Costing, pricing and profitability mechanisms within the furnishing industry : a case study (Master’s dissertation.

Abstract

PURPOSE: This study seeks to identify the CPP mechanisms adopted by a furnishing company, specifically in relation to its curtains division. The efficiency of the current processes will be evaluated and recommendations for improvement will be made. DESIGN: Given the nature of this case study, a qualitative methodology was deemed the most suitable for attaining the objectives of the study. Semi-structured interviews were carried out with the company’s top-level management, line managers and external Financial Controller. Direct observation of the processes was also performed. FINDINGS: This research deduced that ABC Company applies the traditional costing system, namely the cost accumulation method, for all types of made-to-measure curtains. Moreover, the cost-plus mark-up pricing is implemented as the basis for price setting. Other factors that have a bearing on the final price besides costs are customer value and competition. Additionally, the study has proven that while product profitability analysis is conducted, ABC Company does not analyse customer profitability due to the lack of an adequate cost accounting system that would support such an analysis. CONCLUSIONS: The study identified that there are some inefficiencies in the current CPP mechanisms of the case company. In light of this, the study offers several recommendations for enhancing the current CPP analysis process. VALUE: This study raises awareness regarding the importance of having adequate CPP mechanisms in place and the possible repercussions arising from the failure to adopt effective mechanisms. The proposed recommendations thus seek to help the company improve its overall efficiency.