COSTING OF HINDUSTAN PETROLEUM (HPCL)

Hindustan Petroleum Corporation Limited (HPCL) is the result of a successful con

vergence of four established companies. Today the second largest integrated oil
refining and marketing company in India, HPCL was born of the merger of ESSO, Lu
be India Ltd, Caltex Oil Refining India Ltd and Kosan Gas Company Ltd.
The Company was first incorporated as Standard Vacuum Refining Company of India
Limited, on July 5, 1952, and later named ESSO India Limited, on March 31, 1962.
On July 12, 1974, when Esso and Lube India were nationalised, the Company was r
enamed Hindustan Petroleum Corporation Limited with effect from July 15, 1974. T
he undertakings after nationalisation were then vested in HPCL. The Government o
f India also nationalised the Caltex undertakings in the year 1976, which were s
ubsequently merged with HPCL in 1978. In the following year, the undertakings of
Kosan Gas Company Ltd, the concessionaires of HPCL in the domestic LPG market,
were merged with HPCL. Thus, the various amalgamations, at different points in t
ime, have given rise to HPCL that has ever since been growing from strength to s
trength.
HPCL had a humble beginning in 1974 with one refinery at Mumbai that had a refin
ing capacity of 3.5 million metric tonnes per annum (MMTPA). The Lube oil refine
ry at Mumbai stood around 165000 Tonnes per annum. The sales turnover in that ye
ar was only Rs. 3.67 billion, and the net profit Rs. 58 million. But over the ye
ars, the Corporation has made judicious use of its assets to achieve tremendous
growth. Dedicated and well - experienced manpower, strategically located refiner
ies at Mumbai and Visakh and a widespread marketing network have enabled the com
pany to carve a niche in the Indian oil industry today.

Vision
"To be a leading world class company in hydrocarbons and energy related sectors
with a global presence.
Mission
HPCL, along with its joint ventures, will be a fully integrated company in the h
ydrocarbons sector of exploration and production, refining and marketing;
focussing on enhancement of productivity, quality and profitability; caring for
customers and employees; caring for environment protection and cultural heritage
.
It will also attain scale dimensions by diversifying into other energy related f
ields and by taking up transnational operations."

COST SHEET
Cost Sheet for Hindustan Petroleum Corporation Ltd for the year 2003-2004
Rs./ Crores
R.M Consumed 15,017.04
Direct Labour (See Assumption 1) 280.055
Direct Expense
-Excise Duties 5993.47
Prime Cost 21290.565

Factory Overheads
Packages Consumed 79.15
Transshipping Expenses 1228.97
Duties Applicable to Products 317.61
Repairs and maintenance to Plant 165.68
Rent (See Assumption 3) 28.65
Repair and maintenance to other assets (See Assumption 2) 1.633
Electricity and Water 94.93
Power and Fuel 9.17
Rates and Taxes 21.20
Equipment Hire Charges 0.30
Consumption of stores, spares and chemicals 71.08
Depreciation:
-Transport Equipment (See Assumption 4) 2.335
-Roads and Culverts 7.16
-Leasehold Property 2.45
-Railway siding and Rolling stock 12.42
-Plant and Machinery 536.24 560.605 2578.978
Work Cost (Gross) 23869.543
Opening WIP 212.67
Less: Closing WIP 197.68 14.99
Works Cost (Net) 23884.533
Administrative Overheads
Security Charges 16.67
Depreciation
- Building 17.25
-Furniture, fixtures and equipments 26.39 43.68
Office appliances--- Printing & Stationary 7.69
Rent (See Assumption 3) 28.65
Repair and maintenance to building 11.7
Repair and maintenance to other assets (See Assumption 2) 1.634
Insurance 40.08
Consultancy and Technical charges 37.26
Sundry Expenses and Charges 163.04
Office Salaries (See Assumption 1) 280.055 630.459
Total Cost 24514.989
Add: Opening Finished Goods 3777.2
Add: Purchase of Finished Goods 30583.9 34361.1
Less: Finished Goods -4149.69
Cost of production of Saleable units 54726.399
Selling and Distribution Expenses
Traveling and Conveyance 55.97
Repair and maintenance to other assets (See Assumption 2) 1.633
Depreciation on transport equipment (See Assumption 4) 2.335
Advertising & Publicity 81.45 141.388
Cost of Sales 54867.787
Profit 2643.343
Sales 57511.13

Assumptions
1 A bifurcation between factory wages and office salaries has not been given. Ho
wever the annual report says that HPCL has 11088 employees of which 3594 are man
agement employees and 7494 are non-management employees. Let us assume this to b
e the distribution of office and factory staff. However, the management employee
s have higher salaries. Thus, I have divided Wages, Salaries and Bonus equally b
etween Direct Labour and Administrative overheads.
2 Repairs and Maintenance to other assets has been equally divided between Facto
ry overheads, Administrative overheads and Selling and Distribution overheads si
nce the assets have not been mentioned.
3 Rent is equally distributed as Factory rent and Office rent.
4 We assume that Transport equipment is used for both Factory and Selling and Di
stribution purposes. Thus depreciation on transport equipment is equally divided
between Factory overheads and Selling and Distribution overheads.