fresh fruit juice ltd

Group No. 6

Singh, Amandeep [email protected] +919878667513

(200106660)

Singh, Vikram [email protected] +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

11

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

16

Mausami Juice indirect cost (3 days)


Rent (1 Day) 2,880 8,640

Juicer Machine Rent 1 500 per day 1,500




Total No. of Packet Required = 13,500/600 = 20 Packets approx.


Utensils - - 640




13,500 Tissues = 14,400/50 = 288 Packs

1 Pack = Rs. 5

288 Packs = 288 x 5 = Rs. 1,440


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)


Rent (1 Day) 5,120 15,360

Lemon Squeezer 2 50 100




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


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




40,000 Tissues = 25,600/50 = 512 Packs

1 Pack = Rs. 5

512 Packs = 512 x 5 = Rs. 2,560


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

19

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

20

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

21

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

fresh fruit juice ltd

Documents

budgeted income statement

rose garden

market survey reports

job costing method

fruit fresh juice

sell mausami juice

job order costing

indirect manufacturing cost