Introduction

Management accounting is undergoing a renaissance in response to technological changes, globalization, growing risk management concerns. In these challenging times management accountants help ‘steady of the sleep’ by acting as their organizations interprets, sage advisors, and ethical keepers of the numbers. Management accountants are qualified to help their fellow managers achieve good business results because they have earned an advanced certification that addresses all important aspects of accounting inside organizations. For the internal decision making of a company variable costing method is too much significant. Another costing method is absorption costing; this costing method is known as full costing method. This costing method is used for external purpose. It is logical that producing more units would have no impact on profits unless the units are sold. As we will discover in this report, absorption costing—the most widely used method of determining products costs—can artificially increase profits by increasing the quantity of units produced.

Origin of the report

We are lucky to say that our honorable course teacher M. Takibur Rahman Lecturer, Department of Accounting and Information System, of Faculty of Business Administration and Management. Assigned us a report on ‘Comparative Analysis of Effects in Production on Net Operating Income Due to Use of Variable and Absorption Costing: ‘A Case Study on Square Pharmaceuticals Ltd.’. This report is prepared on the basis of surveying the Square Pharmaceuticals Limited.

Purpose of the Report

As a business expectative of future, we should have to gather experience beside our survey. We should not concern our lesion only in classroom but to implement it in practical life that will help us in our future life .A clear objective help in preparation of well decorated report in which other take the right type of decision .So, we identifying objectives is very much important. Our purpose of preparing this report is:

To know about the absorption costing and variable costing

To explain the difference between absorption (full) costing and variable costing.

To prepare an income statement using variable costing and absorption (full) costing.

To discuss the effect in production on net operating income due to use of absorption (full) costing and variable costing.

To explain the impact of JIT (just-in-time) on the difference between full and variable costing income.

To discuss the benefits of variable costing for internal reporting purposes.

To discuss the benefits of variable costing for internal reporting purposes.

To understand the advantages and disadvantages of both variable and absorption costing.

Limitations & Scope of the Report

As a student of faculty of Business Administration and Management, 6^th semester, this is our initiative for making a report on ‘Comparative Analysis of Effects in Production on Net Operating Income Due to Use of Variable and Absorption Costing: ‘A Case Study on Square Pharmaceuticals Ltd.’ by meeting a survey. Beside this we have faced the following hindrances in preparing this report:

 Lack of knowledge and experience

 Short of time

 Lack of computer facilities

 Lack of sufficient privileges

 Lack of communication facilities

The survey report focuses on ‘Comparative Analysis of Effects in Production on Net Operating Income Due to Use of Variable and Absorption Costing: ‘A Case Study on Square Pharmaceuticals Ltd.’. The survey may not be more comparable or more valid. Moreover, the report is emphasized on the primary data such as interview of the manager of Square Pharmaceuticals Limited, as well as secondary data such as annual report of Square Pharmaceuticals Limited.

Methodology of the Report

This report is based on both primary and secondary data. Initially, the work is started with data those were available at Company’s Annual Report and company’s news letter. Moreover, it becomes helpful to gather some more information from the website of the company.

Later on, the work progressed through some depth interviews of good range professionals trying to heat some expected area of the study. After that, an effective questionnaire is designed to collect likely data from the target group of people.

Then we analyze those data from many angles, in different aspect and present the information in different segment according to their category, in compact way. We highlight different important things, which we found during our survey. After doing all of those we submit the report to the proper authority.  

OVERVIEW OF SQUARE GROUP

Square Pharmaceuticals Ltd is the flagship company of Square Group. In stark contrast to its present stature, Square had a rather humble beginning. In 1958, the Company started out as a small scale pharmaceutical venture at Pabna, a small town in Northern Bangladesh. It was a partnership effort of four young and enterprising men under the leadership of the Chairman, Mr. Samson H Chowdhury, whose determination and passion saw it through the turmoil of the early days.

In 1964, the Company was turned into a Private Limited Company. After the independence of Bangladesh, 1975 was quite a significant year for Square as it established a technical collaboration with Janssen Pharmaceuticals of Belgium; a subsidiary of Johnson & Johnson, USA. In its relentless quest for higher technology, Square signed a technological collaboration agreement with F. Hoffman-La Roche & Co. Ltd in 1982.

1985 was another historical year for Square as the Company gained the market leadership for the first time in Bangladesh pharmaceuticals market and since then it has been maintaining its position as the leading pharmaceutical Company of the country. In 1987, Square became the first Bangladeshi company to export its product abroad.

The Company stepped into a new era when it was transformed into a Public Limited Company in 1991 and subsequently it was publicly listed at both the stock exchanges in the year 1995. Square Pharmaceutical Ltd has been successfully retaining its market leader position in Bangladesh for the last consecutive 22 years and its current market share is approximately 16%.

CORPORATE INFORMATION

Corporate Focus:-

Our vision, our mission and our objectives are to emphasize on the quality of product, process and services leading to growth of the company imbibed with good governance.

Corporate Governance:-

Top Management: Board of Directors

As per provisions of the Article of Association, Board of Directors holds periodic meetings to resolve issue of policies and strategies, recording minutes/decisions for implementation by the Executive Management.

Executive Management

The Executive Management is headed by the Managing Director, the Chief Executive Officer (CEO) who has been delegated necessary and adequate authority by the Board of Directors. The Executive Management operates through further delegations of authority at every echelon of the line management.

The Executive Management is responsible for preparation of segment plans/sub-segment plans for every profit centers with budgetary targets for every item of goods & services and are held accountable for deficiencies with appreciation for exceptional performance. These operations are carried out by the Executive Management through series of committees, sub-committees, ad-hock committees, standing committees assisting the line management.

ABOUT SQUARE PHARMACEUTICALS LIMITED

SQUARE today symbolizes a name – a state of mind. But its journey to the growth and prosperity has been no bed of roses. From the inception in 1958, it has today burgeoned into one of the top line conglomerates in Bangladesh. Square Pharmaceuticals Ltd., the flagship company, is holding the strong leadership position in the pharmaceutical industry of Bangladesh since 1985 and is now on its way to becoming a high performance global player.

SQUARE Pharmaceuticals Limited is the largest pharmaceutical company in Bangladesh and it has been continuously in the 1^st position among all national and multinational companies since 1985. It was established in 1958 and converted into a public limited company in 1991. The sales turnover of SPL was more than Taka 7.5 Billion (US$ 107.91 million) with about 16.92% market share (April 2006– March 2007) having a growth rate of about 23.17%.

SQUARE Pharmaceuticals Limited has extended her range of services towards the highway of global market. She pioneered exports of medicines from Bangladesh in 1987 and has been exporting antibiotics and other pharmaceutical products. This extension in business and services has manifested the credibility of Square Pharmaceuticals Limited.

VISION, MISSION, AND OBJECTIVES

VISION

We view business as a means to the material and social wellbeing of the investors, employees and the society at large, leading to accretion of wealth through financial and moral gains as a part of the process of the human civilization.

MISSION

Our Mission is to produce and provide quality & innovative healthcare relief for people, maintain stringently ethical standard in business operation also ensuring benefit to the shareholders, stakeholders and the society at large.

OBJECTIVES

Our objectives are to conduct transparent business operation based on market mechanism within the legal & social frame work with aims to attain the mission reflected by our vision.

SQUARE's Quality Policy

SQUARE is committed to ensure better life through quality medicine. Ensure strict compliance with WHO standards and local regulatory norms in every phase of sourcing & procuring quality materials, manufacturing, quality assurance and delivery of medicines.

Ensure all activities through documented Quality Management System (QMS) complying International Standard requirements of ISO 9001 through continuously developing Human Resources by regular training and participation.

SQUARE is committed to undertake appropriate review, evaluation and performance measurement of processes, business activities and Quality Management System for continual improvement to ensure highest standard, customer satisfaction, developing human resources and company's growth.