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1. The Raymond Group – An Introduction.............................................................................2 2. Applications ........................................................................................................................5 2.1. FLUCTUATIONS IN RAW MATERIAL PRICES..................................................5 2.2. DECISION REGARDING LOCATION...................................................................7 2.3. Fixing of SALE price using Break Even Point Analysis...........................................9 2.4. MAKE OR BUY DECISION – POWER ................................................................11 2.5. MANUFACTURING DECISION FOR RETAIL GARMENTS/SUITINGS ........13 2.6. Export Price Fixing ..................................................................................................15 3. Acknowledgements...........................................................................................................16 4. Bibliography .....................................................................................................................16
1400crore plus conglomerate with highly diversified business interests. It further exports its suitings to more than 50 countries including the USA. Prophylactics and Toiletries. With a capacity of 25 million meters of high-value pure wool. Rajesh Pratap Singh. Europe. All its products are marketed under the flagship brand "Raymond". It supplies denim to trendsetters like Levis. Zara. Be: offers an eclectic mix of formal. .000 multi-brand retail outlets and over 100 wholesale distributors. Raghavendra Rathore. Readymade garments. It is one of the world’s very few specialized manufacturers of fancy denims focussing on niche products for the world’s leading Jeans-wear brands. Pepe. wool-blended & premium polyester viscose suiting along with half a million blankets and shawls.The Designer Wear division is an exclusive pret-a-porter range that houses designs by some of the finest Indian designers like Rohit Bal. Engineering files and tools. The group is a leader in textiles. It is India’s leading producer of worsted suiting fabric. It enjoys a 60% market share in India. • Denim – set up in 1996 produces 20 million meters of differentiated Ringspun denim per annum.K Files & Tools . The Raymond Group – An Introduction The Raymond group was incorporated in 1925 and has now grown into a Rs. Products are distributed through about 310 exclusive retail shops in India and surrounding countries. Raymond Textiles is the world’s third largest integrated manufacturer. Lee Cooper and AZDA amongst others. • J. Japan and the Middle East. The group is divided into the following companies: Raymond Ltd. Priyadarshini Rao etc. – This Company has five divisions comprising of: • Raymond Textile – This is the flagship of the Raymond group.1.The Engineering Files & Tools division is the world’s largest producer of steel files with 90% market share in India and about 30% market share in the world. Gap. Canada. apparel and files and tools in India. Tommy Hilfiger. The group businesses include Textiles. • Be: . 30.
– J.K Ansell Ltd. Suits. ethnic and fusion styles along with accessories. JKAL has a condom manufacturing plant at Aurangabad in Western India that manufactures 250 million pieces per annum.K. • Manzoni – This is the most exclusive and premium brand in the Raymond Portfolio. – This Company has three highly esteemed menswear brands in its portfolio: • Park Avenue – It is one of the most respected brands in the formal menswear category in India. It provides complete wardrobe solutions for men with a collection of suits. Its product portfolio includes: Shirts. Trousers. Ansell Ltd. J. the manufacturers and marketers of KamaSutra condoms is a 50:50 joint venture between the J. jackets and trousers. Chemicals Ltd. (JKAL). and Ansell International.The Aviation division was launched in 1996 to provide air charter services aimed mainly at the corporate travel segment. Jackets and Accessories. . a sister concern of Population Services International. Its product portfolio includes: Shirts. The division commenced operations in 1991 and launched KamaSutra the same year.. Raymond Apparel Ltd. Sensi-Touch & Nutex gloves to major hospitals and nursing homes. Jackets and Accessories.K. this is the semi-formal clothing line and includes: Shirts.K. The Family Planning Association of India and DKT. a subsidiary company of Raymond Ltd.office and evening wear for men and women. JKAL also sells Ansell gloves. Today. It supplies condoms to the Government of India. It has a regular clientele of over 421 top companies in India and abroad. the world leader in latex products such as gloves and condoms. Ansell is the second biggest player in the Indian Condom industry. • Parx – launched in 1999. Polos and Outerwears. Prior to the formation of the joint venture in 1996. • Million Air . Suits. the range includes Gammex. Trousers. J.K. The division operates a fleet of three helicopters and one executive jet. Denims. Trousers. Medigrip Sterile & NonSterile. in western. the condom division was a part of J. Investo Trade (India) Ltd.
. The remaining 24.9% of equity holdings of Colourplus will be acquired by May 2006. It markets it range under the Park Avenue and Premium brand names. ColorPlus is a leading premium menswear apparel brand positioned as ‘Smart Casual Clothing’ in the market. Note: The figures used in the cost sheets below are representative of the actual figures provided by the company in their Annual Report 2004. ColorPlus Fashions Pvt. – is a leading player in Grooming Accessories and Toiletries category. Shaving Systems.1% of the equity holdings in Colorplus Fashions Limited in 2003. Ltd – The Raymond group acquired 74. The brand portfolio includes Fragrances. in this project report. Hair Care and Body Care.K Helene Curtis Ltd. Here. we’ll see instances of how Raymond has used Marginal Costing to its gain.J.
wool is the main raw material. Wool prices rose sharply during 2003 and were nearly 10% higher than the 20 year low reached in the previous year. the management forecasted an increase in the cotton prices. In case this would not have been accounted for.1. FLUCTUATIONS IN RAW MATERIAL PRICES In 2002-2003. An increase in the raw material prices would adversely affect the profit margin. For Raymond textiles. Table B on the other hand shows the current situation after the fact about rising wool prices was considered. In such case the input can act as a key limiting factor if there is limited availability or when price becomes a constraint. Applications 2.2. This increase in total cost can be avoided if the increase in per unit cost of inputs can be judged based on market sentiment and availability of inputs. TABLE A Year 200203 200303 TABLE B 200303 per Cost EXPENDITURE : Raw Materials Employee Cost PRIME COST Excise Duty Power & Fuel Cost Other Manufacturing Expenses FACTORY COST Miscellaneous Expenses MANUFACTURING COST Selling and in lakhs 23000 16500 39500 10700 7800 12600 70600 7500 78100 per unit in rs 230 165 395 107 78 126 706 75 782 120 Cost per unit Cost unit 24100 16700 40800 8400 8100 13200 70500 7300 77800 11700 241 167 407 84 81 132 705 73 778 117 23770 16500 40270 8400 8100 13200 69970 7300 77270 11700 238 165 403 84 81 132 700 73 774 117 Administration 12000 . the situation would have been as depicted in Table A.
241. The total cost of purchasing @ Rs. This helped save Rs. Such decisions are possible only if the management uses marginal costing for pricing decision.241 per unit would be Rs.11 per unit as the prices in 2003 rose to Rs.per unit.330lacs.24100lacs whereas there was a cost saving possible to the extent of Rs. .Expenses COST OF PRODUCTION 90100 901 89500 895 88970 891 SALES 108600 1086 112400 1124 112400 1124 CONTRIBUTION 18500 185 22900 229 23430 233 30% of the raw material required in 03 was purchased in 02 at the price of 230/.
If the production base is moved to any of these locations. DECISION REGARDING LOCATION The company has a ready market in Thailand and Philippines to cater to. But the cost of production coupled with the cost of transporting the ready garments to the South-East Asian countries increases the total cost of sales and thereby reduces the profitability. The raw material and labor is available at cheaper rates in Thailand.2. the profit margin will be higher. Year INCOME : 2002 2003 EXPENDITURE : Raw Materials Employee Cost PRIME COST Excise Duty Power & Fuel Cost Other Manufacturing Expenses FACTORY COST transportation costs add:opening stock less: closing stock MANUFACTURING COST Selling Expenses COST OF PRODUCTION and Administration 120 867 120 732 -34 748 -34 613 230 165 395 107 78 126 706 75 184 132 316 107 62 101 586 60 . The company has completed the due diligence of the benefits available in moving to Thailand. The regulatory formalities have also recently been completed. The following table clearly depicts the increase in profit margin due to shift in production base in the year 03.2.
As can be seen from the given cost sheet.SALES 1086 1086 CONTRIBUTION 219 354 The raw material cost and labor cost have gone down by nearly 80% in year 2003 by moving to Thailand. the contribution is much higher in 2003 even though the selling price is assumed to be the same. The transportation costs have also reduced as the demand in the South East Asian market can be directly met through the manufacturing units based in Thailand as against the earlier scenario of transporting finished goods from India. .
E. Fixing of SALE price using Break Even Point Analysis (Rs.2.C F.3.C Quantity Units Product: Mandate – The Renaissance Collection Fixed Costs Variable Costs Retail Price 12000000 1700 4100 Break Even Point = Fixed Costs / (Selling Price – Variable Costs) = 12000000 / (4100 .1700) = 5000 meters .P V.) Revenue T.C Cost / Revenue B.
here if the company were to have a 40% off retail price SALE.1700). all additional units can be sold just so that they recover the per meter variable cost. This very principle is used during the Annual sales and also in getting rid of Factory Seconds or Export Reject Sales.760 per meter sold (2460 . .Once the company breaks even. it would still be earning a profit of Rs. Thus.
31 3.95 24. the marginal cost of manufacturing the input components should be compared with the market price while taking the decision ‘to make or buy’.58 842.37 6.76 2.19 3.2.60 3598.51 91832 18639 24774 91229 18848 19440 16063 245 1618 18443 342 990 YR YR YR YR Diesel .95 4. In such cases.15 3.92 4.45 62.22 2.53 669.4.86 16.43 3634.44 5.81 3.45 905.40 3.27 3.46 112.27 790. PURCHASED OWN GENERATION (Through generator) CURRENT PREVIOUS CURRENT PREVIOUS ELECTRICITY a) TOTAL UNITS (KWH in thousand) Textile Files and tools Denim b) TOTAL AMOUNT (in Rs Lacs) Textile Files and tools Denim c) UNITS/PER LITRE OF DIESEL OIL/LDO Textile Files and tools Denim d) COST PER UNIT (Rs) Textile Files and tools Denim 3. MAKE OR BUY DECISION – POWER There are instances where the management is faced with a decision as to whether to make a certain input into their process or buy it from the open market.72 6. If the marginal cost is lower than the market price.56 3.25 773.15 6.91 7.69 861. it is more profitable to make then purchasing from the market.98 4.
we see that. it is advisable for the company to reduce consumption of the same while increasing purchase of power from other sources. In this situation.In this case. As against this. it being purchased outright. the Per unit cost of power purchased has reduced compared to previous year. we see that the cost of generating power in-house for consumption in the textiles business has gone up in the current year. we will look at a scenario where power is generated in-house vs. . Here.
will be a complete loss making proposition./ mt 1000 650 400 64 28 2100 Rs.5. OBJECT D"ART . This decision can be made using Marginal Costing. On the other hand. incase the fixed cost is partly covered the company may chose to produce local demand and generate profits purely on the basis of units sold./ mt 1000 650 400 64 28 TVC Contribution Fixed Costs Salaries Manufacturing O/H 2142 1058 2142 458 2142 -42 43 10 43 10 43 10 . the company would produce further and export the surplus. the unit sales at which fixed cost is recovered at the stated price is the key decision making factor.wool. Given the variable cost of production. If the price covers fixed as well as the variable cost. MANUFACTURING DECISION FOR RETAIL GARMENTS/SUITINGS The company produces suitings and garments both for the local market and for the purpose of exports. cashmere and polyester Price Options Variable Costs Wool Cashmere Polester Wages Manufacturing O/H 3200 Rs.2. Producing in case the variable costs are also not being met.renaissance collection ./ mt 1000 650 400 64 28 2600 Rs. The decision regarding whether to sell in the local market or to export will depend upon the profitability at various price points.
we see that neither is the fixed not the variable cost are being met and hence this is a total loss making proposition. Looking at the case III.the company will not sell suitings as it will only incur losses as the contribution in this case is negative. Under such circumstances the company should manufacture only to meet the local demand till such time that demand increases and the selling price can be hiked. At the available price of Rs 2120/. Rates Advertising Finance Charges (Interest & Depreciation) TFC Total Costs Profit 38 120 40 38 120 40 38 120 40 78 329 2471 729 78 329 2471 129 78 329 2471 -371 Produce for produce only local market to meet local do Decision and exports demand not produce The market price for the Object D’Art suiting material is aprox 3300/. In case II when the market price available is Rs. .Distribution & Commission Rent.2500 per meter. At the given market price the company is able to earn a substantial profit of Rs 692/. it makes business-sense for the company to use any unutilized capacity and produce more and subsequently export.per meter. At this profit level.per meter. the variable cost is being recovered but the fixed cost component is not being met. This analysis is possible with the use of Marginal Cost to separate variable costs from the fixed costs.
to maintain and grow its market share abroad the company will have to price its product at a lower profit margin abroad.60).) the company’s clientele is based in developing countries and is extremely price conscious./File 13 8 3 2 26 5 2 3 2 2 14 40 10 50 The company has a near monopoly (90% market share) in the domestic market and hence. Export Price Fixing Raymond has a 30% share of the world’s industrial files and tools market. Here. However. However. Furthermore. . These markets are extremely competitive and Raymond has to set its prices such that. Variable Costs Raw Material – Steel Un-Skilled Labour Factory Overheads Excise TVC Fixed Costs Skilled Labour Factory Overheads Administration Selling & General Expenses Finance Charges & Exchange Variation TFC Total Costs Profit Margin (25%) Export Sales Price Rs. these prices also have to ensure profitability. it not only manages to maintain its current market share but also add new clients.6.2. we show how principles of Marginal Costing have been used to ensure profitability while maintaining cost effectiveness. can actually sell it in India at an even higher rate (Rs. due to the very nature of the product (it is used mainly with low-tech firms.
S. Bibliography • • • Raymond’s Ltd. Mehta. Kedia (B.M.3. Faculty at N. 4. FICWA) – Cost Accountant 2. Mumbai. Kirit. B.I. R.M.COM (HONS). Prof. Mr. Annual Reports – 2002. 2003 and 2004 Cost and Management Accounting – The Institute of Cost and Works Accountants of India Cost Management – The Institute of Chartered Accountants of India . Acknowledgements 1. V.
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