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MANAGEMENT ACCOUNTING PROJECT SUBMITTED TO: Dr. Anubha Gupta SUBMITTED BY: VA RUN TANDON (FT-10-972) VIBHOR AGARWAL (FT-10-973)

MA - Revolt Jeans

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Page 1: MA - Revolt Jeans

MANAGEMENT ACCOUNTING

PROJECT

SUBMITTED TO: Dr. Anubha Gupta

SUBMITTED BY:

VARUN TANDON (FT-10-972)

VIBHOR AGARWAL (FT-10-973)

ROHIT KAPOOR (FT-10-925)

ROHINISH CHATRATH (FT-10-924)

TUHINA KAKKAR (FT-10-967)

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Acknowledgement

This project report bears the imprint of those who had rendered their

whole hearted support and encouragement without whose help this

effort of mine would be in vain. We express our deep sense of gratitude

and sincere thanks to my classmates for their directions, suggestion and

information provided which were of utmost importance for the

successful completion of the project.

At last, we are also thankful to the DR. ANUBHA for assisting us

in the timely completion of project.

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CONTENT

INTRODUCTION

OUR PRODUCT

INDUSTRY

OBJECTIVE

ACTION PLAN

PROCESS

COST ANALYSIS

COMPARISION

S.W.O.T ANALYSIS

CONCLUSION

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INTRODUCTION

In this project we were told to start new business or company from amount of 50 lakh to 1 crore. After careful thinking and planning our group has decided to go in garment business by starting production of denim jeans. The name of the company we have decided is Revolt Jeans and it is going to be based in Greater Noida. We have chosen this product because of the product is of daily use age and if provided at competitive prices with adequate quality can help us in earning good profits.

Due to the limited amount of capital the business can only be started on small scale and if the product does well the business can be extended. We have chosen Greater Noida as the place to start the production as the area is available at reasonable prices here. The main raw materials required to produce the Jeans are Denim & cotton clothes, thread, button, rivet, zip, stickers and this can be acquired from the surrounding areas.

The first aim will be to provide the product to the local retailers at price tag competitive with other brands and come up with a logo and styles with are at par with the current standards and can help us in gaining a share in the market. The basis market strategy at the beginning would be to aim at providing good quality material at competitive prices. A few of our group members have already talked with the retailers and they would like to sell the jeans if provided decent distribution margins and if sales increase that can be compensated by the profit.

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OUR PRODUCT

The popularity and the demand of Jeans are increasing day by day. Jeans have left behind the tailor made cloth. Consumer can wear Jeans casually with shirt or short shirts & T-shirts. Today, consumers wear Jeans even with blazers. Even in villages people have started wearing Jeans. Each & every class of people wears Jeans. So, we can say that it can be matched in any style and it can be change your style.

Raw material can be availed from following places.

S. NO. MATERIAL SOURCES1 Denim Cloth Haryana2 Cotton Cloth Delhi3 Thread Noida4 Button Noida5 Rivet Delhi6 Zip Delhi7 Stickers Noida8 Plastic Delhi9 Washing acid G. Noida

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OBJECTIVE

1. TO LEARN HOW TO START A NEW BUSINESS WITH

PARTICULAR AMOUNT OF CAPITAL

2. TO ANALYSE COST TO BE INCURRED IN THIS BUSINESS

3. TO LEARN MANAGE A BUSINESS PROPERLY

4. TO LEARN THE PROCESS OF THE BUSINESS

5. COST ANLYSIS

6. COMPARE WITH THE COMPETITORS

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ACTION PLAN

Preparation Of Site

Selection Of Site

Registration Of SSI

Construction Of Building

Arranging Machinery And Equipment

Getting Electricity Connection

Recruitment Of Labor

Arranging Delivery Vans

Starting Production

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PROCESS FOLLOWED

A proper process is to be followed to be followed to manufacture the denim

jeans for which land and machinery and other assets are needed to be

accumulated along with the necessary raw material. The process of

preparing is as follows.

CUTTING PROCESS

OVER LOCK

EMBROIDERY WORK

STITCHING WORK

FITTING

WASHING

IRONING

FOLDING

PACKING

STORING

These are the basic steps in the process of making a denim jean.

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CLASSIFICATION OF COSTSA. BY NATURE OF EXPENSES:

Costs should be gathered together in their natural groupings such as

material, labor and other expenses. Items of costs differ on the basis of their

nature. The elements of cost can be classified in the following three

categories:

i) Material ii) Labor iii) Expenses

MATERIAL COST

Material Cost is the cost of material of any nature used for the purpose of

production of a product or a service.

Material cost includes cost of procurement, freight inwards, taxes & duties,

insurance etc directly attributable to the acquisition. Trade discounts,

rebates, duty drawbacks, refunds on account of modvat, cenvat, sales tax

and other similar items are deducted in determining the costs of material.

LABOR COST:

Labor Cost means the payment made to the employees, permanent or

temporary, for their services. Labor cost includes salaries and wages paid to

permanent employees, temporary employees and also to employees of the

contractor. Here, salaries & wages include all fringe benefits like Provident

Fund contribution, gratuity, ESI, overtime, incentives, bonus , ex-gratia,

leave encashment, wages for holidays and idle time etc.

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EXPENSES:

Expenses are other than material cost or labor cost which are involved in

an activity. Expenditure on account of utilities, payment for bought out

services, job processing charges etc. can be termed as expenses.

B. BY RELATIONSHIP TO COST CENTERS:

Classification should be on the basis of method of allocation of cost to a cost

unit. If expenditure can be allocated to a cost center or cost object in an

economically feasible way then it is called direct otherwise the cost

component will be termed as indirect. According to these criteria for

classification, material cost is divided into direct material cost and indirect

material cost, labor cost into direct labor cost and indirect labor cost and

expenses into direct expenses and indirect expenses. Indirect cost is also

known as overhead.

Direct cost has three components –

Direct material cost, direct labor cost and direct expenses

Indirect cost has three components-

Indirect material, Indirect labor cost and Indirect expenses.

Sum of all direct costs is called prime cost. Direct material Cost is the cost of

material which can be directly allocated to a cost center or a cost object in

an economically feasible way.

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Raw materials consumed for production for a product or service which are

identifiable in the product or service form the direct material cost. Direct

Material cost includes cost of procurement, freight inwards, taxes & duties,

insurance etc directly attributable to the acquisition. Trade discounts,

rebates, duty drawbacks, refunds on account of modvat, cenvat, salex tax

and other similar items are deducted in determining the costs of direct

material.

Direct Labor Cost is the cost of wages of those workers who are readily

identified or linked with a cost center or cost object.

Here, the wages of the workers include the fringe benefits include all fringe

benefits like Provident Fund contribution, gratuity, ESI, overtime, incentives,

bonus , ex-gratia, leave encashment, wages for holidays and idle time etc.

for the purpose of calculation of direct labor cost.

DIRECT EXPENSES:

Direct Expenses are the expenses other than direct material or direct labor

which can be identified or linked with the cost center or cost object.

Examples of direct expenses are

expenses for special molds required in a particular cost center

hiring charges for tools and equipment’s for a cost center

royalties in connection to a product

Job processing charges etc.

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C. INDIRECT EXPENSES:

Idirect expenses are as follows.

INDIRECT MATERIAL:

Indirect Material is the cost of material which cannot be directly allocable to

a particular cost center or cost object.

Materials which are of small value and cannot be identified in or allocated

to a product/service are classified as indirect materials. E.g. Spares etc.

INDIRECT LABOR:

Indirect labor cost is the wages of the employees which are not directly

allocable to a particular cost center. E.g. Salary given to the supporting staff.

INDIRECT EXPENSES

Indirect expenses are the expenses other than of the nature of material or

labor and cannot be directly allocable to a particular cost centers. Indirect

expenses are not being allocable to a particular cost center. Examples –

insurance, taxes and duties.

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COST ANALYSIS

For making the cost analysis we need to recognize all the costs that would

be incurred.

LAND AND BUILDING

NO PARTICULARS AREA RATE TOTAL1 Land 1400 yard 321 4500002 Building 2000 sq. ft 350 700000

1150000

MACHINERY

NO PARTICULAR QUANTITY AMOUNT1 Simple stitch machine 10 2000002 Chain stitch machine 6 4800003 Folding machine 1 1500004 Stain removing

machine1 70000

5 Washing machine 2 3000006 Cutting machine 1 2000007 Fitting machine 1 1000008 Embroidery machine 2 1000009 Iron 1 25000

10 Printing machine 1 7500011 Over lock machine 2 10000012 Logo-making machine 1 2500013 Handling equipment 75000

1900000

PRELIMNARY EXPENSES: RS. 500000

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FIXED ASSESTS

NO PARTICULARS QUANTITY AMOUNT1 Delivery Van 2 5000002 Furniture 3500003 Computer 2 50000

900000

Therefore total assets are worth RS. 4450000

RAW MATERIAL

NO PARTICULAR QUANTITY

RATE ANNUALLY

1 Denim Cloth 3000m 80 28800002 Cotton Cloth 1500m 60 14400003 Thread 1800004 Button 6000 .7 504005 Zip 5000 4.8 2880006 Stickers 7000 1.5 1260007 Pocketing Cloth 500m 8 480008 Plastic Box 2700 2 648009 Washing Acid 500lt 20 120000

5197200

Monthly Expenses are Rs. 433100

ELECTRCITY AND WATER EXPENCES: RS 138000 ANNUALLY

MANPOWER

LEVEL SALARYTop Level (Administrative) 288000

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Middle Level (Distributors) 246000

Lower Level (Factory) 606000

ADMINISTERATIVE EXPENSES

NO PARTICULARS AMOUNT1 Telephone 180002 Postage 60003 Advertising 840004 Customer Stores 144005 Misc 12000

134400

FACTROY OVERHEADS

NO PARTICULARS AMOUNT1 Carriage 500002 Factory Expenses 50000

100000

DISRTIBUTION EXPENSES

Delivery Van expenses are Rs. 200000 for the whole year.

These are the basis expenses that are spent and it is expected that

there would be sales of around Rs. 8000000 (12500 @ Rs 640 per jean)

at the end of the year according to the forecast done by the group

members.

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COST SHEETAT THE END OF THE YEAR

PARTICULARS AMOUNT TOTALDirect Material 5197200

Direct Labor 606000

PRIME COST 5803200

Factory Expenses 100000Power Expenses 138000 238000

FACTORY COST 6041200

Administrative Expenses 134400Salaries 288000 422400

COST OF PRODUCTION 6463600

Distribution Expenses 200000Salaries 246000 446000

TOTAL COST 6909600

PROFIT 1090400

SALES 8000000

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Thus at the end of the year we can earn a profit of Rs. 1090400 from

our sales

PER UNIT PRIME COST:

5803200/12500 = 464.56 Rs

PER UNIT COP:

6463600/12500 = 517.08 Rs

PER UNIT TOTAL COST:

6909600/12500 = 552.768 Rs

PROFIT PER JEAN:

1090400/12500 = 87.23 Rs

Thus we can earn a good profit of Rs. 87.23 per jean if we sell one jean @ of Rs.

640 and if the product does well the profit margin can be increased by increasing

the selling price of the product after doing proper cost and profitability analysis

and work on reducing the variable cost or add more machinery at a later stage.

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PROFITABILITY ANALYSIS

PARTICULARS AMOUNT TOTALSales 8000000

Less: Variable CostRaw Material 5197200

Power And Energy 138000Man Power 606000

Adm. Expenses 134400Factory Exp. 100000Distribution 200000 6375600

COTRIBUTION 1624400

Less: Fixed CostSalaries 534000 534000

PROFIT 1090400

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SWOT ANALYSIS

STRENGTH

o Unique Textures and Colorso Operating in youth dominated

area due to more Collegeso Company owned production

unito Low Labor cost; availability of

skilled laboro Low rates for best quality

denimo Market area close to

production unit

WEAKNESS

o New brand nameo Lack of experienceo Shortage of funds in the initial

stageo Less credibility for availing

loanso Lack of Distribution channelso Locally operated company

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OPPORTUNITY

o Can offer franchiseeso Production of other Garmentso Separate range for childreno Penetrate market by offering

schemes and discounts

THREAT

o Strong competitorso Non Branded/Unknown Low

price jeans manufacturero Increase in price of Raw

Material

COMPARISON WITH COMPETITORS

In a garment industry where jeans are made and sold, the present market is divided among distributors, wholesalers, retailers. The jeans manufacturer first manufactures and then sells the product to the distributors, and then the distributor reaches out to different wholesalers across his region. The wholesaler then stores the goods and these are collected by the retailers as and when required.

This distribution process involves mainly two parties between the manufacturer and the retailer namely the distributor and the wholesaler. The distributor keeps the margin of 10% per bulk while the wholesaler keeps 15%. Therefore we can see that the retailers earns less profit and the end consumers faces lot of problem in form of expensive jeans, insufficient stocks as per the demand, late delivery, etc.

Our company solves these problems by manufacturing the pairs of jeans ourselves and also acting like distributors and wholesalers for the retailers. We manufacture pairs of jeans and distribute them directly to the retailers and also sell them a cheaper cost by selling directly to the end consumer through our various factory outlets. For this give keep a margin of 25% to the retailers for every jean sold. This helps the retailers to gain more profit

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and also provides the jeans at the cheaper rates to the end consumers by eliminating the middlemen. Due to this the availability of stock always fulfills the demand. We also sometimes provide the festival season discounts and offers to attract more customers and promote our brand.

We buy the raw materials in bulk at cheaper rates decreasing our cost of production. For this purpose we look at places that would provide us best quality raw material at adequate rates. We also provides the storage and delivery facilities for the retailers. We also do regular surveys to know the changing tastes and preferences of the consumers to know the changing trends. With the success of the pairs of jeans we will also propose to manufacture other textile products in the near future. We already have developed plans for expansion if the present business does well which it is quite possible due to the pricing of product we have done as compared to other jeans with same qualities available in the market. The main focus right now is on building the brand as in garments it is very important to have a good brand image in order to increase sales and have good image. By setting up more manufacturing units we will also provide large employment opportunities and large addition to national income of the country.

Therefore we see that our company not only makes profit for itself but also is beneficial to the retailers, consumers and also the country. Thus the business flourishes and proves to be prosperous.

Major Competitors of the product are:

Local Jean Manufacturers Branded Jeans – Levis, Wrangler etc. Retailers with export rejected products

Thus we can see that the product has good potential and if the business is properly strategized we can earn good profits.

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CONCLUSION

Thus in this project we took the business of manufacturing, distribution and selling pairs of jeans. We manufactured pairs of jeans and distribute them to the retailers and also directly sell them to the end consumer through our various factory outlets in various regions. The main profit of the business is due to no intermediates in between. We distribute and sell the finished products directly to the retailer and the end consumer respectively. This also helps us in keeping our selling price low as compared to the other manufacturers and suppliers in the market. This helps in attracting large number of customers. The cost sheet provided the data about expenses bearded during the process of manufacturing, distribution and selling and of the goods. In the initial stage the selling cost can become a bit expensive due to the fact of high fixed cost.

A Jeans became popular garment in all over the world. So, the demand increases day by day and the fashion trend changes every day in jeans. At present take an example of world leading Jeans producing company Wrangles, Lee, GAP, Flying machine etc. have launched the range Jeans trend. So, the Jeans is a forever product in the garments. It

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indicate that the demand of the Jeans will increase in India as well as foreign culture the company has wide spread market.

It indicates future expansion and development of the project according to proposed project is considered to have better prospects.