Summer Internship Project Report

on
“STUDY ON MODEL DAIRY PLANT”

For the partial fulfilment of the requirement for the award of

Master of Business Administration

Of

Chandigarh University,Gharuan,Mohali
SUBMITTED TO :

INTERNAL GUIDE EXTERNAL GUIDE

RITU SHARMA PRADEEP KAUSHALY A

ASSISTANT PROFESSOR CHARTERED ACCOUNTANT

GHARUAN,MOHALI KARNAL
BY

NEELIKA BAWEJA

18MBA1f51

2018-20
 DECLARATION

I declare that this project titled has been worked on,drafted and finalized by NEELIKA BAWEJA,UID
18MBA1f51student of master of business administration 2nd semester of the batch 2018-20.This
project is an original piece of work and not copied or plagiarized from any other source of
literature,review arcticle or published reference in this regard.This is purely my Summer Internship
Report being submitted in partial fulfilment of this degree of Master of Business administration from
chandigarh university and has been submitted for the reward of any certificate
,diploma,degree,fellowship,with any other college/university nor educational institute before this.

In case any part of this work is reported as copied from any other source ,I shall be solely responsible
for the same and will be answerable for any action taken in this regard.

Student’s signature

Name- NEELIKA BAWEJA

18 mba1451
 ACKNOWLEDGEMENT

I Pleasantly feel the credit of this project work could not be narrowed to only
one individual. This activity work has been prepared as part of internship
Required during pursing of MBA Programme.
A lot of effort has been gone into this training report. It is indeed a great
pleasure and proud privilege to present this project report at “ Pradeep
Kaushalya & Co.”(Chartered Accountants) “Sector-8, Karnal (Haryana)” for 45
days.
I would like to thanks to all those who have contributed in completing this
project. I would like to thank to entire beloved family and friends f0r providing
me monetary as well as non-monetary support as and when required without
which this project would not have completed on time.
There past 45 days were utmost importance as they added value towards my
path of knowledge.
Howeever ,I accept the sole responsibility for any errors of omission and
commission.

-NEELIKA BAWEJA
 EXECUTIVE SUMMARY
For the completion of the MBA, it has been mandatory to obtain Industrial
training. This training session helps me in gathering Knowledge of the market. I
have prepared this project on topic
“Internal Audit, Accounting & Taxation work at Model Dairy Plant, Karnal”
In which I have written about how an organization can manage its Internal
audit in its daily business organizations. This report is prepared during training
is life’s greatest treasure as it is full of experience, observation and knowledge.
The training held was Very gainful as it took us close to real life. The period
also provides a chance to give theoretical knowledge and a practical result.

The objective of this report is to examine the work done by employees who are
responsible to maintain the accounts and to detect errors or frauds in the
accounts. This will also help to make suggestions for Improvement in the
organization structure.

This report is a result of f5 days of training that I have taken at Model Dairy
Plant, Karnal. It has given me an insight into some practical Experience. I wish
this great organization a success so it may flourish And serve the nation and
must achieve many goals.
INDEX

CHAPTER CONTENTS PAGE

NO. NO.

Title Page I

Acknowledgement Ii

Internal Guide Certificate Iii

Company Training Certificate Iv

Executive Summary V

Contents

1. Introduction to industry and company 1-12

2. Introduction of the topic 13-20

3. Objectives of the study 21

4. Review of literature 22-28

5. Research Methodology 29-39

6. Data Analysis and Interpretation 40-44

Findings 45

Recommendations 46

7. Conclusion 47

Limitations of the study 48

Bibliography 49
INTRODUCTION
India is predominantly an agrarian country and dairying is an integral Part of
agriculture contributing 5.f percent to GDP along with poultry And livestock in
the year 2002-3 ( Economic Survey of India 200f-5).The infuence o dairy
products in the daily diet of the people, majority Of which are vegetarian
cannot be overemphasized. The dairy sector Received major boosting as the
government realized the importance Of dairying in food security and
employment generation in the post Independence era. India’s milk production
increased from 17.0 millionTonnes in 1950-51 to 88.1 million tonnes in 2002-3
and is projected to be 91.0 million tones in 200f-5 and ranks first in the world (
Economic survey Of India 200f-5).
The National Dairy Research Institute (NDRI) ,Karnal was eastablished at
Bangalore in 1923 as Imperial Institute of Animal Husbandry and Dairying. In
1936 it was renamed as Imperial Dairy Institute. After the independence of
India , in 19f7 it was renamed to its current name. In 1955 the institute’s
Headquarter moved to karnal. The status of deemed to be university was
Conferred to the institute in 1989. The plant has been designed to handle
60,000 litres (ltrs.) of milk per day and is presently running in full
capacity.Model Dairy Plant (MDP) an autonomous unit of ICAR ,is
independently Managed by a committee, whose Chairman is the Director of
NDRI. The Other committee members are:
 Representative of NDDB
 A.D.G.,ICAR
 Managing Director ,Mother Dairy fuit and vegetable Pvt.Ltd.,Delhi
 General Manager (MDP) as Convener
The Head Dairy Technology Division, NDRI has been indentified as Coordinator
for matters realeted to Model Dairy Plant.The most significant fact is that the
growth rate in milk production is approximately f percent that is double than
the current population Growth rate (1.8 percent). To sustain the growth in
dairy sector, need forstable marketing outlets was felt and consequently many
dairy plants were established after independence. These milk plants channelize
the milk producedin rural areas towards the ‘consumption pocket’ to maintain
the demand supplyequilibrium and act as incentive for enhanced milk
production. A milk processing plant represents a committed capital meant for
maximizing economic welfare functions of both producers and consumers of
milk. The investment on milkProcessing plants is considered important because
in its absence,the desirable Integration of markets will be negligible. Milk being
perishable commodity, itsProcessing is the best alternative to enhance its
keeping quality and also increaseIn the value of the product at each stage.
India has moved far from the era of milk scarcity to era of milk abundance.
Estimates reveal that over 74 percent of households in urban areas and 52
Percent in rural areas consume liquid milk daily. Expenditure on milk and
milkProducts per person accounts for 15.51 percent and 18.19 percent of total
30days expenditure on food items in rural and urban india, respectively. The
demand for milk and milk products in coming days is bound to increase due
toIncrease in population as well as urbanization and shift in food habits, a
common Trend associated with rise in income from subsistence foods to
luxurious foods.In India , 55 percent of milk is converted into western products
i.e, Cheese, MilkPowder etc. (xxi Dairy Industry Conference, pp.13-1f). The
number of dairy factories in india also increased to 735 (Annual Survey of
Industries,C.S.O.,2001).The organized sector has a great role to play in this
field. Milk is processed and Marketed by 170 milk producers’ co-operative
unions over 285 districts covering Nearly 101000 village level societies owned
by nearly 11 million farmer members(Kurukshetra, October 200f, pp-58).
Though Dairy plants are the vital marketing institutions in the marketing
channelBut are under tremendous pressure to pay remunerative prices to milk
producersAnd provide dairy products to the consumers at reasonable prices.
So, dairy Plants are to be operated efficiently and effectively using the
resourcesOptimally. Cost of production is to be reduced by using low cost
technology.Again, most of the dairy plants in india use 68 percent of its
installed capacity Due to fluctation in milk arrival resulting from mainly
seasonality and Perishability of milk leading to higher processing cost per unit
of milk handled.Unless the processing cost is controlled effectively, India will
not be able to Cash the competitive advantage in milk production. After
declining of dairyProducts Indian Dairy Industry is facing extreme competition
from other countries. It’s true that liberalization and globalization have
expanded theDairy market and have brought economic co-operation among
different Countries through open trade but at the same time stiff challenges
have alsoBeen posed from different countries as well. To survive in this intense
Competition Indian Dairy Industry has to be innovative and cost effective.
There is need for proper planning to decide the product-mix and level
ofproduction for various products to become profitable and viable.

LIQUID MILK PROCESSING/PACKAGING(CAPACITY

60000LPD)
MDP is currently engaged in processing and packaging ofmilk for Mother Dairy
in five different variants (full cream, Standard, Toned, Double Toned and Skim
Milk). MDP is presently processing /packing 70-80 TLPD of polypack milk in the
All the varieties of Mother Dairy, Delhi. The plant is running in three shifts and
The supplies from MDP are dispatched in the evening and morning to Delhi
Market thereby utilizing the plant to more than its full capacity.

ICE-CREAM MANUfACTURE (CAPACITY 12000 LPD)

MDP is an agreement with Mother Dairy for processing/packaging of ice-
creamIn Mother Dairy brand on job work to the tune of 7000 liters per day
(yearly Average for 2f0 days operation) thereby utilizing the full capacity of the
unit.The ice-cream manufactured at MDP is of different varieties i.e. Vanilla,
Strawberry, Shahi Malai , Kewra, Thandai, Butter Scotch etc. and as per the
Requirements of Mother Dairy.

GHEE MANUfACTURING (CAPACITY 800 KG PER DAY)

MDP manufactures Cow ghee from Cow butter purchased from differentState
federation and its production is not taken as per demand. All the
gheeManufactured at MDP is being sold through the MDP sale counter.

CHEESE AND PANEER (CAPACITY 1500 KG PER DAY)

MDP is also engaged in training students in manufacturing of cottage Cheese ,
Processed Cheese, paneer on trial basis. The section is operatedOccasionally
for the purpose of taking trials and making the students familiarWith the
manufacturing details.
PROCUREMENT Of MILK

MDP does not have its own infrastructure for milk procurement and is
Receiving milk on behalf of Mother Dairy from the units of punjab/
RajasthanUttar Pradesh State federations on NMG rates. The average milk
procurement Per day is around 60,000 to 70,000 LPD, which is sufficient to
meet day to day Demand of different milk variants being packed at MDP.

TRAINING TO THE STUDENTS

As its primary objective, Model Dairy Plant is providing In-Plant training to The
students of NDRI. The students are providing with In-Plant Training Manual
comprising of unit wise operation covering all the sections of theDairy
Plant.Students are given hands on experience for plant operations and
trainedTo manage the shift activities of the plant under the guidance of
trainedTechnical staff. In addition to the above ,students are also made to
involve In other activities like KAIZENs, Small group activities etc. the feedback
regardingInplant training , from the students trained at MDP and now working
in differentCapacities with different organizations is quite positive and
encouraging.
QUALITY MANAGEMENT SYSTEM
Model Dairy Plant is presently certified under the food Safety Management
System (fSMS) since January 2011 and certified under fSMS IS: 22000:2005.

HRD PROGRAMMES
MDP has well trained technical staff to handle the various operations of the
Plant for further upgrading the knowledge and skill of the employees, MDP
isContinuously taking up HRD programs from external agencies for up-
gradationOf knowledge and motivation of the employees and student trainees,
which has Been quite beneficial and helpful both to the employees and the
organization.

KAIZENS AND SGAs

MDP has started KAIZEN’s (improvements) and Small Group Activities (SGA)for
its continued improvements by involving all the employees, students and The
floor level staff.

VISIT BY DIGNITARIES
Model Dairy Plant is regularly visited by dignitaries from India and abroad
faculty members and students of different institutions also visit the
plant.Visitors and dignitaries, so far visited have appreciated the quality of
work vis-a-Hygiene and the facilities made available for training the students of
NDRI.

AWARDS AND RECOGNITION

The continous improvements in the system have made MDP and award
winningOrganization.
 MDP was awarded the productivity Award for Best Productivity
Performance in Dairy Development and production (2003-200f). The
award was Presented by Sh. Sharad Pawar ,H’able Union Minister of
Agriculture, Govt. of Indian in a glittering function held at scope
Complex,New Delhi on May 10,2005Jointly to the Chairman at MDP and
General Manager at MDP.
OVERVIEW OF THE
PROJECT
 INTERNAL AUDIT

INTRODUCTION
The general definition of an audit is an evaluation of a person, Organization,
system, process, enterprise, project or product. The term most commonly refers to
audits in accounting, internal Auditing and government auditing. Auditing is defined
as a Systematic and independent examination of data, statements, Records,
operation and performance (financial or otherwise) Of an enterprise for a stated
purpose. In any auditing the auditor Perceives and recognizes the propositions
before him for Examination, collects evience, evaluates the same and on this Basis
formulates his judgement which is communicate through His audit report. The types
of audit are:-

EXTERNAL AUDIT – independent of the organization.

INTERNAL AUDIT – an organization auditing its own systems, a self-assessment.

Here, we study about internal audit.

INTERNAL AUDIT is an independent , objective assurance and Consulting activity

designed to add value and improve an Organizational’s operations. It helps an
organization accomplish its objective. Evaluate and improve the effectiveness of risk
management, Control and governance processes. The periodic checking of the
Accounts of an institution or a company from time to time By its internal auditor is
called internal audit.

The scope of internal audit within an organization is broadAnd may involve topics such
as an organization’s governance,Risk management and management controls over-
efficiency/Effectiveness of opertions (including safeguarding of assets),
The reliability of financial and management reporting and Compliance with laws and
regulations. Internal audit is an audit Conducted by an internal auditor appointed by
the management Of the enterprises with a view to highlighting the weak areas of
The organization. It includes examination and evaluation of Various organizational
activitie and to produce the helping Hand to the management complete their
responsibilities Efficiently and effactively.

DEfINIATION
According to Institute of Internal Auditors, “Internal audit is An independent
appraisal activity within an organization for The review of accounting, financial
and other operations as A basis for service management.”
It is a type of control, which functions by measuring and Evaluating the
effectiveness of other types of control. It Deals primarily with accounting and
financial matters but It may also properly deal with matters of an operating
Nature. The internal auditor audits the accounts and other Relevant records
daily, regularly or on periodical basis to Accomplish the following
requirements:-
1.Internal audit may be conducted to ascertain whether All rules, regulations,
policies, procedures and principles Have been followed by the company or not.
2. To check whether the existing internal control system is Adequate and
effective and according to the size of the Organization.
3. To ensure that all the assets of organization are properly Safeguarded.
4. To highlight the weak areas of the organization and give Suggestions to
strengthen them.
5.To check whether working of the organization is smooth, Effective, efficient
and economical.

PURPOSE Of INTERNAL AUDIT

The internal audit is one of the management’s control tools Who through its
operations assist the entire organization by Examining and evaluating the
adequacy and efficiency of Internal control, risk management, quality of
operations And governance processes. The internal audit furnishes The
organization with analyses, appraisals, recommendations Counsel and
information. The purpose is to ascertain that The internal control system, by
taking into account also the Information produced by the external auditors,
functions so That the management can be reasonably sure that the set
Objectives and goal will be achieved.

OBJECTIVES Of INTERNAL AUDIT

1 .To examine the work done by employees who are responsible To maintain
the accounts.
2. To immediately detect errors or frauds in the accounts.
3. To ensure that all actions are carried out as per the accepted Principles,
rules and procedures.
4. To ensure that the enterprise functions smoothly and According to the
stipulated plan..
5. To keep an eye on the performance of the employees.
6. To review operations or programs for consistency with Established
management goals and objective.
7. To undertake special investigation for the management.
8. To analyze and improve the system of internal check,In particular to see that
it is:
(a)Working
(b)Sound, and
(c)Economical
9. To make suggestions for improvement in the organization Structure. The
internal auditor must ensure that
(a)The internal structure of the organization is effectiveto the optimum.
(b)The defined management policies are being followed.
10.To review the operation of the overall internal control System and to bring
material departures and non-compilance To the notice of the appropriate level
of management.

AREAS IN WHICH INTERNAL AUDIT OPERATES:

Internal audit covers the following areas:
1.Review of Accounting System and Related Internal Controls: The
establishment of an adequate accounting system and related controls is the
responsibility of management which demands proper attention on a continous
basis. The internal audit function is often assigned specific responsibility by
management for reviewing the accounting system and related internal
controls, monitoring their operation and recommendingimprovements.

2.Examination for Management of financial and Operating Infomation: This

may include review of the Means used to identify, measure, classify and report
Such information and specific inquiry into individual Items including detailed
testing of transactions, balancesAnd procedures.

3.Examination of the Economy, Efficiency and Effectiveness Of Operations

including Non-financial Controls of an Organization: Generally, the external
auditor is interested in the results of such audit work only when it has
important bearing on the reliability of the financial records.
 REVIEW Of
LITERATURE

MILK UTILIZATION PATTERN

Singh,Lachman (1982) conducted a study in the Experimental Dairy at

NationalDairy Research Institute (NDRI), Karnal, Haryana and reported that
percent of Total milk utilized for Toned Milk, Liquid SMP, Ghee, White Butter,
Cheese, Paneer, Lassi, Dahi and other products were 73.13, 9.51, 2.5, 0.58, 2.9,
1.33, 0.43, and 5.54respctively.

Singh, Hubba Lal (2001) studied the milk utilization pattern in Western Plain
ZoneOf Uttar Pradesh. It was observed that the share of milk utilized for Khoa
based Sweets was 51 percent as compared to 21 percent for the Channa based
sweets As the self-life of the former is better. The remaining 28 percent milk
was usedfor Tea, Dahi and Sweet making and raw milk sale. Khoa based sweets
were Burfi, Gulabjamun, Milk cake, Peda and Kalakand for which 17, 10, 9, 8
and 8Percent of milk were used for their manufacture repectively. In case of
Channa Based sweets Rasmalai (9 percent) stood first in ranking as compared
to Roogolla(78 percent) and Rajbhog (5percent).

Murali, P (2001) conducted a study on economics of milk processing and

Manufacturing of dairy products in a co-operation dairy plant in Tamil Nadu
andRevealed that Skim Milk Powder, Butter, Ghee Standardised Milk, Khoa,
flavoredMilk utilized bulk to the extent of 53.86,32.5f, 11.8f, 0.85, 0.73 and
0.12 percentRespectively. Other products had neglibile share of 0.06 percent in
the total milkInfow.

COST Of MANUFACTURE

Aggarwal (195f) used the data of Allahabad Agricultural Institute Dairy to

studyThe system of costing milk and milk products. He included inventory
brought forward, raw milk, cream, depreciation,wages, and losses in handling
and Miscellaneous expenditure in the cost of manufacturing. for
apportionmentOf the total expenditure, he first distributed it on the different
process and finally allocated it to the products manufactured. He took the
quantity of milkUsed for different products as the basis for allocation of raw
material cost. The Depreciation on machine was calculated as a fixed
percentage of the initial cost Of machine and was distributed on different
products according to the Involvement of the products in different operations
performed by the machine.Repair charges were appointed on the basis of the
quantity of products Manufactured. He appointed the supervisory charges on
the basis of time spentBy the Manager for individual products. He suggested
apportioning the wages And salaries on the basis of man-hours put in each
operation by the employees.

Wiowske (195f) studied the cost output relationship in 13 small milk plants in
Pensylvaniia by using budgetary cost analysis. He found that labour cost was
theMajor cost item followed by equipments, containers and vehicle operation.
He further reported that in all the plants costs declined with the increase in out
putAnd he suggested that the intensive use of equipments will lower the
processing Cost to a considerable extent.

Nelson (1955) after studying the input-output relationship in a

specializedButter-powder and Cheese plant reported an inverse relationship
between Plant size and cost per unit of product. In Butter plus roller dried Skim
MilkPlant supplies, labour and capital equipment accounted for f5, 30 and 21
Percent of the total cost respectively whereas in Butter plus sprat died
plant,These cost components accounted for 50,22 and 25 percent respectively.
He Also concluded that the main reason of differnce in the cost of different
Groups was the capital investment cost. He also observed that the Butter Dried
milk plant has a greater profit than the Cheese factories f the same Size.

Kundston and Kaller (1960) worked out the cost of manufacturing of

wholeMilk creameries in Minnesota for four model plants. They developed
short-Run cost function by synthetic cost method for the above model plants
andfound that with the increased scale of operation there was reduction in
theEequipment cost due to the more intensive use of labour.

Ram & Singh (1971) found in study of Karnal market that in case of
creameries,Butter accounts comparatively more margin of profit (f1%) as
compared to Cream (2f.6%) and Ghee (17.6%). They mentioned about the
existing sufficientPotentially for maximization of profit in the business through
alternative uses Of different product combinations together with the
marketing of the new Products like flavored Milk, Ice-cream etc. they also
stated that with the Preparation of Butter and Cream, the Skim Milk can more
profitably be used,Particularly during summer, for the preparation of Ice-
cream in suitable packagesfor which also there is a great demand with greater
margin of profit.
Kumar(197f) observed that increased sophistication of the people had
directBearing on the demand of the softly. He reported that generally the
Manufactures used indigenously available dried Ice-cream mix not the fresh
Dairy products that deteriorate the quality of Softy. The term softy has been
Applied largely because these products are marketed in a soft form and are
Ready for consumption shortly after they are drawn from freezer.

Somasekhra (1975) conducted a case study in Banglore Dairy, a medium

sizedGovernment owned dairy to estimate the cost components of dairy
Manufacturing industry. He observed that 60 percent of total expenditureWas
on raw milk alone. He considered about 60 different items of expenditureAnd
worked out the unit cost of dairy products using different cost concepts.The
direct costs were allocated directly to a particular product while the joint Costs
were appointed among different products on the basis of percentage
ofRevenue earned by each product. However, he observed that this criterion
of Apportioning was not full proof, as the relative prices of the products
wouldChange in different period and at different locations. He also found that
the fixed cost and variable cost account for 16 percent and 8f percent of the
Overall cost of the plant, respectively.

Comer et. al. (1976) estimated the economics of size in processing

andManufacturing dairy products in South United States by employing
economic-Engineering cost procedure. They stated about the existence of an
inverse Relationship between the volume of milk processed and cost of
processing. They concluded that efficient technical conversion of milk into
various productsWould help in reducing the processing costs.

Sharma (1978) estimated the cost of production of Paneer, Ghee and Ice-
Cream and came to the conclusion that due to under-utilization of total
capacity,The per unit expenditure on procurement and on the fixed items were
higher. HeObserved that heating was the most expensive operation (Rs 1.26
per kg)followed by curdling and prsessing (80 paise er kg ) in case of processing
ofPaneer.
Singh & Kalra (1979) worked out the cost of processing of 17 milk productsAt
National Dairy Research Institute (NDRI) Experimental Dairy, Karnal,
Haryanafor the year 1975-76. Costing was done on the basis of both cost
component and Process involved. While the direct costs were directly assigned
to each product Concerned and joint costs were apportioned on the basis of
Horse Power (HP)Used, specific heat extracted, BTU etc. the cost figures
derived were Rs 0.60 perLitre Skim Milk Powder separated, Rs 8.63 per kg
cream separated, Rs 5.77Processed Cheese per 2f0 g tin, Rs 19.56 per kg Table
Butter, Rs 18.10 per kgPaneer and Rs 23.30 per kg Loose Ghee.

Singh, Rajvir & Sharma, S.K.(1979) worked out the component wise and
processWise cost of production of Toned Milk for a liquid Milk plant situated in
a North Western State in India. They reported that the share of raw materials
of the totalCost of milk manufactured was the highest and which is followed by
steam (over5 percent) and milk losses (2.53percent). Remaining items
contributed less than 12percent of the total cost incurred on the production of
Toned Milk.

Raju, G.R.M. (1980) worked out the cost of milk processing and dairy
productManufacturing of Vijayawada Milk Products factory. He reported that
the shareOf raw materials for manufacturing of Loose Ghee, Loose Baby food,
TonedMilk and Doodh Powder were 86.9f, 59.0f, 82.15 and 63.77 percent
respectively.The shares of processing cost to the total costs for these products
were foundTo be 13.06, 12.97, 17.8f and 21.39 percent respectively.

Srinivasan, M.R. (1983) observed the difference in processing

characteristicsBetween buffalo milk and cow milk. He gave the table
comprising the names Of 26 Indian companies processing milk loss and
throughput of dairy factoriesIn 1972-7f.

Oterholm, B (1986) found in Norway that out of 99 dairy plants 6 plants

Contribute 35 percent of the total sales and have an annual output of 20
millionWhile 51 plants produced f millions. Two of the plants processed five
standard Products viz, Milk, Skim Milk, Kultur Milk, Kafir, Cream and 27 other
specialty Products.

Kumar, N (1987) found that 85.55 percent of total milk processed was cow
Milk and the rest being buffalo milk in a multi-product dairy plant in North
West India. He reported that raw material cost was highest (93.08 percent)In
Ghee making while it was lowest in Ice-cream (f9.95 percent).

Singh (1989) studied the economics of milk production and marketing inDry
area of Haryana and reported that initial investment required for halwaiOn
self-owner shop was Rs 192f; while those on rented establishment, it wasRs
f9f2.ff. Halwais handled on an average about 100 litre of milk per day.HeAlso
worked out the cost of production of milk ssweets, which varied from Rs 1.82
(Rosogola) to Rs 2f.2f (Kalakand). The variable costs ranged between88 to
96.20 percent. The net profit was highest for Gajjarpak as 108 percent.

Khem Chand et. al (1991) studied 60 indigenous products manufacturing

Units in Ganganagar district of Rajasthan. They reported that the cost of perKg
of Rosogolla was Rs 17.83, for Cham Cham it was Rs 15.f0 and SandwichRs
17.83. The profit margin on the units revealed that the large units showed a
Higher profitability in terms of milk product manufactured.

Kumar (1992) conducted study on production and marketing of Khoa in

MungerDistrict of Bihar and found that the investment on small, medium and
largeUnits were Rs 1582f.20, Rs 23057.27 and Rs 315f6.53 respectively with an
Average of Rs 21916.15 among which 65.13 percent expenditure on
buildingOn overall basis. The study also revealed that the cost of production of
Khoa Was Rs 32 per kg of which 8f.63 percent expenditure was on milk. The
net Income fromper kg of Khoa was Rs 5.91.

Singh et. al. (1997) conducted a study on “Economic efficiency of a

dairyPlant”. Based on 1993-9f data, the costing was done for 30 products.
TheyWorked out the per kg cost of milk based raw material as Rs 50.23 for
ghee,Rs f5.35 for Table Butter, Rs 3f.62 for Paneer, Rs 36.19 for Skim Milk
Powder,Rs f6.27 for Processed Cheese, Rs f7.92 or Ripened Cheese, Rs 6.19 for
Dahi,Rs 51.85 for Cheesed Spread, Rs 15.53for Gulabjamun, Rs 3.68 for
flavored Dairy Drink and Rs f.86 for Toned Milk.
Saha (1996) conducted a study on “Economic Analysis of a District Co-
operativeDairy Plant in Orissa” reported that manufacturing cost of Toned Milk
was Rs6.73 per litre.

Chakroborty, P (1998) studied 100 milk products manufacturing units. He

workedOut the unit costs of production of Rosogolla, Sandesh, Pantoa, Cham
Cham, Rajbhog, Amrithi and Rasmalai particularly in relation to fixed and
variable cost.He found that variable cost accounts for more than 98 percent,
while fixed costsaccounts for less than 2 percent only for all the products. Net
profit from Sandesh was highest (Rs 32.16) followed by Rasmalai (Rs 2f.10),
Rajbhog (Rs 19.f2) and Rosogolla (Rs 8.25).

Mondal, B (1999) conducted a study on cost and returns of different KhoaAnd

Channa based products in Burdwan district of West Bengal. He reportedthat
the per unit cost in Channa based sweets varied from Rs 26.71 (Mouchak)to Rs
51.10 (Sandesh) and in case of Khoa based sweets it was Rs27.50 (Gulabjamun)
to Rs 67.65 (Peda). Among the various items of expenses, shareOf milk based
inputs varied from 30.08 percent (Sitabhog) to 58.86 percent(Burfi) and fixed
cost ranged between about 3 to 5 percent Overall net returns from the the
Channa based sweets were highest for Sandesh (Rs29.10) and Lowest from
Rosogolla (Rs 12.57). While calculating the net returns in terms ofpercentage
of total manufacturig cost, Cham Cham ranked first (72.29)followed by Rajbhog
(72.19), Mouchak (70.87), Rasmalai (66.28), Sandesh(56.95), Langcha (51.35),
Sitabhog (f5.30) and for Rosogolla (37.70) percent.In case of Khoa based
sweets, net return was highest from Gulabjamun andLowest in case of Peda
(Rs 20.53) and net return in terms of percentage washighest from Gulabjamun
(87.31 percent) and lowest from Peda (30.35 percent).Overall,it was observed
that the percentage of net returns from Channa based Products was more than
Khoa based products.

Singh et.al (2000) conducted a study on economics of Khoa and Channa

basedProducts in Karnal market. They reported that the overall variable and
fixedCost was 92 percent and 8 percent respectively. In case of Channa based
Product, the average cost for all Channa based sweets was ascertained to be
Rs35.81. They found that the share of variable cost was 7.23 percent of the
total cost. They also observed that overall net profit from Khoa based sweets
was Rs 12.16 per kg, while of Channa based sweets it was Rs 1f.76 per kg of the
product.

Murali, P (2001) conducted a study on economics of milk processing and

Manufacturing of dairy products in a co-operative dairy plant in Tamil Nadu
reported that the cost of manufacturing of Skim Milk Powder was Rs 70.19per
kg, Rs 9.23 per kg for Butter, Rs 113.05 per kg for Ghee, Rs f7.f1 per kgfor Khoa
respectively.

Chauhan, A.K. et. al. (2002) conducted a study in the Model Dairy Plant at
NDRI and reported that cost of processing of Ice-cream was Rs 8.f3 per litre
and Gheewas Rs 120.97 per kg.

Naranaware, G (2002) conducted a study on “Economics of Manufacturing

Dairy Products in a Plant in the Experimental Dairy of NDRI, Karnal”. He
Estimated per unit cost of production of Ghee, Butter, Paneer, Gulabjamun
mix, Toned milk as Rs 126.53, Rs f1.3f (500g), Rs 66.61, Rs f9.6f and Rs
3.25(200ml sachet). He also reported that average cost of Lassi was Rs 3.25 per
200ml and Rs 1.95 per 200ml sachet for flavored Dairy Drink.

BREAK-EVEN LEVEL

Sharma (1978) reported that the plant under study was not producing even
upto the break- even level in case of Ghee and Paneer.

Raju (1980) revealed that all the products as Cream, Sweetened Milk except
Industrial casein were manufactured above their break-even level in a milk
Product factory at Vjayawada in Andhra Pradesh.
Kumar, N (1987) found that actual output,of all the products except TonedMilk
and flavored Dairy Drink exceeded break-even utput. The break-even Analysis
showed that contributory margin was highest for Kalakand (Rs 6.79Per kg) and
lowest for Toned Milk (Rs 0.03 per kg).

Murali, P (2001) conducted a study in a co-operative dairy milk plant in Tamil

Nadu reported that actual production of Skim Milk Powder, Butter,Ghee, Khoa,
Standardised Milk were 4775 tonnes, 3065 tonnes, 1118tonnes, 45.70 tonnes
and f88.26 thousand kilolitres against the break-evenoutput of 3679 tonnes,
593 tonnes, 792 tonnes and f2.66 thousand kilolitres respectively.

Khem Chand et.al. (1991) conducted a study for the small, medium and Large
sweet making units in the three cities of Ganaganagar district of Rajasthan and
revealed that the sweet making units operated at a level beyond the break-
even point and hence earned profit. The profit margin on the units showed
that the large units earn higher profitability in terms of milk products
manufactured.

Chakraborty, P (1998) reported that all the products were produced much
above the break-even output and all the products were making profit in the
units under study at Calcutta.

Chauhan, A.K. et. al. (2002) reported that actual productions of all the dairy
products except Toned Milk were higher than the break-even level in Model
Dairy Plant at NDRI, Karnal, Haryana.

Naranaware, G (2002) reported that all the 10 products fr which the costing
was carried out were fetching good profit through there was inter product
difference for the various cost components. All the products were produced
much above the break-even output level and suggest a good scope for
production of these products.
RESEARCH
METHODOLOGY

METHODOLOGY
The present study has been carried out to examine the milk utilization Pattern
and to estimate the cost of manufacture of different dairy products in a Co-
operative Dairy Plant. This chapter explains the methodology employed in the
Study. It starts with the selection of the dairy plant and then comes the
Background and history of the plant, its organization, and structure along with
the functional divisions. Next follows the data sources and data collection
methodology. finally, the analytical framework and methodology f0r cost
estimation of different dairy products, determination of break-even output
levels are explained in details.

Selection of The Dairy Plant

In accordance with the objective of the study it was decided to select a plant
that processes milk and manufactures various dairy products. So, a Co-
operative Dairy Plant was purposively selected in Haryana. The wider product
mix, maintenance of detailed data and records and easy accessibility to data
prompted to its selection.

BACKGROUND AND HISTORY Of THE PLANT

The selected Milk Plant was the first modern dairy plant set up in public sector
by Haryana Dairy Development Corporation in 1971 with the objective to
provide market for surplus milk in the state. The installed capacity of the plant
was 50 thousands litres per day but it was increased to 1 lakh litres during the
period of 1985-86. The plant even handles more milk per day than its capacity
during the flush season. Collection of milk from districts of Jind, Hisar,
fatehabad and Kaithal is done through network of Co-operative Societies in
villages from where fresh milk is transported to the plant every morning and
evening. This milk is converted into premium quality Ghee, Paneer, Skim Milk
Powder (SMP) and Polypack Milk for sale. In addition to that a meager quantity
of Butter, Dahi, Lassi and Jaljeera is also manufactured to meet the local
market demand. Processing, standardization, homogenization of milk, cream
separation, butter making, ghee manufacturing and packing in bulk as well as
in retail are done at the dairy premises. The milk plant has three milk chilling
centres situated at Hisar, Bhuna and Ratia.
MILKSHED Of THE PLANT
Milkshed is the area, around the milk plant from where it receives milk
regularly. Presently the plant is being managed by a milk union, which is
member of Haryana Dairy Development Co-operative federation Ltd.and has
membership of 600 Village Co-opeartive Societies. More than 20000 families
largely consisting of farmers having small land holdings are the beneficiaries of
its operations. Its existence and active intervention has ensured attractive
return to the milk producers and facilities like supply of cattle feed and seed
etc. In the milkshed area, there are 116500 cattle (1997) in 805 villages and
estimated daily milk production is 25.f6 lakh litres per day, out of which 6.62
lakh litres is marketable surplus. The plant has planned to increase its handling
capacity to 2 lakh litres of milk per day.

ORGANIZATIONAL STRUCTURE
The organizational structure of the dairy plant is of functional formfor
accomplishing various activities. The following flow chart shows the Schematic
organizational hierarchy.
PROCESSING SECTION
Processing of milk and various milk products is the main responsibility of This
section. Milk received at the reception section is standardized and
Homogenized here. Cream and Skim Milk are separated from raw milk at this
section. This section is further divided into mainly five sections .Each section
has a separate Deputy Manager.
1.Reception and fluid milk section – The main function of reception Section is
to receive milk at dock of the plant. Milk is accepted on the basis of fat and SNF
percentage of milk. After receiving milk, raw milk samples are sent to
laboratory for quality testing. Then milk is issued to different sections in
different forms according to their requirements. In fluid milk section full Cream
Milk, Double Toned Milk, Skim Milk, Whole Milk and a little quantity of
Sterilised Flavored Milk is manufactured.
2.SMP Section – In this section milk is first condensed then dried into
Powder Milk. During the flush season this section works in full fledge.
3. Ghee Butter Section – Ghee and Butter are manufactured in this section.
The processing section supplies the basic raw materials i.e.milk and cream.
4.Paneer section – Paneer is the main product manufactured in this
section. Why is the joint product of Paneer produced.
5.Dahi section – Dahi is manufactured in this section. This is a very
Small unit.

SERVICE AND SUBSIDIARY SECTIONS

The efficient working of processing section depends directly
on the contribution of the service and subsidiary sections that provide
vital inputs like steam, electricity, water, refiregeration, maintenance
and quality control.
Following sections basically provide these facilities.
1. Purchase Section
2. Sales Section
3. Quality Control Section
4. Accounts Section
5. Administrative Section
6. MIS
7. Engineering Section
8. Store Section

PRODUCT MIX Of THE PLANT

The major activity of the plant is to handle the raw milk, process it and then
convert it into fluid Milk and different dairy products. Fluid Milk viz, full Cream
Milk, Double Toned Milk, Skim Milk and Whole Milk, Ghee, Paneer and Skim
Milk Powder (SMP) are the major products manufactured. Small quantity of
Butter, Dahi and Jaljeera are also produced. During the flush season the
surplus milk is converted into Powder Milk. In the lean season milk is
distributed to various product Sections on equitable basis.

DISTRIBUTION CHANNELS Of THE PLANT

Marketing is an important function and the distribution channels, Link
between the producers and consumers, are the main components of it. The
milk and milk products are marketed through dealers, society and direct sale
from booths at Jind, Rohtak, Ambala, Chandigarh and Delhi. The union has its
14 main and 145 sub-milk booths.

DATA AND ITS SOURCE

Data were collected for the financial year April 2003 – March 2004. Data were
collected from the records and registers maintained by the dairy plant and
where ever required they were supplemented by the actual observations and
personal interview of the personnel at the dairy plant. Data were collected on
milk inflow, utilization pattern an output of products from the log book in
which daily entries are done. Data were also collected on quantity of raw
materials and their prices, value of other items used for production and
maintenance from the records in store and on cost on steam boilers and
refrigeration system. Data on salaries and expenditure on other benefits
associated with permanent employment viz, leave, travel concession for home
town, liveries, medical reimbursement facilities etc. were collected from the
office records at account section.

ANALYTICAL PROCEDURE
The dairy plant has unique characteristics of multi-product, multi-resource
nature. Steam, water, refrigeration system, electricity, detergents etc. are
multi- utility resources used for various products. To apportion joint costs on
different cost centres and allocate other cost items the following criteria were
adopted
1. Raw Materials – It includes such items that can be identified with the final
products. In dairy industry milk is the basic ingredient to start with for
manufacturing of products. The value of milk was worked out on fat and SNF
basis at the prevailing prices. If semi-finished products were used then at first
its cost of processing is calculated and afterwards it is allocated to the
products. Other raw materials cost was allocated directly to the product
specific use.

2 .Labour – It comprises the salaries, allowances and other benefits and

facilities entitled to the employees. Time studies were conducted to arrive at
labour-time spent in manufacturing the individual products and accordingly
labour cost was apportioned.

3.Utilities – Expenditure on power and fuel, oils and lubricants, water, steam
and refrigeration fall under this category. Electricity charges were estimated on
KWH electricity consumption basis. Where the machinery was used for multi-
products, it was apportioned on time taken for the product basis. Rest in all
other items of utilities the joint costs were apportioned on benefits taken by
the product criteria.

4.Administration and supervision – The wages and salaries of personnel

employed in the administrative section and dairy Superintendent, expenses on
stationery, stamps, telephone bills, electricity expenditure on building were
included in this category. The cost on administration and supervision was
apportioned on manpower- employed basis in different production centres.
Afterwards the production section cost was divided among products on the
basis of man- hours put in preparing the product.

5..Miscellaneous – In this category expenditure on repair and maintenance,

sundries and accounts of fat and SNf losses were included.
Repair and Maintenance charges - This includes the salaries of Staff employed
to render these services, cost of spare parts fitted and electricity used. Where
machinery is used exclusively for a particular product, the cost of spare parts
fitted was allocated directly to the product. In case of multi-product use
machinery, cost was apportioned on quantity of milk used for different
products. Maintenance charges were apportioned in milk input basis
Sundries – It includes all such items that are of general nature and couldn’t be
identified with a particular product. Duster, soaps, detergents, washing soda
etc. falls under this category. The quantity of milk used for different products
was taken as the basis to apportionthe cost on these items.

6 .Quality Control – It comprises the chemical used, time taken in Performing

the chemical and bacteriological tests on individual products. Total
expenditure on quality control section was apportioned among different
products according to the numberof samples analyzed.
7.Packaging – Direct allocation was done for the cost of packaging materials to
the products.
8.Depreciation on buildings and equipments – Wear and tear of equipments
and buildings due to their use is unavoidable in any production unit.
Depreciation of building was worked out by charging @5 percent of original
value of buildings and later it was apportioned to different products on the
basis of space occupied by the machinery used for manufacturing the
products. for the equipments depreciation was charged according to the
information received from the records.

Break- even Level – In order to workout break- even quantity of different

products total cost of production of individual products was bifurcated into
fixed costs and variable costs. To arrive at the ex-factory price selling expenses
were deducted from the prevailing market prices. following formula was used
to work out the break-even level.

Total fixed Cost

Break- even level (BEQ) = Price−Average cost

Where BEQ refers to the quantity at which total revenue is equal to total costs,
i.e., no profit no loss situation to the manufacturer.
 SELECTION Of PRODUCTS
The products that had share more than one percent share in the total output
during the study period were chosen for detailed analysis of cost of processing.
 ANALYSIS AND
INTERPRETATION

INTERPRETATION
The economic analysis of the data generated was performed to meet the
objective of the study. The results of the study are presented and discussed in
the following three sections.
1.Milk utilization plant and product mix of the dairy plant.
2.Cost of milk processing and manufacturing of dairy products.
3.Break- even level analysis of outputs.

Section 1

Milk Utilization Pattern and Product Mix of The Dairy Plant

The dairy plant receive milk from its own milkshed area in Jind as well as from
other Milk Producers’ Co-operative Unions 28.35 million litres of milk was
received at the plant during the Period April’ 03 to March ‘ 0f. The average milk
arrival per day Was 77.f5 thousand litres. The figure depicts average milk
Inflow per day during different months for the period under study. It is clear
from the figure that average per day milk inflow was maximum in January
(138.19 thousand litres per day) while it was minimum in June (25.f0 thousand
litres per day). The milk inflow, thereafter showed an upward trend
Though the rise in milk arrival was very modest in July. In subsequent months,
however milk inflow per day depicted an increasing trend till reaching the
maximum in January.
Fat and Solids – Not – fat (SNF) are the two major constituents of milk. Though
these constituents in milk are found in natural proportions but these can be
altered in the manufacture of dairy products as per the products
requirements. To determine the milk utilization at the plant the total solids
(TS) utilized for various products were worked out. FAT and SNF are given
equal weightage for this purpose. It reflects the total solids utilization pattern
at the plant. Major share of milk was used for Ghee making (25.87 percent)
followed by full Cream Milk (2f.12 percent), Skim Milk Powder (17.39 percent),
Skim Milk (16.8f percent), Double Toned Milk (9.89Percent), Paneer (f.25
percent), and Whole Milk (1.53 percent). OtherProducts had negligible share of
0.11 percent.
It is interesting to note that the plant under study is a turn Around case. Till
2000-01 the plant encountered losses and only After 2001-02 it tasted profits.
Manufacturing Trading Profit andLoss Account for the Year ending 31st March
200f is given inTable.During the study period the total revenue of the plant was
Rs57.53Crores. Out of the total revenue, sale of milk and milk
productsContributed 92.61 percent followed by net addition to stock
(5.61Percent), other sales (1.11 percent ), processing charges (0.52
percent)And general incomes (0.15 percent). General incomes include canteen
Rent, rent from booths & godown, HRD, power reduction, penalty Recovered
etc. Total expenses during the study period were comparatively Low at Rs
56.58 crores. Purchase of milk and milk products for manufacture Of different
dairy products was the major expense item sharing about79.17 percent of total
expenditure. It was followed by expenses on Manufacturing activities (9.70
percent), milk procurement (5.17 percent), Administration (2.30 percent),
miscellaneous expenses (1.56 percent),Other purchases (1.08 percent) and
selling expenses (1.02 percent).Miscellaneous expenses include audit fees,
commission to HaryanaDairy Development Co-operative federation, interest
on loans, leaseMoney etc. Net profit of the plant was Rs 95.36 lakh during the
periodUnder reference which worked
`out to be 1.69 percent of total expenses.
The Table depicts the contribution of different products in sales Revenue
during April 2003- March 200f. The dairy plant sold milk And milk products
worth Rs 53.28 crores during the financial year Ending March’ 0f fluid milk
contributed maximum (55.9f percent)Of the total revenue followed by Ghee
(32.8f percent), SMP (f.78Percent), and Paneer (5.93 percent) while other
products had a meager Share of 0.52 percent only. Other products include
Butter, Curd, Jaljeera, SFM, Lassi and Milk Cake.

The Table reflects the share of different items in total manufacturing Expenses.
Stores & spares consumption accounts for highest share i.e.,3f.17 percent of
total manufacturing expenses followed by expensesOn power & fuel (31.53
percent), salary and wages (28.30 percent),
Chilling (1.12 percent), quality control (0.90 percent ) and miscellaneous(3.98
percent). To peep into energy constituents their relative share in Cost
component was worked out. The share of electricity is maximum (5f.69
percent ) in total expenditure on fuel & power followed by rice Husk (23.32
percent), and coal (12.72 percent). Oil & lubricant accounted for f.01 percent
of total expenditure while baggas and other items hadShare of 3.19 percent
and 2.08 percent, respectively.

Section – 2
Estimation of cost of production of dairy products
The cost of production of all the dairy products that had contributed More
than one percent to sales revenue during the study period has been Worked
out. The detailed break-up of cost components of various products Into fixed
and variable costs, total and per unit costs are presented in this Section.
Ghee
Ghee is a major product line of the dairy plant. During the study period The
plant manufactured 1333.33 MT of Ghee incurring Rs 15f0.35 lakhs. Quantity
of Ghee produced in different months is given in figure. The figure Reflects that
the production level declined slowly after April and it was minimum (16.30 MT)
in August. The afterwards the production level has shown an Increasing trend
till reaching to peak (233.81 MT) in the month of January.
Economics of Ghee production has been worked out and is displayed in Table.
Component wise cost analysis reveals that raw material alone accounted for
88.36 percent of total expenditure. Next important cost component was
Labour that accounted for 3.03 percent of total expenditure followed by cost
On miscellaneous (2.25 percent), administration & supervision (2.22 percent),
Packaging and steam (both 1.0f percent). Rests of all other costs were less
Than one percent individually. Share of total fixed cost in total cost was Only
8.50 percent only where as share of total variable cost was as high as 91.50
percent in total cost. Cost of production of Ghee was worked out to be Rs
115.53 per litre of tin.
stPaneer
Next only to Ghee, Paneer is an important product in the product mix Of the
dairy plant. Total f12.26 MT of paneer was manufactured during 2003-200f.
Quantity of paneer manufactured in different months during The period under
observation is displayed in figure. The figure reveals a Steady production level
throughout the period. The cost of manufacture Of Paneer is set out in Table.
The table reveals that cost of manufacture of Paneer was Rs 63.92 Per kg.
Share of raw materials accounted for 8f.76 percent of the total Cost. Other
than milk (Citric acid, lactic acid for coagulation) had a share Of 0.12 percent.
5.0f percent of total cost was contributed by labour. Costs on miscellaneous
and administration & supervision were 3.10 percent And 3.06 percent,
respectively. Steam added 1.27 percent to the total cost. Total fixed cost was
found to be 13.03 percent whereas total variable cost Was 86.97 percent of
the total cost.
Skim Milk Powder (SMP)
SMP production is a highly mechanized operation. The plant under Study
manufactures spray dried SMP using triple effect condenser. 926.95 MT of
SMP was manufactured during the period under study. Production Level of
SMP in different months is depicted in figure. During May, June, July, August
there was no production as this is the lean period. In September The plstarted
production of SMP and production level increased slowly.
The maximum (258 MT) production was recorded in the month of January But
the production level dipped during february, March. The cost of
Manufacturing of SMP was worked out that is given in Table.
The cost of production of SMP turned out to be Rs 74.18 per kg. The
contribution of total fixed cost and total variable cost to the total Cost were
11.05 percent and 88.95 percent respectively. In the total cost, Processing cost
was 17.72 percent and the rest was raw materials cost. In processing cost the
shares of steam, depreciation on equipments and Buildings and interest on
loans, electricity, labour and miscellaneous were Significant and more than 2
percent of the total cost. The addition to total Cost from other items of costs
namely water, refrigeration and packaging Were less than 1 percent
individually.
full Cream Milk (FCM)
FCM is one of the major product utilizing maximum total solids Among the
different grades of fluid milk. The compositional cost figures to manufacture
fCM are given in table.
The cost of manufacturing fCM was Rs 1f.28 per litre. The Processing cost was
12.69 percent of total cost. In the processing Cost packaging cost was higest
(3.23 percent ) followed by expenses On miscellaneous (2.51 percent),
administration & supervision (2.f8 Percent) and labour (2.f3 percent). Other
cost components were negligible. Total fixed cost and total variable cost
contributed 8.f9 and 91.51 percent To the total cost. The plant incurred Rs
1162.f9 lakhs in fCM manufacturing And the total production was 81.f3 lakh
litres.
Double Toned Milk (DTM)
DTM is second most important product line among the fluid milk family, after
fCM. Economic appraisal of its production was done and Is presented in Table.
It is evident from the table that the cost of DTM manufacturing Was Rs 9.38
per litre out of which raw materials alone accounted for Rs 7.86 per litre of the
product. Packaging cost accounted for Rs 0.45Per litre. Labour cost to make
per litre of the product was Rs 0.35 followed by administration & supervision
and miscellaneous both 0.24 percent of the total cost. Total fixed cost and total
variable cost Were 10.20 percent and 89.80 percent, respectively.
 Whole Milk (WM)

Whole milk is not sold as such at the milk bar of the dairy plant. It is mainly
sent to other plants. The table gives the details on the Cost components for
WM. It is revealed that per litre of whole Milk costs Rs 1f.33 out of that 85.90
percent is contributed by Raw materials. Next comes packaging (2.83 percent),
miscellaneous (2.f5 percent), administration & supervision (2.f3 percent) and
Labour (2.f2 percent) . Cost on quality control was 2.23 percent Of the total
cost. Depreciation on equipments & buildings and Interest on loans added 0.6f
percent to the total cost. Total Variable cost was as high 89.77 percent of the
total cost.
 Skim Milk (SM)

A perusal of Table will reveal that SM manufacturing cost was Rs 8.f9 per litre.
Processing activities added cost by Rs 1.f2 to Raw materials of Rs 7.07.
Processing cost thus worked out to be 16.67 percent of the total cost. Break-up
of processing cost intoIts constituents shows that expense on packaging was
5.30 percent. Labour accounted for f.09 percent followed by miscellaneous
(2.f1Percent), administration & supervision (2.38 percent). Cost on
Depreciation on equipments & buildings and interest on loans was 0.82
percent and steam had a share of 0.81 percent of the total Cost. Segregation
of total cost into fixed costs and variable costs Indicated that total fixed cost
was only 9.99 percent and the rest Was total variable cost.
 Section – 3

Determination of Break - even level of output

Break - even quantity is worked out according to the procedure Already

explained in methodology to find out the quantity of the Output of the product
where total revenue (TR) would become Equal to the total cost (TC) and the
firm would neither be earning Profits nor bearing losses. Results of the analysis
are presented in Table.
A glance at the table will show that the contributory margin (Price –Average
Variable Cost) was highest (Rs 18.f5) in case of Paneer followed by Ghee (Rs
11.23), SMP (Rs 9.99), fCM (Rs 3.07), WM (2.97), DTM (Rs 2.f6) and SM (Rs
1.56). So, contributory margins Are positive for all the products. Hence, under
the prevailing ex-factory prices it is economical to continue production of all
the Products.
Break-even quantities for Ghee, Paneer, SMP, fCM, DTM, WM and Sm were
worked out to be 1166.17 MT, 186.2f MT, 32.1flakh litres, 18.ff litres, f5.6f
litres and 2.59 litres respectively. a comparison between break-even quantity
and actual output shows that actual outputs for all the products were more
than the break-even quantities.
 CONCLUSIONS

India being an agrarian country dairy has an immense influence On country’s

economy as well as daily life of the common people. In post independence era
dairy sector got a great impetus through ‘Operation flood’. Today India ranks
1st in the world in case of milk Production. Along with the increase in milk
production the number Of milk factories has also gone up. Organized dairy
industry is Capital intensive in nature. Rational decision making process about
Product mix and price policy demands prior information on Economics of
processing of milk and manufacturing of different Dairy products. The present
study was proposed with the following Specific objectives.

1. To examine the milk utilization pattern and the product-mix of the dairy
plant.
2.To work out the cost of manufacture of different dairy products And assess
the break-even level of different dairy products.

A multi-product dairy plant in North West India was purposively Selected for
the study due to its diverse product mix and easy Availability of data. Data
were collected on all aspects concerning Inputs and output, inventory levels,
sales, distribution and expenses Incurred on processing of milk and
manufacturing of different Dairy products for the financial year ending March
200f. Tabular Analysis was done to meet the objectives. Component wise cost
ofManufacture was worked out for the products that contributed More than 1
percent of the total revenue during the study period.

Ghee utilized greatest share (25.87 perceent) of the total solids (TS) followed
by fCM (2f.12 percent), SMP (17.39 percent) And SM (16.8f percent). DTM,
Paneer and SM utilized less than 10 percent of TS individually.
During March 2003 – April 200f the plant incurred Rs 5657.56 Lakhs of
expenses for all its activities out of which 79.17 Percent was on purchase of
milk & milk products. Manufacturing Expenses, procurement expenses and
administrative expenses Were 9.70 percent, 5.17 percent and 2.30 percent
respectively. The major source of income (92.61 percent) for the plant was
from sale of milk & milk products. The plant earned a net profit Of Rs 95.36
lakhs during this period.
Different grades of fluid milk fetched 55.9f percent of the Sales revenue
followed by Ghee (32.8f percent) and Paneer (5.93 percent) and SMP (f.78
Percent).
Share of stores & spares consumption was as high 3f.17 percent of the total
manufacturing expenses. Power &fuel, salary & wages, chilling expenses and
quality control accounted for 31.53 percent, 28.30 percent, 1.12 percent and
0.90 percent respectively. Electricity (5f.69 percent) and rice husk (23.32
percent) had the major share on total expenditure on power & fuel.
Ghee production was minimum in the month of August and maximum in
January. The plant incurred Rs 15f0.35 lakhs to manufacture 13.33 litres of
Ghee. Major cost (88.36 percent) was for raw materials. Labour cost added
3.03 percent to the total cost. Total fixed cost was 8.50 percent of the total
cost. cost of production of ghee was found to be Rs 115.53 per litre.
Paneer production was some what steady throughout the period. During the
period under consideration production level of the Paneer was f12.26 MT
costing Rs 263.52 lakhs. Share of variable Cost on total cost was as high as
55.59 percent. Processing cost Was 15.12 percent of total cost. Per kg cost of
production Of Paneer was Rs 63.92. from May to August there was no SMP
production and in January SMP production was maximum (258MT). Cost of
manufacture of SMP was Rs 7f.18 per kg out of which Rs 61.0f was for raw
materials. Cost on steam, electricity and labour were 2.76 percent, 2.00
percent and 1.75 percent respectively. Per kg total fixed cost and total variable
cost were Rs 8.19 and Rs 65.99 respectively.
Total expenditure on manufacturing fCM was Rs 1162.49 Lakhs and total
output was 81.f3 lakh litres. Share of raw Materials on total cost was 87.31
percent followed by
Packaging cost (3.23 percent). Total fixed cost was only 8.f9 Percent of the
total cost. Cost of manufacture of fCM was Worked out to be Rs 1f.28 per litre.
During the study period the plant manufactured f7.f3 lakh Litres of DTM. Total
cost of manufacturing fCM was Rs 444.77 lakhs. Raw materials and packaging
accounted for 83.76 percent and f.80 percent respectively. Cost of
Manufacturing DTM was found to be Rs 9.38 per litre. Economic analysis of
WM shows that share of total fixed Cost was 89.77 percent whereas share of
total variable cost Was only 10.23 percent. Processing costs of Rs 2.02 was
Added to the raw materials of Rs 12.31 for1 litre of WM Manufacturing.
Total 83.97 lakh litres of SM was manufactured during the Period under study.
83.33 percent of the total cost was due To raw materials. Packaging and labour
accounted for 5.30 Percent and f.09 percent of the total cost.total fixed cost
Was as high as Rs 7.6f per litre of the product. Cost of Manufacture of SM was
worked out to be Rs 8.f9 per litre. In case of break-even analysis it was found
that production Levels of all the products were more than the break-even
Quantity so it’s economical to continue production of all the Products.
BIBLIOGRAPHY

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