+ All Categories
Home > Documents > BALA Footwear Cost Analysis

BALA Footwear Cost Analysis

Date post: 07-Apr-2018
Category:
Upload: muhammad-saad
View: 223 times
Download: 0 times
Share this document with a friend

of 20

Transcript
  • 8/3/2019 BALA Footwear Cost Analysis

    1/20

    1

  • 8/3/2019 BALA Footwear Cost Analysis

    2/20

    2

    Project Report on

    Product Cost Analysis

    Submitted to

    Prof. Fareena Noor

    Submitted by

    Hassan Abbas (L3f08bcom2312)

    Muhammad Saad (L3f09bcom2599)

    Hafiz Islam Aslam (L3f08bcom2325)

    Adil Naeem (L3f08bcom2314)

    Osama Imran (l3f08bcom2366)

    Section no.

    B-5 (F)

    Faculty of Commerce

  • 8/3/2019 BALA Footwear Cost Analysis

    3/20

    3

    University of Central Punjab

  • 8/3/2019 BALA Footwear Cost Analysis

    4/20

    4

    ACKNOWLEDGEMENTS

    We are thankful to Almighty Allah for the countless blessings and infinite

    mercy, which enabled us to complete this report work.

    We wish to extend our sincere appreciation to our course instructor Ms.

    Fareena Noor, under whose guidance and help, this report was completed. We are

    thankful to her for her extremely valuable advises.

    Our thanks also due to all the persons involved in our project report, without

    whom it would be possible.

    Hassan Abbas

    Hafiz Islam Aslam

    Muhammad Saad

    Adil Naeem

    Osama Imran

  • 8/3/2019 BALA Footwear Cost Analysis

    5/20

    5

    EXECUTIVE SUMMARY

    The purpose of this report is to fully understand the working of Bala Footwears. Bala

    Footwears started its business in 1985 in Lahore, Pakistan. We have analyzed the whole firms

    procedure and understood the work environment of the firm. In this report, weve incorporated

    all the businesses and products of Bala Footwears. Apart from that detailed cost of the product

    such as variable cost, fixed cost and profit calculations are provided in the report, economic

    problems face by the production department, causes of failure of the product and suggestions to

    increase the demand of the product are also included. The study indicates that there is potential

    for higher growth of the industry and it can become a source of exports earnings. The study

    suggests that in the rapidly changing environment and in the face of increasing cost of doing

    business in Pakistan, there is a need to strengthen the competitiveness of the footwear industry in

    Pakistan.

  • 8/3/2019 BALA Footwear Cost Analysis

    6/20

    6

    TABLE OF CONTENTS

  • 8/3/2019 BALA Footwear Cost Analysis

    7/20

    7

    Introduction of Company

    Bala Footwear is one of Pakistans most quality conscious and progressive footwear

    companies. Located in Lahore, it maintains a fine combination of comfort, style and

    workmanship and is embarking upon appreciable growth plans for the future.

    History:

    Bala Footwear Co. was established in 1985 under the name ofBala Hawaii Chappal.

    Under this brand name, companys main products are indoor slippers (including house slippers,

    hotel slippers) and outdoor slippers (including clogs, flip flops and nude slippers) with the annual

    production capacity of 1,300,000 pairs. With sincere services and high quality products, it has

    built long term business relationship with many customers all over the Pakistan.

    After several years of business, in 2005 a new division of Bala Footwear Co. was named

    established Bala Eva. Equipped modern facilities, company is now able to produce all sorts of

    EVA sandals and slippers, featuring high quality, novel style with competitive price. Company

    always pays much attention to quality and quality control. Its footwear products enjoy a good

    reputation for high quality due to have own raw material manufacturing unit to maintain the

    quality.

    With the success of companys products and support from customers all over the

    Pakistan, now it has started to produce polyurethane slippers and sandals by using the new

    technology called Direct on Upper under the Division formed in 2009 named Bala PU.

    Equipped with a group of excellent production technicians, advanced equipment, it has great

    ability and capacity in designing and developing new products.

    In addition, it continually develops products and production process such as importing

    advanced machinery from Taiwan, China and improving the quality of polyurethane.

  • 8/3/2019 BALA Footwear Cost Analysis

    8/20

    8

    Hierarchy of the Organization:

    CEO

    Haji M. Aslam

    Department Head

    Haji M. AfzalDepartments Head

    Haji M. Iqbal

    Labor Dep.

    Production

    Dept

    Stock Dep.

    Finance Dep.Accounts

    Dep.

    Sales Dept

    Import &

    Export Dep.

    Purchase Dep.

    Shahid Iqbal Mehmood Ahmed Javed Iqbal Maqsood Ahmed

  • 8/3/2019 BALA Footwear Cost Analysis

    9/20

    9

    Product Range:

    Bala Footwear stepped into the footwear

    industry in 1985. It started off with the

    manufacturing of Hawaii slippers and subsequently

    diversified into manufacturing following:

    1. PU Shoes,2. EVA Close Shoes,3. PVC Shoes.4. Hawaii slippers.

    Under the strict vigilance and support of the CEO of company Haji Muhammad Aslam, it

    has carved a niche in the field of footwear items such as casuals PU Slippers and PVC Shoes.

    Company was set with an objective of setting a modern plant for the purpose of manufacturing

    Hawaii Chappals. The company is also recognized as one of the quality EVA footwear

    manufacturers and suppliers from Pakistan.

  • 8/3/2019 BALA Footwear Cost Analysis

    10/20

    10

    Introduction of the Product

    The product which we have selected for analysis is PU Slippers. PU slippers can be

    manufactured in different styles and designs i.e. light, tough, comfortable, flexible, waterproof,

    hard-wearing or shock absorbent as required, simply by varying the formulation. When it comes

    to everyday living for the modern woman, PU slipper is the ladies shoe that stands apart from the

    rest. Featuring trendy designs and go-anywhere comfort, easy to maintain leather upper and

    durability. The other features of PU slippers are as follows:

    1. Direct attach PU outsole for durability and flexibility.2. Blend of fashion with comfort.3. Ideal casual wear.4. Attractive styling.

    All the required calculations are given the proceeding part of this report.

  • 8/3/2019 BALA Footwear Cost Analysis

    11/20

    11

    Economic Problems

    PU Raw Material:In production, polyurethane resin (PU) is very important without it production is

    not possible. One of the biggest issues is the availability of PU resin. In summers due to

    increase in the demand of PU resin, chances of shortage of it increase.

    When we talk about the PU resin, price variation also matters because half of the cost of

    production per unit depending on it.

    Electricity and Sui Gas shortage:In production, electricity is the only major element that leads to production. One

    of the major problem is electricity shortage that results in the less production and increase

    in per unit cost of electricity. Moreover Sui gas shortage also disturbs the production

    process facing by many industries in Pakistan.

    Artificial Leather:Artificial leather also matters in the production process. Now-a-days in Pakistan

    prices of leather has also gone up. The PU resin is also the main production material for

    making leather, so, both raw materials are increasing the production cost of PU Slippers,

    damaging the prices of PU Slippers and the demand.

    Lack of Skilled Labor:Without labor production is not possible, so factories cant forget the importance

    of workers. The workers are the precious asset of the company if it is skilled, but

    unfortunately in Pakistan most of the labor consists of unskilled and demands high

    wages. So, company is relying on the less skilled labor affecting the standards of

    production.

    Intervention of Chinese products:The great availability of Chinese PU slippers in local market is giving tough

    competition to the Bala PU slippers affecting their demand in the market.

  • 8/3/2019 BALA Footwear Cost Analysis

    12/20

    12

    Production Analysis

    The production of the PU slipper is based upon the demand of the various articles. The

    company has more than 70 articles of PU slipper for both ladies and gents and cant make over

    production of any specific article because its per unit cost is very high.

    The Company is producing mainly on order bases by the retailers and wholesalers the

    different markets of Pakistan. The company is also producing separate quota for exporting

    purposes.

    According to the company representatives, over production of an article without specific

    demand may leads to blockade of money. In the production planning, one thing is very important

    i.e. the current trends, designs and styles, because ignoring these issues or making out-datedstyles can result loss to the organization.

    The production capacity of this firm for the PU slipper for 10 hours shift is 3000 pairs.

    And it can produce the 75000 pairs per month.

  • 8/3/2019 BALA Footwear Cost Analysis

    13/20

    13

    Fixed Cost related to Production of PU slippers (one month)

    The factory place is also contributing to the productions of other three products so, the

    Rent, labor salary and management salary is divided in four parts and one part is used as the

    fixed cost of the PU slippers segment

    Factory Rent Rs. 343000/4 = Rs. 85750

    Factory Permanent Labor salary Rs.38000/4 = Rs. 9500

    Management Salaries Rs. 80000/4 = Rs. 20000

    Depreciation Expense

    Manufacturing Plant Rs. 5000000 10% 1/12 = Rs.41667/monthTOTAL FIXED COST Rs. 156,917

    Variable Cost related to Production of PU slippers (one month)

    Polyurethane MaterialRs.5250000

    Cutting ChargesRs.300000

    Printing ChargesRs.300000

    Embossing Charges

    Rs.225000Upper LeatherRs.1875000

    Inner LeatherRs.1125000

    Upper-Man WageRs.525000

    Bottom-Man WageRs.225000

    Production labor WageRs.750000

    Packing Trimming WageRs.450000

    Electricity ChargesRs.375000

    Packing MaterialRs.525000

    Transportation CostRs.150000

    Other Misc.expRs.375000

    BucklesRs.675000

    TOTAL VARIABLE COSTRs.13125000

  • 8/3/2019 BALA Footwear Cost Analysis

    14/20

    14

    Cost Analysis

    Variable Cost per Unit:

    Items Rs.

    Polyurethane Material 70

    Cutting Charges 4

    Printing Charges 4

    Embossing Charges 3

    Upper Leather 25

    Inner Leather 15

    Upper-Man Wage 7Bottom-Man Wage 3

    Production labor Wage 10

    Packing Trimming Wage 6

    Electricity Charges 5

    Packing Material 7

    Transportation Cost 2

    Other Misc.exp 5

    Buckle 9

    Variable Cost per Unit 175

    Fixed Cost per unit:

    Fixed Cost per unit = Total Fixed Cost / No. of Units

    Fixed Cost per unit = 156917/ 75000 = Rs. 2.09

  • 8/3/2019 BALA Footwear Cost Analysis

    15/20

    15

    Profit Calculations

    The price selling charged by the company is as follows:

    Price of PU slipper/unit = Rs. 195

    Profit considering Average variable cost

    Per Unit Profit = (PAVC)

    Per Unit Profit = (195175)

    Per Unit Profit = Rs. 20

    Total Profit = Q (PAVC)

    Total Profit = 75000 (195175)

    Total Profit = Rs. 1,500,000

    Profit considering Average cost

    Average Total Cost per unit = Average Cost per unit + Average Fixed Cost per Unit

    TC = 175 + 2.09

    TC = 177.09

    Per Unit Profit = (PAVC)

    Per Unit Profit = (195177.09)

    Per Unit Profit = Rs. 17.91

    Total Profit = Q (PAC)

    Total Profit = 75000 (195177.09)

    Total Profit = Rs. 1,343,250

  • 8/3/2019 BALA Footwear Cost Analysis

    16/20

    16

    Market Structure

    The company is facing perfect competition because of the following conditions:

    Number and size of sellers:

    The size distribution of firms is also an important characteristic of market structure. In footwear

    industry there are many sellers, however few are larger like Bata and Service etc. and rest are

    medium and small scale.

    Number and size of buyers:

    Market can also be characterized by the number and size distribution of buyers. In the market,

    there are many small buyers of PU slipper; all buyers are likely to pay about the same price.

    Product Differentiation:

    Product differentiation refers to the degree that the output of one firm differs from that of the

    other firms in a market. Whereas the market selected product are undifferentiated and decisions

    to buy are made strictly on the basis of prices.

    Entry/ Exit:

    Entry barriers are high however exit barriers are low. High investments and capital is required to

    enter this industry .On the other hand technical knowledge, expertise and availability of skilled

    work force makes entry barriers high. National and international level competitors are competing

    at the same platform with minor variations.

  • 8/3/2019 BALA Footwear Cost Analysis

    17/20

    17

    Pricing of Goods and Strategies

    The company is using penetrating price strategy on the basis of their production cost.

    They are pricing their products with low profit margin in order to increase the demand for

    products and to stay competitive and to increase sales; hence increasing the market share.

    The product is available in three different packaging depending on their quality of PU resins and

    the quantity of order, the prices are as follows:

    Package 1 prices = Rs. 185/unit

    Package 2 Price = Rs. 195/unit

    Package 3 Price = Rs. 210/unit

    The product which we have used for calculation is package 2 having price Rs.195.

    Causes of the failure of the product

    1. One of the most important problems for failure of product is higher energy prices. Increasingenergy and inputs prices leads to an increase in the cost of production that influences the

    expected production and the increased prices

    2. Outdated production methods are still prevailing in the factory.3. Improper availability of raw material.4. Transportation and utility infrastructure facilities are not adequate.5. The company is facing high competition from china providing cheaper footwear product in

    markets.

  • 8/3/2019 BALA Footwear Cost Analysis

    18/20

    18

    Steps to Increase Demand

    1. The company needs new techniques for production, product designs and there is great roomof improvement in marketing of the product. The company is not giving adequate importance

    to the marketing of their product.

    2. The company needs to build the outlets at domestic level and should improve distribution toappropriate sellers.

    3. Participation in trade fairs can increase the opportunities to find market for their exports aswell as unexplored domestic markets.

    4. The company needs to develop the research and development department for improvingquality and physical testing of their products.

    5. Use of e-commerce strategies can broaden their product market and customer net.

    Advertisements and Promotions

    There is great need of promoting the products as Bala is not well established in the

    sense of Brand name and people are not familiar with its, so, the company should use following

    modes of promotion and advertisement of their products, we are not recommending television

    ads as it is expensive mode of advertisement and company is producing on cost effectiveness.

    The company should use following modes of advertising

    1. Road side boards2. Newspaper ads3. Promotional pamphlets

    The companys major mode of advertising should be road side bill boards and pamphlets.

    Other Recommended promotional schemes company should Introduced are:

    1. Buy one and get second one at 25% discount for final customers.2. For wholesalers, giving them allowances on achieving the target sale in a month or year.

    And greater profit margins for the retailers and wholesalers.

  • 8/3/2019 BALA Footwear Cost Analysis

    19/20

    19

    Companys role in the economy of Pakistan

    Some sectors of Pakistan economy have shown a good performance in terms of

    production and exports. Footwear is one such industry which has increased its exports at largely

    extent last 6-7 years.

    Pakistan footwear industry manufactures around 150 million pairs annually for local

    consumption and it exports 2.2 million pair per annum roughly and the average price charged for

    each pair stands for $10. The population of Pakistan is expected to be about more than 172

    million in the year 2011, keeping in view the growth in population, the growth in the demand of

    footwear industry is also anticipated.

    As far as Bala Footwear Co. is concerned it has pivotal importance in terms of providingand creating jobs, earning of foreign exchange with the help of exports and fulfilling the local

    consumption requirements. The company has more than 150 workers and executives working

    directly and indirectly. The companys major importing countries are France, Australia and

    Dubai.

  • 8/3/2019 BALA Footwear Cost Analysis

    20/20

    20

    Bibliography

    Managerial Economics [Book] / auth. Petersen Lewis, Jain. - [s.l.] : Prentice Hall, 2008. - Vol.

    fourth edition.


Recommended