COST AND MANAGEMENT ACCOUNTING PROJECT

ANALYSIS OF COST ACCOUNTING METHODS AT SHAN SANITARY

Submitted by: PRERITA KHANNA

Course: BMS

Roll No: 25053

Overview of the Study

This report presents findings from an in-depth discussion with Mr. Parveen Khanna, the proprietor of
Shan Sanitary, a business engaged in both retail and wholesale trade of sanitary ware, built-in ovens,
tiles, and bathroom accessories. The objective of the discussion was to analyze the cost accounting
techniques utilized by the business, their effectiveness in managing costs and profits, associated
challenges, and potential improvements.

Business Profile

 Business Name: Shan Sanitary

 Business Type: Proprietorship

 Industry: Retail & Wholesale (Sanitary & Bathroom Fittings)

 Owner & Respondent: Mr. Parveen Khanna

 Years in Operation: Over 20 years

 Key Brands Sold: Hindware, Jaguar, Astral Pipes

Cost Accounting Techniques Implemented

Primary Costing Method: Budgetary Control

Mr. Khanna emphasized that budgetary control is the primary cost management technique in his
business. This method allows him to set predefined financial limits for various operational activities,
ensuring proper fund allocation and cost efficiency, particularly important for both retail and
wholesale transactions.

Application of Budgetary Control in Shan Sanitary:

 Expense Planning: Monthly budgets are set for procurement, rent, logistics, and overheads.

 Comparing Forecast vs. Actual Costs: The business tracks and compares planned costs with
actual spending.

 Pricing Determination: Markups are applied based on budgeted costs to maintain profit
margins across retail and wholesale transactions.

 Stock Allocation Strategy: Inventory is allocated based on demand patterns for retail and bulk
orders.

 Seasonal Adjustments: During peak seasons, budgets are adjusted to accommodate higher
stock requirements.
Benefits of Budgetary Control

The owner identified several advantages of this approach:

 Cost Discipline: Helps in regulating unnecessary expenditures.

 Stable Pricing Strategy: Allows the business to maintain pre-determined profit margins while
catering to both individual retail buyers and bulk wholesale clients.

 Better Inventory Management: Reduces the risk of overstocking or understocking in both

 Financial Planning Efficiency: Supports long-term growth and expansion decisions.

"During peak construction periods, we anticipate increased bulk demand for sanitary pipes
and fittings. Budgeting helps us allocate resources efficiently to meet both retail and wholesale
customer needs."

Challenges Faced in Budgetary Costing

Despite its advantages, Mr. Khanna pointed out the following challenges:

 Fluctuating Supplier Costs: Sudden price hikes in raw materials affect budgets, especially for
bulk wholesale orders.

 Competitive Pricing Pressures: The need to match market pricing sometimes conflicts with
budgeted profit margins.

 Inventory Holding Costs: Excess stock increases storage costs, while low stock leads to missed
sales opportunities in both retail and wholesale sectors.

 Limited Real-Time Flexibility: Adjusting budget allocations for unforeseen expenses can be
cumbersome.

"Recently, a supplier increased prices unexpectedly due to transportation cost hikes, forcing us to
rework our pricing structure mid-cycle for both wholesale and retail sales."

Exploring Alternative Costing Methods

Mr. Khanna is considering Activity-Based Costing (ABC) to supplement existing cost tracking methods.

Potential Benefits of ABC for Shan Sanitary

 Precise Cost Allocation: Assigns costs more accurately based on specific business activities.

 Enhanced Profitability Analysis: Helps in evaluating profitability at a product level across both
wholesale and retail sales.

 Better Overhead Distribution: Segments costs across warehousing, logistics, and sales
operations.

 Data-Driven Pricing Strategies: Improves understanding of how indirect costs impact pricing.

"For high-end products like built-in ovens, ABC costing could help us better track indirect expenses
like showroom display and promotional costs, especially since pricing differs for wholesale and
retail customers."
Role of Technology in Cost Management

Mr. Khanna also highlighted the growing role of technology in cost control:

 Tally Accounting Software: Automates financial records and minimizes errors.

 Digital Inventory Management: Tracks stock movement in real time for both retail and
wholesale divisions.

 Cost Analysis Reports: Helps in identifying low-margin and high-margin products.

"By integrating Tally with our inventory system, we reduced manual errors and improved cash flow
monitoring, making it easier to track large wholesale transactions."

Conclusion

Through this discussion, it is evident that budgetary control plays a vital role in Shan Sanitary’s
financial management. While effective for cost regulation and planning, challenges such as market
fluctuations and inventory holding costs highlight the need for further refinement. Exploring Activity-
Based Costing (ABC) could help in achieving greater cost accuracy and better decision-making,
particularly for distinguishing between wholesale and retail cost structures.

Additionally, leveraging technology-driven accounting tools is already enhancing efficiency, indicating

Supporting Information

 Interviewee: Mr. Parveen Khanna

 Business Name: Shan Sanitary

 Interviewee details: 9312217201

 Industry: Retail & Wholesale (Sanitary & Bathroom Fittings), P-2, Pandav Nagar Main Rd,
Chilla, Patparganj, Mayur Vihar, New Delhi, Delhi, 110091