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Table of Contents

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


2.6. Export Price Fixing ..................................................................................................15

3. Acknowledgements...........................................................................................................16

4. Bibliography .....................................................................................................................16
1. The Raymond Group – An Introduction

The Raymond group was incorporated in 1925 and has now grown into a Rs.1400crore

plus conglomerate with highly diversified business interests. The group businesses

include Textiles, Readymade garments, Engineering files and tools, Prophylactics and

Toiletries. The group is a leader in textiles, apparel and files and tools in India. The group

is divided into the following companies:

Raymond Ltd. – This Company has five divisions comprising of:

• Raymond Textile – This is the flagship of the Raymond group. With a capacity of 25
million meters of high-value pure wool, wool-blended & premium polyester viscose
suiting along with half a million blankets and shawls, Raymond Textiles is the
world’s third largest integrated manufacturer. It is India’s leading producer of worsted
suiting fabric. It enjoys a 60% market share in India. It further exports its suitings to
more than 50 countries including the USA, Canada, Europe, Japan and the Middle
East. All its products are marketed under the flagship brand "Raymond". Products are
distributed through about 310 exclusive retail shops in India and surrounding
countries, 30,000 multi-brand retail outlets and over 100 wholesale distributors.
• Denim – set up in 1996 produces 20 million meters of differentiated Ringspun denim
per annum. 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. It
supplies denim to trendsetters like Levis, Pepe, Zara, Gap, Tommy Hilfiger, Lee
Cooper and AZDA amongst others.
• J.K Files & Tools - 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.
• Be: - The Designer Wear division is an exclusive pret-a-porter range that houses
designs by some of the finest Indian designers like Rohit Bal, Raghavendra Rathore,
Rajesh Pratap Singh, Priyadarshini Rao etc. Be: offers an eclectic mix of formal,
office and evening wear for men and women, in western, ethnic and fusion styles
along with accessories.
• Million Air - The Aviation division was launched in 1996 to provide air charter
services aimed mainly at the corporate travel segment. It has a regular clientele of
over 421 top companies in India and abroad. The division operates a fleet of three
helicopters and one executive jet.

Raymond Apparel Ltd. – 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, jackets and trousers. Its product portfolio includes: Shirts, Trousers, Suits,
Jackets and Accessories.
• Parx – launched in 1999, this is the semi-formal clothing line and includes: Shirts,
Trousers, Denims, Polos and Outerwears.
• Manzoni – This is the most exclusive and premium brand in the Raymond Portfolio.
Its product portfolio includes: Shirts, Trousers, Suits, Jackets and Accessories.

J.K Ansell Ltd. – J.K. Ansell Ltd. (JKAL), the manufacturers and marketers of
KamaSutra condoms is a 50:50 joint venture between the J.K. Investo Trade (India) Ltd.
and Ansell International, the world leader in latex products such as gloves and condoms.
Prior to the formation of the joint venture in 1996, the condom division was a part of J.K.
Chemicals Ltd., a subsidiary company of Raymond Ltd. The division commenced
operations in 1991 and launched KamaSutra the same year. JKAL has a condom
manufacturing plant at Aurangabad in Western India that manufactures 250 million
pieces per annum. Today, J.K. Ansell is the second biggest player in the Indian Condom
industry. It supplies condoms to the Government of India, The Family Planning
Association of India and DKT, a sister concern of Population Services International.
JKAL also sells Ansell gloves; the range includes Gammex, Medigrip Sterile & Non-
Sterile, Sensi-Touch & Nutex gloves to major hospitals and nursing homes.
J.K Helene Curtis Ltd. – is a leading player in Grooming Accessories and Toiletries
category. It markets it range under the Park Avenue and Premium brand names. The
brand portfolio includes Fragrances, Shaving Systems, Hair Care and Body Care.

ColorPlus Fashions Pvt. Ltd – The Raymond group acquired 74.1% of the equity
holdings in Colorplus Fashions Limited in 2003. The remaining 24.9% of equity holdings
of Colourplus will be acquired by May 2006. ColorPlus is a leading premium menswear
apparel brand positioned as ‘Smart Casual Clothing’ in the market.

Here, in this project report, we’ll see instances of how Raymond has used Marginal
Costing to its gain.

Note: The figures used in the cost sheets below are representative of the actual figures
provided by the company in their Annual Report 2004.
2. Applications

In 2002-2003, the management forecasted an increase in the cotton prices. An increase in

the raw material prices would adversely affect the profit margin. 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. In such case the input can act as a key
limiting factor if there is limited availability or when price becomes a constraint.

For Raymond textiles, 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. In
case this would not have been accounted for, the situation would have been as depicted in
Table A. Table B on the other hand shows the current situation after the fact about rising
wool prices was considered.

Year 200203 200303 200303
Cost per unit Cost per unit Cost unit
EXPENDITURE : in lakhs in rs
Raw Materials 23000 230 24100 241 23770 238
Employee Cost 16500 165 16700 167 16500 165
PRIME COST 39500 395 40800 407 40270 403
Excise Duty 10700 107 8400 84 8400 84
Power & Fuel Cost 7800 78 8100 81 8100 81
Other Manufacturing Expenses 12600 126 13200 132 13200 132
FACTORY COST 70600 706 70500 705 69970 700
Miscellaneous Expenses 7500 75 7300 73 7300 73
MANUFACTURING COST 78100 782 77800 778 77270 774
Selling and Administration 12000 120 11700 117 11700 117
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/- per unit.
This helped save Rs.11 per unit as the prices in 2003 rose to Rs.241. The total cost of
purchasing @ Rs.241 per unit would be Rs.24100lacs whereas there was a cost saving
possible to the extent of Rs.330lacs.

Such decisions are possible only if the management uses marginal costing for
pricing decision.

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. If
the production base is moved to any of these locations, the profit margin will be higher.

The raw material and labor is available at cheaper rates in Thailand. 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.

Year 2002 2003


Raw Materials 230 184
Employee Cost 165 132
PRIME COST 395 316
Excise Duty 107 107
Power & Fuel Cost 78 62
Other Manufacturing Expenses 126 101
transportation costs 75 60
add:opening stock
less: closing stock -34 -34
Selling and Administration
Expenses 120 120
SALES 1086 1086


The raw material cost and labor cost have gone down by nearly 80% in year 2003 by
moving to Thailand. 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.

As can be seen from the given cost sheet, the contribution is much higher in 2003 even
though the selling price is assumed to be the same.
2.3. Fixing of SALE price using Break Even Point Analysis




Cost / V.C
Revenue B.E.P



Product: Mandate – The Renaissance Collection

Fixed Costs 12000000

Variable Costs 1700

Retail Price 4100

Break Even Point = Fixed Costs / (Selling Price – Variable Costs)

= 12000000 / (4100 - 1700)
= 5000 meters
Once the company breaks even, all additional units can be sold just so that they recover
the per meter variable cost. Thus, here if the company were to have a 40% off retail price
SALE, it would still be earning a profit of Rs.760 per meter sold (2460 - 1700).
This very principle is used during the Annual sales and also in getting rid of Factory
Seconds or Export Reject Sales.

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. In such cases, the
marginal cost of manufacturing the input components should be compared with the
market price while taking the decision ‘to make or buy’. If the marginal cost is lower than
the market price, it is more profitable to make then purchasing from the market.
(Through Diesel
a) TOTAL UNITS (KWH in thousand)
Textile 91832 91229 16063 18443
Files and tools 18639 18848 245 342
Denim 24774 19440 1618 990
b) TOTAL AMOUNT (in Rs Lacs)
Textile 3598.25 3634.27 861.86 905.95
Files and tools 773.58 790.53 16.46 24.45
Denim 842.43 669.69 112.45 62.51
Textile 3.76 3.22
Files and tools 2.27 2.81
Denim 3.56 3.60
Textile 3.92 3.98 5.37 4.91
Files and tools 4.15 4.19 6.72 7.15
Denim 3.40 3.44 6.95 6.31
In this case, we will look at a scenario where power is generated in-house vs. it being
purchased outright.
Here, we see that the cost of generating power in-house for consumption in the textiles
business has gone up in the current year. As against this, we see that, the Per unit cost of
power purchased has reduced compared to previous year. In this situation, it is advisable
for the company to reduce consumption of the same while increasing purchase of power
from other sources.

The company produces suitings and garments both for the local market and for the
purpose of exports. The decision regarding whether to sell in the local market or to export
will depend upon the profitability at various price points. Given the variable cost of
production, the unit sales at which fixed cost is recovered at the stated price is the key
decision making factor. This decision can be made using Marginal Costing.

If the price covers fixed as well as the variable cost, the company would produce further
and export the surplus. 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. Producing in case the variable costs are also not being met, will be a complete
loss making proposition.

OBJECT D"ART - renaissance collection - wool, cashmere

and polyester
Price Options 3200 2600 2100
Variable Costs Rs./ mt Rs./ mt Rs./ mt
Wool 1000 1000 1000
Cashmere 650 650 650
Polester 400 400 400
Wages 64 64 64
Manufacturing O/H 28 28 28

TVC 2142 2142 2142

Contribution 1058 458 -42
Fixed Costs
Salaries 43 43 43
Manufacturing O/H 10 10 10
Distribution & Commission 38 38 38
Rent, Rates 120 120 120
Advertising 40 40 40
Finance Charges (Interest &
Depreciation) 78 78 78
TFC 329 329 329
Total Costs 2471 2471 2471
Profit 729 129 -371
Produce for produce only
local market to meet local do not
Decision and exports demand produce

The market price for the Object D’Art suiting material is aprox 3300/- per meter. At the
given market price the company is able to earn a substantial profit of Rs 692/- per meter.
At this profit level, it makes business-sense for the company to use any unutilized
capacity and produce more and subsequently export. In case II when the market price
available is Rs.2500 per meter, the variable cost is being recovered but the fixed cost
component is not being met. 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.

Looking at the case III, we see that neither is the fixed not the variable cost are being met
and hence this is a total loss making proposition. At the available price of Rs 2120/- the
company will not sell suitings as it will only incur losses as the contribution in this case is

This analysis is possible with the use of Marginal Cost to separate variable costs from the
fixed costs.
2.6. Export Price Fixing
Raymond has a 30% share of the world’s industrial files and tools market. However, due
to the very nature of the product (it is used mainly with low-tech firms,) the company’s
clientele is based in developing countries and is extremely price conscious. These
markets are extremely competitive and Raymond has to set its prices such that, it not only
manages to maintain its current market share but also add new clients. Furthermore, these
prices also have to ensure profitability. Here, we show how principles of Marginal
Costing have been used to ensure profitability while maintaining cost effectiveness.

Variable Costs Rs./File

Raw Material – Steel 13
Un-Skilled Labour 8
Factory Overheads 3
Excise 2
TVC 26
Fixed Costs
Skilled Labour 5
Factory Overheads 2
Administration 3
Selling & General Expenses 2
Finance Charges & Exchange Variation 2
TFC 14
Total Costs 40
Profit Margin (25%) 10
Export Sales Price 50

The company has a near monopoly (90% market share) in the domestic market and
hence, can actually sell it in India at an even higher rate (Rs.60). However, to maintain
and grow its market share abroad the company will have to price its product at a lower
profit margin abroad.
3. Acknowledgements

1. Mr. V. R. Kedia (B.COM (HONS), FICWA) – Cost Accountant

2. Prof. Kirit. B. Mehta, Faculty at N.M.I.M.S, Mumbai.

4. Bibliography

• Raymond’s Ltd. Annual Reports – 2002, 2003 and 2004

• Cost and Management Accounting – The Institute of Cost and Works Accountants of
• Cost Management – The Institute of Chartered Accountants of India