Limited (HMIL) are earning
more profits.

80

Operational Expenditure Cost for the Year 2012-13

TABLE I
Rs in corers

SL.
NO

PARTICULAR

COSTED ESTIMATED
FOR THE 2012-13
AMOUNT

1
2
3

VARIABLE COST

RS/MT

ACTUAL FOR THE

YEAR

2012-13

AMOUNT

S/MT

184.89

18.48

149.61

14.96

39.65

3.96

28.54

2.85

Deprecation

35.68

3.56

29.67

2.96

Interest on fixed capital

225.85

22.58

218.94

21.89

Total of 3

261.53

26.15

248.61

24.86

GRAND TOTAL (1+2+3)

486.07

48.60

426.76

42.67

OPERATIVE
MAINTENANCE COST
FINANCE CHARGES

81

500
450
400
COSTED ESTIMATED

350
300

ACTUAL FOR THE YEAR

2012-13 AMOUNT

250
200
150
100
50
0
1

INTERPRETATION
Observed from the above table that the operational expenditure cost of Hyundai Motors
India Limited (HMIL) in the year 2012-13. Maintenance, employee cost, stationary &
general expenses, rebate and share of other expenses is all are fluctuating with the
expenses of the year 2012-13. However the total operating maintenance costs are 28.54
% increasing respectively.
In finance charges depreciation and interest on fixed capital, has been included
The total finance charges recording decreasing of 248.61 in the year 2012-13
respectively.
The overall costs results of Hyundai Motors India Limited (HMIL) are earning
more profits.

82

HYUNDAIS INDUSTRIES LIMITED

Operational Expenditure Cost for the Year 2011-12

TABLE I
Rs in corers

SL.
NO

PARTICULAR

COSTED ESTIMATED
FOR THE 2011-12
AMOUNT

1
2
3

VARIABLE COST

RS/MT

ACTUAL FOR THE

YEAR

2011-12

AMOUNT

S/MT

158.94

15.89

120.84

12.08

21.58

2.15

15.15

1.51

Deprecation

30.57

3.05

21.79

2.17

Interest on fixed capital

184.51

18.45

163.11

16.31

Total of 3

215.08

21.50

184.90

18.49

GRAND TOTAL (1+2+3)

395.60

39.56

320.89

32.08

OPERATIVE
MAINTENANCE COST
FINANCE CHARGES

83

450
400
350
300
250

COSTED ESTIMATED

COSTED ESTIMATED

ACTUAL FOR THE YEAR

2011-12 AMOUNT

ACTUAL FOR THE YEAR

2011-12 S/MT

200
150
100
50
0

INTERPRETATION
Observed from the above table that the operational expenditure cost of Hyundai Motors
India Limited (HMIL) in the year 2011-12. Maintenance, employee cost, stationary &
general expenses, rebate and share of other expenses is all are fluctuating with the
expenses of the year 2010-11. However the total operating maintenance costs are 15.15 %
increasing respectively.
In finance charges depreciation and interest on fixed capital, has been included
The total finance charges recording decreasing of 184.90 in the year 2011-12
respectively.
The overall costs results of Hyundai Motors India Limited (HMIL) are earning
more profits.

84

HYUNDAIS INDUSTRIES LIMITED

Operational Expenditure Cost for the Year 2010-11

TABLE II
Rs in corers

SL.
NO

PARTICULAR

COSTED ESTIMATED
FOR THE 2010-11
AMOUNT

1
2
3

VARIABLE COST
OPERATIVE

236.67

RS/MT
21.56

ACTUAL FOR THE

YEAR

2010-11

AMOUNT

S/MT

191.60

19.16

9.67

0.96

4.09

0.40

Deprecation

25.67

2.56

16.74

1.67

Interest on fixed capital

245.68

24.56

220.29

22.02

Total of 3

271.35

27.13

237.03

23.70

GRAND TOTAL (1+2+3)

517.69

49.66

432.72

43.27

MAINTENANCE COST
FINANCE CHARGES

85

600
500
400

COSTED ESTIMATED

COSTED ESTIMATED

ACTUAL FOR THE YEAR

2010-11 AMOUNT

ACTUAL FOR THE YEAR

2010-11 S/MT

300
200
100
0

INTERPRETATION
Observed from the above table that the operational expenditure cost of Hyundai Motors
India Limited (HMIL) in the year 2010-11. Maintenance, employee cost, stationary &
general expenses, rebate and share of other expenses is all are fluctuating with the
expenses of the year 2010-11. However the total operating maintenance costs are 4.09 %
decreasing respectively.
In finance charges depreciation and interest on fixed capital, has been included
The total finance charges recording decreasing of 237.03 % in the year 2010-11
respectively.
The overall costs results of Hyundai Motors India Limited (HMIL) are earning
more profits.

86

HYUNDAIS INDUSTRIES LIMITED

Operational Expenditure Cost for the Year 2009-10

TABLE III
Rs in corers

SL.
NO

PARTICULAR

COSTED ESTIMATED
FOR THE 2009-10
AMOUNT

1
2
3

VARIABLE COST

RS/MT

ACTUAL FOR THE

YEAR

2009-10

AMOUNT

S/MT

201.64

19.56

173.84

17.38

9.67

0.96

5.89

0.58

Deprecation

24.57

2.42

17.64

1.76

Interest on fixed capital

208.67

20.86

199.47

19.94

Total of 3

233.24

23.32

217.11

21.71

GRAND TOTAL (1+2+3)

444.55

43.85

396.84

39.68

OPERATIVE
MAINTENANCE COST
FINANCE CHARGES

87

500
450
400
350
300
250
200
150
100
50
0

COSTED ESTIMATED

COSTED ESTIMATED

ACTUAL FOR THE YEAR

2009-10 AMOUNT

ACTUAL FOR THE YEAR

2009-10 S/MT

INTERPRETATION
Observed from the above table that the operational expenditure cost of Hyundai Motors
India Limited (HMIL) in the year 2009-10. Maintenance, employee cost, stationary &
general expenses, rebate and share of other expenses is all are fluctuating with the
expenses of the year 2009-10. However the total operating maintenance costs are 5.89
decreasing respectively.
In finance charges depreciation and interest on fixed capital, has been included
The total finance charges recording decreasing of 217.11 in the year 2009-10
respectively.
The overall costs results of Hyundai Motors India Limited (HMIL) are earning
more profits.

88

CHAPTER-V
FINDINGS
SUGGESSIONS
CONCLUSIONS

89

FINDINGS

The result in revenue cost of Hyundai Motors India Limited (HMIL)totally

118.25 % in the year 2013-14 respectively. During the year 2013-14 the average

intensive are 72.18 the other Income also 208.64 respectively.

During the year 2010-11 the average intensive is decreased 86.02 the other
Income also decreased 97.76 respectively. The result in revenue cost of Hyundai
Motors India Limited (HMIL) totally increased to 886..22 in the year 2010-11

respectively.
During the year 2009-10 the averages intensive are decreased 69.80 the other
Income also decreased 62.23 respectively. the result in revenue cost of Hyundai
Motors India Limited (HMIL) decreased 745.80 in the year 2009-10
respectively.

During the year 2008-09 the average intensive are decreased 70.98 the other
Income also decreased 56.36 respectively. the result in revenue cost of Hyundai
Motors India Limited (HMIL) decreased 753.99 in the year 2008-09
respectively.

The total finance charges recording decreasing of 323.29 in the year 2013-14

respectively
The total finance charges recording decreasing of 237.03 % in the year 2010-11

respectively.
The total finance charges recording decreasing of 217.11 in the year 2009-10
respectively.

90

SUGGESTIONS

Planning has become the primary function of management most of the planning
relates to individual and individual proposals. Costs are nothing but his expressions,
largely in financial terms, cost control has, therefore become and essential tool of
management for controlling and maximizing profits.
The company objectives of the organization and how they can be achieved
through cost control
Time tables for all stages of costing follow
Reports, statements, forms and other record to be maintained
Continuous comparison of actual performance with coasted performance.

91

CONCLUSIONS
Every organization has pre-determined set of objectives and goals, but reaching
those objectives and goals only by proper planning and executing of the plans
economically.
The Hyundai Motors India Limited (HMIL) is objectives of planning
promoting and organizing an integrated development of Auto motors Company.
The corporation mission of Hyundai Motors India Limited (HMIL)is to make
available and quality service in increasingly large quantities, the company will spear head
the process of accelerated development of this sector by expeditiously.
The organization needs the capable personalities as management to lead the
organization successfully, the management makes the plans and implement of these plans
are expressed in terms of cost and cost control.
The Hyundai Motors India Limited (HMIL)has cost process in two stages. One
is the capital expenditure cost and another is operating maintenance cost, the capital
expenditure cost shows the list of capital projects selected for investment along with their
estimated cost, operating & maintenance cost refers to the repairs & maintenance costs,
the special costs are rarely used in the organization like long-term costs, research &
development cost and cost for consultancy.
It is to make available and quality work efficient resources and implementation of
sophisticated technology and generation and also creating ambience of collective working
of its employees.

92

BIBLIOGRAPHY

93

 FINANCIAL ACCOUNTING

RP TRIVEDI

FINANCIAL MANAGEMENT

I.M. PANDEY

ANNUAL REPORT OF HYUNDAI LTD 2012-2013.

FUNDAMENTAL OF FINANCIAL MANAGEMENT
PRASANNA CHANDRA

DETAILED PROJECT REPORT OF Hyundai Motors India Limited (HMIL)

www.google.com
www.hundai.com
www.costcontrolinindia.com
www.yahoofinance.com

94