Sabar Aart Farmer Enterprise Producer Company Ltd.: Using Process Costing To Set A Price

Shrikant Patel was the manager of Sabar Aart Farmer Enterprise Producer Company Ltd (SAFE), located at Khedbrahma, in the Sabarkantha district of Gujarat. Patel knew that members of the farmer producer organization (FPO) were working laboriously but were still not able to generate high incomes. Organic cultivation of only a single crop in fertile land once a year did not boost their incomes. Passionate about agriculture and social work, he wanted to encourage the FPO members to adopt multicropping and increase their incomes. He identified turmeric as one of the crops that was not grown in the Sabarkantha region. Thus, growing turmeric along with creeper vegetables would not only ensure a steady income for the FPO members but would also provide the FPO with first-mover advantage in organic turmeric cultivation in the region. Patel, not being an expert in accounting, needed support from advisers to determine an accurate price for the turmeric powder from one kilogram (kg) of raw turmeric input.

The case is designed for postgraduate management students taking a course in management accounting. It is also useful for undergraduate students taking a course in finance, especially cost accounting. The case can be used to cover the following topics in undergraduate or postgraduate finance programs: different types of costs, allocation and apportionment of costs, preparation of process costing accounts, and the fixing of selling prices based on process costing. This case highlights the role of process costing in determining a cost price in the food processing industry. After completing the case, students should be able to do the following:<br><br><ul><li>Explain the concepts of material cost, labour cost, overheads, and normal loss.</li><li>Describe the allocation and apportionment of overheads to the process.</li><li>Calculate the cost of one kilogram of turmeric powder using the process costing method.</li><li>Determine the sales price per kilogram (after adding the profit component) of turmeric seeds and turmeric powder to be sold in the retail and wholesale markets.</li></ul>

• Farmer’s Producer Organization, Organic,