An Analysis of the Manufacturing Cost

Structure of the Pharmaceuticals

Industry of Bangladesh
 Term Paper
An Analysis of the Manufacturing Cost Structure of the Pharmaceuticals Industry
of Bangladesh
Course
Managerial Accounting (ACC3603)

Course Instructor
Lecturer Azharul Islam, BBA-General,
Bangladesh University of Professionals

Submitted by Group 3
Tahziba Ahmed 19231006
Kinjal Labonnya Haider 19231018
Ishraq Hossain 19231052
Fida Al Kazim 19231080
Fariha Ibnat 19231096

Section : B
Department of Business Administration – General
Faculty of Business Studies
Bangladesh University of Professionals

Submitted on
18th November 2021
 Acknowledgements

It gives us great pleasure to prepare and submit the term paper on “An Analysis of the
Manufacturing Cost Structure of the Pharmaceuticals Industry of Bangladesh.” This study would
not have been feasible without the invaluable assistance of our course teacher.

We are extremely grateful to our course instructor for developing the course for this term paper
and presenting us with such an incredible opportunity. We had a great time with the task and tried
our hardest and made it as good as possible.

We are grateful to Allah the Almighty for His ever-giving opportunities.

i
 Letter of Transmittal

November 18, 2021

Azharul Islam,
Lecturer,
Department of Business Administration,
Faculty of Business Studies
Bangladesh University of Professionals.

Subject: For the acceptance of term paper

Respected Sir,
With great pleasure we are submitting our term paper on the topic, “An Analysis of the
Manufacturing Cost Structure of the Pharmaceuticals Industry of Bangladesh”. While preparing
this term paper, we have followed your instructions and guidelines with attention and diligence.
This report has been completed primarily by extensive online research from websites and text
books followed by proper selection of information and evaluation.
We express our special gratitude to you for dedicating your valuable time, expert guidance and
support. We have tried our best to complete the report appropriately as much as possible. We shall
be pleased to answer any sort of query you may have regarding this report. We hope with great
anticipation that you would like and accept our report, looking forward to your cooperation.

Sincerely Yours,

Tahziba Ahmed 19231006

Kinjal Labonnya Haider 19231018
Ishraq Hossain 19231052
Fida Al Kazim 19231080
Fariha Ibnat 19231096

Batch: BBA-2019, Section B

ii
 Table of Contents
Introduction ................................................................................................................................................. 1
Research Question .................................................................................................................................. 1
Scope of the study.................................................................................................................................... 1
Objective .................................................................................................................................................. 1
Methodology ............................................................................................................................................ 1
Limitations ............................................................................................................................................... 2
Literature Review ....................................................................................................................................... 3
Data Analysis ............................................................................................................................................... 5
Recommendation....................................................................................................................................... 12
Conclusion ................................................................................................................................................. 12
References .................................................................................................................................................. 12

iii
 1

Introduction
The pharmaceutical sector is one of the most developed and advanced technology and
knowledge-based sectors in Bangladesh. Bangladesh is now regarded as an emerging generic
drug hub in the region, thanks to four decades of hard work. Currently, according to the
Bangladesh Association of Pharmaceutical Industries ( BAPI) and Directorate General of Drug
Administration(DGDA), approximately 257 licensed pharmaceutical manufacturers are
operating in Bangladesh and almost 150 are functional. 98% demand of the local public is met
by these manufacturing companies. Some special products like vaccines, anti-cancer products
and hormone drugs are imported to meet the remaining 2% of demand. Almost 80% of the
drugs produced in Bangladesh are generic drugs and the rest are patented drugs. According to
DGDA, the industry has 3657 generics of allopathic medicine, 2400 registered homeopathic
drugs , 6389 registered Unani drugs and 4025 registered Ayurvedic drugs.

Research Question

1. What explains the cost structure in the pharmaceutical industry of Bangladesh?

2. What explains the manufacturing costs varying every fiscal year?

Scope of the study

Theoretically, this research is limited to the study of manufacturing cost structure of the
pharmaceutical industry of our country on various circumstances.

Objective

The objective is to analyze the manufacturing and non-manufacturing cost to understand the
relationship between cost and profit of the pharmaceutical industry in Bangladesh.

Methodology

We have collected the data from the websites of the companies. We downloaded all the years
annual statements, and from there we managed all the types of data we needed to complete the
report such as income statement, balance sheet etc. Then we put the data on excel, used
different accounting, financial and statistics formula to come up with results that would help
us with our analysis.
 2

Limitations

Pharmaceutical industry, one of the most developed high-tech sectors and most profitable
industries of Bangladesh has around currently 200-300 licensed companies. These
pharmaceuticals companies have been operating in Bangladesh since Post 1971. These
Companies are following their own manufacturing and non-manufacturing cost structure.
Among these hundreds of companies, we conducted our analysis based on only 5
pharmaceutical companies from almost 300 companies. Moreover, we collected based our
analysis on only 5 years of this more than 45 years old industry. 5 years of data of only 5
companies cannot represent the whole scenario of the manufacturing and non-manufacturing
cost structure of such a prominent industry. Therefore, from our analysis we cannot derive the
accurate cost structure of this industry. But we can draw an approximate manufacturing and
non-manufacturing cost structure, from which we can get the idea of how the manufacturing
and non-manufacturing cost structure of this large industry is and implement this knowledge
in real life.
 3

Literature Review
The cost structure is the relative share of each type of cost in an organization. The cost structure
not only points to a breakdown of the cost of manufacturing a product (or providing a service),
but also takes into account the use of all kinds of resources in the process. Usually, they include
materials and parts, wages and benefits, and operational expenses such as manufacturing
equipment costs (lease, energy). To calculate total manufacturing costs, we need to add
together three different cost categories: the costs of direct materials, direct labor and
manufacturing overheads. Expressed as a formula, that's: Total manufacturing cost = Direct
materials + Direct labor + Manufacturing overheads. In order to develop the cost structure of
your business model, a company should consider the most vital costs to the business and
establish hypotheses for these expenses. Both the fixed costs, such as the startup and acquisition
costs and variable costs, such as the monthly operating costs must be accounted for.

All the literatures cover different time series in different industry with different variables.
Nevertheless, a single theory is not sufficient to explain all the manufacturing cost of the
industries.

Renata Limited : Renata Limited (formerly Pfizer Limited) is one of Bangladesh's fastest
growing pharmaceutical and veterinary pharmaceutical companies. The company started its
business in 1972 as Pfizer (Bangladesh) Limited. In 1993, Pfizer transferred ownership of its
Bangladesh business to a local shareholder and the company name was changed to Renata
Limited. Renata Limited's core business is human and veterinary medicine. Bangladesh's
fourth largest pharmaceutical company and market leader in veterinary medicine. In addition,
Renata products are exported to Afghanistan, Belize, Cambodia, Ethiopia, Gaiana, Honduras,
Hong Kong, Kenya, Malaysia, Myanmar, Nepal, Philippines, Sri Lanka, Thailand, United
Kingdom and Vietnam. The company has ten manufacturing facilities spread over three
manufacturing sites. Distribution of products is carried out by 19 depots across the country.

Square pharmaceuticals : Square Pharmaceuticals Ltd. is a Bangladeshi multinational

pharmaceutical company. It was founded in 1958 by Samson H. Chowdhury along with three
of his friends PK Saha, Kazi Harunur Roshid and Radhabinod Rai as a private firm. It went
public in 1991 and is listed on the Dhaka Stock Exchange[3] and on the Chittagong Stock
Exchange (ID of SPL: 13002) Square Pharmaceutical started to export different antibiotics and
medicine across the world from 1987. Now it exports its medicine to 36 countries of the world.
In 2008 and 2009 it had the highest market share in the pharmaceutical industry of Bangladesh.
 4

For the last couple of years, it has been seeing double digit revenue every year the Forbes list
said Square Pharmaceutical Company of Bangladesh, involved in drug and chemical business,
has sales volume worth $512 million. The local pharma's market capital is $1.7 billion. Its net
income is $150 million and has employed 9,234 people.

Beximco pharma: Beximco Pharma was founded in 1976 and started operations in 1980,
manufacturing products under the licenses of Bayer AG of Germany and Upjohn Inc. of United
States. oday Beximco Pharma manufactures and markets its own branded generics for several
diseases including AIDS, cancer, asthma, hypertension, and diabetes for both national and
international markets. It was the first drug company from Bangladesh to sell its products in the
US. Beximco Pharma manufacturing facilities are spread across a 20-acre (81,000 m2) site
located in Dhaka, Bangladesh. The facilities consist of a number of purpose-built plants,
including a new Oral Solid Dosage (OSD) plant. The site includes manufacturing facilities as
well as a research laboratory and a number of warehouses. The plant and machinery of the
facilities were designed, produced and installed by partners from Germany, Switzerland,
Sweden, Italy and the United Kingdom, amongst others.

ACI: With almost three decades of partnering life and engendering hope, ACI is one of the top
pharmaceutical companies in Bangladesh, employing more than 5,000 people all over the
country. As a progressive and forward-thinking company, ACI Pharma is dedicated to improve
the health of people of Bangladesh through introduction of innovative and reliable
pharmaceutical products.

Orion: Orion Pharma Ltd. is one of the premier pharmaceutical companies of Bangladesh
which has been contributing to improving the human health care of the country by providing
quality branded-generic pharmaceuticals. We, at Orion Pharma Ltd., always believe in 'Quality
never ends' and refuse to settle for anything until it exceeds the existing standard. For this,
Orion Pharma Ltd. has been superseding the market growth consistently by wide margin in last
few years. The company has been awarded with the ISO-9001: 2000 Certificate in January
2003 for serving its valued customers with products of excellent quality. Having four decades
of vast experience imbibed with technical and professional expertise, now Orion Pharma Ltd.
 5

Data Analysis

MARKET SHARE
Orion ACI BEXIMCO Square Renata

14% 10%

11%

21%
44%

Figure: Market share in the pharmaceutical industry

Square Pharmaceuticals has the highest market share among all five companies of 44%. BEXIMCO
coming in second with 21% share, followed by Renata, ACI and Orion Pharmaceuticals.

Average Manufacturing Cost

BDT 3,500
Millions

BDT 3,000

BDT 2,500

BDT 2,000

BDT 1,500

BDT 1,000

BDT 500

BDT 0
Orion ACI BEXIMCO Square Renata

Figure: Average Manufacturing costs of the five companies in millions

Square has the highest manufacturing cost among all five companies. This is understandable because
Square has the largest market share. Square is followed by ACI in the second place. BEXIMCO, Renata
and Orion coming in closed thirds.
 6

Cost Structure Comparison

Renata

Square

BEXIMCO

ACI

Orion

BDT 0 BDT 500 BDT 1,000 BDT 1,500 BDT 2,000

Millions

Fixed Cost Variable Cost

Figure: Cost structure comparison of the five companies in millions

Square has the highest variable and fixed costs of more than BDT 3000 million. Renata has variable
costs which are almost double than its fixed costs. BEXIMCO Pharma has more fixed costs than variable
costs.

Production Cost of ACI

BDT 800
Millions

BDT 700
BDT 600
BDT 500
BDT 400
BDT 300
BDT 200
BDT 100
BDT 0
2020 2019 2018 2017 2016

Direct Labor Cost Direct Material Cost Factory Overhead

Figure: Production cost of ACI in millions

ACI has the highest factory overhead and direct labor costs in 2020. The factory overhead costs
increase uniformly every year from 2016 to 2020. The direct labor costs increased by about BDT 260
million in 2020 from 2019. The direct material costs increase by small amounts every year.
 7

Period Cost of ACI

BDT 800

Millions
BDT 700
BDT 600
BDT 500
BDT 400
BDT 300
BDT 200
BDT 100
BDT 0
2020 2019 2018 2017 2016

Administrative Expenses Selling and Distribution Finance Expense

Figure: Period cost of ACI in millions

The period cost of ACI during 2020 has the highest Selling and Distribution expenses. As we go
backwards it can be seen that all the different costs were lower than in 2019.

Production Cost of Orion

BDT 500
Millions

BDT 450
BDT 400
BDT 350
BDT 300
BDT 250
BDT 200
BDT 150
BDT 100
BDT 50
BDT 0
2020 2019 2018 2017 2016

Direct Labor Cost Direct Material Cost Factory Overhead

Figure: Production cost of Orion in millions

Orion has the highest factory overhead and direct labor costs in 2020. The factory overhead costs
increase uniformly every year from 2016 to 2020. The direct labor costs increased by about BDT 30
million in 2020 from 2019. The direct material costs increase by small amounts every year.
 8

Period Cost of Orion

BDT 700

Millions
BDT 600

BDT 500

BDT 400

BDT 300

BDT 200

BDT 100

BDT 0
2020 2019 2018 2017 2016

Administrative Expenses Selling and Distribution Finance Expense

Figure: Period cost of Orion in millions

The period cost of Orion during 2020 has the highest Selling and Distribution expenses. As we go
backwards, it can be seen that all the different costs were lower than in 2020.

Production Cost of BEXIMCO

BDT 800
Millions

BDT 700
BDT 600
BDT 500
BDT 400
BDT 300
BDT 200
BDT 100
BDT 0
2020 2019 2018 2017 2016

Direct Labor Cost Direct Material Cost Factory Overhead

Figure: Production cost of BEXIMCO in millions

BEXIMCO has the highest factory overhead and direct labor costs in 2020. The factory overhead costs
increase uniformly every year from 2016 to 2020. The direct labor costs increased by almost BDT 200
million in 2020 from 2019. The direct material costs increased by small amounts from 2016 to 2018.
After that it almost doubled in 2019 to 2020.
 9

Period Cost of BEXIMCO

BDT 1,200

Millions BDT 1,000

BDT 800

BDT 600

BDT 400

BDT 200

BDT 0
2020 2019 2018 2017 2016

Administrative Expenses Selling and Distribution Finance Expense

Figure: Period cost of BEXIMCO in millions

The period cost of BEXIMCO during 2020 has the highest Selling and Distribution expenses. The period
costs almost doubled from 2019 to 2020. As we go backwards, it can be seen that all the different
costs were uniformly lower than in 2019.

Production Cost of Sqaure

BDT 1,200
Millions

BDT 1,000

BDT 800

BDT 600

BDT 400

BDT 200

BDT 0
2020 2019 2018 2017 2016

Direct Labor Cost Direct Material Cost Factory Overhead

Figure: Production cost of Square in millions

Square has the highest factory overhead and direct labor costs in 2020. The factory overhead costs
increase every year from 2016 to 2020. The direct labor costs increased by more than BDT 180 million
in 2020 from 2019. The direct material costs increased by small amounts from 2016 to 2018. After
that it almost doubled in 2019 to 2020.
 10

Period Cost of Square

BDT 1,600

Millions
BDT 1,400
BDT 1,200
BDT 1,000
BDT 800
BDT 600
BDT 400
BDT 200
BDT 0
2020 2019 2018 2017 2016

Administrative Expenses Selling and Distribution Finance Expense

Figure: Period cost of Square in millions

The period cost of Square during 2020 has the highest Selling and Distribution expenses. The period
costs increased by about BDT 320 million from 2019 to 2020. As we go backwards, it can be seen that
all the different costs were lower than in 2020.

Production Cost of Renata

BDT 800
Millions

BDT 700
BDT 600
BDT 500
BDT 400
BDT 300
BDT 200
BDT 100
BDT 0
2020 2019 2018 2017 2016

Direct Labor Cost Direct Material Cost Factory Overhead

Figure: Production cost of Renata in millions

Renata has the highest factory overhead and direct labor costs in 2020. The factory overhead costs
increase every year from 2016 to 2020. The direct labor costs increased by almost BDT 165 million in
2020 from 2019. The direct material costs increased by small amounts from 2016 to 2018. After that
it almost doubled in 2019 to 2020.
 11

Period Cost of Renata

BDT 1,000

Millions
BDT 900
BDT 800
BDT 700
BDT 600
BDT 500
BDT 400
BDT 300
BDT 200
BDT 100
BDT 0
2020 2019 2018 2017

Administrative Expenses Selling and Distribution Finance Expense

Figure: Period cost of Renata in millions

The period cost of Renata during 2020 has the highest Selling and Distribution expenses. The period
costs increased by about BDT 380 million from 2019 to 2020. As we go backwards, it can be seen that
all the different costs were lower, even by small amounts, than in 2020.

COGS Vs Manufacturing Overhead

BDT 7,000
Millions

BDT 6,000

BDT 5,000

BDT 4,000

BDT 3,000

BDT 2,000

BDT 1,000

BDT 0
Orion ACI BEXIMCO Square Renata

COGS Manufacturing Overhead

Figure: COGS vs Manufacturing Overhead of the five companies in millions

From the chart, it can be seen that ACI, BEXIMCO, Square and Renata had more COGS than
Manufacturing Overhead but Orion had more Manufacturing Overhead than its COGS.
 12

Recommendations
We can see that the increase in manufacturing costs is dependent on the variable and fixed
costs. All the companies experienced a similar growth over the 5 years period. With the growth
of expenditures, the companies need to ensure the growth of sales. Decreasing the fixed cost
may help greatly to increase the marginal profit. The companies can focus on period cost as a
source of cost reduction.

Conclusion
In a manufacturing company the cost that are included are Product Cost and Period Cost.
Production costs are usually part of the variable costs of business because the amount spent
will vary in proportion to the amount produced. However, the costs of machinery and
operational spaces are likely to be fixed proportions of this, and these may well appear under a
fixed cost heading or be recorded as depreciation on a separate accounting sheet. Hence it is
very important to analyze the cost structure and decided how much to spend and where to cut
cost.

References

• https://lankabd.com/
• https://www.investing.com/

Annex
The data used in the analysis are given below –
Production Cost
Direct Labor Cost
Direct Material Cost
Factory Overhead
ORION Pharma
Total Production Cost
Period Cost
Administrative Expenses
Selling and Distribution
Finance Expense
Total Period Cost
Production Cost
Direct Labor Cost
Direct Material Cost
Factory Overhead
Total Production Cost
ACI
Period Cost
Administrative Expenses
Selling and Distribution
Finance Expense
Total Period Cost
1
2020 2019 2018 2017 2016
BDT 440,014,412 BDT 369,036,926 BDT 351,463,739 BDT 334,727,370 BDT 318,787,972
BDT 192,825,828 BDT 133,297,299 BDT 123,423,425 BDT 114,919,390 BDT 106,406,843
BDT 431,014,446 BDT 400,943,671 BDT 380,041,394 BDT 353,526,878 BDT 340,256,861
BDT 1,063,854,686 BDT 903,277,895 BDT 854,928,558 BDT 803,173,639 BDT 765,451,675
2020 2019 2018 2017 2016
BDT 301,885,611 BDT 245,449,171 BDT 176,656,558 BDT 91,087,303 BDT 45,653,353
BDT 600,699,179 BDT 419,894,054 BDT 300,092,668 BDT 256,092,067 BDT 212,205,830
BDT 154,139,090 BDT 144,770,858 BDT 99,491,642 BDT 51,971,767 BDT 27,640,464
BDT 1,056,723,880 BDT 810,114,084 BDT 576,240,869 BDT 399,151,137 BDT 285,499,647
2020 2019 2018 2017 2016
BDT 668,821,906 BDT 405,710,296 BDT 386,390,758 BDT 367,991,198 BDT 350,467,808
BDT 287,310,484 BDT 170,745,568 BDT 158,097,748 BDT 147,204,607 BDT 136,300,562
BDT 706,863,691 BDT 657,547,620 BDT 623,267,886 BDT 579,784,080 BDT 558,021,251
BDT 1,662,996,081 BDT 1,234,003,483 BDT 1,167,756,392 BDT 1,094,979,885 BDT 1,044,789,621
2020 2019 2018 2017 2016
BDT 398,489,007 BDT 220,845,135 BDT 210,328,700 BDT 200,313,047 BDT 190,774,331
BDT 750,873,974 BDT 382,614,316 BDT 354,272,515 BDT 328,030,106 BDT 303,731,580
BDT 189,591,081 BDT 160,154,974 BDT 99,277,111 BDT 83,278,312 BDT 49,666,052
BDT 1,338,954,061 BDT 760,332,329 BDT 389,274,013 BDT 367,636,785 BDT 319,430,235
 2

Production Cost 2020 2019 2018 2017 2016

Direct Labor Cost BDT 726,023,780 BDT 535,501,616 BDT 360,618,680 BDT 206,777,351 BDT 165,716,737
Direct Material Cost BDT 258,386,610 BDT 133,039,651 BDT 68,405,150 BDT 40,793,093 BDT 29,186,092
Beximco Pharma

Factory Overhead BDT 711,173,836 BDT 371,238,447 BDT 222,680,724 BDT 160,328,764 BDT 93,473,713
Total Production Cost BDT 1,695,584,225 BDT 1,039,779,713 BDT 651,704,554 BDT 407,899,208 BDT 288,376,542

Period Cost 2020 2019 2018 2017 2016

Administrative Expenses BDT 446,790,704 BDT 403,268,371 BDT 346,739,994 BDT 175,575,561 BDT 92,239,880
Selling and Distribution BDT 1,015,181,613 BDT 569,794,141 BDT 378,620,924 BDT 323,077,541 BDT 172,137,909
Finance Expense BDT 243,539,762 BDT 153,382,391 BDT 152,893,575 BDT 79,852,980 BDT 61,711,443
Total Period Cost BDT 1,705,512,079 BDT 1,126,444,904 BDT 878,254,494 BDT 578,506,082 BDT 326,089,232

Production Cost 2020 2019 2018 2017 2016

Direct Labor Cost BDT 1,135,237,183 BDT 952,379,707 BDT 728,946,775 BDT 481,899,475 BDT 452,266,335
Direct Material Cost BDT 557,266,643 BDT 386,507,997 BDT 239,338,941 BDT 185,678,083 BDT 134,026,862
Factory Overhead BDT 1,116,327,415 BDT 667,332,412 BDT 462,245,138 BDT 250,690,512 BDT 138,708,571
Square Pharma

Total Production Cost BDT 2,808,831,241 BDT 2,006,220,115 BDT 1,430,530,854 BDT 918,268,070 BDT 725,001,768

Period Cost 2020 2019 2018 2017 2016

Administrative Expenses
Selling and Distribution
Finance Expense
Total Period Cost
BDT 893,581,409 BDT 626,223,147 BDT 509,191,460 BDT 497,851,623 BDT 364,493,108
BDT 1,441,678,030 BDT 1,118,843,255 BDT 619,075,059 BDT 391,101,295 BDT 298,760,475
BDT 305,195,398 BDT 302,560,506 BDT 202,643,088 BDT 132,438,428 BDT 82,837,752
BDT
BDT 2,640,454,836 BDT 2,047,626,907 BDT 1,330,909,606 BDT 746,091,335
1,021,391,347
 3

Production Cost 2020 2019 2018 2017 2016

Direct Labor Cost BDT 726,023,780 BDT 563,830,493 BDT 443,092,550 BDT 247,630,219 BDT 189,789,915
Direct Material Cost BDT 345,158,232 BDT 199,713,344 BDT 114,748,579 BDT 96,467,190 BDT 64,172,069
Factory Overhead BDT 637,901,380 BDT 487,561,538 BDT 252,784,484 BDT 139,827,611 BDT 85,836,939
Renata Pharma

Total Production Cost BDT 1,709,083,392 BDT 1,251,105,374 BDT 810,625,613 BDT 483,925,020 BDT 339,798,924

Period Cost 2020 2019 2018 2017 2016

Administrative Expenses BDT 431,696,424 BDT 422,626,443 BDT 222,326,881 BDT 125,630,654 BDT 70,431,387
Selling and Distribution BDT 949,104,703 BDT 566,275,934 BDT 376,842,370 BDT 270,563,686 BDT 202,890,958
Finance Expense BDT 198,839,426 BDT 108,452,073 BDT 56,607,382 BDT 42,382,540 BDT 33,573,068
Total Period Cost BDT 1,579,640,553 BDT 1,097,354,451 BDT 655,776,633 BDT 438,576,879 BDT 306,895,413

COGS
Orion BDT 870,517,000
ACI BDT 6,314,369,000
BEXIMCO BDT 2,281,662,000
Square BDT 5,086,686,000
Renata BDT 2,222,089,000