Furniture Retailer Stores

Team 06
RUCHI PATEL 15BM60008
RAJ RANJAN 15BM60077

Job Process and Costing

Cost Object: Job itself (making a piece of furniture)
Cost Driver: Direct labour hours.
Cost Allocation Base: A single cost pool of direct labour hours is used. All
the indirect costs are allocated based on this cost driver.
Direct Materials used by the shop: Wood, Ply and Laminates
Indirect Materials used by the shop: Sand Paper, Wood Polish, Varnish,
Nails, Hinges, Glue, Fevicol, Screws, Paint, etc.
The raw material goes through various stages like cutting, sawing,
joining, rounding, polishing, varnishing etc
Inventory Cost is mostly related to the WIP and finished goods holding
cost

Summary about survey/analysis

Costs provided are a rough estimate by the worker at the shop;
standardized costs are not available
Since its an unorganised sector, data may not be completely
reliable
The monthly demand is not consistent; the data provided
regarding number of orders a month is a rough estimate
Tutul Furniture caters to demand of customised products
compared to Lakshmi Furniture.

Contd..
The workers could not provide figures for depreciation costs of
tools and machines
Demands usually shoot up during wedding seasons as per the
information provided by workers
The workers also were not able to provide figures for
administrative and selling expenses such as electricity cost,
transportation cost
Since the shops operate in a small town, they rely on word of
mouth communication and generally operate in a crowded
marketplace

Cost Sheet
Raw materials

Input

Rate

Wood

1500/kg

Laminates(Sunmica)

Chair

Tutul Furniture
Table

Bed

Chair

Lakshmi Furniture
Table

Bed

1500

1500

7500

700

1500

5000

50

75

750

75

150

Tutul
Furniture

Lakshmi
Furniture

Profit

22675

14925

500

Fixed Rent

7500

5000

Net Profit

15175

9925

Nails

100/kg

25

15

70

50

20

75

Polish

300/kg

150

300

900

200

250

500

Fevicol

200/kg

100

50

300

100

50

300

Ply

240

1800

250

1000

1825

2180

11320

1125

2220

7375

800

1200

15000

500

1000

3000

2625

3380

26320

1625

3220

10375

367.5

473.2

3684.8

227.5

450.8

1452.5

2992.5

3853.2

30004.8

1852.5

3670.8

11827.5

Selling Price(without tax)

3000

3500

30000

1800

3500

11500

Selling Price(with tax)

3420

3990

34200

2052

3990

13110

No. of orders/month

20

10

10

labour

200/day

tax

14%
Effective cost per unit

Tutul Furniture
Expenses Per Month

Revenue Per Month

6%

6%

32%
62%

Chair

30%

Table

Chair
Table

Bed
64%

Profit
8%
11%
Chair
Table
Bed
81%

Bed

Lakshmi Furniture
Expenses Per Month

Revenue Per Month

6%

6%
22%

22%

Chair

Chair

Table

Table

Bed

Bed

Profit

72%

72%
6%
19%

Chair
Table
Bed
75%

Inferences from Cost sheet

Fixed rent is not distributed across activities.
Labour wages do not seem to be appropriately assumed, while going for
pricing of the items.
Recommendation : Go for Activity Based Costing(ABC)
Traditional costing method is being used.
Not much of raw material inventory holding cost incurred as raw
material is sourced according to order requirements and generally
purchased from wholesaler in the town.
Tax component is generally ignored as customers also do not press for a
bill, since its a win-win situation for both. Generally they operate on a
margin basis.

Cost Behaviour
Cost Head/Type of cost

Direct Material

Direct Labour

Wood

Plywood

Laminates

Indirect Material(Sand Paper,Polish, Varnish,

Nails, Hinges, Fevicol, Paint, etc.)

Labour

Manufacturing Overhead

Inventorial Cost

Period Cost

Fixed Cost

Variable Cost

Sunk Cost

Equipment cost

Electricity expense

Salary

Rent