Business appraisal of incense sticks: A case study of Lakshmi trading and services, Nagpur
Abstract
This research project provides a comprehensive appraisal of the incense sticks production business, focusing on Lakshmi Trading and Services, Nagpur, an enterprise established in 2020 by Mrs. Falguni Prasad Pimprikar. The study analyzes various aspects of the company's operations, including the production process, cost structures, and critical factors affecting productivity and profitability. Key findings reveal that the total capital investment in the project amounted to Rs. 10.81 lakhs, with machinery comprising the largest share (62.59%), followed by building rent (22.19%). Fixed costs totaled Rs. 11.09 lakhs, with machinery depreciation accounting for 44.11% of the total, while building depreciation constituted 21.62%. The study estimates the variable costs of production at Rs. 33.83 lakhs, primarily driven by the cost of raw materials (83.86%) and casual labours (12.76%). The total cost incurred by the producer was Rs. 44.93 lakhs, while the gross return from production was Rs. 50.10 lakhs, resulting in net returns of Rs. 5.16 lakhs. The break-even point was determined to be 18,761.58 units in physical terms and Rs. 34.18 lakhs in monetary terms. Marketing expenses were Rs. 1.82 lakhs, with transportation being the largest component (75.23%) followed by packaging (24.76%). Key challenges identified include difficulties in securing initial capital for infrastructure and growing competition in the market. The findings emphasize the need for strategic innovation and adaptability to sustain growth and profitability in the incense stick industry.
Full Text
Tables and figures are in the full-text PDF.
Introduction
Evolution of incense and incense sticks in world throughout the ancient century, the emergence of the incense sticks could be attributed to the burning of aromatic wood. Since achieved by mankind these fragrant incense sticks played a vital role in regular rituals and became more religious. In most of the popular world's religions, incense has performed a key role. The ancient religions linked the natural world with their gods. It was claimed that fragrant plant materials forced demons away and allowed the gods to come on the earth; they also had the realistic application of exiling unpleasant smell. The Old Testament, the Vedas, and several other ancient books document the consumption of incense sticks. Incense sticks have been extensively found in various worship places since prehistoric times, such as churches, monasteries, mosques, and temples. During celebrations, ceremonies, and several everyday rituals in which it is said to worship ancestors, the Hindu, Buddhist, Taoist, and Shinto religions everyone use incense. (Journal of Bio Innovation) Regarding need and importance of the study, Incense sticks, also known as agarbattis, are used for many purposes, including religious ceremonies, aromatherapy, and as air fresheners. It have been used for centuries in various cultures for their ability to create a serene and spiritual atmosphere with their aromas. Spiritual significance: Incense sticks are used in many rituals and traditions, such as in temples and household altars, to purify the surroundings, ward off negative energies, and invoke a sense of divine presence. Psychological benefits: The aroma of incense is said to have a soothing effect on the mind, helping to relax and improve concentration. Health benefits: Some incense sticks, like frankincense, are said to have anti-inflammatory properties that can help reduce aches and pains. Insect repellent: Incense sticks can be used to repel insects.
Incense sticks are made from a variety of ingredients, including oils, herbs, flowers, seeds, leaves, and sandalwood. When lit, the cellulose in the binding powder combusts to form an ember, while the mucilage holds the fragrant material together. India is one of the largest producers and exporters of incense sticks, and the industry is considered to be profitable.
Methodology Area of Study
The present study was conducted at Lakshmi Trading and Services, Nagpur.
Period of Study
The data was collected for FY 2023-2024 i.e., from April 2023 to March 2024.
Source of Data
Primary data was collected by pretested schedule from concern person, officials of selected firm by personal interview method regarding the production and marketing of Incense sticks.
Analytical Tools Cost and Returns of Incense sticks Production:
The collected data related to required cost and returns from Incense sticks were analysed, tabulated on the following different aspects viz.
Fixed Cost
The fixed cost includes the data regarding the cost of machinery, building (leased rent), furniture, and wages of payment employed labours, salary of staff, electricity charges and taxes. These information was collected from Lakshmi Trading and Services, Nagpur.
Variable Cost
The variable cost consists of expenditure on purchase of raw material, wages of casual labours, repair and maintenance of machinery, electricity and stationary charges, etc.
Total Cost
Total cost was comprised of the total fixed cost and total variable cost calculated by adding both costs together.
Total cost = Fixed cost + Variable cost
Gross Returns
The gross returns for production of Incense sticks was calculated by adding together value of main product received after production of incense sticks. The gross returns defined as the total rate of return on an investment before the deduction of any expenses.
Gross returns = Quantity of product X Price per unit
Net Returns
The net returns refer to returns after deducting all expenses from the gross return generated by the investment.
Net returns = Gross returns -Total cost
B:C ratio
The benefit cost ratio compares the present value of all benefits with that of the cost and investment of the project. B:C ratio = Gross returns / Total cost
Breakeven Point Analysis
The point at which the two curves i.e. total cost curve and total revenue curve intersect is called as breakeven point, which indicates the level of production at which neither losses money nor makes profit. Computation in physical quantity,
B𝑬𝑷 = 𝑭 / (𝑷 -𝑽)
Computation in monetary value,
B𝑬𝑷 = 𝑭 / [𝟏 -(V/P)]
Where, F = Annual fixed cost in Rs. P = Selling price per unit in Rs. V = Variable cost per unit in Rs.
Margin of safety
Margin of Safety (in physical units) = Total outputoutput at BEР Margin of Safety (in monetary value) = Total revenue -Revenue at BEP Percentage of margin of safety = BEP / Volume of total output X 100
Marketing of Incense sticks
Initially the marketing cost, market margins and price spread were calculated required for Incense sticks.
Marketing Cost
The total cost incurred by the producer involved in packaging, transportation, sell and purchase of Incense sticks till it reaches to customers.
Market Margin
It refers to difference between the prices prevailing as successive stages of marketing at given period of time.
Market Margin = Selling Price -(Purchase Price + Marketing Cost)
Price Spread
The price spread indicates shares of various agencies involved in marketing along with the cost incurred by them.
The price spread of the produce was the difference between the net price received by producer in the assembling market and price paid by consumer for equivalent quantity of produce.
Price Spread = Price paid by consumer -Net Price received by producer
Constraints faced by Owner
The different constraints in production and marketing of Incense sticks were identified by personal interview method.
Results and Discussion
I. Capital Requirement of Selected Incense sticks Production Unit
To fulfil the first objectives of the study in respect of organizational study of the Incense sticks production, the results has been obtained on capital investment, summary of capacity utilization are given as under.
Capacity Utilization of Selected Unit
Capital investment for Incense Sticks Production
Capital investment is the acquisition of physical assets by a company or a unit for use in furthering its long-term business goals and objectives. Table 2. Shows that, the total investment in capital asset in Incense sticks production project was Rs. 10.81 lakhs. The investment on machinery was the major investment which is 6.77 lakhs.
II. Cost and returns of selected unit
To fulfil the second objectives of the study in respect of organizational study of Incense sticks production the results has been obtained on cost required, returns obtained from the unit are given as under.
Fixed cost for Incense Sticks Production
The fixed cost for an Incense sticks production project includes several essential components, such as the purchase of machinery, buildings (Leased rent), furniture, and electrical appliances. Additionally, it covers permanent labours charges and interest on the fixed capital invested in the project. These costs are crucial for establishing and maintaining the infrastructure necessary for successful Incense sticks production operations.
Variable cost required for Incense sticks Production
The variable cost consists of expenditure on purchase of raw material, wages of casual labour, repair and maintenance of machinery, electricity charges, postage, and stationery etc.
Total cost incurred by producer for production of Incense sticks
Total cost incurred by producer for production of Incense sticks is the sum of fixed cost and variable cost incurred by www.extensionjournal.com producer.
Economics of production of Incense sticks
It explores the financial aspects of Incense sticks production, focusing on production costs, revenue, and profitability. By evaluating these economic factors, it provides insights into the financial viability and sustainability of Incense sticks production as a business by calculating the benefit cost ratio. Benefit cost ratio 1:1.12 1:1.12 Table 6. Shows that, the value of product i.e., Gross return from the Product is Rs. 50.10 lakh, calculated by multiplying quantity of product with price per kg with total cost of 44.93 lakhs, the net return was 5.16 lakhs. The benefit cost ratio was 1:1.12 reflecting the ratio of total return to total costs.
III. Break-even point analysis
The break-even point is the number of Incense sticks produced to cover all costs associated with the production process, including both fixed and variable expenses. It is the level at which the total revenue from sell of Incense sticks matches the total costs incurred, meaning that no profit or loss is achieved.
IV. Marketing of Incense Sticks
Marketing channels of Incense sticks consists of producer, wholesaler/ distributor, retailer and customer.
Marketing cost of Incense sticks
The marketing cost consists of cost of packaging material, sealing and packaging, transportation charges, etc. required for the selling of incense sticks to the customer.
Total Marketing cost of Incense sticks
For selling of produce, the seller has to pay for certain market services from sale proceeds. The marketing expenses are incurred for several purposes such as packaging material, sealing and packaging, transportation charges and commission charges.
Estimation of Market Margin
Market Margin refers to the difference between the price at which a product is sold to the consumer and the total cost incurred by the producer or seller in getting the product to the market. This includes production, processing, marketing, distribution costs. 44.93 lakhs. 5. The gross return from Incense sticks production was 50.10 lakhs and the net returns 5.16 lakhs. 6. The break-even point in physical terms is 18761.58 and in monetary terms 3418020.27. 7. The marketing cost required for marketing of Incense sticks was Rs. 1.82 lakhs. The cost required for transportation was major which was Rs. 1.37 lakhs i.e., 75.23 per cent followed by packaging cost 24.76 per cent. 8. The major constraint in production of Incense sticks is securing initial capital for infrastructure and the major constraints in marketing is increasing competition.
Acknowledgement
AcknowledgmentsI sincerely express my gratitude to my guide and mentors for their valuable guidance and support throughout the research. Their insights and encouragement were instrumental in the successful completion of this research paper
References
- Sinha A, Deb A. Study on the status of incense stick making in Tripura, Northeast India. J Bamboo Rattan. 2016;15(1-4):13-21.
- Yadav V, Singh B, Choudhary N. The current scenario of Indian incense sticks market and their impact on the Indian economy. Indian J Pure Appl Biosci. 2020;8(3):627-636.
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