Cost and Management Accounting Analysis of Furniture Industry

Cost and Management Accounting Analysis of Furniture Industry

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A Project Report Submitted in partial fulfillment of the requirements for the award of the

Degree of

     Master of Business Administration

    Vinod Gupta School of Management, IIT Kharagpur

By

Gaurav Singla - 15BM60065

Industry Visited: Steel Raj Furniture shop

Address:  Kharagpur, West Bengal

                                                              Indian Furniture Industry

The furniture industry in India is considered as an "unorganized" sector, with hand craft production accounts for about 85% of the furniture production in India.

The furniture sector in India only makes a marginal contribution to the formation of GDP, representing just a small percentage (about 0.5%).

Globally, domestic furniture accounts for 65 per cent of the production value, whilst corporate/office furniture represents 15 per cent, hotel furniture 15 per cent and furniture parts 5 per cent. The furniture industry employs a total of around 300,000 workers. 

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The total production of furniture in 2001-02 (according to Annual survey of Industry) was USD 3580 million.

Foreign trade picture with regard to furniture is not very impressive. In 2000, India ranked 48th among furniture exporters and 49th among importers. This situation can be explained by the high import duty applied, and on the other hand, from the low technological level of Indian companies and the local tastes and traditions that influence the style of the products offered, making them difficult to export. 

Structure of the industry

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Type of Process Used – MANUAL JOB COSTING 

Job Costing and Processes

• It is the process of making customized products and tracing/assigning costs to them. Direct materials and direct labor are traced to individual jobs and production overhead is allocated.

• The present case of furniture shop falls in the category of job costing.

• Cost Object. Job itself (making a piece of furniture)

• Cost Driver Direct labor hours.

• Cost Allocation Base. A single cost pool of direct labor hours is used. All the indirect costs are allocated based on this cost driver.

• Direct Costs of a Cost Object (Furniture Item) Costs related to a particular cost object (furniture) that can be traced to that cost object in an economically feasible (cost-effective) way. This fall into two categories:-

(a) Direct Materials Four types of wood are used by the shop as:-

1. Teak wood

2. Sal wood

3. Pinewood

4. Plywood

(b) Direct Manufacturing Labor.

(i) Carpenters

(ii) Joiners and Helpers

• Indirect Costs of a Cost Object (Furniture Item) These costs are related to a particular cost object that cannot be traced to that cost object in an economically feasible (cost-effective) way Indirect costs are allocated to the cost object using a cost-allocation method. These are also called manufacturing overheads. The following indirect costs are incurred by Furniture Museum in making the utility furniture:-

(a) Indirect Materials. The following indirect materials are used:-

(i) Sand Paper

(ii) Wood Polish

(iii) Varnish

(iv) Nails, hinges, glue, fevicol, screws etc

(v) Paint

(b) Indirect Labor: Manager Salaries, 3 in number.