COST ACCOUNTING CASE STUDY ON PEPE JEANS

AAKANSHA BHAMBRIAKSHIT JAINANJALI PARIHARANSHUL VERMAANUJ KAKKARAVNISHA SINGHDINESH BISHT

COST ACCOUNTING CASE STUDY ON PEPE JEANS

INTRODUCTIONPepe Denim was founded in 1984 by Bajaj and his younger brother Dinkar.

In 1994, they converted the company into a public limited company.

In 2011, it had 300 stores spread throughout the country and a workforce of 20,000.

It started exporting its jeans to China, Brazil, and Nepal.

CASEPepe denim was doing good business till 2007 and sales were increasing every year.After 2007 its stock prices started to decline, sales remaining consistent and also profits began to fall.The company thought it was due to slowdown and recession.But profits continued to decline even after 2010 when the economy had started reviving, stock indices had started rising, and the stock prices of other companies had also started soaring.

VIPINS ESTIMATIONPARTICULARSEXISTING (CURRENT SCENARIO)ESTIMATIONPRODUCTION AND SALES ( UNITS)1500000 (In 000s)2000000(increased by 1/3)SALES15000001499733MATERIAL COST270000297000DRECT WAGES330000288000 (20% decrease)FACTORY OVERHEADS325000418333(45000+373333)ADMINISTRATION OVERHEADS205000123000(40% decrease)SALES OVERHEAD90000120000PROFIT280000253400

SNEHAS SUGGESTION (MARKETING MANAGER OF PEPE JEANS) Since there was a decline in profit by 6%, Mr. Bajaj asked Sneha for suggestions. Sneha suggested to Introduce 2 new productsDenim SkirtsDenim Handbags for WomenThese 2 products could easily be manufactured as they require the same raw materials and with the little training the same tailors could undertake the stitching activity.Mr. Bajaj accepted this suggestion as he thought the 2 products would be a good strategic fit for the existing product line.After 1 year of the introduction of two products i.e. on March 31, 2011, Nihit brought a summarized income statement which shows increase in profitability by 4.25%.

INCOME STATEMENT FOR YEAR ENDING MARCH 31,2011ParticularsDetailsAmt. (in 000s)Sales2000000Less: Cost of goods sold1263450 Gross Profit736550Less: Indirect Expenses Office expenses129150 Selling & distribution exp.126000255150 Net profit before Depreciation481400Less: Depreciation16400 Net profit after Depreciation465000Less: Tax(40%)186000 Profit after Tax279000

ParticularsJeansDenim skirtsDenim HandbagsStock of materials(1/4/2010)200000--Add: purchases6000003,00,0001,00,000Add: Carriage on purchases1200060002000Less: closing stock1500007500025000Direct Material Consumed6,6200023100077000Add: wages300000120000180000Prime cost 962000351000257000Factory overheads:SALARIES15350100005000Rent and rates1200060002000Dying and water charges30001500500Managers salary1000069005000Less: scrap 25000--977350375400269500

ParticularsJeansDenim skirtsDenim HandbagsAdd: opening stock of W.I.P100000---Less: closing stock of W.I.P35000100005000Works cost 1042350365400264500Office and administration costOffice salaries25000150005000Bad debts written off80001500500Repairs800040001600Rent and rates 2000700300Depreciation on plant , machines and tools 900030002000Depreciation on office1800400200Directors fee1500070003000Gas and water charges850300100General charges1275050003000Managers salary800050002000Cost of production1132750407300282200

ParticularsJeansDenim skirtsDenim HandbagsAdd: opening stock of finished goods350000--Less: closing stock of finished goods400000200000120000C.O.G.S1082750207300162200Carriage on sales 1300050002000Cash discount allowed1800550400Travellers expense700050003000Travellers compensation20000130007000Advertising28000210008750Cost of sales11521550251850183350

QUESTION 1. PRODUCTION AND SALES (UNITS) - 2000000 SALES - 1499733000 NEW SP OF A PAIR OF JEANS SALES/ UNITS 1499733000/2000000 Rs. 750

QUESTION 2 COST OF JEANS 11521550 COST OF DENIM SKIRTS 251850 COST OF HANDBAGS 183350COST OF ALL THREE ___________ PRODUCTS Rs. 11956750

QUESTION 3Yes it can be recommended to launch the two products as they will generate a greater a greater income than that of the previous version. AS profit increases by 70933333 , Which is 25.33% increase as compared to previous year.

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