Costing in Pepe Denim

Code : FAC0054

Year :

Industry : Textiles

Region : India

Teaching Note:Available

Structured Assignment :Not Available

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Abstract: This case discusses a business situation in which the profits of Pepe Denim, a jeans manufacturer in India, declined despite consistency in the sales of jeans, because of competition from other similar products. Competition led to a reduction in the selling price and rise in cost, resulted in decreasing profits.

In such a situation, the company decided to add two new product lines - Denim Handbags and Denim Skirts - which would require the same type of raw material and the same labor.

The case study helps us understand and analyze the decision to add two new products lines on the basis of a comparison of cost and profit before and after the introduction of new products.

With this, the case study gives enough scope to derive different cost concepts like full cost, direct and indirect cost, elements of product cost, different kinds of overheads, and last, how to calculate the total cost of a product.

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Pedagogical Objectives:

  • Understand the concept of full cost, various items of cost like direct and indirect cost, elements of product cost and period costs, and different kinds of overheads.

  • Understand how to calculate prime cost, factory cost, cost of production, and finally cost of sales or total sales.

  • Discuss and debate on the company’s decision to add new product lines.

    Keywords : Costing; Sales; Valuation; Overheads; Profits; Denim; Work-in-progress; Wages; Bad Debt; Products; General Charges

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