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Compact case
Case
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Reference no. 111-071-1
Published by: IBS Case Development Center
Published in: 2011
Length: 4 pages
Data source: Generalised experience

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 labour. 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. The case will help the students to: 1) 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; 2) Understand how to calculate prime cost, factory cost, cost of production, and finally cost of sales or total sales; 3) Discuss and debate on the company’s decision to add new product lines. The case is meant for MBA / MS level students as part of a financial risk management / risk management curriculum.
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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 labour. 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. The case will help the students to: 1) 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; 2) Understand how to calculate prime cost, factory cost, cost of production, and finally cost of sales or total sales; 3) Discuss and debate on the company’s decision to add new product lines. The case is meant for MBA / MS level students as part of a financial risk management / risk management curriculum.

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