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Project Costing

&
Cost Allocation
Project Costing
„ Project Costing is a methodology which starts
with cost estimation for bidding and includes
tracking of scheduled milestones.

„ Project Costing encompasses:


„ Cost Estimation
„ Budgeting
„ Cost & Schedule Control
Cost Estimation
„ Prepare cost estimate;
„ Document data sources and assumptions;
„ Validate
lid estimate
i by
b analogy
l andd using
i
historical data.
Budgeting
„ Allocate budgets within the project & establish
project level spend plan.
Cost & Schedule Control System
„ Maintain traceable milestones to facilitate cost
and schedule tracking.

„ Collect actual cost data and calculate


variances.
i
Types of companies using Project
Costing
„ The following traits identify whether the company
will use Project Costing:
„ Engineered/Made to Order;

„ It’s not repetitive manufacturing;

„ Long job execution cycle.


Types of Projects
„ Projects are basically classified into two
groups:
„ RSV (Realisable Sales Value) (Also known

as AS-
AS-7)
„ Non
N RSV (Al (Also kknown as ASAS--2)
Project Duration
„ A project is termed as an RSV project if the
duration of the project exceeds 12 months.

„ If the project duration does not exceed 12


months,
h it
i is
i categorized
i d as Non
N RSV project.
j
Revenue Recognition
„ RSV Projects: In case of RSV projects,
projects
revenue is recognised the day it crosses
threshold margin.
margin

„ N RSV P
Non Projects:
j R
Revenue iis recognised
i d only
l
on despatch of the job.
Project Cost Components
„ Direct Material;
„ Direct Expenses;
„ Conversion Cost-
Cost-
„ Labour Charges;
„ Other Overheads;;
„ Material Handling;
„ WIP Interest; and
„ Site Specific Cost
Valuation of Material
Valuation of Material includes:
Local Materials Imported Materials
„ Basic Cost „ CIF Cost
„ Excise „ Customs Duty

„ Sales Tax „ Port / Clearing charges

„ Freight inwards „ Freight inwards to

„ Octroi factory
Less „ Octroi

„ Cenvat Less
„ Sales tax set off „ Cenvat on CVD
Valuation of Project
„ WIP valuation or costing has following main
classifications:
l ifi ti
„ Direct Materials – materials forming part of
th deliverable
the d li bl product
d t andd partt off BOM
„ Direct Expenses – subcontracted operations,
royalty
lt / technical
t h i l know-
know
k -how
h ffees, thi thirdd
party inspection etc.
„ Conversion
C i costt – direct
di t labour,
l b allocation
ll ti
of fixed and variable overheads to the
product on a rational basis.
basis
Valuation of Project Cost..22
„ Conversion cost allocation should be based on:
„ Fixed Overheads:
Overheads: Allocation to projects is based
on usage of production facilities by the project –
basis for costing rates is normal capacity .
„ Variable Overheads: Allocation to project is on the
basis of actual usage rate and not on the basis of
normal capacity.
Valuation of Project Cost..3
„ Material Handling – This is the cost which is
loaded for apportioning the material handling
charges The rate is fixed at the beginning of
charges.
the financial year based on historical data.
„ WIP Interest – Interest cost is calculated on the
WIP amount at the rate determined at the
beginning of the financial year
year. This rate is the
cost of capital employed.
Valuation of Project Cost..4
„ Site Specific Costs – The cost incurred on
installation at site are captured separately.
Summary
„ Capital items can not be charged to jobs.
„ Variable production overheads like gases,
gases fuel
and tools are charged to jobs through the
costing recovery rate mechanism and not
directly issued to jobs.
„ Excess / left over materials should be taken
back in inventory & reduced from Project
Cost.
Cost
Thank You

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