NDUSTRIAL MANAGEMENT

CHAPTER-1

INTRODUCTION TO ESTIMATION AND COSTING

 Estimation - Definition, Importance and aims
 Qualities and functions of an Estimator
 Source of errors in estimation
 Constituents of Estimation
 Costing - Definition and Aims
 Standard cost and its Advantages
 Difference between estimation and costing
 Advantages of efficient costing
Define of estimation
Estimation is the process of finding the probable manufacturing cost of the product before it is manufactured

Importance of estimation
1. In all organizations before starting actual production or filing up the tenders, estimation is done.
Therefore, accurate estimating is very necessary to compete in the market and to be sure whether
manufacture of a particular article will be profitable or not. Both over and under estimating are
dangerous.
2. Over estimating leads to increase the cost and hence tenders may not get suitable response.
3. Under estimating may lead to heavy losses to the concern.
4. The only accurate estimating can enable the leaders to make vital decisions such as manufacturing,
selling policies.
5. Hence, accurate estimating is very essential and, therefore, staff of the estimating department must
be well qualified, experienced and trained in this profession.
Aims of estimation
The main aims of estimations are:
1. To help the management to decide manufacturing and selling prices
2. To help in filling the tenders.
3. To decide the amount of overheads required.
4. To decide the wage rates of the workers.
5. To help the management to decide whether a material should be purchased from the market or
to be manufactured.
6. To decide the investment required
Qualities of estimator.
The qualities of estimator are
1. He should be well qualified.
2. He should be able to read and understand the drawings and blue
3. Good knowledge about different machines, their operations and operation timings for the Products
being manufactured.
4. Good knowledge about market prices.
5. Good knowledge about use of different tools, jigs, fixtures, etc.
6. Good knowledge about wage rates of all kinds of workers
Functions of an estimator
The different functions of an estimator are
1. To prepare the estimate for the product required by the production or sales department
2. To collect the different data’s necessary for the estimation from the different departments
3. To calculate the cost of different materials required for the production
4. To time for production.
5. To calculate the overhead charges associated with the product.
6. To estimate the labour cost by considering the labour time and wage rates.
7. Collect the information relating to the engineering design and specification of the product.
8. To collect the information about manufacturing methods, procedures, tools, and equipment required.
9. To collect the information about quality and quantity of the product
10. To conduct the time and motion study.
11. To collect the information about transportation costs and profits.
12. To find most economical procedure for manufacturing the products.
13. To help in modification of design.

The sources of errors in estimating

There are two types of errors in estimation:
1. Unavoidable Errors.
2. Avoidable Errors.
Unavoidable Errors:
 Power failure
 Accidents
 Machine breakdown
 Strikes
 Drop in the worker’s efficiency
 Drop in the machines and tools efficiency
Avoidable Errors:
 Omission of some data’s
 Negligence in collection up to date data.
 Working with less concentration.
 Repetition of some factors.
 Poor analysis.
The constituents of estimation
The constituents of estimation are:
 Design cost.
 Drafting cost.
 Time and motion studies, planning and production control cost.
 Cost of design and arrangement of special items.
 Cost of experimental work.
 Materials cost
 Labour cost.
 Time allowances.
 Overheads.
 Profit.
Define costing.
The process of determining the actual cost of a product, after adding all the expenses incurred during the
complete production of the product.
Define standard cost.
It is the predetermined cost of the product.
A standard cost indicates what a cost should be and not what it is expected to be. It is used as a device to
check and lower the overhead expenses and improving the efficiency.
Advantages of standard costing
The advantages of Standard Cost
 It provides a check on various expenses.
 It helps in deciding the budget.
 It helps in budgetary control.
 It helps in reducing the labour cost.
 It helps to reduce the wastage of material.
 It provides a check on various expenses.
 It helps in price determination.
It measures efficiency of the whole company.
 It helps to reduce overhead expenses.
 It helps to improve the overall efficiency of the company.
 It helps to have good control over the production methods.
 It helps in planning.
Differentiate between estimation and costing.
Estimation:
1. It calculates the probable cost of the product before it is actually manufactured.
2. It requires high technical knowledge; hence an estimator is basically an engineer.
3. Estimation is carried out before the product is actually manufactured therefore it does not give any idea
about whether the product will be profitable or not.
Costing
1. It calculates the actual cost of the product after it is actually manufactured
2. It requires the knowledge of accounts and hence the costing is done by accountants.
3. Costing is carried out after the product is actually manufactured; therefore it gives an idea about the
profitability of the product.
Advantages of efficient costing
Efficient costing has got following advantages:
1. It helps in tracing wastage, leakage and spoiled materials.
2. It gives information regarding profitable and unprofitable activities.
3. It provides an effective check on wage system.
4. Actual causes of reduction in profits can be easily found.
5. It gives information regarding component parts, that whether it is profitable to manufacture them in
the factory or to purchase from outside market.
6. It also helps in the settlement of wage rates with trade unions at the time of dispute.
 CHAPTER-2

ELEMENTS OF COST

 Elements of cost- material, labour, expenses

 Material - Direct material, indirect material
 Calculation of Material cost
 Labour - direct, indirect labour and examples
 Calculation of labour cost
 Expenses - direct, indirect expenses and examples
 Classification of expenses - factory, administrative, selling and distribution expenses and examples
 Fixed and variable expenses and examples
 Components of cost - prime cost, factory cost, office cost, total cost
 Selling price
 Block diagram to show the relationship between elements and components of cost
 Simple problems on above
 Allocation of on-cost - methods and simple problems

Elements of cost
The Elements of Cost:
For the successful functioning of any Industrial concern manufacturing of specific product, the most
important consideration is to lowering the cost of production of the product, and to enables the concern to
earn profit.
There are 3 elements of cost; they are
1. Material
2. Labour &
3. Expenses
1. Material:
It is divided into 2 groups
i.Direct Material
ii.Indirect Material
Direct Material:
It is a material which can be processed or operated in different shop through various stages takes in the final
useful shape of the product or product itself.
This type of material may or may not be visible in the product & its cost can be directly charged. These are
also known as productive materials.
E.g.: i) Mild steel, bar stocks used to manufacture lathe mandrels.
ii) Cast iron used to manufacture lathe tailstocks, bench vice, machine vice etc…
Indirect Material:
It is a material which is essentially needed in different shops of any industrial concerns either to operate or
to process the direct material through various stages for its conversion into the final useful shape or to
increase the life of processing equipment’s and cutting tools. It is also known as non-productive material
Examples: i) lubricating oil and grease used to lubricate and process plant & equipment.
ii) Coolant is used to cool the job and cutting tool.
 iii) Cotton waste & kerosene oil used to clean the equipment’s
In above stated example lubricating oil, coolant, cotton waste, kerosene, are indirect materials.
2. Labour:
Labour employed in any industrial concern is divided in 2 groups
i.Direct labour
ii.Indirect labour
Direct labour
The workers, who actually work or process the different materials manually or with the aid of machines is,
known as Direct Labour. This is also called Productive Labour.
The nature of their duties is such that their wages can be directly charged to the job, which they are
manufacturing.
Workers engaged for operating on various production machines in machine shop welding shop, pattern
making shop, electric winding shop and assembly shop etc. is known as Direct Labour.
Indirect labour
Any other labour, who help the productive labour in performing their duties is known as Indirect Labour.
The nature of their duties is such that their wages cannot be charged directly to a particular job but are
charged on the total number of products produced in the plant during a particular period.
Foremen, Supervisors, Inspectors, Chowkidars, Gate-keepers. Store-keeper, Crane Driver and Gangmen
etc., are classified as Indirect Labour.
Now again consider the above example of Milling Machine Shop. The worker who is producing gears
continuously on the milling machine is known as Direct Labour, while the Foreman, supervising in the
milling machine shop. the inspector checking the accuracy of gears and helper, who is bringing and taking
away the gear blanks from the worker are examples of Indirect Labour.

3. Expenses:
The expenditure incurred by any industrial organization excluding the expenditure of direct material, direct
labour is known as expenses. The expenses may be divided into two groups.
i.Direct or chargeable expenses
ii.Indirect expenses
Direct expenses:
Direct expenses are those, which can be charged directly to a particular product and are incurred for that
particular product only. These charges are otherwise known as chargeable expenses.
Examples: i) Expenses made on manufacture a special type jigs and fixture for manufacture of particular
product.
ii) Expenses made on preparing layout drawing, design for manufacturing of particular product.
Indirect expenses:
Indirect are also known aa overhead charges, on cost, burdon or indirect charges. These can be further
classified as:
i. Factory expenses.
ii. Administrative expenses.
iii. Selling expenses and
iv. Distribution expenses.
i. Factory Expenses.
These overheads include all the expenditure made on the actual operation of the product in the plant. Such
as Indirect material and Indirect labour. It is also' named as works oncost.
ii. Administrative Expenses.
These overheads include all the expenditure made on the salaries of general office staff and executive staff,
telegraph and telephone charges, depreciation of office building and equipment etc.
 This is also known as establishment on-cost or office expenses.

iii. Selling Expenses.

These overheads include all the expenditure made on the salaries of persons working in sales department,
advertising expenses and agency expenses etc.
iv. Distribution Expenses.
These overheads include all the expenditure made on holding finished stock, despatching them to the
customer and packing cost etc.
v. Fixed and Variable Overheads.
All the overheads described above may be classified into two forms.
(i) Fixed overheads and
(ii) Variable overheads.
(i) Fixed Overheads. These are those indirect expenses which remain constant whatever may be
the volume of production such as salaries of higher officers, rent of building and insurance charges etc.
(ii) Variable Overheads. These are those indirect expenses, which vary with the volume of
production such as power, fuel, store supplies etc. These are also known as variable. Fluctuating or
Floating over overheads.

Components of Cost.
The various components of cost are:
1. Prime Cost.
2. Factory cost.
3. Office cost.
4. Total cost.
Prime Cost.
It consists of direct material cost, direct labour cost and direct expenses.
i e. Prime cost = Direct material cost+Direct labour cost+ Direct expenses.
Prime cost is also named as "Direct Cost".
Factory Cost.
It consists of prime cost and factory expenses.
i e. Factory cost =Prime cost + Factory expenses.
Factory cost is also named as 'Works Cost'.
Office Cost.
It consists of factory cost and administrative expenses.
i.e. Office cost=Factory cost + Administrative expenses.
Office cost is also named as manufacturing cost or cost of production.
Total Cost.
It includes office cost and selling and distribution expenses.
i.e. Total cost = Office cost + Selling expenses + Distribution expenses.

Selling Price.
If the profit of factory is added, in the total cost of the product it is called selling price. So the customers get
the articles, by paying the price which is named as selling price.
The relation between the elements of cost and components of cost can be best illustrated by the chart
below:

This can also be illustrated by the block diagram.

Profit
or Loss
Selling &
Distribution
Expenses
Administrative
Expenses
Factory
Expenses Selling
Direct Total price
material Factory cost or Office cost cost or
Direct Prime Direct Cost or Selling
Labour cost or Production cost.
Direct Direct
Expense Cost
s
Problems

1. A certain piece of work is produced by a firm in batches of 100. The direct material cost for that 100
pieces’ work is 160/- and direct labour cost is 200/- Factory on cost is 35% on the total material and
labour cost. Overhead charges are of the 20% factory cost. Calculate cost, factory cost. If the
management wants to make a profit of 10% on the gross cost. Determine the selling price of each
article.
2. A certain piece of work is produced by a firm in batches of 200. The direct material cost for that 200
pieces’ work is 200/- and direct labour cost is 300/- Factory on cost is 40% on the total material and
labour cost. Overhead charges are of the 30% factory cost. Calculate cost, factory cost. If the
management wants to make a profit of 20% on the gross cost. Determine the selling price of each
article.
3. A small firm is producing 100pens /day. The direct material cost is Rs 160, direct labour cost is
Rs 200 and factory overheads is Rs 250. If the selling on-cost is 40% of the factory cost, what
must be the selling price of each pen to realize a profit of 14.6% of the selling price?
4. A small firm is producing 100pens /day. The direct material cost is Rs 160, direct labour cost is
Rs 200 and factory overheads is Rs 250. If the selling on-cost is 40% of the factory cost, what
must be the selling price of each pen to realize a profit of 15% of the selling price?
5. A certain articles are manufactured in batches of 100. The direct material cost is 250/- If the selling on
cost is 40% of prime cost, what should be the selling price of each product to obtain a profit of 20% on
the selling price?
6. The machine elements are produced by a firm in batches of 100. The direct material cost for 100 pieces
is 160/- and direct labour cost is 200/- factory on cost is 35% of total material and labour cost.
Overhead charges are 20% of factory cost. Calculate prime cost and factory cost. If the management
wants to make a profit of 10% on the gross cost. Determine the selling price of each element.
7. A factory is producing 1000 bolts and nuts per hour on a machine. Its material cost is 375/-
Labour cost is 245/- and the direct expense is 80/-. The factory on-cost is 150% of the total
labour cost and office on- cost is 30% of the total factory cost. If the selling price of each bolt
and nut is 1.30/- Calculate whether the management is going in loss or gain and by what amount?
8. Two workmen on a forging hammer complete 20 connecting rods. Each weighing 4kg The workmen
are paid at the rate of 5/- and 3/- per day and material cost is 2/- per kg If 140% of direct labour is
charged to compensate for both factory overheads and administrative expenses. What will be per unit
cost of production of these units.
9. A manufacturing concern produces a certain product in batches of 1000. The direct material cost and
direct labour cost per batch of products are 210/- and 250/- respectively if 80% of direct material and
60% of direct labour cost are charged to compensate the factory and administrative on cost
respectively. Determine prime cost, factory cost and production cost of each product manufactured.
10. The market price of a lathe is 5000/- and discount allowed to the distributor is 20%of the market price.
it is found that the selling expenses cost is ¼ th of the factory cost and if the material cost, labour cost
and factory overhead charges are in the ratio of 1:4:2 what profit is made by the factory on each lathe,
if material cost is 400/-. neglect other over heads.
11. The market price of a lathe is 50000/- and the discount allowed to the distributor is 20% of the
market price. It is found that the selling expense cost is ¼ th the factory cost and if the material
cost, labour cost and factory overhead charges are in the ratio of 1:4:2, what profit is made by the
factory on each lathe, if the material cost is 4000/-? Neglect other over heads.
12. A factory owner employed 50 workers during the month of March 2000. Whose details of expenditure
are as given below:
a) Material cost is 100000/-
b) Rate of wages for each worker is 6/- per Hours
c) Duration of work is 8 hrs per day
d) No. of holidays in the month is 6 days and
e) Total overhead expenses are 50000/-.
If workers were paid overtime of 200 Hrs. at the rate of 10/- per Hr.
Calculate i) Total cost, ii) Man hour rate overheads.
13. A factory employing 80 workers, has the expenditure and details as follows:
a) Material cost =Rs 40,000/-
b) Rate of wages of each worker =Rs 5/- per hour
c) Total overhead expenses =Rs 30,000/-
d) Duration of work =8 hours per day
e) Number of holidays in a month = 5days
Assuming 30 days during that month, calculate the total cost of production.
 CHAPTER-3

INDIRECT EXPENSES AND DEPRECIATION

 Indirect expenses - depreciation, obsolescence, inadequacy, idleness, repair and
maintenance
 Depreciation - causes, methods of calculating depreciation

Introduction
These expenses are all the expenses except direct labour, direct material and direct expenses, incurred
in the production of a concert. It includes repair of plant, power and water charges, depreciation of
building, machines etc , taxes, insurances, compensations, salaries of supervisors, administrative officers
and sales agents etc. Because there are several types of expenses incurring on a product during year it is
difficult to have an account of these expenses. Therefor to have a systematic method of charging them,
these expenses are categorised into certain groups.
Classified statement of different expenses is helpful to know the up-to-date position of these expenses.
These expenses are grouped into following major categories.
i. Factory expenses
ii. Administrative expenses
iii. Sales expenses.

As regards to on costs, some of them can easily be known from various records, examples of such on costs
are, power charges, insurance, building rent, water charges, fuel charges etc. But som charges require good
knowledge and experience of the estimator These charges are discussed as under:
1. Depreciation
2. Obsolescence
3. Interest on capital
4. Idleness
5. Repairs and maintenance.
1. Depreciation.
Depreciation means that "reduction in value and efficiency of a machine or asset with the lapse of time
during its use".
The causes for depreciation are
i. Depreciation due to Wear and Tear: Everybody know that when any machinery performs work,
wear and tear of certain components takes place, although sufficient precautions are taken proper
lubricating and cooling is done, which minimises wear and tear but it cannot be totally prevented.
ii. Depreciation due to Physical decay: There are certain items in a factory, such as insulation of
material, furniture, electric cables, poles, buildings, chemicals and vessels etc., which get decay,
because of climatic and atmospheric effect, with the result the value of these articles goes on
reducing with the lapse of time.
 iii. Accidental Depreciation: Although, the machine might have installed even few days back and
sufficient care is take into prevent accident, even then, accident may occur due to some wrong
operation.
iv. Depreciation due to deferred maintenance neglect: Every manufacturer supplies certain
instructions for the smooth and efficient running of equipment.
v. Inadequacy: This is the form of functional depreciation Inadequacy means reduction in efficiency of
an asset.
vi. Depreciation by Obsolescence: A loss in the utility of an asset due to the development of the
improved component is called obsolescence.
Idleness
There are two type of idleness
a) Idleness of machines
b) Idleness of workers
This idleness is discussed as under:
1. Idleness of machines: This is the time, when machines remain without doing any useful work.
Idleness of machine may be due to the several reasons.
Following are some of them:
i) Mechanical reasons: Examples of such reasons are breakdown of machines, power failure,
accidents etc.
ii) Bad planning: Machine may remain idle due to bad planning. Reasons for idleness are not
engaging the machines to their full capacity, providing more machines or lack of supervision.
2. Idleness of workers: In this category worker remains idle, but he is paid for this duration also. The
idleness of the worker may be due to some of the following important reasons:
i. Labour: In this category workers do not perform useful-work due to their personal reasons
e.g. due to lockouts, strikes, and accidents and natural calls etc.
ii. Mechanical: Examples of mechanical reasons when worker remains free, are power failure,
breakdown of machines etc.
iii. Supervisory: Due to poor supervision, sometimes worker wastes us time for waiting to
receive the instructions from supervisor.

Inadequacy.
This is the form of functional depreciation. Inadequacy means reduction in efficiency of an asset.
1. Even if any equipment is servicing under proper precaution and sufficient maintenance is provided,
there is fall in efficiancy with the lapse of time
2. Suppose after 2-3 years of running, the demand of products manufactured by certain plant is
increased. But the plant cannot cope with the increased demand. This needs additional money
either to replace with the bigger sized machinery or installation of the similar sized more plants.
This is, what is called depreciation due to inadequacy.
Depreciation by Obsolescence.
Nowadays because of much scientific advancement, there are large changes every day. If a new machinery
comes in the market, which is much efficient because of new invention and better design than the existing
one, manufacturing same type of products and the product produced by the new are much cheaper and better
than the existing one then the existing machinery has to be replaced to withstand market competition.

Repairs and maintenance.

Every machine requires maintenance for increasing its life and to keep the machine in good condition
to remove unnecessary delays in the production. For maintenance, machines are cleaned, lubricated and
checked thoroughly from time to time to replace the worn out parts. Manufacturer’s instructions for machine
maintenance should be carried out properly.

Repair is the process of bringing the defective machine into efficient working condition. Every machine
has to be repaired some time or the other during the course of his useful life. Some money has to be spent on
the maintenance and repairs. For determining overheads this expenditure should also be considered.

Methods of calculating depreciation.

The following are the various method of providing for depreciation
i. Straight Line Method
ii. Diminishing Balance Method
iii. Sinking Fund Method
iv. Annuity Charging Method
v. The Insurance Policy Method
vi. The Revaluation or Regular Valuation Method
vii. Machine Hour Basis Method
viii. The sum of the Year’s Digits Method.

Sinking fund method

The Sinking Fund Method: In this system, a depreciation fund equal to the actual loss in the value
of the asset or machine is estimated, taking into account the interest on the so accumulated fund. The
rate of depreciation will be constant throughout the life of machine.
Let, D-Rate of depreciation per year.
R -Rate of interest on accumulated fund in fraction number.
C = Total cost of machine
S = Scrap value
N = No. of years of life of machine.
R(C−S)
D=
(1+ R)N −1
Straight line method
The Straight Line Method:This method assumes that the loss of value of machine is directly proportional to
its age. It means one should deduct the scrap value from the original value and divide the remaining value by
the number of years of useful life.
Let, C-be the Initial cost of a machine.
S-be the Scrap value.
N-be the Number of years of life of machine,
D-be the depreciation amount per year.
Then,
c−s
D= , D in Rupees.
N

Explain the diminishing balance method of depreciation.

This is also called Reducing Balance Method. The diminishing value of machine is much greater in the early
years. It depreciates rapidly in the early years and later on slowly. Therefore, it is better to depreciates much
during the early years, when the repairs and renewals are not costly. So under this method, the book value of
the machine goes on decreasing as its existence continues.
A certain percentage of the current book value is taken as the depreciation. Therefore, this is also called
“Percentage on Book Value” method.
In this, let x be the fixed percentage taken to calculate the yearly depreciation on the book value.

()
1
s N
Then, x=1−
c
Where,
C = Initial cost,
S = Scrap value,
N =No. of years of life.
CHAPTER-4
MENSURATION AND ESTIMATION OF MATERIAL COST

 Area of regular plane figures

 Volume and surface area of solids
 Estimation of material costs of tool elements and total cost of tool.
 Mechanical Estimation
 Estimation in machine shop – Definition of cutting speed, feed, depth of cut
 Estimation of time for various operations like Turning, Knurling, Facing, Drilling, Boring, Reaming,
Threading, Tapping, Milling, Grinding, Shaping and Planning.
 Estimation in sheet metal shop - Sheet material and gauge number, Select suitable formula for
Estimation

INTRODUCTION
For correct calculation of weights of material an estimator. should have good knowledge of mensuration. With the help of
knowledge of mensuration, estimator calculates areas, volumes, weights and cost of material. Therefore, careful study of
mensuration is essential. For the help of estimator some of the important formulae used in mensuration are being given in this
chapter.
Estimator should always remember these formulae.
AREAS AND VOLUMES
Estimation of the material cost
The procedure for calculating the material cost of a product, following procedure should be adopted as:
i. Break up the product into simple parts so that their volumes can be easily calculated.
ii. Neglect rounded corners and small fillets and take suitable approximation wherever necessary.
iii. By applying the formulae of mensuration, calculate the volume of each part.
iv. Add volumes of the parts to give, volume of complete product.
v. Calculate weight of material by multiplying the volume by its density.
vi. Lastly, calculate the material cost by multiplying the cost per unit weight to the weight of
material.
PROBLEMS
1. Estimate the weight of CI used in manufacturing step pulley as shown in fig. Assume density of CI
as 7.2gm/cc

2. Estimate the weight of cast iron used in manufacturing step pulley as shown in fig. Assume density
of CI as 7.2gm/cc

3. Determine the weight and cost of material of MS spindle as shown in Fig. 2athe density of MS is 7.8
gm/cc and rate is Rs.15 per Kg.
Note: All the dimensions are in mm

4. Figure shows a lathe centre. Evaluate the weight and cost of the material which weighs 7.85 gm/cm.
the cost of the material is Rs. 20 per kg.
Note: All the dimensions are in mm
 5. Estimate the volume of material required for manufacturing a component as shown in figure.
Calculate also the weight of 10 such components, if it is made up of MS of density =8gm/cc.

6. Determine the number of rivets of dimensions as shown in figure which can be manufactured from 4
kg of MS. Assume that there is no wastage of material density of MS is 8 gm/cc. All dimensions are
in cm.

7. Estimate the volume of material required for manufacturing 100 pieces of shaft shown in figure. The
shafts are made up of MS weights 8 gm/cc and cost is Rs. 60/kg. Determine also the material cost for
such shafts.

ESTIMATION IN MACHINE SHOP

For estimation purposes, machining cost is calculated after finding the material cost. Machining is done, to get the exact
size and shape of the product on castings, on forgings and on bar stocks etc.
cutting speed, feed and depth of cut for lathe operation
Cutting Speed is the distance travelled by the tool along the material in one minute.
Its unit is meters/min.
π ×D×N
CS= m/min
1000
Feed is the distance, through which a tool advances into the work piece during one revolution of the
work piece.
Its unit is mm/rev.
Depth of Cut is the amount by which a tool is inserted into the metal during one cut i.e., the thickness
of the metal removed in one cut. Its unit is mm.
Machine shop operations.
The following operations are performed in the machine shop on different machines:
Turning, Knurling, Facing, Drilling, Boring, Reaming, Milling, Grinding, Shaping, Planning
Knurling
Knurling is a manufacturing process, typically conducted on a lathe, whereby a pattern of straight, angled or
crossed lines is rolled into the material
Grinding
Grinding is the process of removal of small amount of material from flat surfaces. Grinding is an abrasive
machining process that uses a grinding wheel as the cutting tool
Define Boring
Boring is the process of enlarging a hole that has already been drilled (or cast) by means of a single-point
cutting tool
Define Facing
Facing is the process of removing metal from surface at right angles to the axis of rotation of the job
Define drilling
Drilling is the process of making the hole in an object

Define Reaming
Reaming is the process of removing very small amount of material from previously drilled hole to make it
very accurate size.
Threading
It is the process of removing the material to produce the helix on internal or external circular surfaces for
fastening purposes.
shaping
In this operation the cutting is done in one stroke called forward stroke and the second stroke called return
stroke or idle stroke.
The various operation times to be considered for estimation of machining time.
For calculating the machining time following time consideration are taken
i. Setting up the job and tool
ii. Setting up the machine
iii. Tool changing and sharpening time
iv. Inspection time
v. Machine cleaning and servicing time
vi. Fatigue allowance
vii. Personnel allowance
Lathe operations
Facing, Turning, Threading, Taper turning, Undercut
Facing:
Facing is the process of removing metal from surface at right angles to the axis of rotation of the job
Turning:
It is the process of metal removal by rotating the job against the fixed tool
Threading:
It is the process of removing the material to produce the helix on internal or external circular surfaces for
fastening purposes.
Taper turning:
Taper turning as a machining operation is the gradual reduction in diameter from one part of a cylindrical
work piece to another part.
Undercut:
In turning, an undercut is a recess in a diameter generally on the inside diameter of the part.
 CHAPTER-5
WAGES AND INCENTIVES

 Definition of wages, normal wages, real wages, living wages, fair wages
 Minimum wages, methods of wage payment
 Incentives - definition of incentive, types of incentives,
 Characteristics of a good wage and incentive systems
 Standard time - work measurement
 Bonus system - collective bonus system, group bonus system

Wages
Wages are considered as the aggregate income of the employee for a specified period. This specified period
may be month, fortnight or a week.

The different types of wages are:

i. Nominal wages: It is defined as the only money paid to the worker in cash without any advantage. It
is different in different places depending on availability of workers and necessities of life.
ii. Real wages: These are the amount of necessaries, comforts, luxuries and cash payment are given to
the worker for his efforts.
iii. Living wages: The wages which can meet some of the basic requirements of the family like
education food, clothing for his family are called as living wages
iv. Fair wages: he wages which of the fair for work of the worker and should provide other necessities
of life in addition to food for his family are known fair wages.
v. Minimum wages: The wages which must be sufficient for the preservation of the efficiency of the
worker and must provide some sores of education, medical requirements and other amenities of life
are known as minimum wages.
The different methods of wage payments are
i. Day rate or time rate system
ii. Straight piece work rate system
iii. Combination of time rate and piece rate system
iv. Incentive
v. Profit sharing system
vi. High wage rate
Incentive
An incentive is an inducement or a reward or an additional remuneration which is given to a worker for his
efficiency and hard work. Incentives motivate and encourage a worker to produce more and better.
There are two types of incentives, they are
1. Financial incentives
2. Non-financial incentives

The characteristics of a good wage or incentive system:

i. It should be simple in working and readily understood by the workers
ii. It should guarantee an adequate minimum day wage.
iii. It should be fair both to the employee and the employer.
iv. It should have the free consent of the worker.
v. It must reward the worker as per his merit and capacity.
vi. It should involve less clerical work to reduce the ultimate cost.
vii. It should reduce wastage of material and careless use of plant, tools and equipment.
viii. It should increase the production without affecting the quality.
ix. It should have effective and less supervision.
x. It should give incentive, bonus etc., along with the wages and should no put off for future.

Standard
Standard time is the total time in which a job should be completed at standard performance. It is the sum of
the standard times for all the elements, of which it is made up, and contingency allowance plus
considerations for the frequencies with which the elements recur.

Work measurement.
The art of observing and recording the time required to do detailed element of an industrial operation.
List the objectives of work study.
 To determine best method of operation
 To eliminate wastage
 To increase production
 To reduce fatigue
 To determine standard time
 To determine qualified worker
 Systematic investigation of all factors

Time study.
Time is the basic technique of work measurement. This is the art of observing and recording the time
required to do industrial operation.

The uses of time study are:

 Useful to estimate cost of the product accurately
 It helps in control production.
 Helps to determine number of machines and operator required.

Bonus system.
This is the system used in continuous process and assembly lines where efforts of a number of workers are
required to complete the job. It is not possible to pay individual worker so paying in group bonus is good.
The two types of bonus system are:
i. Collective bonus system
ii. Group bonus system
i. Collective Bonus System: This system is used in large industries and extra salary for the
workers will be paid in terms of collective bonus system for one or more months or yearly.
When the profit during the business year reaches the target or more than that, then bonus will
be declared to all the workers for that year.
ii. Group Bonus system: In this system, each department or section is offered a separate fixed
bonus per unit time or per unit piece, if the standard time is saved or the production reaches or
exceeds a predetermined target. Such bonus is divided among all the workers.

CHAPTER-6
INTRODUCTION TO FINANCIAL MANAGEMENT

 Definition of terms such as assets, liabilities, current and long term assets and liabilities, capital,
Gain
 Working capital - definition – net and gross working capital - factors affecting working capital.
 Maintenance of accounts through journal ledger, cash book, balance sheet.
 Transaction with bank - credits, payments overdraft, current account, securities.

Financial management
To succeed in the industry or in any business, proper planning, organizing, directing and controlling of
financial activities are very much necessary. This will lead to effective and economical use of funds for
useful purpose.

Asset
Any item of economic value owned by an individual or cooperation, especially that which could be
converted to cash.
The assets may be classified into following:
Current assets: These are the assets which can be converted into cash within a short period of time 1 year
or e.g.: cash in hand, cash at bank, debtors, etc.
long term assets or fixed assets: These are the assets which cannot be readily converted into cash and they
have relatively permanent existence land, buildings, machineries, etc.
Other assets: These are the assets which do not fall into either current assets or long term assets/fixed
assets and these are: patents, copyrights, goodwill, Liabilities, franchise, etc.

Liabilities
When a business enterprise borrows the money from others known as creditors, then the creditors have the
claim on the business enterprise until they are paid; these claims are known as liabilities.
Liability may be classified into:
Current liabilities: Bank overdraft, short term loans, trade creditors, wages, etc.
Fixed liabilities: Amount owed, long term debts, etc.
Contingent liabilities: Guarantees and these are the real liability when principal debtor fails to pay,
etc.
 Capital: Cash or goods used to generate income either by investing in a business or a different income
property.

Gain
Gain can be defined as the increase in value of an asset.

Working capital
Working capital is the part of a capital required by the enterprise to meet its day to day needs and
expenditures such as, purchase of raw materials and supplies, salaries, rent, consumables, transportation etc.
Working capital is also required for advertisement, plant maintenance and to meet selling expenses
Working capital refers to a firm's investment in short term assets such as cash, short term securities,
accounts receivable and inventories.
Gross working capital: It refers to the firm's total investment in current assets.
Net working capital: The net working capital is the current assets minus current liabilities

Factors affecting the working capital

a) Nature of the industry / business: The management of working capital is completely different from
industry to industry. A simple comparison of the service industry and manufacturing industry can clarify
the point.
b)Seasonality of industry and production policy: Businesses based on seasons like manufacturing of ACs
whose demand peaks in summer and dips in winter. The requirement of working capital will be more in
summer compared to winter if they are produced in the fashion of their demand.
c) Competition: If the industry is competitive, quick response to customer needs is compulsory and therefore a
higher level of inventory is maintained.
d)Production cycle time: The production cycle time refers to the time required for converting the raw
materials into finished goods. Higher, this time, higher would be the time of blocking funds in the working
capital.
e) Credit policy: Liberal credit policy demands a higher level of working capital and tight credit policy
reduces it.
f) Growth and expansion: Some industries are static and others are growing. Obviously, growing industry
grows the requirement of working capital also as compared to static industry.
g)Shortage of supply of raw material: If the raw material supply is not smooth for any reason, companies
tend to store more of raw materials than needed and that increased requirement of working capital.

Maintenance of accounts through journal, ledger, cash book and Balance Sheet
Cash book: A cash book is a financial journal that contains all cash receipts and disbursements, including
bank deposits and withdrawals. Entries in the cash book are then posted into the general ledger.
Ledger: A ledger is a book containing accounts in which the classified and summarized information from
the journals is posted as debits and credits. The ledger contains the information that is required to prepare
financial statements.
Cash book: A cash book is a financial journal that contains all cash receipts and disbursements, including
bank deposits and withdrawals. Entries in the cash book are then posted into the general ledger.
Balance Sheet
Balance Sheet is the financial statement of a company which includes assets, liabilities, equity capital, total
debt, etc. at a point in time. Balance sheet includes assets on one side, and liabilities on the other. For the
balance sheet to reflect the true picture, both heads (liabilities & assets) should tally (Assets = Liabilities +
Equity).
Balance sheet is more like a snapshot of the financial position of a company at a specified time, usually
calculated after every quarter, six months or one year. Balance Sheet has two main heads –assets and
liabilities.

Payment.
A payment is a transfer of equal wealth (cash) from one party to another in the exchange of goods, services,
or both or to fulfil the legal obligations.
Credit.
Credit means a transaction that buyer will pay for the commodity to the seller at a future date.
Payments overdraft
It is the financial arrangement made between the bank and the current account holder by which a current
account holder is permitted to draw more amount than the amount credited to his account up to the agreed
limit against the collateral securities in order to run his business comfortably.
Current account
A current account is a running account which may be operated upon any number of times during a working
day. There is no restriction on the number and amount of withdrawals. The bank does not pay any interest;
rather it takes incidental charges from the deposition on such accounts in some cases.
Name the book of accounts.
i. Journal – 4 Books
ii. Ledger – 1 Book

Family Security:
Providing for your family's financial security is an important part of the financial planning process.
 CHAPTER-7
PROJECT PLANNING AND BREAK EVEN ANALYSIS

 Concept of project work.

 Project planning like market survey, project capacity, selection of site, plant Layout, product design,
drawing, specification, material requirement operation planning,
 Break even analysis - break event chart, diagram to illustrate break event point, Simple problems on
break even analysis
 CHAPTER-8
OPERATION RESEARCH

 - Game theory: definitions- strategy, saddle point, two person zero sum game, dominance property
problems
 Transportation problem: NW corner rule, least cost method (simple problems)
 Assignment problem (balanced problems only)