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Group No. 6
Singh, Amandeep amandeep.sgha28@gmail.com +919878667513
(200106660)
Singh, Vikram vikram.singh2@ymail.com +917508762333
(200106835)
Submitted to: Prof. Mushtaq Ahmed
Date Submitted: April 2, 2013
Date Due: April 2, 2013
UFV CHANDIGARH
BUS – 247 Managerial Accounting
Feasibility of Fruit
Fresh Juice Ltd.
2
TABLE OF CONTENTS
S No. Particulars Page No.
1. Introduction
Background
Objective
3
3
3
2. Summary of Findings 5
3. Firm, Industry and Environment 6
4. Competitive Environment 7
5. Strategy for the Success in Market 8
6. Business Risk and Control Activities to Reduce this Risk 9
7. Strategic Selling Price 10
8. Identification of Material Cost, Labor Cost, and Indirect
Manufacturing Cost
Direct Materials Cost
Direct Manufacturing Labor Cost
Indirect Manufacturing Cost
11
11
13
14
9. Assignment of Cost Using Process – Job Costing Method
Selling Price
Assignment of cost
21
22
10. Cost-Volume Profit Analysis
Contribution Income Statement
Breakeven Quantity
23
23
25
11. Budgeted Income Statement 26
12. Outlook Summary and Conclusion 27
13. Appendix 28
14. Bibliography 29
3
INTRODUCTION
BACKGROUND
The Chandigarh tourism is going to organize Rose Festival from 25th May to 27th May 2013 at
Rose Garden & Leisure Valley, Chandigarh. The Chandigarh Tourism is inviting tenders to set
up a fruit juice stall, in order to, provide fresh juice to the visitors. The organizers are expecting
more than 20,000 visitors every day. The organizers will provide a temporary booth at a daily
rental of Rs. 8,000. Any other infrastructural needs have to be fulfilled by the fruit juice seller
himself. You cannot provide more than two types of juices. Apart from these there will be one
stall each for beverage drink (Coke, Pepsi etc.), Tetra pack juice (frooti etc.) and Nariyal Paani.
OBJECTIVE
‘Fruit Fresh Juice Ltd’ selling Fruit Fresh juices in Chandigarh is quite optimistic about this
venture. The Marketing people have given thumbs up for this proposal as according to its market
survey reports at least 50% of the total visitors will prefer to have fresh juices. The Company has
decided to make and sell Mausami juice and Neembu Paani. The marketing people are also
suggesting that with effective advertisement, sales can be increased by further 25%.
The objectives of this cost accounting project report are:
1. Collect relevant information regarding each juice provided by the group to the consumers.
2. Determine the cost of the juices provided by us.
3. Understand the business, and estimate the competition, and competitors.
4. To gather information from the market, this will help us to calculate the actual cost of selling
juices.
5. To analyse and determine the material cost, labour cost, and Indirect manufacturing cost.
6. Assignment of cost using either Job costing method or ABC method.
7. Use CVP technique to calculate break even quantity, sales and target profit.
8. Preparation of Budgeted Income statement.
9. Calculate Profitability.
SUMMARY OF FINDINGS
We are serving public with one juice Mausami, and Lemonade. In talk with few people of Sec -
32 C Chandigarh, we found out the likings of people as to what would they prefer in that season.
We interviewed 30 people, and found out that 19 out of 30 people would prefer lemonade over
Mausami juice in that season, as it is more refreshing and light drink. Also in talks with few of
the juice vendors we found out that people will prefer lemonade over Mausami juice. We
decided to advertise and found out that it would cost as follows:
Five 8 sq. feet banners (Rs. 200 per banner) = Rs. 1,000
4000 Flyers and Pamphlets (Rs. 1.0 per unit) = Rs. 4,000
60 word Newspaper Ad (Rs. 70 per word) = Rs. 4,200
This would increase our sales by 25%. Hence, leading to the increase in number of customers
from 10,000 to 12,500 per day, from above we can see that 64% would prefer lemonade that
accounts for roughly around 8,000 people, and remaining 4,500 people preferring Mausami
juice.
FIRM, INDUSTRY, AND ENVIRONMENT
Description
Fruit Fresh Juice Ltd is very well recognized company with its new venture coming up in Rose
festival organized by Chandigarh Tourism. The marketing people for Fruit Fresh Juice are very
optimistic about this venture, as this is one of the most profitable businesses. The enterprise will
start its new venture in Rose Garden & leisure valley, Sec- 10. The enterprise has been in the
market for last 30 years, and is perfect at its preparation. The enterprise has its operation in 5
major sectors of Chandigarh, Sec- 5, Sec- 33, Sec 38, Sec 20, and Sec- 51. The enterprise is
serving customers with lemonade and Mausami juice. Fruit Fresh has a unique and different
preparation for fruit juices. The market is wide as there are 10,000 people who will be visiting
the juice stalls. The festival will be organized from May 25th
to May 27th
.
COMPETITIVE ENVIRONMENT
The environment for competition is very narrow, since there is a monopoly of juice stall. But the
other vendors selling beverages like cold drinks, fruity, and Nariyal paani will give a tough
competition.
Few of the competitors in this line are:
1. Bawa Fruit Juice corner, sector 20, Chandigarh.
2. Mela Juice Corner, Sector 32, Chandigarh.
3. Gulati Juice Corner, Sector 9, Chandigarh.
These are the competitors that will come up as a major competitor. They will be the one who will
hinder our sales, and will take away our customers. There will be a tough competition in field of
price, the major competition, since there will be many players.
Though we have a tough competition, the market survey reports at least 50% of the total visitors
will prefer to have fresh juices, this is the major plus point for the enterprise. This shows the
preference of fruit juices in comparison to other cold-drinks and beverages.
STRATEGY FOR THE SUCCESS IN THE MARKET
Our strategy for success in the market would be marketing. The enterprise wishes to advertise,
which will lead to an increase of 25% in customers. This means that the enterprise will be able to
make more sales hence greater cost will be covered leading to less losses or greater profits. The
enterprise plans to hang 4 banners around the garden displaying prices, how to get there, and
most importantly the name of the enterprise. We also plan to hang 1 banner at the stall for
advertising.
We will print and distribute 4,000 Flyers, and publish an Ad in Newspaper. This will help reach
every common person, and hence increase the awareness amongst people about the existence of
the juice corner/stall.
BUSINESS RISK AND CONTROL ACTIVITIES TO REDUCE THIS RISK
The major threats the company may face are:
1. One major threat the enterprise will face is the price factor. The competitors will try their
best to take-over the market share of Fruit Fresh.
2. The other factor would be the change in prices of various materials that is being used in
the preparation.
3. The material to be taken on rent, the renting party may change the rent prices.
4. There may be new a competitor that may arise and try to hamper the selling of the
commodity.
5. There may be a change in the government rule and regulation, upon cleanliness and
hygiene.
6. There may be a change in the labor acts, or change in minimum wage law.
7. The availability of the fruits at that time can play a major role.
Control Activities to Reduce Risk
1. To keep track of prices, time to time.
2. To keep tracks of the competitors and enterprises that is coming up slowly.
3. Keep in touch with the regulations of the government.
10
STRATEGIC SELLING PRICE
As per our findings with our Non-paying sponsor, Bawa Juice corner, Sec - 20 C, Chandigarh,
we found out that on an average lemonade took 1.5 lemons per glass , and 3 Mausamis per glass
of 250 ml. We have decided to set the selling price with a margin of Rs. 10 per glass on both
Mausami Juice and Lemonade. So, the prices are set as follows:
Juice Per Unit Cost Selling Price
Mausami Juice 15.066 25
Lemon Water 5.596 15
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IDENTIFICATION OF MATERIAL COST, LABOUR COST, AND
INDIRECT MANUFACTURING COST
Step 1 – Identify the Job that is the chosen cost object
The cost object for Fruit Fresh Juice Ltd is the manufacturing of fruit juice.
Step 2 – Identify the direct cost
Fruit Fresh Juice Ltd has identified two direct manufacturing costs:
Direct materials.
Direct manufacturing labor.
DIRECT MATERIAL COST
As per the organizers, they are expecting 20,000 visitors per day (for 3 days) at Rose Garden,
Leisure Valley and, according to the marketing people, at Fruit Fresh Juice Ltd. at least 50 %
of the total visitors will prefer to have fresh juices (10,000 customers per day).
We are expecting 12,500 out of those 20,000 visitors to prefer Fruit Fresh Juices because of
effective advertising. We have decided to sell Mausami Juice and Lemon Water in the ratio of
4.5:8, respectively, as more people will prefer Lemon Water for refreshment. So, everyday
4,500 visitors will drink Mausami Juice and 8,000 will drink Lemon Water.
Quantity of fruit used for each juice in 3 days is (35 x 5000/ 70) = 2500 kg.
12
Direct material cost (3 days)
Fruit Quantity (per unit)* Price per unit (Rs) Total (Rs)
Mausami 6,800 kg 25 per kg 1,70,000
1 Glass (250 ml) of Mausami Juice = 3 Mausami
1 kg Mausami = 6 Mausami (avg.)
Therefore, 1 kg of Mausami = 2 Glasses of Mausami Juice
13,500 Glasses of Mausami Juice = 13,500/2 Kg = 6,750 kg = 6,800 kg approx.
Lemon 1,400 kg 50 per kg 70,000
1 Glass (250 ml) of Lemon Water = 1.5 Lemon
1 kg Lemon = 25 Lemons (avg.)
Therefore, 1 Kg of Lemons = 17 Glasses of Lemon Water approx.
24,000 Glasses of Lemon Water = 24,000/17 Kg = 1,411 kg = 1,400 kg approx.
Glass 37,500 units 1.2 45,000
Total 2,85,000
Total Direct Material Costs = Total fruit cost + Cost of Glasses = Rs. 2,85,000
13
DIRECT MANUFACTURING LABOR COST
We have decided that for one day a worker would be hired at Rs 40 per hour. The rose festival
is held between 10 am to 8 pm approximately. Therefore, a worker would be employed for 10
hours per day. For the three days, we would require 3 workers to cater to 10,000 customers
per day.
Direct Labour Cost per day = (No. of workers Total work hours) wage rate per hour.
= (3 10) 40 = Rs. 1,200 per day
Total Direct Labour Cost = Direct Labour Cost per day x No. of Days = 1,200 x 3 = Rs
3,600
Step 3 – Select the cost allocation bases to use for allocating indirect costs to the job
Fruit Fresh Juice Ltd has selected the units of production as the bases for allocating indirect
cost to the job.
14
Step 4 – Identify the indirect costs
Total indirect cost (3 days)
Particulars Quantity (units) Per unit cost (Rs) (in Rs)
Rent (1 Day) 8,000 24,000
Juicer Machine Rent 1 500 per day 1,500
Lemon Squeezer 2 50 100
Salt Mixture 60 75 4,500
Total No. of Glasses = 37,500
1 Packet of Salt = 600 Glasses
Total No. of Packet Required = 37,500/600 = 62 Packets approx.
Sugar 140 kg 33 per kg 4,620
1 Glass = 15 ml of Sugar Syrup
24,000 Glasses of Lemon Water = 24,000 x 15 ml = 3,60,000 ml of Sugar Syrup = 360 lt.
1 lt. water + 500 gm. sugar = 1.3 lt. of Sugar Syrup
½ kg Sugar = 1.3 lt. of Sugar Syrup
(½ / 1.3) kg Sugar = 1 lt. of Sugar Syrup
24,000 Glasses = (½ x 360) /1.3 = 138.5 kg = 140 approx. Sugar
Ice (8 Slabs per day) 24 Slabs 120 per slab 2,880
Utensils - - 1,780
Water Tanker (2 per day) 6 tankers 500 per tanker 3,000
1 Glass of Lemon Water = 200 ml of Water
8,000 Glasses of Lemon Water per day = 8000 x 200 ml = 16,00,000 ml of Water = 1,600 lt.
of Water
1 Tanker = 1,000 lt. Water
Therefore, Fruit Fresh Juice Ltd requires 2 tankers per day
Tissue Paper 800 Packs 5 per pack 4,000
1 Pack of Tissue Paper = 50 Tissue Paper
37, 500 customers = 40,000 Tissues approx.
40,000 Tissues = 40,000/50 = 800 Packs
1 Pack = Rs. 5
800 Packs = 800 x 5 = Rs. 4,000
Hand Towels 10 per Piece 10 100
Hand Gloves 800 Pairs 3 per pair 2400
Electricity - - 341
Soap 3 10 30
Scrubber 1 15 15
Bulbs 2 10 20
Fan Rent 1 300 300
Total 49,586
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Mausami Juice indirect cost (3 days)
Particulars Quantity (units) Per unit cost (Rs) (in Rs)
Rent (1 Day) 2,880 8,640
Juicer Machine Rent 1 500 per day 1,500
Salt Mixture 20 75 1,500
Total No. of Glasses = 13,500
1 Packet of Salt = 600 Glasses
Total No. of Packet Required = 13,500/600 = 20 Packets approx.
Ice (3 Slabs per day) 9 Slabs 120 per slab 1,080
Utensils - - 640
Tissue Paper 288 Packs 5 per pack 1,440
1 Pack of Tissue Paper = 50 Tissue Paper
13, 500 customers = 14,400 Tissues approx.
13,500 Tissues = 14,400/50 = 288 Packs
1 Pack = Rs. 5
288 Packs = 288 x 5 = Rs. 1,440
Hand Towels 4 per Piece 10 40
Hand Gloves 288 Pairs 3 per pair 864
Electricity - - 210
Soap 1 10 10
Scrubber - - 5
Bulbs - - 7
Fan Rent - - 108
Total 16,044
Lemon Juice indirect cost (3 days)
Particulars Quantity (units) Per unit cost (Rs) (in Rs)
Rent (1 Day) 5,120 15,360
Lemon Squeezer 2 50 100
Salt Mixture 40 75 3,000
Total No. of Glasses = 24,000
1 Packet of Salt = 600 Glasses
Total No. of Packet Required = 24,000/600 = 40 Packets
Sugar 140 kg 33 per kg 4,620
1 Glass = 15 ml of Sugar Syrup
24,000 Glasses of Lemon Water = 24,000 x 15 ml = 3,60,000 ml of Sugar Syrup = 360 lt.
1 lt. water + 500 gm. sugar = 1.3 lt. of Sugar Syrup
½ kg Sugar = 1.3 lt. of Sugar Syrup
(½ / 1.3) kg Sugar = 1 lt. of Sugar Syrup
24,000 Glasses = (½ x 360) /1.3 = 138.5 kg = 140 approx. Sugar
Ice (5 Slabs per day) 15 Slabs 120 per slab 1,800
Utensils - - 1,140
Water Tanker (2 per day) 6 tankers 500 per tanker 3,000
1 Glass of Lemon Water = 200 ml of Water
8,000 Glasses of Lemon Water per day = 8000 x 200 ml = 16,00,000 ml of Water = 1,600 lt.
of Water
1 Tanker = 1,000 lt. Water
Therefore, Fruit Fresh Juice Ltd requires 2 tankers per day
Tissue Paper 512 Packs 5 per pack 2,560
1 Pack of Tissue Paper = 50 Tissue Paper
37, 500 customers = 25,600 Tissues approx.
40,000 Tissues = 25,600/50 = 512 Packs
1 Pack = Rs. 5
512 Packs = 512 x 5 = Rs. 2,560
Hand Towels 6 per Piece 10 60
Hand Gloves 512 Pairs 3 per pair 1,536
Electricity - - 131
Soap 2 10 20
Scrubber - 15 10
Bulbs - 10 13
Fan Rent - 300 192
Total 33,542
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Utensils
Quantity (per
unit)
Price per
unit (Rs)
Total Cost
(Rs)
Juice Container
6 lt. Container 1 440 440
3 lt. Jugs 2 80 160
Knife 4 20 80
Dustbin
Small Size 2 50 100
Large Size 2 200 200
Sieve 3 50 150
Serving Spoon 3 50 150
Salt Container 2 50 100
Plastic Barrels (80 lt.
per barrel)
2 200 400
Total 1,780
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Electricity Usage @ Rs 4.5 unit (3 Days)
Electrical
Appliances
Wattage
Units
Consumed
Operating
Hours
Total
Cost
1 Juicer Machine 1000 W 1 30 135
2 Bulbs 50 W 0.10 6 3
1 Fan 1500 W 1.5 30 203
Total 341
Step 5 – Compute the rate per unit of each cost allocation base
Mausami:
Actual manufacturing overhead rate = Actual manufacturing overhead costs
Actual total quantity of cost allocation base
= 16,044 / 13,500 = 1.18 per glass
Lemon:
Actual manufacturing overhead rate = Actual manufacturing overhead costs
Actual total quantity of cost allocation base
= 33,542 / 24,000 = 1.39 per glass
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ASSIGNMENT OF COST USING PROCESS - JOB COSTING METHOD
Costs
Mausami Juice Lemon Water
Total
Cost (Rs)
Per Unit
Cost (Rs)
Total
Cost (Rs)
Per Unit
Cost (Rs)
Fruits 1,70,000 12.59 70,000 2.91
Glasses 16,200 1.2 28,800 1.2
Direct
Manufacturing
Labour
1,296 0.096 2,304 0.096
Indirect
Manufacturing
Cost
16,044 1.18 33,542 1.39
Total Cost 2,03,540 15.066 1,34,646 5.596
Total Manufacturing Cost = Total Cost of Mausami Juice + Total Cost of Lemon Water
= 2,02,676 + 1,33,110 = 338,186
SELLING PRICE
Selling Price is taken at cost plus with approx. 10 Rs. margin.
Juice Selling Price
Mausami Juice 25
Lemon Water 15
ASSIGNMENT OF COST
Our group decided to go for Job-order costing to obtain all the tables asked in the project for
Fruit Fresh Juice Ltd. This was done due to the reasons, that activity-based costing requires
substantial resources, and is more costly and time consuming as compared to job order costing.
We used job order costing, since the products of the Juice Company are just two: Mausami Juice
& Lemon Water and, job order costing is used in situations where there are different products. In
the indirect cost pool, materials like sugar and water have been used, in case of, Lemon Water
only so, the cost of those things will be allocated according to the units of production of Lemon
Water i.e., 24000 glasses of 3 days. And also in the project we are asked to find out the direct
material, labor cost and indirect manufacturing cost, i.e. the manufacturing overhead which can
be allocated more easily using the Job-order Costing Method.
COST-VOLUME PROFIT ANALYSIS
REVENUE
Juice Selling Price (Rs) Quantity Revenue (Rs)
Mausami Juice 25 13,500 3,37,500
Lemon Water 15 24,000 3,60,000
Total Revenue 37,500 6,97,500
Pretax Operating Income = 6,97,500 – 3,38,186 = Rs. 3,59,314
CONTRIBUTION INCOME STATEMENT (BEFORE ADVERTISING)
CONTRIBUTION INCOME STATEMENT
Particulars Amount in Rs. (No. of
Units Sold = 30,000)
Revenue 5,70,000
Variable cost 2,39,000
Contribution Margin 3,31,000
Fixed Cost 49,856
Operating Income 2,81,144
24
CONTRIBUTION INCOME STATEMENT (AFTER ADVERTISING)
CONTRIBUTION INCOME STATEMENT
Particulars Amount in Rs. (No. of
Units Sold = 37,500)
Revenue 6,97,500
Variable cost 2,85,000
Contribution Margin 4,12,500
Fixed Cost 62,386
Operating Income 3,50,114
25
BREAK EVEN QUANTITY
Breakeven Quantity of Mausami Juice = Fixed Cost
(Per unit Selling Price – Per unit Variable Cost)
Unit Selling Price = Rs. 25
Unit Variable Cost = (1,70,000 + 13,500 x 1.2) / No. of Units
= (1,70,000 + 16,200)/ 13,500 = Rs. 13.79
Breakeven Quantity of Mausami Juice = 19,147 / (25 – 13.79) = 19,147 / 11.21 1,708
approx.
Breakeven Quantity of Lemon Water = Fixed Cost
(Per unit Selling Price – Per unit Variable Cost)
Unit Selling Price = Rs. 15
Unit Variable Cost = (70,000 + 24,000 x 1.2) / No. of Units
= (70,000 + 28,800)/ 24,000 = Rs. 4.12
Breakeven Quantity of Lemon Water = 34,039 / (15 – 4.12) = 34,039 / 10.88 3,129
approx.
Total Break Even Quantity = 1,708 + 3,129 = 4,837 Glasses
26
BUDGETED INCOME STATEMENT
Fruit Fresh Juice Ltd.
Budgeted Income Statement
For May 25, 2013 to May 27, 2013
Particulars Details Amount (Rs)
Revenues 6,97,500
Cost of Goods Sold 3,38,186
Gross profit 3,59,314
Other Operating Expense:
Advertisement Expense
9,200
9,200
Net Operating Income 3,50,114
27
OUTLOOK SUMMARY & CONCLUSION
OUTLOOK FOR PERFORMANCE, EARNINGS, AND PROJECTIONS
The performance of the juice shop is expected to earn good profit because the costs are less than
the revenues. We are providing with 2 types of juices which will be providing us with the entire
revenue. Moreover, by advertising, the sales are increasing and there is more revenue leading to
more profits for the shop. When the advertisement is done, we see that revenues and cost
incurred are increased but at the same time, profits also increase by good amount. So, it is very
necessary that advertisement is done leading to better revenues for the firm.
CONCLUSIONS
We have planned to sell 2 juices i.e. Mausami Juice at Rs. 25 and Lemon Water at Rs. 15. By
spending Rs. 9,200 on advertisement, we are expecting a profit which is Rs. 3,50,114 by selling
25% more glasses per day i.e., 4,500 glasses for Mausami Juice and 8,000 glasses for Lemon
Water.
28
APPENDIX
Activities Quantity Estimated Cost
Printing Media
Banners (Rs. 25 per sq. feet
with iron frame including
labour charges)
5 Banners (8 sq. feet) Rs. 1,000
Flyers and Pamphlets (Good
Quality Coloured Paper Rs. 1.0
per unit)
4,000 Rs. 4,000
Newspaper Ad (Rs. 70 per
word including graphics)
60 approx. Rs. 4,200
Total Rs. 9,200
29
BIBLIOGRAPHY
TEXT
Managerial Accounting
AUTHORS
Ray H. Garrison
Eric W. Noreen
INTERNET
www.google.com
www.kidsfruit.com
REFERENCES
1. Chandokhe , Jyotbir S. & Singh, Amandeep, et al; Advertising Planning for UFV
Chandigarh; Pg 15; April 4, 2012; Retrieved Mar 30, 2013