Scribd
Upload
146 views

Cost Structure of Jindal Worldwide LTD: Report: Exhibits

Jindal Worldwide Ltd exports textile goods like bed sets made from various fabrics. The cost structure is dominated by variable raw material and job work costs which account for 64.21% and 90.76% of net sales respectively. Fixed costs make up 3.94% of sales. Regression analysis shows raw materials are the largest cost driver. Cost-volume-profit analysis finds a breakeven point of Rs. 699.95 Cr and margin of safety of Rs. 943.26 Cr due to high variable costs.

Uploaded by

Pallavi Patel
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
146 views

Cost Structure of Jindal Worldwide LTD: Report: Exhibits

Jindal Worldwide Ltd exports textile goods like bed sets made from various fabrics. The cost structure is dominated by variable raw material and job work costs which account for 64.21% and 90.76% of net sales respectively. Fixed costs make up 3.94% of sales. Regression analysis shows raw materials are the largest cost driver. Cost-volume-profit analysis finds a breakeven point of Rs. 699.95 Cr and margin of safety of Rs. 943.26 Cr due to high variable costs.

Uploaded by

Pallavi Patel
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

Cost Structure of Jindal Worldwide Ltd: Report

Jindal Worldwide Ltd, a part of Ahmedabad based Jindal Group, is a public limited company
that operates in the business of exports of textile goods such as bed sets & sheets, pillow
covers, cushion covers, etc which are made of all types of fabrics including cotton, flannel,
seersucker, satin, linen, twill, viscose, polyester viscose, polyester cotton, and cotton
viscose. It has been exporting these products to various countries such as Germany, France,
Italy, Holland, Norway, Finland, Denmark, Israel, Saudi Arabia, U.A.E, Greece, U.S.A etc.
The cost structure of Jindal Worldwide is mainly dominated by the variable costs of raw
materials used as well as job work and processing charges. The fixed costs are mainly
depreciation costs and some miscellaneous costs. Employee costs and selling &
administration costs are semi-variable.
We use net sales as a proxy for the level of activity in the company. Financial Statement
Analysis and regression of the company data show that raw material costs account to nearly
64.21% of net sales. Whereas total variable costs are nearly 90.76% of net sales. The total
fixed costs amount to nearly Rs 64.68 Cr which is 3.94% of sales value for 2018. Table A
shows the results of regression analysis of various costs.
Cost Volume Profit (CVP) Analysis results in the breakeven value as well as the Margin of
Safety (Table B). The breakeven point in revenue terms comes out to be Rs 699.95 Cr and
margin of safety of Rs 943.26 Cr. The company has a high value of margin of safety as
compared to the breakeven point. This is since the cost structure of Jindal Worldwide is
composed of a larger proportion of variable costs. Operating leverage can be increased to
increase the returns but only to the point that the company does not face significant
financial risks. The company does not have a high operating leverage because most of its
costs are variable in nature. The analysis in Table B shows an operating leverage of 1.74.
This operating leverage value is mainly due to the fixed cost components of costs like
depreciation, selling and administration and labour costs.
COGM and COGS schedule show that 32.8% of the cost of manufactured goods is
manufacturing overheads costs which shows that the company can control its overheads.
Also, there is a difference in the value of COGM and COGS of around Rs 90 Cr which means
that the company had more inventory stored that it was not able to sell. This shows some
inventory mismanagement or that the company may be building its inventory for future
demand rise.

EXHIBITS
Table A: Regression Analysis

COST Variable Part (% of Sales) Fixed Part (in Cr Rs)


Raw Materials 64.21 0.00
Power & Fuel Cost 6.00 0.34
Employee Cost 0.31 5.40
Other Manufacturing Cost 19.93 0.00
Selling and Admin Cost 0.26 5.48
Miscellaneous Cost 0.05 2.89
Depreciation 0.00 50.57
Total 90.76 64.68

Table B: CVP Analysis (Year 2018)

Net Sales Rs 1643.21 Cr


Total Contribution Margin Rs 151.84 Cr
Contribution Margin Ratio 9.24%
Break Even Point (in Rs) Rs 699.95 Cr
Margin of Safety Rs 943.26 Cr
Operating Leverage 1.74

Table C: Schedule of COGM and COGS for the latest year (Year 2018)

Direct Material (in Cr Rs)


Opening Stock of Raw Materials 36.37
+ Cost of Raw Materials Purchased 1083.23
-Ending Stock of Raw Materials 53.39
Total Raw Materials Used 1066.21

Direct Labour 10.1

Manufacturing Overhead
Indirect Material 389.66
Indirect Labour 0.65
Rent 0.38
Insurance 0.81
Utilities 95.12
Depreciation (Plant and Machinery) 38.80
Total Manufacturing Overheads 525.42

TOTAL MANUFACTURING COSTS 1601.73


+ Beginning WIP 45.43
-Closing WIP 64.26
COST OF GOODS MANUFACTURED (COGM) 1582.90
+ Beginning Finished Goods Inventory 25.67
-Closing Finished Goods Inventory 116.24
COST OF GOODS SOLD (COGS) 1492.33

You might also like