Manufacturing upholstered furniture in the southeast United States of America: A comparative cost assessment

The upholstered household furniture industry in the southeast U.S. needs to be competitive in today's regional markets. These regional markets require producing upholstered household furniture at a relative low cost, and with unique features. The upholstered household furniture industry is extremely important in the economies of Alabama, Mississippi, North Carolina and Tennessee. This study uses a comparative cost approach to assess the differences that exist in the manufacturing and distribution of upholstered household furniture among southeast U.S. states. Secondary data for raw material, labor and transportation costs were obtained from the USDC Bureau of the Census in 1982, 1987 and 1992. Total costs were estimated for raw material, labor and transportation of the finished products. A simple cost index was constructed for each cost component.;An analysis of variance and multiple regression were applied to examine the significance and sensitivity of the three cost components as they related to the value of shipments. The simple cost indices indicated that in relative terms there are significant differences among states in the manufacturing and distribution of upholstered household furniture. For Mississippi, North Carolina and Tennessee, during the period 1982 to 1992 the relative cost index for raw materials, labor and transportation was not consistent. In comparison to other states the simple cost index indicated that Alabama has a small industry, characterized by small value of shipments and higher costs in transportation. Results from the analysis of variance indicated that transportation costs were not significantly different among Mississippi, North Carolina and Tennessee. This indicates that these states possessed the same transportation advantages to the nearby regional markets. For Alabama transportation costs were a drain on furniture manufacturing profitability. To add robustness to the data five regional states were added to the data set. When sensitivity analysis was performed, using multiple regression, the model revealed an industry that is not sensitive to changes. An increase of 10, 25 and 50 percent to the variables, one at a time, did not show structural changes to the model. The cost elasticities of the base model remained the same as those of the modified model. Calculated cost elasticities for labor and raw materials were added together to test returns to scale within the industry. Mississippi, Florida, Arkansas and Virginia had an increasing returns to scale while North Carolina, and Texas had constant returns to scale and Tennessee and Georgia had decreasing returns to scale.