The rapid growth of automation due to information technology has changed the scenario of cost structure in the manufacturing industry. The main challenge confronting the manufacturing industry is the increase in the cost of production. The main factor which contributes to the cost of production is the cost of material. An attempt has been made in this paper to analyze the share of raw material cost in the cost structure of the manufacturing industry. A sample of 58 companies engaged in manufacturing activities was selected for the purpose of the present study. The sample covers pharmaceutical, textile, cement, metal, oil, automobile, consumer goods and electrical industries. A null hypothesis—there is no significant difference among different sectors of the Indian manufacturing industry regarding raw material cost as percentage of gross sales—was constructed. After analyzing the ratios, chi-square test was administered to check the hypothesis. The study results reject the hypothesis. The results also reveal that, on an average, raw material cost as percentage of gross sales is 46.46% for the Indian manufacturing industry.

The rapid growth of automation due to Information Technology (IT) has changed the scenario of cost structure in the manufacturing industry. The main challenge facing the manufacturing industry is the increasing cost of production. The main factor which contributes to the cost of production is the cost of material. The survey conducted by the Directorate of Industrial Statistics, Government of India during 1954-1957 showed that in 29 major industries, the average material costs were 64% of the total cost. Another study conducted by Gokarn (1970) revealed that the material cost accounted for 64% of the sales value of the production. Krishna and Sundaresan (1994) analyzed the financial statements of private and public enterprises and found that material cost accounted for nearly 60% of the total expenditure. A sample of 350 major private sector companies having sales above Rs. 1 cr revealed that the share of raw material in the total expenditure declined steadily during April-September 2003 from the level of April-September 2002. The share fell by about 1.09 percentage point, from 56.20% to 55.11% in April-September 2003. Another study of 500 companies in 2006 showed that the increase in raw material cost was much higher than all other components of operating and non-operating expenses. The ratio of raw material cost to total operating expenses reported was 59.1% during April-June 2006 quarter, while this ratio was 57.3% during April-June 2005.

The share of raw material cost as percentage of total expenditure increased by about 1.78 percentage point to touch 59.42% in 2006-07 from 57.64% in 2005-2006. This survey result was based on 600 major manufacturing companies having a turnover of more than Rs. 100 cr. Out of this 600,343 companies reported increased costs, while the remaining 257 companies reported a declining cost.

Accounting Research and Audit Practices, Information Technology, IT, Government of India, GOI, raw material, Centre for Monitoring Indian Economy, CMIE, Indian Institute of Management, IIM, Indian Oil Corporation Ltd., IOC, Cost Analysis, standard deviation, Coefficient of Variation, CV, Gross Sales Ratio, Ffrequency Distribution.